In a revealing video by popular EV YouTuber Sam Evans, known as the Electric Viking, startling data about the financial state of electric vehicle (EV) owners in the United States came to light. According to Evans, a significant number of EV owners are facing severe financial challenges, with 25% of them being underwater by $10,000 on their loans. This report delves into Evans’ insights and the broader implications of this alarming trend.
EV Loan Crisis
Sam Evans opened his video by expressing his shock at the extent of the problem in the United States, describing it as approaching crisis levels. He cited a study by Edmunds, a respected automotive publication, which revealed that one-quarter of all new car buyers in America are underwater on their vehicle loans, with EV owners being the worst affected. This startling revelation underscores a significant financial burden on a substantial portion of EV owners.
Depreciation and Negative Equity
Evans explained that the average negative equity for traded EVs nearly doubled in two years, jumping from $5,470 in the second quarter of 2022 to $10,300 last quarter. He pointed out that 24% of all new vehicle sales involved a trade-in with an outstanding loan balance greater than the car’s value, marking the highest quarter since early 2021. This trend highlights the rapid depreciation of EVs and the financial strain it places on their owners.
Frequent Trade-Ins
One key reason for the high negative equity, according to Evans, is the frequency with which EV owners trade in their vehicles. The study showed that EV owners typically trade in their cars after just two years, compared to an average of 3.7 years for gas-powered cars. This quicker turnover results in greater depreciation and higher negative equity, as vehicles lose the most value within the first year of ownership.
Impact of Depreciation
Evans shared his personal experience with vehicle depreciation, illustrating how quickly luxury cars can lose value. He used his BMW X5 purchase as an example, noting a significant drop in value over a short period. He emphasized that this phenomenon is not unique to EVs but affects all vehicles, though the impact appears more pronounced for electric cars due to their rapid technological advancements and price reductions.
Industry-Wide Effects
The depreciation issue extends beyond individual owners to corporate buyers as well. Evans mentioned that rental company Hertz reported a significant depreciation expense for its fleet of Tesla Model 3s, highlighting how widespread the problem is. The pandemic’s impact on vehicle trading values initially shielded many consumers from negative equity, but as the market normalizes, the protection is fading, particularly for EV owners.
Manufacturer Price Reductions
Another factor contributing to the financial strain on EV owners is the manufacturers’ price reductions on new models. Evans pointed out that while these price cuts are beneficial for new buyers, they negatively impact current owners who find themselves with loans exceeding their vehicle’s depreciated value. This situation creates a challenging financial environment for those looking to trade in or sell their EVs.
Long-Term Ownership Costs
Despite the negative equity issue, Evans noted some positive aspects of EV ownership. He highlighted that EVs generally have lower running costs compared to gas-powered cars, especially for owners who utilize solar power. Additionally, he mentioned that EV batteries tend to last longer than internal combustion engines, offering a longer lifespan for the vehicle. These factors can offset some of the financial challenges associated with depreciation.
EV Market Dynamics
The insights shared by Sam Evans in his video highlight a critical issue within the EV market. The rapid depreciation of EVs, coupled with frequent trade-ins and price reductions by manufacturers, creates a precarious financial situation for many owners. This scenario underscores the need for potential buyers to carefully consider the long-term financial implications of their purchase and for manufacturers to address the depreciation problem to maintain consumer confidence.
“Not Just EVs”
People in the comments shared their thoughts: “Every new car owner is 10K underwater the day they buy their cars.”
Another person said: “If you pay cash, you’re never underwater. The problem is the majority of consumers can’t afford a car. They can only afford a payment.”
One commenter added: “This problem is not just EVs.”
A Sobering Reminder
The revelation that 25% of EV owners in America are underwater by $10,000 on their loans is a sobering reminder of the financial challenges facing the burgeoning EV market. As the industry continues to evolve, it is crucial for stakeholders to address these issues to ensure the sustainability and growth of electric vehicle adoption. Sam Evans’ detailed analysis provides valuable insights into the complexities of EV ownership and the financial landscape that accompanies it.
Addressing the Rapid Depreciation
What do you think? How can EV manufacturers address the rapid depreciation of their vehicles to protect owners’ investments? What strategies can EV owners employ to mitigate the risk of negative equity when purchasing a new vehicle? How might frequent trade-ins of EVs impact the long-term stability of the electric vehicle market?
Explore the full insights by viewing the video on The Electric Viking’s YouTube channel here.