Despite surging EV sales, many Americans are still hesitant to commit to battery-powered cars. To test the EV waters, and to skirt the often-hefty investment of purchasing a new car, analysts say EV leases are on the rise. But as those leases expire, it could lead to an abundance of used EVs on the market—introducing a host of uncertainties.
Leasing an EV is an attractive option for a few reasons. Drivers see how an EV fits into their life without committing to the full purchase price. Also, they can avoid concerns about low resale values. (Just how much EVs depreciate is a source of debate; it’s also a complicated issue that some in the industry are working to address.) Through a loophole in the Inflation Reduction Act, signed into law in 2022, leases are also eligible for EV tax credits; while it’s the commercial purchaser who claims those credits, the savings can get passed on to those who lease.
EV leases rose from 8.6% of all EV sales at the beginning of 2023 to 23.9% by the end of the year, according to Cox Automotive. Analysts expect it to grow to 25% of EV sales this year. Not all these drivers will purchase their vehicles when leases end—in the case of Tesla, that option isn’t even allowed.
“The rapid escalation in new EV leases in 2023 is going to fuel an exponentially growing used EV market, particularly in the year 2026, because most leases are 36 months,” says Jimmy Douglas, a former Tesla executive who is the founder and CEO of Plug, an online wholesale marketplace for used EVs.
The used EV market got a more recent influx from Hertz, which is selling 20,000 EVs, or about a third of its electric fleet, citing high repair costs. It mirrors the broader concerns that hold people back from purchasing EVs. “EVs are only as successful as charging infrastructure and repair shop infrastructure and government support—all these things have to come together to enable the product to take off,” says Melissa Schilling, a professor of management and organizations at the NYU Stern School of Business. Schilling also served on the National Academy of Sciences Committee on Overcoming Barriers to Electric Vehicle Deployment.
However, used EVs do have an upside. The lower price point could increase access to EVs for people who wouldn’t take the plunge for a brand-new car or couldn’t afford one. (Hertz’s used Teslas are going for as little as $21,000, and used EVs are also eligible for some tax credits). That could bolster EV adoption, especially among families looking for a second car, or a car for their teens. That broader adoption could lead to more charging improvements and more repair shops that drive repair prices down, Schilling adds. “Those are all good things. Those are all part of the flywheel of how you get more people to adopt EVs.”
How do we value a used EV?
When it comes to used cars that run on gas, we have an innate understanding of their value based on age and/or how many miles are on the odometer. Used electric vehicles are a completely different kind of asset, says Douglas: “We don’t even know how long they will last.”
That question of value is at the core of the used EV market. Schilling points to two major aspects at play that could hurt used EV adoption. One is sociological: The first customers to adopt innovative technology, such as EVs, are interested in tech advances, do intense research, and are fairly risk tolerant. The second group—the market that used EVs will likely reach—is called the “early majority,” and they’re more interested in if a tech product is safe, reliable, and has good value, Schilling says.
This leads to the second drawback: the uncertainty about the residual value of an electric vehicle. This is largely because “we don’t have enough of a track record to feel competent in our assumptions about how long these batteries are going to last,” Schilling says. “Precisely the group of people you would like to adopt these cars are precisely the people who are going to be sensitive about this technical uncertainty about the battery lifetime.”
An EV’s battery health is dependent, in part, on its driver’s behavior: how often they use fast charging—which adds wear to a battery, reducing its capacity over time—versus primarily charging slowly overnight at home. Even things like where the original driver lived and what weather conditions their EV was exposed to can affect the battery. “When these used cars come on the market, people aren’t going to have a great way of ascertaining how long this battery will last,” adds Schilling, “and it’s a gigantic portion of the value of the car.”
Douglas echos that this is an issue—in fact, it’s part of what his company, Plug, is trying to address, within the larger question of how to assign value to a used EV. “Understanding used EVs can be really complex,” he says. “It can be like trying to understand every iPhone or Android model that’s ever existed because every time something new comes out, there’s a new stack of hardware, oftentimes there’s a new stack of software, there’s new battery technology. That makes it a little bit confusing and also has exacerbated pricing volatility in the market.”
In the future, Douglas envisions a world where someone might buy an EV with 300,000 miles on it and feel confident about that decision—because of factors like hardware, software, and battery health being strong. But the market isn’t built for that kind of valuation yet.
To get there, Schilling says there needs to be a standard for certifying remaining battery life. Douglas says that to get there, EV data needs to be democratized and made transparent. Right now, there aren’t standardized batteries or streamlined ways to measure and share information on battery longevity across EV models. EV manufacturers also need to be part of this process, sharing data and adding standards to their own pre-owned car programs.
These solutions need to be developed before a surge of used EVs hits the market. It’s a space Douglas is trying to enter, and he’s certainly not alone; Recurrent is another startup that provides EV battery reports for used cars. And as the greater EV market continues to grow, so will the used sector.
“By my calculation, [the used EV market] will grow 45x in the next decade,” Douglas says. This will shift the entire used car industry, he adds, where information about a car’s value and battery health “is harvested directly off every vehicle at the point of transaction, as opposed to relying on data about what the car was when it was brand-new.” It’s one component of that flywheel, along with charging developments, cheaper repairs, and other ecosystem advancements, that will help broader EV adoption continue to grow.
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