The Wall Street Journal recently reported that electric car resale values are plunging. The report confirms what I had reported back in August of last year when I examined auction sales for the rapidly depreciating Chevy Volt. The resale values of cars like the Chevy Volt continue to suffer, further bringing in to question the wisdom of government subsidies for green vehicles that are unable to succeed in the free marketplace without the taxpayers' support.
A recent search of Manheim’s auction site gives the best indicator of Chevy Volt’s wholesale value. A whopping 138 model year 2012 Volts sold in just one week at the auction. That’s about the same amount of NEW Chevy Volts that are sold by General Motors in a week!
The news for Volt owners is not good. The average sale price for a 2012 Volt at auction was below $12,000. That’s about $3,000 less than when I reported just over 6 months ago. To put it in further perspective, the cars lose about two-thirds of their value in just three years! GM is partially responsible for the plunge, as most of the vehicles now offered at auctions are cars coming off of manipulated leases that set residual values too high while utilizing government subsidies of $7,500 per vehicle. GM’s strategy was designed to manufacture demand for the slow-selling but politically popular Volt; something I also reported on here over two years ago.
Actually, Ally Financial is on the hook for most of the losses that will be incurred when lease-returned Volts are sold at auction. The formerly government-owned lender was the primary source for leased Volts. It will be interesting to see if GM continues the short-sighted strategy of inflating residual values on leases to drive demand now that GM Financial will be the primary lender for the company.
GM has had a history of being more concerned with appearances and short-term goals than on focusing on long-term profitability. The company’s refusal to admit that the politically-important Volt is a free-market failure continues as early sales goals have never been close to being achieved. At their worst, GM fabricated stories that demand was strong and supply could not keep up; which was another hoax that was often reported on here at NLPC.
The headwinds for electric cars are not limited to the Volt. The almost equally-hyped Nissan Leaf is not faring any better. And while sector-leading Tesla appears to be doing better on the surface, some (as reported by Business Insider) are questioning if the company’s electric car entry is following in the footsteps of the Volt by overstating demand as production is pulled back.
The Business Insider article quoted analyst John Lovallo who explained:
We have long contended that Tesla’s primary challenge is a lack of demand for its [electric vehicles.] Tesla’s management and the bulls consistently argue that the company can stimulate demand at will and that the true issue is capacity and supply. In our view, this optimistic thesis has been largely debunked, given that we now know Tesla is producing at levels that are both well below past run-rates and the company’s current installed capacity. In other words, Tesla appears to be pulling back on production, which we believe could create the appearance of rising demand.
Taxpayers have paid billions of dollars to promote electric cars which have done nothing to benefit those who are footing the bill. Affluent buyers of cars like Tesla get tax credits of $7,500 each, but there is no evidence that electric cars are helping the environment. Despite the lack of benefits of electric cars, the media continues to hype the sector with GM now promising a Tesla-killing Chevy Bolt.
I expect that the Bolt will be as unimpressive as the Volt. Regarding the latter, GM’s decision to manipulate demand through aggressive leases is now coming back to bite them. The glut of low-priced used Volts on the market will now compete against new Volts, which already have limited demand. GM should learn a lesson that manipulating demand for vehicles that have little appeal to consumers is not a viable long term strategy. Knowing GM as I do, they won’t.
Mark Modica is an NLPC Associate Fellow.