By Ray Birch
ATLANTA–California’s announcement that it will ban sales of new gas-powered vehicles by 2035 is giving lenders something to think about—in 2021.
The decision by the country’s most populous state is a big nudge toward consumer acceptance of electric vehicles (EV) and could jump start leasing for some EV models, according to PureCars’ Jeremy Anspach.
“California’s announcement is aggressive,” said the CEO of the automotive marketing firm. “I think there's merit in it and there is also a lot of emotional connection now to all the wildfires. You can see why legislation would suggest electrification is better for the environment.”
But what the decision also signals, stated Anspach, is the U.S. is beginning to see electrification of automobiles at scale, and while consumers have been hesitant to buy EV over the years, that sentiment is changing quickly.
“And I am really honing in on Tesla,” Anspach said.
What has grabbed Anspach’s attention is the fact Tesla models have been retaining their value at rates never seen before with gas-powered vehicles.
‘That’s Incredible’
“They are performing exceptionally well from a residual value standpoint,” explained Anspach. “Data show the three-year depreciation on a Model 3 Tesla is 10%. That’s incredible.”
He acknowledged that among the strongest of headwinds electric vehicles have long faced is their high sticker prices.
“But if lenders become more comfortable with the extraordinary depreciation estimates for electrified vehicles, and realize in fact depreciation is far less than the combustion version of the vehicle, it may make it more cost-effective for the borrower,” he explained.
Similarly, the strong values in used vehicles could also hit the accelerator on the leasing of EV models. Not surprisingly, Anspach said, Tesla is currently leading the way.
“With the Model 3 depreciating at only 10% over a three-year lease run, that could lead to an incredibly low lease payment,” he told CUToday.info. “As a result, that would likely get a lot of consumers going to electric vehicles.”
Anspach joined other analysts in noting an increasing number of buyers are simply looking at monthly payment as the price of new cars skyrockets. The average price of a new car today is above $33,000, reports show.
Jeremy Anspach
Anspach pointed out not all Tesla models are seeing the same low rate of depreciation, and that higher-priced Teslas depreciate much more quickly.
“Still, compare the higher-price-point Teslas to the Mercedes S-Class and you will still see Teslas hold their value better,” he said.
‘Buying Like Crazy’
Anspach thinks the growing number of payment-driven car buyers will markedly steepen the curve for EV sales. He added electric cars have proven to be more reliable, since they have fewer working parts. And concerns over range have been decreasing as EV batteries improve.
“I don't see any reason why people wouldn't be buying electric like crazy in the coming years,” Anspach said.
As far as lenders go, leasing EVs will remain a niche market for a while, he predicted.
“Almost all vehicles being driven by consumers are still gas powered, and I think that will continue for quite some time,” Anspach said.
He added as more EV cars are sold and scale improves for manufacturers, competition among electric vehicle makers will increase and possibly drive down sticker prices.
In the meantime,Anspach said it will take time and work on the part of lenders to adjust to a very different depreciation curve for electric vehicles.
“I know if I were lender and a customer bought a Model 3 for $50,000, and after three years it's worth $45,000, I would assume the valuation model I used made an error.”
Law Put to the Test
Anspach said that California’s law could be tested in 2035 if electric vehicles are not being produced in larger numbers. He said consumers who don’t want to own an EV will simply buy a used gas-powered car.
“If electrification of vehicles does not go how most people expect, then California may have to rethink their law,” he said.
But Anspach believes things will swing the other way in 15 years, EV will take hold and more states will follow California’s lead.
“I'm sure a lot of states are watching to see what happens in California, while realizing that California has a lot of consumers who are willing and interested in electric versions of automobiles,” he said.