Car valuers and industry experts have dismissed Tesla CEO Elon Musk's claims that his electric cars will become an "appreciating asset", but have acknowledged that Tesla models will likely outperform other electric vehicles in Australia's used car market over coming years.
Musk first made the statement on the Artificial Intelligence podcast in 2019, saying: "I think the most profound thing is that if you buy a Tesla today, I believe you are buying an appreciating asset – not a depreciating asset."
He doubled down on his comments this week, tweeting that vehicles with internal combustion engines will soon see a sharp decrease in value after British Prime Minister Boris Johnson declared sales of new petrol, diesel and hybrid cars could be prohibited in the UK from 2035.
"Residual values for gas/diesel cars will plummet in coming years," Musk wrote in response to a Twitter user encouraging "legacy auto" to "go EV (electric vehicle) or go BUST!".
Your comment above: “Who in their right mind would buy an ICE after 2025 knowing its residual value will be zilch? Legacy auto: go EV or go BUST!” is super important for car buyers. Residual values for gas/diesel cars will plummet in coming years.— Elon Musk (@elonmusk) February 10, 2020
But automotive industry experts have told CarAdvice even Tesla isn't immune from value decline.
"Tesla cars depreciate," says Linda Williams, national sales manager at car valuation business Glass's Guide.
"The moment they take the short drive off the Tesla forecourt they will have lost a significant slice of the money handed over to acquire the car. An early Model S bought new for $135,000 in 2015 will be worth under $65,000 as a trade-in – a negative appreciation (loss) of $70,000."
However, Ms Williams says Tesla cars sometimes do retain more value than their petrol counterparts.
Ross Booth, General Manager of RedBook.com.au, agrees the valuation forecast is far better for Tesla cars than for other electric vehicle manufacturers, but it's due more to their luxury performance pedigree than their electric DNA.
"What we’re seeing at the moment is that the residual value for electric vehicles is remaining lower than both hybrid and internal combustion engine (ICE) cars," Booth says.
"The exception to that in the Australian market is Tesla. But while it’s an electric vehicle, it’s also a sports car, so the demand is a lot closer to a traditional ICE car than a traditional electric car. The Jaguar I-Pace has reasonable used values as well because, again, it’s a sports car."
Ms Williams adds that Tesla's over-the-air software updates, advanced battery technology and more established charging network could also see the value of its cars hold up over time – but with limitations.
"Tesla, like Apple, provides over-the-air upgrades that provide additional features, modify performance or fix bugs. Just like an Apple iPhone. And just like an iPhone, hardware upgrades are less accessible if not totally impractical," Ms Williams explains.
Another industry insider warns any increase in resale value could be shortlived. The insider highlighted the vocal Tesla fanbase, plus Musk's popularity and profile, as factors that could superficially uphold Tesla resale value in the short term.
"The current groundswell of support for electric cars could see their resale values temporarily surge, but the short shelf-life of electric cars, given the constantly evolving technology, similar to, say, mobile phones, could soon see these values dwindle," an industry insider attached to a car valuation business said.
Still, the source argued, given electric car sales make up 0.6 per cent of the new car market in Australia, buyers should be aware that the market for used electric cars is still small and, as such, the people in the market for a used electric car will remain small for some time.
Meanwhile, for electric car brands other than Tesla, value appreciation estimates are a little less promising.
"Some electric vehicles are virtually worthless as the battery packs have degraded to a point where the range is just above an electric golf cart," Ms Williams contends.
"Yes, a replacement pack can be purchased but it's hardly cost effective whilst the rest of the technology is equivalent to an original iPhone."
Hybrids, however, are a different story, with their resale value climbing to equal that of a diesel vehicle.
According to Mr Booth: "Over the last three years, hybrid residual values have strengthened in the Australian market because the price premium for a hybrid vehicle has decreased. There’s a lot more acceptance for them in the used market.
"A hybrid has around the same [value] as diesel car now because we've seen a fundamental shift away from diesel passenger vehicles."
This is reflected in a recent Roy Morgan study, which found more Australians than ever are considering buying hybrids or electric vehicles, with the majority of them (37.5 per cent) considering a Tesla above other brands.
“A year ago, 148,000 Australians were intending to buy a hybrid vehicle, and 50,000 were intending to buy an electric vehicle. This has grown to 188,000 and 63,000 respectively and, given the increasing focus on environment issues, we can expect those numbers to keep rising," Roy Morgan CEO Michele Levine said.
Behyad Jafari, CEO of Australia's Electric Vehicle Council, believes technological advancements in electric cars will "open up the electric car market" rather than "eat away at it".
"Vehicle ranges and batteries will keep improving and it will get more people wanting to buy [electric cars]," he says.
He admits it's hard to estimate the residual value of electric cars in Australia because "we don't have the historical data", but argues any current estimates are conservative given, these days, electric car batteries "outlast the vehicle".
"[Batteries] can last decades and that number is increasing, plus a lot of manufacturers will provide a longer warranty on the battery," Mr Jafari says.
Mr Booth suggests a key driver in the future resale value of electric cars will be government intervention.
"If the fuel tax increases and you can’t drive an ICE vehicle in the city that will change the valuation equation," he explains.
But Tony Wood, Energy Program Director at the Grattan Institute, says the uptake and residual value of electric cars will rely on commercial players and manufacturers.
"What’s going to drive the availability and the cost of vehicles is going to be the manufacturers," he says.
"The commercial players can also get involved – we’ll see the same thing we see with Coles or Woolworths petrol where they offer a charging discount in line with grocery expenditure.
"All those possibilities exist and we’re just at the beginning of the journey."