Why Low Residual Values of EVs Threaten the Western Automotive Industry and a Circular Economy — and Why Focus on Ownership Is the Solution

“You never actually own a Patek Philippe. You merely look after it for the next generation.”

You know the ads. A handsome man — sometimes a woman — caught in a perfect moment with their son or daughter. It’s brilliant copy. It shows not just the beauty of Swiss watches but their true value: why you might spend $10,000–$100,000 on something your children or grandchildren will one day inherit, while signalling your success to the world.

Now imagine this instead:

“Show you can afford to spend €7,500 a year by driving electric*.”

(Does not include insurance, charging or service.)

That’s my — admittedly less iconic — ad copy proposal for an Audi Q4, BMW iX3, Cadillac Lyriq or almost any other premium EV. Swap €7,500 for €5,000 and it works for most volume EVs too. That’s the reality of depreciation in Europe and North America today as the “next generation” of buyers — those shopping for 2–3 year-old EVs — simply aren’t that interested.

In fact, you don’t need to be nearly as successful if you’re driving an ICE car, whether it’s a Porsche or a Dacia. They may not hold their value like Swiss watches at Christies, but they retain it far better than electric counterparts.

I would argue this is one of the biggest problems the automotive industry faces today. And it’s not just carmakers who feel it. The same problem threatens those hoping to build a regional battery industry, and even more so those working in repair, reuse, and recycling of vehicles and batteries.

The First Problem – Lack of Real Demand

“There are just not enough people interested in EVs.” That has been the mantra from ACEA, the European automotive manufacturers’ association. According to their latest sales update: “The battery-electric car market share for July 2025 YTD stood at 15.6%, still far from where it needs to be at this point in the transition. Hybrid-electric models continue to grow, retaining their place as the most popular power type amongst buyers.”

It should be noted that including EFTA and the UK, the share was 17.4%. And that EVs are still growing at a respectable 25.9% year-to-date compared with 2024. But that follows a flat 2024, which then tipped into decline during autumn.

For many, that decline was no surprise. European carmakers had scrambled to prepare a broader range of modern EV models for 2025 — the year they really needed to perform. At the same time, lobbyists in the industry were happy to use weak numbers to push for adjustments to the roadmap toward a 2035 ICE ban.

The US situation isn’t very different. Tesla has taken share from legacy automakers, and a $7,500 tax credit has softened hefty price tags. Despite this, EV growth stayed at just 7.3%, for a market share of 8.1%. At that pace, the US wouldn’t reach 100% EV sales until 2058, and the fleet wouldn’t be mostly electric until around 2080.

Why? There are plenty of reasons — tactical, structural, and political.

EVs are expensive. There aren’t enough small, affordable A–B segment models, which matter in southern Europe. In many rural areas of the US, charging infrastructure could make driving more “exciting” than it should be. And behind it all lies reluctance from legacy carmakers to “fix” a product and production system that already works.

As I’ve said before, it’s like asking cattle farmers to start growing vegetables — while also convincing their customers to go vegan. It’s a very difficult task.

NGOs and EV proponents are quick to point out what they see as traps set by car companies — wiggle room in targets, lobbying for policy relaxations. Their answer: “Just make more small, cheap EVs and adoption will follow.”

But then we come to used EV prices. Compared with ICE vehicles, EVs typically retain only 30–40% of their value after a few years. Many fall below ICE equivalents that were cheaper in the first place.

I’ve seen this before. In the early 2000s I twice bought three-year-old Volvo V70 Bi-Fuels, fitted with a CNG tank and a small petrol tank. New, it cost €3,000–4,000 more than the petrol version. Used, I bought both €3,500 cheaper. Nobody wanted the gas car.

Why is this happening?

Partly because the EV market has been compliance- and regulation-driven. Countries juggle sticks and carrots. Many MSRPs were never “real,” since discounts or subsidies brought actual prices down. That means the apparent drop in value is not always as brutal as it looks, but the effect in the used market is real.

Another reason is that large numbers of EVs were sold into carmakers’ own ride-sharing programs and rental fleets. In Europe over 60 per cent of the EVs are sold as lease vehicles, many through salary-sacrifice schemes that help companies tick ESG boxes.

If subsidies were the only driver of low second hand prices, it would still signal low demand — cars can only be moved from the dealer floor with financial help. But in the quarterly reports from finance companies which show bleeding portfolios, we now see that the falling EV prices were not only paper but very real.

All these first buyers — fleets, corporate schemes, rentals — are very different from the second buyers. They don’t shop in the same places, don’t think the same way. A fleet driver may never face a single MOT test or even make a wiper replacement. A secondhand buyer knows they’ll be changing brake pads and tires within three years. They know that replacements of critical parts will be part of their ownership.

And nobody tells them what to drive. They think less about the purchase and more about the ownership.

This group is the real jury on EV adoption. They don’t have necesarily have workplace chargers. They don’t have colleagues praising the technology. For them, driving electric must make economic and practical sense — unless they should solely rely on environmental arguments, which constantly are under attack and easy to shy away from. However in the US, driving electric is not always cheaper. In Germany, high highway charging prices can make you feel more like a loser than a winner.

As someone with background in communication and innovation, I often see adoption curves used badly in debates. The talk about “early adopters” and “early majority” often ignores that adoption happens in smaller, specific markets. The corporate market is not the same as the private market. A secondhand buyer is different to a first buyer. Orange County, California is not Madison County, Iowa.

This is one reason why Sweden — one of Europe’s more progressive EV markets — sold 103,183 new EVs in the past 12 months but also exported 25,025 used EVs, equivalent to 30% of the EV sales three years prior. Germany saw over 140,000 leave the country last year, which is more than 73% of the entire stock of EVs the country had in 2020. Traders need to find buyers in new markets within or outside the borders of both countries and regions. Because if they didn't prices would be even lower.

The bottom line? EV demand isn’t as strong as we like to think. It’s still partly artificially created. To the benefit of nobody.

The Second Problem – A Race to the Bottom

With only 17% of the European car market and 8% of the US market choosing to buy an EV at current prices, it’s hard to argue that the offer matches what the rest of the people want. We calculated the volume-adjusted average MSRP in Europe to €22,000, while the average EV sells far above that.

But here’s the paradox: on the used market, EVs are often priced in line with — or even below — petrol cars, despite the fact that ICE vehicles exist in vastly larger numbers. In fact on average in the used market places in Germany and Italy EVs from 2022 are cheaper than both petrol and diesel vehicles from the same year.

For carmakers, that’s a nightmare. Most of them don’t make enough money per EV in the first place. Higher costs for components and poor economies of scale eat into margins. Tesla and BYD, thanks to vertical integration, have historically enjoyed healthy gross margins although Tesla recently has suffered of completely different reasons. Still, Tesla has proven that high margins are possible.

Premium manufacturers like BMW are probably still making decent money on their electric models. But for the volume players, gross margins are negative — every EV sold costs them money. To lower prices takes away any margin improvement gained by cost efficiencies the companies have obtained the latest years.

This creates a structural problem the automakers captive finance arms. On average, these divisions deliver 25% of automakers’ net profits. Now every year, more EVs flow into the used market with a risk to push values further down, which in turn puts more pressure on those finance businesses giving a choice of slashing margins also here or to raise contract prices making EVs even more expensive for customers, which then further limits demand. A vicious cycle.

Ulitmately the low second hand prices also eat into the demand for new vehicles. Why buy a new Skoda Elroq for €33,000 when you can get a two-year-old Audi Q4 with longer range for €26,000? Which means low residual values aren’t just a financial headache. They directly limit new EV sales.

The China squeeze

At the same time, Chinese carmakers are arriving — not only because of overproduction, but because they’re making good cars at a lower cost base. Despite a 27% tariff on BEVs, BYD still accounted for 13.6% of Europe's BEV/PHEV sales increase in the EU this year.

This makes the pricing challenge almost impossible for Western automakers.

• Price EVs too high → adoption stalls.

• Price them lower → margins collapse.

• Hold the line → Chinese competitors undercut with better-equipped cars.

The brutal truth is that no European or American carmaker can afford a price war unless they move production abroad. US automakers are shielded for now by high tariffs, but in Europe the ground is far less secure. And unlike Europe’s legacy players, Tesla and the Chinese giants don’t need to sell in Europe. They sell here because they can. For Volkswagen, BMW, or Stellantis, Europe is the home market. That imbalance is dangerous.

Many Chinese car makers are also focusing on emerging markets which when it comes to EVs are completely ignored by western car makers which builds bridgeheads a early demand. Some of these markets are also supplied by China's used export of "low mileage vehicles" which mainly are overproduced vehicles sold on the grey market.

The Third Problem – A Less Circular Economy

“We need to move from a take-make-dispose economy to a circular economy.”

If I had a euro for every time I’ve heard this line at battery conferences, I could buy that Patek Philippe myself.

But most of these discussions reduce “circular economy” to “recycling.” In reality, circularity is about maximizing a product’s life: quality, repairability, versatility, reuse — and then recycling.

Low residual values undermine all of it.

• Insurance spiral: Cars that lose 50% of their value in two years are deemed “not worth repairing.” Insurers write them off for damage that would have been repaired in an ICE. Vehicles are scrapped prematurely.

• Repair avoidance: High costs plus low values make repairs uneconomical. That keeps prices for parts high, discourages repairs further, and starves the aftermarket. While car dismantlers get wrecks to disassemble they have only a limited market to sell back spare parts to.

• Exports draining the loop: Modern auction platforms (Auto1 in Europe, Mannheim in the US, Copart and IAA for remarketing of fleets and ELVs) funnel cars wherever demand is highest. Increasingly, that means outside their original markets.

  
  

In our latest Battery Recycling Lifecycle Report 2025 we estimated that over 30,000 EVs left Europe in 2024 and over 28,000 left the US. The export is demand driven and supply constrained. Even lower residual values will mean that the floodgates will open.

With the cars obviously follows the batteries which means that the recyclers, reuse companies, and circular industries waiting to harvest those materials will never see them. It doesn't make the cars less circular, just that the circular value creation will take place in other markets than the original ones. This trade tend to continue over time which means that these markets, of which Ukraine is the largest with 25% EV share in 2025 mainly from used EVs, help to hold up residual values throughout the vehicles entire lifecycle while a large part of the vehicles leave their home markets.

The Solution – Focus on Ownership

So what can be done? It’s not the first time vehicles have had low residual values. Most cars, outside of extreme collector models, lose value at a rate we’d never accept in other sectors. Imagine buying a studio apartment for €150,000 and three years later it’s worth €75,000.

Phones and computers also depreciate quickly, but even IKEA furniture often resells for 50% of its original price after 7–8 years. Cars, by contrast, shed value brutally.

The disconnect is clear: the used market doesn’t think EVs are worth what automakers think they’re worth. And that disconnect boils down to ownership. Unless carmakers and policymakers can convince secondhand buyers that EV ownership is safe and valuable, the cycle breaks.

1. Take away the biggest fear — the battery

This is always the first concern: “What if the battery dies?” Buyers are terrified of standing on the roadside with a dead pack and a worthless car. For secondhand buyers, the risk feels even greater. In reality, data shows batteries age better than most people think. But perception matters. Carmakers need to use smart diagnostics, share real-world data on degradation, and publish clear policies for replacement costs once warranties expire. Most market places could also do much better in promoting their listed EVs, starting by clearly showing battery data.

2. Straight policies and consistent communication

Linked to the above: at CES, we track hundreds of EV owner groups on Facebook and elsewhere. Not one brand provides crystal-clear information neither on in- nor on out-of-warranty battery replacements. Instead, forums overflow with stories of people waiting months for repairs or quotes. Why can’t OEMs publish one simple, universal policy? Why can’t they give owners and secondhand buyers certainty about what a replacement costs and how long it will take?

3. Provide finance for older cars

Treat used buyers the way you treat new buyers. Offer captive finance, insurance packages, and services for older EVs. By doing so, you keep values higher and tap into underserved customer segments. I’ve driven SAABs, Volvos, Fords, Vauxhalls — almost all bought used. Not once did I receive a customer magazine or brand communication. That has to change. Buyers of used vehicles are part of the adoption story. They need ammunition for conversations with neighbors and friends and need to be invited in the EV family as much as anyone else.

4. Lower repair costs through remanufacturing and reuse

High repair costs keep insurance premiums and write-off frequency high. Closer collaboration with dismantlers and reuse companies could change that. Renault's ownershi and involvement with car dismantler Indra is a good example of that. Carmakers should make parts more easily available, embrace remanufacturing, and even offer battery upgrades when possible. That not only creates happy and calm customers, it keeps cars on the road longer and supports circularity. Upgrades and repurposing of the batteries that have been taken out a bit earlier in their lifetime than otherwise are a great combo enabling car makers to access new revenue streams they otherwise wouldn't have.

5. Monetize ownership and increase length of ownership

When everything is pointing downwards it could be higher residual values that still enable automakers to maintain higher prices at the front end. A flatter trajectory makes ownership considerably less costly for the owners. But more vehicles on the road also create opportunities for recurring revenue, such as services, charging, battery swaps, vehicle-to-grid monetisation. While OTA updates may be a way to create revenues it is as much a way to retain the modernity of the car making it worthwile to keep for another years which will limit the supply in the used market.

Apple figured this out years ago. It stopped being a product company and became an ecosystem. Automakers must do the same.

Done right, higher residual values can give Western automakers some protection from Chinese competition, sustain profits, and unlock recurring revenue models — all while giving buyers confidence to go electric.

A Note to the Battery and battery end-of-life Industry

Much of this analysis comes from our Battery Lifecycle Report 2025. It maps how batteries live across applications, and what that means for volumes and prices throughout their lifecycle.

The problems described here — low residuals, high insurance, costly repairs, mass exports — are all real. The are what we currently base our forecasts on for battery production, feedstock generation and availability of used batteries.

But the solutions? They are solely proposals of which we have seen nothing more than research projects and some proprietary solutions, mainly by Tesla and Chinese players. But on a broader spectrum we mostly see much of the same business models we have seen for years.

This means that if you make chemicals, cells, or operate reuse companies or recycling facilities, this is not your job to fix. That also mean you can't let your business rely on hope that the automotive industry will be that locomotive you hoped for. Your market is defined by the cars that automakers sell, sustain, and keep on the road. If you want to change that, you have to do what BYD did: make cars yourself.

Otherwise, the sobering reality painted here is the map you need to navigate.

The Bottom Line

• Low residual values aren’t a minor issue. They’re the overlooked weak point in the EV transition.

• They threaten automaker profitability.They weaken finance companies.They undermine recycling industries.They erode circular economy ambitions.

• And they hand Chinese competitors a structural advantage.

• The solution isn’t more likely not subsidies for new cars. It’s rebuilding trust in ownership. Especially for secondhand buyers — the true jury of adoption. Without their confidence, the transition stalls.

So next time you see that Patek Philippe ad, think about what EVs are missing: the promise that value lasts.

Because right now, the copy writes itself:

“Congratulations. You don’t just own an EV. You own the industry’s biggest problem.”

Learn more about our data or our latest report.

Hans Eric Melin

Circular Energy Storage