<article>In July 2019, XPeng customers were up in arms.</article>

In July 2019, XPeng customers were up in arms.
The Chinese electric vehicle (EV) maker had just launched an updated version of its G3 compact SUV, featuring a battery that gave the model a much better range than its predecessor.
Improvements aside, the launch outraged Xpeng owners who had bought the previous version of the G3 because the new version opened for pre-orders just three months after their vehicles were delivered. Specifically, they worried that the new version’s launch would cause the value of their cars to depreciate faster.
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On July 12, Xpeng Inc.’s founder and Chairman He Xiaopeng apologised and promised a 10,000 yuan ($1,455) subsidy to G3 owners who bought a new Xiaopeng vehicle within three years, according to a report from the time on chinaautonews.com. The offer failed to reassure the owners, a number of whom staged protests outside company facilities in Beijing and the southern city of Guangzhou two days later.
To appease its customers, Xpeng later offered to buy back the older version of the G3.
The Guangzhou-based company was one of several automakers that at one point or another have offered to buy back older versions of their vehicles to ease the minds of customers worried about depreciation. Car buyers have a good reason to be concerned.
Most used EVs have a much lower resale value than comparable gas guzzlers of the same age in a similar condition.
New cars sold for 100,000 yuan or less in China hold on to 67.8% of their value on average after their first year, while cars running on the old internal combustion engine retain 74.3% of their value after three years on the road, according to a survey by GeekNEV, a media group focusing on new-energy vehicles (NEVs).
In China, EVs don’t hold on to their value as well as their conventional peers because of the unpredictable way their batteries degrade and because of how China’s early subsidy regime has led carmakers to price models higher than they were probably worth. It’s a situation that has led some companies to try out costly and unsustainable buyback programs.
Now, the approaching end of all government subsidies is costing Chinese EV-makers more than just the lost income. They are being forced onto a level playing field with their conventionally powered competitors as customers’ awareness of depreciation has the potential to undermine both the popularity of EVs and the prices that companies can charge for them.
<h3>What’s a used battery worth?</h3>
The key to valuing a used EV is to come up with a proper value for its battery, as this accounts for the bulk of a car’s cost. In May 2021, the China Automobile Dealers Association (CADA), a state-backed industry organization for car traders, published standards for putting a value on a used EV. Battery quality, range and the manufacturer’s warranty are the three critical factors that determine a used EV’s value, according to CADA.
The problem is that there is no easily accessible data or commonly accepted standard for valuing the quality of used batteries. It is questionable whether a third-party evaluation of an EV battery is precise because battery performance can be easily affected by the environment, an insider at a used-car trading company told Caixin. For example, evaluations of the same battery can be different at different temperatures. It follows that precise evaluation requires long-term data about the vehicle in question and its battery.
Because EVs haven’t been on the mass market for long, data can be hard to come by for those who trade in used cars. And although EV-makers have established monitoring systems to collect post-sale battery data, only carmakers and regulators have access to them, leaving used car dealers in the dark.
The rapid development of battery technology is also a challenge in valuing used batteries. Over the past few years Chinese EV-makers have competed on range to win government subsidies and market share. The average range an EV can travel on a single charge increased from 212 kilometers (131.7 miles) in 2017 to 391 kilometers in 2020, according to a report by a research institution backed by China Evergrande Group, which had its own unit producing NEVs.
Five years ago, an EV with a 200-kilometer range was acceptable, but now it is outdated, Xie Fei, a senior underwriter at China Property &amp; Casualty Reinsurance Co. Ltd., said. Consumers would be reluctant to buy a used EV with the same range even if it still drives well, he added.
<h3>Subsidy distortion</h3>
The government subsidies that fueled the industry early on had a direct effect on the speed at which EVs lose their value.
In 2010 China started offering subsidies to manufacturers of new-energy vehicles — a category that includes EVs, hybrid vehicles and hydrogen vehicles — to promote their use both in public transportation and the private passenger car market, with funds coming from both the central and local governments.
In 2013, an automaker could get as much as 70,000 yuan for selling an EV with the range of between 80 kilometers and 150 kilometers, 100,000 yuan for a car that could travel 150 kilometers to 250 kilometers on a single charge, and 120,000 yuan for a car with the range of more than 250 kilometers.
Because the size of the subsidy could not exceed 60% of its sticker price under government rules, automakers had an incentive to price vehicles higher than they otherwise might have so they could secure as high of a subsidy as possible, allowing them to offer their customers a bigger discount.
At the time, EVs were far less attractive to car buyers than they are today, so manufacturers had to sell a large number of vehicles to trading firms that ended up putting them up for sale on the used-car market. In China, trading companies are major participants in the used-car market.
One the second-hand market, these EVs were priced at a significant discount to the same model sold straight from the manufacturer.
A turning point occurred in 2019 when the government cut subsidies significantly in June — the central government reduced its incentives for the industry by 50% while local governments scrapped their own schemes, according to a used-car market insider who declined to be named.
Before the reduction, some companies had scrambled to produce EVs to secure subsidies. Many of those cars ended up on the used-car lots of smaller cities and rural areas, where they were sold at prices far below retail, the source told Caixin.
Regulators have decided that 2022 will be the last year of subsidies for new-energy vehicles.
It was these steep drops in prices in the second-hand market that exacerbated the depreciation of EVs in China.
<h3>Coming back from buybacks</h3>
Buyback programs like Xpeng’s were created at least in part to offset the depreciation disincentive for buying a new EV.
In 2015, Tesla Inc. announced that it would buy back its own models in China at 50% of the sticker price as long as the vehicle was less than 3 years old and its mileage was below 60,000 kilometers, among other terms.
However, buyback programs are money-losers for automakers because they know the actual value of the used cars is lower than their proposed buyback price, the underwriter Xie said. He added that companies will eventually find the scheme unaffordable as their sales grow.
Tesla ended up scrapping its buyback policy in 2016.
As EVs are becoming more popular among consumers, there are signs that some models of used EVs are holding onto their value better than older models because new models are no longer being dumped in mass on the used-car market.
The Wuling Mini EV and Tesla Model 3, the two best-selling EVs on Chinese market since 2020, have managed to maintain their second-hand price after one year on the road at the same level as conventional vehicles, according to data released by the CADA in November.
To help EVs better maintain their value, some market insiders have suggested that used cars should be sold separately from used batteries. Without accounting for the battery, an EV can have a lifespan of at least 15 years, while batteries are usually good for about eight years, an insider at an automaker told Caixin. Taking the battery out of the equation would help EVs hold on to their value.
It would also eliminate the biggest uncertainly in figuring the value of a used EV — the battery’s condition — making valuations more transparent and reliable, the used-car market insider said.
This story was first published on <a href="https://www.caixinglobal.com/2022-01-28/in-depth-why-electric-vehicles-have-trouble-retaining-their-value-in-china-101836208.html">Caixin Global</a>.
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Regulators have decided that 2022 will be the last year of subsidies for new-energy vehicles (NEVs).

Why the value of China's EVs depreciates faster than conventional vehicles

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