January 17, 2022

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Why 2022 is the year to buy your first luxury electric car

Why 2022 is the year to buy your first luxury electric car

Bloomberg Opinion – Automakers have spent the past year announcing plans for electric car models and production facilities. This makes 2022 a year in which more and more consumers will assess whether it is time to buy their first electric car. Is it worth taking the step?

It probably depends on the price and the market segment you are considering. in my opinion, The higher the price, the more likely you are to consider buying an electric car now rather than waiting a few more years. Here are two reasons to do it: first, automakers release their high-end models before the cheap ones, So selection is better on the higher end. You also have to consider the residual value of future used vehicles.Gasoline cars will be less in demand, so buying a new one now means it’s worth a lot less when you’re ready to replace it.

It is important to note that a lot of consumer behavior is due to the actions of automakers. Manufacturers have received a message from investors that they will be rewarded for accelerating the transition to electrification, while revenues from gasoline cars will primarily finance these investments. Major automakers, similar to Tesla Inc. (TSLA), with high-end models because this is where consumer demand is strongest. And because it is easier to be profitable at higher price points, while sales volumes remain much lower than for gasoline cars.

In addition to enticing consumers, industry leaders are giving these expensive new models of electric vehicles high marks. MotorTrend magazine ranked the Rivian’s $74,000 R1T for its truck of the year, and the Lucid Air as its most expensive car of the year. Both cars have recently started delivering consumer orders and have long waiting lists.

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You may like what you’ve seen so far, but would rather wait a little longer for the infrastructure for electric vehicles, such as charging stations, to be developed. But calculating the value of buying any new car includes what it will be worth years later, when you are ready to trade in or sell. The average length of time drivers keep new vehicles is 6 years. So if you are going to buy a new car in 2022, you should consider the used car market in 2028 or later.

The demographics of electric car owners closely resemble that of Tesla CEO Elon Musk — on average, they are male, between the ages of 40 and 55, with an annual household income of more than $100,000. My colleague Nat Bullard recently posted some additional tables on the demographics of electric vehicle buyers. The percentage of new electric cars sold in the US in 2022 could still be in the single digits, but for this demographic, it will be much higher than that.

Looking to 2028, when the global electric vehicle market share in the US will reach 30%, the majority of young and middle-aged consumers with purchasing power will be able to purchase electric cars and trucks. This will have a huge impact on the value of gasoline-powered vehicles, with fewer buyers with each passing year.

While there could still be a strong market for used Honda Accords in 2028, it is likely to be a more fragile market for $40,000 used gasoline-powered sedans and sports utility vehicles as people in this segment switch to electric vehicles.

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Meanwhile, although it’s still early in the history of cars, the market for used Tesla Model 3s has been strong. And we should not forget the cumulative effect of advertising campaigns. Automakers aren’t pouring tens of billions of dollars into electric cars just to get them in factories and dealerships. They will also use advertising campaigns to make consumers believe that they are thinking about the future and technology companies. In 2028, automakers will want high-powered car buyers to believe that gasoline cars are as cool as floppy disks or a landline phone—the kinds of things your grandfather still had in his house.

In a recent research note, Goldman Sachs noted that some segments of the electric vehicle market are already cost-competitive compared to gasoline vehicles after accounting for fuel and maintenance costs.. The savings were calculated at about $1,000 per year using a gasoline price per gallon of about $3, so buying a $60,000 electric car is profitable compared to a $55,000 gasoline car after about five years.

And that’s before tax incentives are taken into account. It’s hard to make a general claim because different countries have different levels of incentives, one national automaker like Tesla has exhausted the incentive allowance, while other automakers that haven’t sold many electric vehicles still have. The Build Back Better bill, currently stalled in the Senate, could include new incentives of $7,500 per vehicle or more, but we’ll have to see in the new year if that provision or the legislation as a whole becomes law. However, even a scaled down version of this proposal would make the financial justification for buying an electric car now much stronger.

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A fair concern is the uncertainty surrounding longevity and standards for batteries that power electricity. Batteries degrade somewhat over time (a Tesla Model S battery loses 5% of its charge capacity after the first 80,000 km), but it’s estimated that electric vehicle batteries will last 10-20 years before being replaced.

Technological advances could also lead to a completely different type of vehicle battery in the future. In a way, it’s about balancing the uncertainty about battery changes against the certainty that the gasoline car market will forever be in decline.

For buyers interested in budget and utility vehicles, there is still reason to be confident that the new gas-powered vehicle purchased in 2022 will maintain decent value in the used market at the end of the decade. But for affluent consumers, it is somewhat less secure. Premium buyers are considering waiting a little longer for their next car to become an electric car They should consider moving forward with her in the new year.

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This memorandum does not necessarily reflect the opinion of the editorial staff or Bloomberg LB and its owners.

This article was translated by Estefanía Salinas Concha.