Perspectives
How Consumer Considerations are Impacting the Used EV Market
Shifting Demographics, Climate, Even Housing Influence EV Growth
Published October 20, 2022 - Written by David Rymarz
9 min read
Summary
Consumers have numerous issues to consider before buying an electric vehicle (EV). Where they live, if they own their home, local EV charging station infrastructure, insurance costs, and more affect their decision. Our latest Perspectives delves into how all of this will impact the used EV market.
For the longest time, a specific demographic has dominated the electric vehicle market in a highly concentrated, regional fashion. Based on a 2021 Experian analysis, those registering new EVs are predominantly white and male, work in the business, management, and finance fields, and own a home with an average value of $450,000 to $749,999.1 There are several potential motivators that incentivize this demographic to purchase new EVs. One, of course, is the luxury aspect. Just over 80% of electric vehicle registrations are luxury branded, indicating they have a high-ticket price and limit affordability.2 Another motivator is location, as new data suggests that EV registrations are highly regional, with most concentrated in California, Florida, and now Texas.3 All three states are highly populated and more likely to have EV resources, such as charging stations and replacement parts than less populated areas. Driving is also likely more concentrated, meaning EV charging is not as prohibitive to mobility. Their warm, southern climates also minimize the potential for cold weather-related vehicle issues. However, now that more and more EVs are trickling into the used vehicle market, this EV demographic could shift based on consumer accessibility and attitudes.
The decision to purchase a new vehicle is a significant one for many consumers, and the same criteria used to choose gas-powered vehicles are applicable to electric vehicles, with some slight variations. Distance until empty, number of fueling stations nearby, repair, maintenance, and insurance costs are all relevant, but since electric vehicles are still new to market, the landscape of ownership has barriers that could deter consumers. Going electric may save consumers money by eliminating the need to purchase fuel, especially with the recent nationwide surge in gas prices. However, EV owners typically pay an initial fixed cost of about $1,200 to install a home charger, and more if the home does not have a strong enough circuit available or its electrical panel capacity needs to be increased. The installation cost may also need to be re-incurred each time the consumer moves or changes parking locations.4
Roughly 44.1 million Americans rent their housing, with 37% living in apartments, so they may not have the ability to install their own charger.5 Renters move about 20% more often than homeowners, so having to install a new charger with every move is more of an obstacle for renting Americans.6 This step could be bypassed if there were EV chargers located in grocery store or shopping center parking lots, thus enabling renters to charge their EVs while running errands. Though this option would lose its convenience if owners have to monitor the vehicle through the charge or stay at the charging location for longer than intended. The U.S. infrastructure currently has between 110,000 - 150,000 fuel stations (each with multiple individual pumps) and around 110,000 EV charging outlets, which could make finding a nearby charging station more difficult. This would be even more of an issue for consumers living in less populated areas or outside of California, Florida, and Texas, where electric vehicles are less prominent.7
As for the annual cost to run and insure an electric vehicle versus a gas-powered vehicle, there is a definite tradeoff. According to research by Self Financial, as of 2022 the average annual cost to run an EV in the U.S. is about $3,679, and about $4,367 for a gas-powered vehicle. On a cost per mile basis, an electric vehicle is half as expensive as a gaspowered vehicle, at $0.03 and $0.06 per mile, respectively.8 However, the tables turn a bit when it comes to insurance, as insuring an EV is still largely more expensive for consumers than insuring a gas-powered vehicle.9 EV insurance premiums vary based on typical factors like age of driver, driving record, annual mileage, and other optional coverages. But EV insurance cost also depends on whether the driver parks on the street or in a garage, which could further deter consumers without access to a garage.10 On average, it costs roughly $1,218 to insure a gas-powered vehicle and $1,636 to insure an electric vehicle per year, making electric vehicles about $418 more expensive or roughly 35% higher.11 Tesla has launched its own “Tesla Insurance” that offers Tesla owners rates up to 20-30% lower than competitor insurance companies. This could be a game changer that gets consumers to switch to EVs for these lower rates.12 However, as of 2022 Tesla Insurance is only available in eight U.S. states and these better rates are not guaranteed, so incentives would still vary by driver.
Figure 1: Average Annual Cost to Operate: EV vs Gas-Powered Vehicle
The secondary and tertiary markets for EVs, whether used vehicle, auction, or salvage markets, are still relatively young and ripe for analysis.To be sure, EVs do not appear to be going away any time soon. And if the trendlines continue, there will be more EVs hitting these markets. This presents opportunities and challenges for firms operating in these industries. From an insurance perspective, with individual car companies offering insurance, such as Tesla, it creates a new level of unique competition for the industry. It also adds challenges associated with pricing EV insurance given the relative newness of EVs in the marketplace. For used vehicle and auction markets, many questions remain about the demand side of this market. Who are the buyers of used EVs? Do these vehicles maintain their luxury status on the used side, or does this market give way to affordability as EVs grow? Additionally, what role does geography play in the used vehicle markets and auction sites? Does it make sense to focus on EV infrastructure across all of these facilities, or take a more selective approach for short run investment in a limited number of geographies? Furthermore, given the difference between conventional vehicles and EVs, there are already industry changes underway about the second and third life of recycling EV batteries in the salvage landscape.12 While many of these questions will remain until more EVs move through the pipeline, IAA's continued focus is to remain on top of trends within our industry to help provide our customers with the highest possible returns.
Forward-Looking Statements:
Certain statements contained in this release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and which are subject to certain risks, trends and uncertainties. In particular, statements made in this release that are not historical facts may be forward-looking statements. Words such as "should," "may," "will," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" and similar expressions identify forward-looking statements. Such statements include statements regarding the expected timing and associated benefits with respect to this EV Perspectives piece on our business and plans regarding our growth strategies and margin expansion plan, and to our customers and company generally. Such statements are based on management’s current expectations, are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to: uncertainties regarding COVID-19, and other potential future health crises, including new more contagious and/or vaccine resistant variants, and the impact on the duration and severity of the COVID-19 pandemic and measures intended to reduce its spread, including the availability, rate of public acceptance and efficacy of COVID-19 vaccines; the loss of one or more significant vehicle suppliers or a reduction in significant volume from such suppliers; our ability to meet or exceed customers’ demand and expectations; significant current competition and the introduction of new competitors or other disruptive entrants in our industry; the risk that our facilities lack the capacity to accept additional vehicles and our ability to obtain land or renew/enter into new leases at commercially reasonable rates; our ability to effectively maintain or update information and technology systems; our ability to implement and maintain measures to protect against cyberattacks and comply with applicable privacy and data security requirements; risks associated with online commerce security and credit card fraud; our ability to successfully implement our business strategies or realize expected cost savings and revenue enhancements, including from our margin expansion plan; weather-related and other event beyond our control which may adversely impact operations; failure to attract and retain key personnel, have inadequate succession planning, or manage labor shortages; business development activities, including acquisitions and the integration of acquired businesses, and the risks that the anticipated benefits of any acquisitions may not be fully realized or take longer to realize than expected; our expansion into markets outside the U.S. and the operational, competitive and regulatory risks facing our non-U.S. based operations; our reliance on subhaulers and trucking fleet operations; changes in used-vehicle prices and the volume of damaged and total loss vehicles we purchase; economic conditions, including fuel prices, commodity prices, foreign exchange rates and interest rate fluctuations; trends in new- and used-vehicle sales and incentives; and other risks and uncertainties identified in our filings with the Securities and Exchange Commission (the “SEC”), including under Item 1A “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on February 28, 2022, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the SEC, including subsequent Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K. Many of these risk factors are outside of our control, and as such, they involve risks which are not currently known that could cause actual results to differ materially from those discussed or implied herein. The forward-looking statements in this release are made as of the date on which they are made and we do not undertake to update our forward-looking statements.
[4] https://www.fixr.com/costs/home-electric-vehicle-charging-station
[5] https://www.nmhc.org/research-insight/quick-facts-figures/quick-facts-resident-demographics/
[6] https://www.zillow.com/report/2017/renters/long-term-renters/
[8] https://www.self.inc/info/electric-cars-vs-gas-cars-cost/
[9] See 8
[10] https://www.bankrate.com/insurance/car/electric-car-insurance/
[11] See 10
[12] See 8
