Jessica Caldwell has been considering Russia’s invasion of Ukraine in the last couple of weeks.
That invasion in February 2022 prompted an oil price shock that sent gas prices soaring and prompted more consumers to consider electric vehicles.
In some ways, it’s the most comparable global event to the current U.S. and Israeli war against Iran for its impact on gas prices and initial interest boost in EVs, according to Caldwell, the head of Insights for Edmunds.
“We have a model,” Caldwell said, pointing to similar uncertainties from geopolitical unrest in the early stages of the two events with no clear timeline for an end.
The expectation before the United States and Israel struck Iran late last month had been that a flood of electric vehicles coming off lease would lead to good deals on used EVs this year. Edmunds projects that the share of battery electric vehicles is expected to grow from 2% of lease returns in 2025 to 8% in 2026.
Caldwell said good deals are likely, and the vehicles coming off lease will be better than they were four years ago when the supply was tight.
“We’re looking at vehicles that were purchased in 2023. Those EVs are pretty good. We’re not really talking about 10-year-old compliance EVs,” she said, referencing vehicles made to satisfy regulatory demands.
In 2022, those vehicles coming off lease represented an earlier crop of EVs that promised less range and technology.
But many consumers saw value there and chose to buy out their leases if they could, she said. Now, with lower used EV prices and residual values set with different expectations, the math means lease holders are likely to return those vehicles when the lease is up.
That means more used EVs will be entering the market.
Shopper consideration of EVs and hybrids jumped from 20.7% to 22.4% of vehicle research activity on Edmunds.com beginning the week of March 2, days after the start of the U.S.-Iran war. As of March 13, the national average for a gallon of regular gas was $3.63, with California hitting $5.42, according to AAA. A month ago, that national average price was $2.94.
Interest in EVs and hybrids at Edmunds.com also increased almost immediately following the 2022 Russian invasion, according to Edmunds, “rising from 17.5% of all vehicle research activity in February to 25.1% in March as fuel prices surged nationwide.”
An increase in EV sales followed, growing through the year.
Despite any similarities, however, much has changed in those four intervening years that muddy the picture, and EVs remain a niche market in the United States, according to Caldwell.
Federal EV tax credits are gone, interest rates are up and automakers have pivoted from their ambitious EV goals of the past. On Thursday, March 14, Honda announced it would cancel development of three EVs planned for production in North America.
And a sustained stretch of high gas prices would likely be required to push a substantial shift in consumer preference from gas power to full electric, even though, as Caldwell noted, gas prices have an “outweighted psychological impact on folks.”
The picture gets complicated as higher gas prices could tamp down interest and potentially prices of less fuel-efficient vehicles while boosting interest and potentially pricing of more efficient vehicles.
Interest has spiked locally, according to one metro Detroit EV dealer.
Greg Ostrowski, space manager for Polestar Detroit in Royal Oak, estimated a 200% increase in traffic, which he listed as calls, online inquiries, visitors to the showroom and sales since the end of February. That includes “quite a few existing customers,” he said.
“Any time we see an increase in gas prices, we get people who have been in trucks or large SUVs that want something much more efficient,” he said.
Jimmy Douglas, founder of Plug, a national EV wholesale auction platform, said there’s “an absolute correlation between gas prices and EV demand.”
He said he expects to see used EVs becoming more affordable because of additional inventory, but maybe not as much as forecast.
Douglas’ company sources its EVs from fleet operators, dealers and manufacturers and also buys directly from consumers. Only licensed dealers can buy through the auction, however.
Douglas said that provisions of the Inflation Reduction Act, which made leasing EVs more attractive a few years ago, are now set to boost the used EV market, where prices are approaching parity with gas-powered vehicles.
“Now that it’s three years later, we expect a tsunami of inventory, something along the lines of 1.1 million units have been estimated over the next three years from lease returns alone and that’s on top of the already circulating units in operation that did not go through leasing,” he said.
“Demand is ripping. We’ve been growing very fast,” he said, noting that his business saw only a brief lull in demand following the expiration of federal EV tax credits last year.
Not everyone sees EVs the same way, however.
Eric Frehsee, president at The Tamaroff Group, which has locations in Southfield and Roseville and sells Nissan, Acura, Honda and Kia vehicles, wasn’t thinking about used EV deals when he was asked about the impact of more EVs coming off lease.
He noted that EVs had a “great go around” in the beginning with early adopters, and he believes there’s more to do in the EV space. But he said the consumer demand was being pushed by the government.
“You’re seeing a lot of abandonment in the market as it relates” to electric vehicles, he said.
EVs, new and used, represent only about 2% of his business.
“We don’t see a lot of pre-owned EVs in our market. We don’t see a lot of demand for them, which is why we don’t carry them and why we don’t buy them,” he said. “If you do find one, yes, there is a good value because … some of these cars are 60% off what they were brand new.”
But he cautioned that there are a lot of unknowns, such as what happens if you buy a used EV and something happens to the battery when it’s out of warranty.
“It’s kind of buyer beware,” he said.
Frehsee noted that while he doesn’t stock a lot of used EVs, “if someone comes to my lot looking for a (Honda) CR-V, I have 30 pre-owned CR-Vs. I have every color, every trim, with every different mileage and price point,” he said of the compact SUV that has gas and hybrid options.
Eric D. Lawrence is the senior car culture reporter at the Detroit Free Press. Send your tips and suggestions about cool automotive stuff to elawrence@freepress.com. Become a subscriber. Submit a letter to the editor at freep.com/letters.
This article originally appeared on Detroit Free Press: War’s impact on oil prices shifts interest about used EV market
Reporting by Eric D. Lawrence, Detroit Free Press / Detroit Free Press
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