Article written by Effective Media. The analyzes and opinions expressed in this article are those of the author only and not those of OPENLANE Europe.

You can read it almost daily in the press: within a few years we may all be driving electric vehicles and that also means that combustion engines are working on their swan song. But is that really so? However, due to several factors, the debate is a bit more nuanced.



In most European countries, we see the same trend towards phasing out combustion engines like low-emission zones in more and more large cities and a ban on diesel engines. This evolution is further supported by more and more manufacturers who are announcing that they will stop developing combustion engines and switch completely to electric in the coming years. So, it looks like we will all be plugging in instead of refueling within 10 to 15 years at the latest. But is that realistic?


Counteract

Although manufacturers such as Ford, Jaguar and Volvo are fully committed to electrification, there are other brands that are counteracting. Akio Toyoda, the CEO of Toyota, recently stated that not everyone will be able to drive electric by 2040. The Japanese manufacturer points out that many regions where it sells its cars, such as Asia, Latin America and Africa, will not have the infrastructure to run electric and hydrogen cars by 2040. That is why the largest manufacturer will continue to invest in the development of environmentally and climate-friendly combustion engines in the coming years. The same is true for Carlos Tavares, the CEO of Stellantis, the group that has brands such as Fiat, Opel, Citroën, Peugeot, DS, Alfa Romeo and Jeep under its wings. He argues that rapid electrification will lead to major job losses for all automakers as fewer workers are needed to build electric cars. He said in an interview with Reuters that the automotive industry is being forced into electrification, but the production of those electric vehicles is 50% more expensive than conventional cars. “We can never pass on this additional cost to the customer, because the middle class can no longer afford this,” said Tavares.


Cost for company cars vs. private individuals

Price is indeed a crucial factor. Let's take Belgium as an example: there is mainly an accelerated electrification of company cars because by 2026 all tax incentives for combustion engines will disappear. That leverage does not exist with the private individual. A private individual who opts for an electric car today will in most cases pay a higher price for it, while they still do not have the range that can compete with that of combustion engines. The latter is certainly the case compared to diesels. The selling point for electric cars today is – to put it mildly – not overwhelming towards individuals. This discord is also apparent from the most recent figures from the Belgian sector federation of importers, FEBIAC, on registrations in 2021.

For the first time, electrified cars were on a par with diesel cars. The latter accounted for a share of 23.7% in 2021 – a decrease of 9.2% compared to the previous year. All electrified vehicles, i.e. fully electric, full hybrid and plug-in hybrid cars, together represented the same share of the registrations. So, the change is definitely noticeable. But about nine out of 10 fully electric cars and plug-in hybrids were registered in Belgium in the name of a company or self-employed persons. Tax control therefore plays a major role. In other European countries there are allowances for private individuals. An example is Luxembourg, which offers private individuals a tax benefit of €5,000 for zero-emission vehicles and €2,500 for plug-in hybrids. In the Netherlands, the subsidy amount for a new electric car is €3,350. You can get a subsidy of €2,000 for a used car. Sweden, which gives different climate bonuses depending on the type of vehicle, has a market share of 32.2% electrically rechargeable vehicles. More examples can be found here.


And what about the second-hand market?

The transition to electrified vehicles will inevitably also have an impact on the second-hand market. A collapse of the second-hand market for vehicles with an internal combustion engine is not imminent, according to specialists from the leasing sector. Leasing companies are the perfect indicator because they put their end-of-contract cars on the market.

The vast majority of those ICE cars (ed.: Internal Combustion Engines) still go abroad, especially Eastern Europe. And it should remain that way for a few more years because the greening process is slowing down there. Ultimately, the supply of ICE cars will be smaller than the demand. And according to the leasing companies, the second-hand market for electric cars (EV) in those markets will not increase significantly in the coming years because 25,000 to 30,000 euros for a second-hand EV is too much for the budgets that can be spent there. In other words, it will likely be years before ICE vehicles fall out of favor on the second-hand market. As supply will gradually outpace demand, ICE used vehicles are anticipated to continue to be sought after and will likely also remain price-fixed.


Residual value of electric vehicles

Once more electrified vehicles enter the second-hand market, pricing will become an important factor. The depreciation is currently approximately the same as that of ICE cars. Electric motors are technically simpler than current combustion engines and also less prone to breakdowns and batteries today have a lifespan of at least eight to 10 years. In terms of second-hand value, that's good. The only uncertain factor is the development of technology. When a new type of battery comes on the market within two years that is superior to the current generation, you will have a problem because the second-hand market will be using the older battery. There is hope: cross-border sales – in which OPENLANE is very strong – could be a real opportunity for these vehicles, as they are more attractive in other European markets.