The upside of falling EV prices

A few provocative news articles have been popping up on a certain Murdoch news site over the past week, with headlines including:

• 'Effectively worthless': EV bubble bursts
• Picture proves EV market is in trouble
• Hyundai says battery life and resale uncertainty is harming EV uptake
• 'Can't sell its cars': Horror news for Tesla owners as prices plunge

I'll save you the clicks and brain cells by summarising them. Essentially, the authors noticed that new EVs have been getting discounted. Given that a new EV is a substitute for a second-hand EV, used EVs have also fallen in price. Apparently, that's pissed more than a few people off:

"The discounting is angering EV buyers who bought a new car only to see it offered for thousands of dollars less a week or two later, severely denting their car's resale value."

The authors then collectively commit the mistake of reasoning from a price change, concluding that the EV market is in big trouble. But the described behaviour is exactly how a healthy car market is expected to function: it might come as a shock to the journalists who penned those articles, but the real price of many goods tends to fall over time, even as technology improves.

It's a similar story for used goods. Over time, a physical asset can be expected to decline in price because the demand for it also falls; it's called depreciation. Now there are exceptions: for example, popular vintage cars tend to appreciate because their supply is fixed. Another example was during the pandemic when the supply of new cars was effectively cut off, leading to used cars rapidly appreciating, because that's all buyers could get.

But when there's a constant stream of new and improved cars being produced and delivered every year, the demand for and relative prices of the used versions will fall. There was no EV "bubble burst", just basic economics.

Are EVs a bad investment?

One of the journalists compared today's EVs to the humble Toyota Camry, noting that because EV tech is progressing so rapidly, you'd be foolish to buy one today when you could wait until tomorrow and get an even better one: