(Re)selling the idea of electrified vehicles

AS THE JOURNEY to electrified mobility moves forward, a better grasp of the technology is needed to accelerate adoption.

To begin with, there is a need to increase understanding of the various electrified options (xEVs) — hybrid, plug-in hybrids, full battery electric, and hydrogen fuel cell, among others. Of course, it will be recalled that electrification is the emergent new energy vehicle technology needed to intensify the fight for carbon neutrality. In this regard, multiple pathways are available. Any enhanced technology that helps reduce carbon emissions should be welcome even, for example, biofuel alternatives or more efficient internal combustion engines. Consumers should be able to choose the most appropriate option that fits their mobility needs, purchase capacity and operability, including the state of infrastructure support in their area.

Another aspect of electrified mobility that will benefit from greater understanding is the apprehension regarding the cost of electric battery replacement and its potential impact to ownership cost and resale value.

A hybrid electric vehicle (HEV), plug-in hybrid electric vehicle (PHEV) and battery electric vehicle (BEV) are more expensive to produce than their internal combustion engine (ICE) counterparts. The biggest cost difference lies in the battery, which — according to Statista — accounts for around 28% of the total cost of a large electric vehicle, down from about 49% in 2016.

The most immediate recourse for increasing driving range of EVs is to increase battery capacity (and size). Unfortunately, this adds to the weight of the car, thus affecting performance, and it significantly ups the vehicle price. Conversely, it can be argued that the way to reduce prices of EVs is to reduce the size of the battery. This will unfortunately shorten range and increase user anxiety. The size of an HEV battery is naturally smaller than that of a BEV. It is a self-charging technology that does not depend on battery size to increase distance. The focus is on engine operating efficiency, thus avoiding range anxiety when driving.

In my understanding, auto engineers design the electric battery to match the life of the vehicle. In fact, I recall seeing a testimonial from an associate of Maple Toyota, a dealer in Canada, who claims that in his 16 years working with the dealership, he has never seen the battery of a Toyota HEV replaced and they have been receiving for servicing HEV taxis with mileage of up to 800,000 kilometers.

Like fuel efficiency in the case of ICE vehicles, how far you go on battery power is impacted by driving habits, terrain, and car maintenance. These also affect the wear and tear of the battery. An early study of Tesla batteries done by Steinbuch that was updated in 2020 claims that fast battery degradation of 5% is experienced in the first 40,000km of usage followed by an average slow degradation of 1% every 40,000km up to 320,000km. At an average driving mileage of 20,000km per year, the study covers about 16 years without full degradation of the battery.

The fact that auto manufacturers now offer an eight-year warranty on batteries is further testament to the confidence of makers in their durability. Toyota HEVs are now in their fourth generation and the technology of both the key hardware components (i.e. motor, inverter, and battery) as well as the operating system that manages the hybrid performance has advanced significantly. Toyota has sold over 22.5 million electrified vehicles over the last 25 years, resulting to CO2 emissions reductions equivalent to what would have been saved by approximately 7.5 million BEVs. This real-world experience using actual driving performance has been harnessed to improve the efficiency of Toyota electrified vehicles, including reducing costs.

HEVs have also been proven to hold their value quite well over time. While some motorists may focus on the cost of battery replacement, it can be compared to worrying about getting a new head gasket, a ring job or, in the case of extreme use, an engine overhaul (that can cost as much as P100,000) or even a new transmission for a 10-year-old ICE car. The fact that HEVs are widely used as taxis in cities like Japan, New York, and London is also testament to their durability. For BEVs, the case becomes even more compelling because they have significantly less parts than ICE vehicles. A Forbes article by Tom Raftery cites that an ICE drivetrain has about 2,000-plus parts versus 20 in an EV. As long as cars — whether in EV or ICE form — are properly used and maintained, we can rest assured that our cars will hold up very well over time.

And then, of course, there is the cost of batteries. An article by Hannah Ritchie for ourworldindata.org in 2021 claims that prices of lithium-ion battery cells per kilowatt-hour (kWh) have dropped from US$7,523 in 1991 to US$181 in 2018. To put this in context, the author cited the 40-kWh battery of the Nissan Leaf that cost US$7,300 in 2018 would have cost US$300,000 back in 1991. A Prius owner I know bought his car in 2011 and was told that the battery replacement would cost P700,000. In 2021, he replaced the battery at a cost of P350,000. Prices of batteries can be expected to drop even more with increased volume, new technologies, and even new types of batteries like solid state ones.

So, how do all these weigh on the resale value of EVs? Given a normal level of use of the car and a reasonable maintenance regimen, the prospective impact of a battery replacement on the resale price should not be significant. Batteries are less consumable than they are depreciable; they are meant to last the life of the car. As such, they should not be an extraordinary factor in determining the value of a pre-owned vehicle.

A quick search of resale values in the United States do not show any remarkable difference between the resale values of ICE cars and HEVs. I saw a real-world quote on an almost-four-year-old RAV4 HEV with 48,000-km mileage by Carvana back in August 2023. The transaction price for the brand-new vehicle was US$38,000 and the quote for resale was US$32,830, a 13.6% depreciation — quite reasonable, even if we factor in the auto supply chain disruptions that elevated pre-owned car prices.

If you plan to hold on to your hybrid for 10 years prior to reselling it, maybe the next owner will not be as concerned about the battery replacement as he would be about your use and care for the car. He might benefit from the expected further reduction in battery prices, too. The replacement battery for the Corolla Cross HEV costs around P195,000. The Camry HEV battery is priced at P219,000. In 10 years, this might halve again.

Should we worry about the resale value of electrified vehicles? Not more than we should for an ICE car, I think.