Background car news Electric

What is residual value?

Residual value is not only the value of your car after a total loss, but in practice the amount for which the car can still be sold at some point in the future. It is an estimate, usually made by leasing and financing companies at the start of a lease or financing contract before the contract expires. Or by insurers before the payment of a claim. The calculation takes into account a variety of factors, such as age, mileage, technical condition, make and model – and expected market trends.

In practice, however, those who say “residual value” usually mean trade-in value or market value. These are similar terms, but not quite the same.

• Trade-in value: the amount a dealer or car company offers you when you trade in your car for another. The trade-in value is often lower than the market value because the company incurs costs to prepare the car for sale and also wants to make a profit.
• Market value: the price you can reasonably get at the time if you (sell) your car privately or through a trading platform.

For whom and when is residual value important?

For business drivers, residual value plays a role when signing a lease. The higher the expected residual value, the lower the monthly costs, because depreciation is lower. Leasing companies make extensive calculations in which residual value directly affects the lease price.

For private buyers, residual value is important when deciding whether to buy or finance a car. A model that retains its value well will cost less in the long run, even if the purchase price is higher. This is especially true for electric cars, whose decline in value has sometimes been steeper in the past due to rapid technological advances.

For whom and when is market value important?

The market value is relevant at the time you actually want to sell or trade in the car. This applies to:

• individuals selling their car (through Marketplace, AutoScout24 or a dealer) and
• companies looking to renew their fleet and sell the old one

So it’s important to understand that knowing residual value can help you make long-term decisions, while market value matters most at the actual moment of purchase or sale.

Why is this knowledge important?

Knowing the difference between residual value and market value prevents disappointment. For example, if you buy an electric car with the expectation that it will still be worth 25,000 euros in five years, but the market value turns out to be 20,000 euros, this can affect your financial planning. With leasing, a too optimistic estimation of the residual value can also mean that you are less favorable at the end of the contract.

Understanding residual value also helps when making choices around make and model, equipment and powertrain. Some makes and models retain their value better, for example, due to their popularity, reliability and/or low maintenance costs.

Factors affecting the residual value of an electric car

With electric cars, a number of factors are especially important for residual value:

• Battery condition is crucial. A well-maintained battery with plenty of capacity left has a positive impact on value.
• Models with greater range remain attractive longer.
• Support for high-power fast charging, such as 150 or 350 kW, increases future-proofing.
• Cars that receive over-the-air updates are technically more up-to-date.
• Cars from brands with strong reputations retain more value.
• New legislation, subsidies and the growth of the used market for EVs are affecting value.

How to calculate residual value electric car?

You can calculate the residual value of your EV in several ways. A simple method for individuals is:

• determine the current market value; check platforms such as AutoScout24, Gaspedaal or ANWB Koerslijst to see what similar models of your car are roughly worth;
• estimate annual depreciation;
• for electric cars, depreciation is 15 to 25% per year in the first few years; after about five years, depreciation levels off;
• count the years and multiply the annual drop in value by the number of years you want to keep the car;
• take into account the specific EV factors.

For example, if your car has a larger battery pack of 77 kWh and a 150 kW (204 hp) engine with a charging rate of up to 170 kW, chances are the value will be better preserved than that of an older model with less range and slower charging.

Make a calculation example

Suppose your electric car is now worth 40,000 euros. You expect an average depreciation of 18% per year in the first three years and 10% per year thereafter. After five years, then, the residual value is approximately:

• Year 1: 40,000 euros – (18% of 40,000) = 32,800 euros
• Year 2: 32,800 euros – (18% of 32,800) = 26,896 euros
• Year 3: 26,896 euros – (18% of 26,896) = 22,055 euros
• Year 4: 22,055 euros – (10% of 22,055) = 19,849 euros
• Year 5: 19,849 euros – (10% of 19,849) = 17,864 euros

So the estimated residual value after five years is 17,864 euros.

Professional residual value calculations

Leasing companies, banks and insurers use more complex models. These take into account not only depreciation and technical factors, but also:

• historical price trends of comparable models
• expected market trends and legislation
• exchange rates and commodity prices (such as lithium and cobalt)
• Regional demand for used EVs

Such calculations are often more accurate, but also depend on assumptions that may prove incorrect in practice.

Tips to increase residual value electric car

• Maintenance to factory specifications – a complete service history gives confidence to buyers.
• Ensure battery health – avoid structural fast charging when not needed and do not leave the battery empty or full for long periods of time.
• Choose a popular version – one with a longer range, powerful engine and sought-after color schemes will stay in demand longer.
• Keep original parts – wheels, charging cables and accessories can make all the difference when sold.

The residual value of an electric car is more than an amount; it is a forecast that can help with financial decisions, both personal and business. By understanding the difference between residual value, trade-in value and market value, you’ll know better what to expect when you sell or trade it in. With a good understanding of the factors affecting value and a realistic calculation, you’ll avoid surprises and get the most out of your electric car.