Financing electric vehicles (EVs) has become increasingly popular in Australia since the federal government announced there would be no fringe benefits tax payable on novated leases for eligible low emissions vehicles. While this concession can allow you to save thousands of dollars throughout your loan, there is still a big problem being faced by those currently novated leasing an EV:
The retained value of EVs at the end of their finance term are currently nowhere near the mandatory residual values set by the ATO.
The ATO are responsible for setting the laws around minimum residual values, and they are currently set at the following regardless of engine type:
| Novated lease term | Minimum residual value |
| 1 year | 65.63% |
| 2 years | 56.25% |
| 3 years | 46.88% |
| 4 years | 37.50% |
| 5 years | 28.13% |
While some finance companies will accept a high kilometre letter for accelerated depreciation and a lower residual value, this doesn’t make up for how quickly the value of EVs currently drop off.
The current data has shown that used EV prices drop significantly after the vehicle is more than two years old. For example EVs between two and four years old were worth 57.6% of their original price, while across the entire used car market, vehicles between two and four years old averaged 85.9% of their original price.
Image created using Microsoft Copilot
While the new FBT exemption may have caused a wave of new EVs to be purchased, flooding the used car market and pushing down the price of cars, it is not the only factor causing there to be such a big difference in retained value.
The current high purchase price for most EVs have made them unaccessible to many Australians. With internal combustion engine vehicles being much more cost effective, many still consider EVs to be “too expensive for them” pushing down the demand and value of EVs. Used car sales data for 2023 released by Autograb/Australian Automotive Dealers Association has confirmed this, highlighting “the average days to sell for used EVs reached 75 days in December, the highest average, compared to the rest of the used car market.”
Increased competition in the EV market, with both new and established manufacturers releasing electrified models, the costs of new electric vehicles are decreasing. In particular the emergence of EV brands from China have lowered the entry prices significantly, and led to more aggressive discounting from current brands to not lose all of their market share. This reset has had flow-on effects to the used EV market.
Rapid technology improvements in new EV models are making older models seem less appealing or obsolete at a much faster rate. This is making older models less appealing and exacerbating the current steep decline in value after two years old.
There are a few factors that may result in future EVS retaining their value better. Improvements in battery technology resulting in longer distance ranges and further charging infrastructure being rolled out could make EVs a viable option to more Australians.
However until there is proof of this, or the ATO looks at reducing the minimum residual values on EV novated leases, it is worth being aware that by current trends your EV will not be worth the residual value at the end of your lease.
The FBT savings may result in an overall net benefit even with the residual shortfall, but this is something to be aware of before making the decision to novated lease an EV.