Not that it benefits Tesla CEO Elon Musk much (we’re joking) but he’s got a warning. He says that those who may be buying a new car need to expect “residual values of gas/diesel cars to plummet in the coming years.” Over the next decade, 24 European cities with a population of 62 million people will join together to ban diesel vehicles. By 2030 13 of those cities will ban all internal combustion cars. At least in Europe, the end of the internal combustion engine is coming very soon.
Recently the UK announced its own ban of internal combustion engine cars by 2035. This all means diesel sales are evaporating right now. Soon it will become risky to purchase gas-powered vehicles as well. It’s that old saw about supply and demand. ICE cars probably won’t be banned in outer regions of some countries. But in large cities, we can see all European countries restricting them due to congestion and concentrated pollution.
Gas/diesel cars are already banned in some cities leading values to plummet
Outer regions might be difficult linking to railway systems so in those areas driving to a station link would require some type of personal transportation. But inside a certain zone, all cars could potentially be banned. There is a slim chance that special-licensed vehicles, as well as commercial ones, would be allowed. Whether they could be ICE or had to be electric we don’t know.
In 2016 Norway announced its ban on ICE vehicles by 2025. By 2018 there were over 135,000 electric vehicles registered there. By this year it is estimated that one-in-seven vehicles in the country will be electric.
All manufacturers expect an explosion of EV demand very soon
Total EV sales in the US for 2019 amounted to a bit over 2.5%, which is a bit higher than 2018’s 2%. It’s an incremental increase that honestly isn’t very high. But the trend is steady and there is an expectation by all manufacturers that there will be an explosion of demand for EVs very soon.
So, if demand for EVs is forced due to government bans or restrictions then your shiny, new 911 Porsche may not be worth much if you can’t drive it. It’s the elephant in the room only Musk is talking about.
The steady drumbeat of hype, adoption, and impending ban accelerates values to plummet
There are more electric vehicles coming onto the market each year. There is more buzz, and as more mainstream vehicles like the Mustang Mach E and pickup trucks hit the streets the manufacturers will market them hard. That brings with it further awareness which accelerates adoption quicker. The steady drumbeat of electric hype, adoption, and impending elimination of ICE vehicles creates a fait accompli. Game over for the internal combustion engine.
Musk is also reiterating that Tesla vehicles will become revenue-generating assets. How? He says Tesla plans on substantially increasing how much the Full Self-Driving option will cost. That is how he sees Tesla vehicles becoming appreciating assets. It’s hard to substantiate his claim, but you can see what he is doing.
The eventuality of Tesla values increasing remains a fuzzy concept
Transportation has always depreciated no matter its purpose. There is an expectation of planned obsolescence with vehicle ownership. To see your car or truck increase in value would be a game-changer, but the eventuality of that happening remains fuzzy.
Still, you’ve got to give Musk his due as one to continually stir the pot, especially when the sauce in the pot is the status quo.