The Market for EV Lemons: Battery Health and the Residual Value Conundrum

Introduction

Accurate residual value prediction and battery health transparency are critical to the successful adoption of Electric Vehicles (EV). Confidence in residual values enables financiers to accurately monitor, predict, and control their balance sheet exposure, allowing them to pass through this reduction in risk in the form of more attractive credit prices and more widespread credit availability to prospective EV buyers. Transparency in battery health will empower the successful instantiation of a thriving second-hand EV market, providing consumers with the reassurance they currently lack regarding expected future capability of their used EV. There is much speculation over the contribution battery health and expected future performance will have on EV residual values. Given the significant costs associated with battery replacements and the notable effects of degradation on asset performance we believe that battery health will eventually be a meaningful determinant factor in EV residual values. Market players are currently struggling to identify standardised, understandable, repeatable and cost-effective methods that offer the transparency that customers are rightly demanding on battery health and expected future performance. Current solutions have significant flaws. They either rely on self-reported, inherently biased and sometimes wildly inaccurate health estimates from OEMs or, untenable intensive testing that would significantly shrink throughput rates...