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I’m in the process of making the big switch. After many years as the owner of a diesel-fuelled car, it’s time to go electric. My decision is not only influenced by my desire to do all I can to help combat climate change, but there is also an investment rationale to it.
While many of us may consider our cars to be an asset, the reality is quite different. While we have seen an unusual surge in the price of second-hand cars recently, this is only a temporary phenomenon driven by issues in the supply chain. The reality is that your car depreciates in value from the day you buy it. The key is to try to limit the extent to which it will do so. In my mind, traditional vehicles will not only depreciate over time, but they will become valueless. This may not happen within the next three or four years, but certain factors could accelerate this transition.
The findings in the recent United Nation’s report on climate change are the starkest yet, issuing a dire warning that climate change is happening more rapidly, and with a greater intensity than expected. While many sectors have made progress on reducing carbon emissions, the automotive industry has not. For example, in 1990 transport accounted for 15pc of Europe’s carbon emissions; today it accounts for 25pc. This is due to the increase in the number of cars on our roads and that progress towards greener solutions has been slow. As I don’t see the demand for cars reducing any time soon, the only sensible option is to ensure our vehicles are less harmful to the environment.
Electric vehicles (EVs) made up 11.4pc of new car sales in Europe in 2020, and while Ireland is not a leader on the European stage at 7.4pc, we’re considerably ahead of the global average of 4.6pc. As I am finding out, affordability is a big factor in the slow take up, as EVs are considerably more expensive than traditionally powered cars. I would estimate the additional purchase price is close to 20pc, but the Irish Government’s grant of up to €5,000 may help close the gap.
Logistical issues are also a headwind. How long will the battery last? If I want to visit west Kerry will I get there? And will there be a charger nearby to get me back? I see these as teething issues though.
Like many behavioural changes, the switch to EVs will have to be government led. The Irish Government, as part of its Climate Action Bill, announced the sale of all new petrol/diesel cars will be banned from 2030. It has also set a target of close to one million electric cars on our roads by then. Based on current EV sales, this seems hugely ambitious, and in light of the UN’s recent climate change report, it is now clear that Government needs to urgently take further action.
While EVs are more climate friendly, there are some other factors that need to be considered. For example — how is the electricity that powers the EV generated? There’s little point in plugging your car into a home charger if coal is burned by your energy provider to create the power. Studies show the production of an EV creates a greater carbon footprint than an equivalent traditional vehicle, as the electric battery has components like lithium, nickel and cobalt that require high energy consumption to mine. However, when viewed over the lifecycle of a car, and the emissions from driving are also taken into account, EVs still come out with a fraction of the carbon footprint.
Governments, businesses, and consumers all need to work together to help combat climate change. At present, European car makers have been quicker off the mark in ramping up EV production relative to US car makers.
It’s not surprising that the return on an investment in Volkswagen, which is leading the movement in Europe, over the past three years is almost double that of Ford, which has been slow out of the traps on EV production.
Now, back to my decision to buy an EV. The greatest cost associated with purchasing a car is how much it depreciates each year. Assuming the move to greener vehicles accelerates as I expect it will, fossil fuel-powered cars will plummet in resale value.
Although EVs will remain a liability, as they will not withstand depreciation, they will fare considerably better than your average petrol/diesel car. When buying your next car consider how things are going to change in the coming years and the impact that will have on your vehicle’s value. By “thinking green” you are making a better financial decision and, even more importantly, you’re helping save the planet.
Shane O’Brien is a senior investment director at Aviva