Catherine Wood, chief executive of ARK Investment Management, yesterday addressed concerns about how electric vehicle adoption will be affected by low oil prices. She underscored that the biggest factor for total-cost-of-ownership is auto residual values. While the value of used cars is tumbling, the trade-in values of Tesla EVs are holding firm.
The pandemic’s effect on the economy is playing out in unpredictable ways. Wood pointed to the predicament faced by car-rental companies during the crises. Wood, a long-time proponent of Tesla, spoke with Bloomberg Wall Street Week:
Hertz and Avis are in such financial difficulty that they have been forced to sell some of their fleets into the used car market, so used car prices have started dropping at an accelerating rate, which means that the residual values of cars or the trade-in values are dropping accordingly.
Wood explained that this situation is “a plus” for Tesla, as its cars are retaining their residual value relative to gas-powered used cars. EVs have an economic advantage over gas-powered cars based on a lower cost for fuel and maintenance. But depreciation is the biggest line item for overall vehicle costs. Wood said:
According to our analysis and research, the total cost of ownership of an electric vehicle, especially a Tesla, is lower than that of a gas-powered vehicle if you give it three years.
The most important variable there is the trade-in value for cars. Tesla’s trade-in values are holding up much better than the residual values or the trade-in values for 90% of gas-powered cars. 90% of all new car purchases involve a used car.
These viewpoints expressed during the pandemic echo what we reported last year when Kelly Blue Book indicated that the Tesla Model 3 was outperforming its competition on resale value. KBB said:
The Tesla Model 3 has a cultural magic and desirability about it that made people willing to wait months and even years to own one. People don’t like Tesla Model 3s — they crave them — and that’s how you hold on to your resale value over time.
More broadly, Wood believes that future-looking firms with innovative technology are much better positioned during the pandemic.
Innovation tends to gain traction during times of crisis. It gains market share at a much more rapid rate than would normally be the case.
We’re hearing from many of companies that we follow, saying that it’s almost as though we’ve compressed three years of technology progress into three months.
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