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Secondhand NEVs gain favor among China’s younger generation

Written by 36Kr English Published on   8 mins read

Cost-effectiveness, return on investment, and the desire to experience new things are key factors driving this shift.

How much will the price of a new energy vehicle (NEV) fall in 2024?

This April, Xu Ming, a resident of Beijing, decided to sell his Tesla Model Y, which he bought three years ago for nearly RMB 260,000 (USD 36,570). He now wants to exchange it for a larger electric SUV. However, after consulting offline, Xu discovered that his vehicle had significantly depreciated, dropping to less than half its original value, far below his expectations.

Originally planning to buy a new car, Xu turned his attention to secondhand car trading platforms. Meanwhile, two of his friends are also in the market for their first car. They all agree on purchasing an NEV but are divided on whether to buy a new or used one.

New energy vehicles refer to various types of vehicles that are powered by alternative energy sources, including electric vehicles. EVs specifically refers to vehicles that utilize electricity, typically stored in rechargeable batteries. EVs can be considered a subset of NEVs.

There is a belief that buying a new car offers the latest technology and experiences. However, rapid iteration means that new cars often depreciate significantly shortly after purchase.

This trend is evident in the market. According to the China Automobile Dealers Association, in March 2024, a total of 91,500 used NEVs were traded nationwide, a 41.4% increase from February and a 63.5% increase year-on-year.

Data from Guazi, a secondhand car platform, shows that young people are increasingly becoming the main buyers of pre-owned NEVs. Cost-effectiveness, return on investment, and the desire to experience new things are factors driving this acceptance and adoption.

Young people’s first car

Young people and the new middle class form the primary user base for NEVs. Compared to traditional gasoline cars, NEV consumers are younger, especially those under 35, who are curious about new tech and experiences and willing to pay a premium for them.

“My first car might not be a Xiaomi SU7, but it will definitely be a new energy vehicle,” said Chen Yuan, born after 1995 and working at Beijing’s World Trade Center. Chen enjoys skateboarding, is proficient with drones, and is considering buying a car for commuting.

Besides the low cost of charging, the design, large screens, acceleration, and intelligence of NEVs attract young people’s attention. Reports show that young people and white-collar workers prefer to buy NEVs. Tesla, Xiaomi, and Nio have repeatedly proven this.

“Our generation was amazed by Tesla when it entered China, opening our minds to a new understanding of cars,” said Chen. “As we grew up, the strong development of domestic brands has made our choices more diversified.”

Chen believes that NEVs also have a social attribute. “You might verbally admire luxurious traditional cars, but many NEVs make you want to post about them on social media,” he said.

In the first half of April this year, the penetration rate of NEVs in China exceeded 50% for the first time, surpassing gasoline cars and forming a parallel market structure.

Contrary to common perception, young people emphasize not only quality of life but also cost-effectiveness and return on investment. Luxury cars are not the first choice for the emerging generation. For them, buying a car is not just a means of transportation but also an investment.

NEV depreciation and market dynamics

During the period of rapid iteration of NEV technology, people prefer to change cars every 3–4 years. When they sell their vehicles, they often face significant price drops. Therefore, everyone considers how to maintain the value of their vehicles.

Guazi calculates the retention rates of vehicles based on their power types. In April 2024, used NEVs not only have lower retention rates but also suffer a 10% higher price drop than gasoline cars in the first year of ownership. From January to April, the average retention rates of used NEVs for one, two, and three years of ownership are 60%, 51%, and 43%, respectively, equivalent to a 50% price drop in two years.

The low retention rate of NEVs is due to several factors. New technology brings high premiums, making it difficult for used vehicles to retain their value. Concerns about battery degradation are magnified in pricing. Subsidies can also lead to a decrease in nominal retention rates.

Additionally, the pricing strategy for new cars significantly impacts the value of used cars. With the annual launch of new models, technological advancements, and reduced battery costs, car manufacturers often adopt price reduction measures to expand market share. However, these price cuts have a chain reaction on the used car market, making even well-performing used cars less competitive if their prices are higher than new models after price cuts.

A stable, value-retaining option

In contrast, used NEVs have become a better choice. Once the price of a used NEV reaches a certain threshold, it tends to stabilize over a long period.

New car owners’ concerns can be seen as opportunities for used car buyers—while NEVs have low retention rates, they offer unique purchasing opportunities for secondhand buyers.

Take the Li One, for example. According to data from Guazi, the price of a used Li One drops to 55% of its original price by the third year but significantly slows down in the fourth year, retaining 49% of the original price, and still retains 44% in the fifth year. The same price curve applies to models like Tesla’s Model Y, the Xpeng P7, and Leapmotor T03.

As an investment, used NEVs are more friendly and cost-effective for young people. According to Guazi, young people can experience different NEV models every year for three years for the price of one used car. For example, with RMB 220,000 (USD 30,940), one could try out all current Nio models within three years by changing cars annually.

This approach aligns well with young people’s consumption habits and desire to try new things constantly.

“I bought a used electric car to start my own business,” said Xiao Chen, a freelancer in Shanghai. Xiao left an internet company in 2022 and started taking orders in WeChat groups last summer, offering services like pet feeding and plant watering. She calculated that a decent pre-owned NEV would cost less than RMB 100,000 (USD 14,060), and even if she drove 200 kilometers a day, the charging cost would be just a few dozen RMB—compared to traditional gasoline cars, as gasoline costs are as much as ten times higher.

More importantly, the price advantage of used NEVs does not come at the expense of performance and reliability. The three key components of NEVs—battery, motor, and electronic control—have lower physical wear and tear compared to traditional gasoline cars, providing significant durability advantages. Advances in battery technology and cost reduction have also mitigated concerns about range and battery replacement costs.

Thus, even under similar conditions, users of used NEVs can likely enjoy a driving experience closer to that of a new car compared to users of used gasoline cars. Moreover, the generally lower retention rates improve the likelihood of consumers getting better value for their money.

Therefore, buying a used NEV represents a fast-rising consumption trend among young people. It is increasingly like consumer electronics, allowing young people with less financial capacity to enjoy the experience and added value that comes with car ownership.

The need to set industry standards

However, some people still have concerns about used NEVs.

After decades of development, gasoline cars have become a well-understood industry. Any experienced driver can judge a car’s basic condition by listening to the engine and observing its driving state. With a paint thickness gauge, larger defects can also be identified independently.

But in the realm of NEVs, the experience of these “old hands” is rendered obsolete.

Recently, many owners of used NEV dealerships have been complaining that the business is too difficult. One reason is the loss caused by the price drop of cars stuck in inventory, which can wipe out two years’ profits in just a few months. The bigger issue is that there are no national or recognized industry standards for the pricing, inspection, and assurance of used NEVs. The unique characteristics of used cars—varying prices and non-standard conditions—make inspection and after-sales service particularly important.

This problem could be solved, for example, by adopting a “fast in, fast out” strategy for used NEVs, where newly acquired cars are sold within a week, and pricing is based on market trends.

But the inspection and assurance steps cannot be addressed through business operations alone. The shortened selling cycle makes it harder for consumers to thoroughly understand the car’s condition, creating a vicious cycle. To avoid price losses, dealers need to sell quickly, yet selling quickly prevents solving the non-standard vehicle inspection and after-sales issues.

How can this cycle be broken? Parkinson’s law suggests that the importance and complexity of a task expands in proportion to the time allocated for its completion. Therefore, when no answers are found, a different perspective is needed.

For instance, scale can address price considerations, and efficiency and space can address time considerations. Filling information gaps can speed up the recognition timeframe.

In the field of used NEVs, large platforms like Guazi, due to their vast amounts of vehicle information and resources, have inherent price advantages. For example, Guazi has over 10,000 used NEVs for sale, including more than 600 units of Tesla’s Model 3. This is equivalent to gathering hundreds of dealers for public sale and quotation, using market mechanisms to make prices more reasonable.

Moreover, with numerous offline channels and comprehensive logistics systems, large platforms like Guazi can save time in other steps and leave more time for users. For example, Guazi offers a seven-day test drive service that allows users to thoroughly experience the vehicle. A study by Guazi conducted in 2023 showed that professional assessors could identify about 83% of car-related issues through static inspection, while users could find about 17% through dynamic test drives within seven days. This service enables users to better understand the vehicle, especially the battery range concerns that new NEV buyers care about the most—no matter how advanced battery testing and range estimation are, they cannot replace the accuracy of actual driving.

Regarding industry standards, large platforms like Guazi, with extensive and relatively complete vehicle information and sufficient transaction cases and after-sales service data, can digitize and informatize various indicators. By identifying technical indicators affecting used car quality and confirming reasonable threshold ranges, they can bridge the gap in professional knowledge. Thus, industry standards can gradually be established and improved based on this foundation.

It is foreseeable that the prices of both new and used cars will continue to fluctuate and adjust until they reach a reasonable and stable state, which may take at least 3–5 years to achieve.

Therefore, used NEVs will continue to see relatively stable growth in the coming years. However, deeper exploration is needed to improve rules and establish standardized processes.

KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Xiao Xi for 36Kr.


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