Used electric vehicle prices have dropped dramatically over the past year. Most people don't own an electric vehicle so they think it's someone else's problem. However, the drop in electric vehicles is the result of many factors and all of us will end up paying the price because of it.

As you can see from the chart below, used electric vehicle prices are down anywhere from 25 to 40% year-over-year. Currently, there are over 90 days inventory of electric vehicles on lots. The 90-day inventory of internal combustion engine vehicles is less than half of that. Let's walk through why these plunges in prices matter and how they will affect all of us.

Firstly, electric vehicles are very expensive to repair. Most of us thought that servicing electric vehicles would be cheaper than internal combustion engines, however, when an electric vehicle is in an accident, the price to fix the vehicle is either extremely high or the vehicle needs to be replaced altogether. The impact of this is significantly higher insurance premiums for all of us (including internal combustion engine owners). When insurance companies can increase premiums, they almost never go back down. Most people think that large insurance events hurt insurance companies, but they actually help by allowing them to increase the premiums – which then stay elevated into the future. This is very good for insurance companies. Unfortunately, it's not very good for consumers as all of us end up paying higher premiums.

Secondly, as prices of electric vehicles drop, financial institutions that provided financing become vulnerable. When a person buys a vehicle, and one year later realizes it's worth 40% less than they paid for it, they may tend to walk away from their lease or not renew it. In the end, the financing companies will be on the hook for the difference between the estimated value and the actual value. Again, this increases the cost to financing companies, who will then pass it on to all of their customers regardless of their vehicle type. When financing companies lose money, their only recovery method is to increase costs going forward. Unfortunately, we all end up paying higher rates because of it.

The takeaway from this is twofold: you probably don't want to own vehicle financing companies, and you probably do want to own insurance companies. Just for the record, we don't own any financing companies and we do own insurance companies!

I have also included a piece from our CIBC economics team entitled “Weather forecasts and weather vanes”

As always, if you have any questions, please feel free to give us a call at any time.

Have a great weekend.

Milan