👉 Background: Electric vehicles have been all the rage in the car market since Tesla hit our shores in 2014 with $96,000 cars. Since then, almost every car maker has tried their hand at electric vehicles — from luxury brands to mid-price automakers and new entrants.

👉 What happened: New research from MA Financial Group’s Moelis investment bank shows that there is an oversupply of luxury electric cars. And as a result, car dealers have needed to significantly discount its luxury stock from Mercedes and BMW to clear it… even at a loss!

👉 What else: Part of the reason for the decline is the entrance of cheaper EVs, like BYD and MG. The other reason is the slow rollout of charging stations, and this is creating a residual value risk for electric vehicle owners.

What's the key learning?

💡Residual value risk is the uncertainty around the future value of an asset, like a car.

💡According to CarExpert, a car like Toyota Rav4 will be worth about 73% of its purchase price after 5 years. But, the tech advancements in electric vehicles has been rapidly evolving, and as more competitors have come into the market, the price of electric vehicles has declined.

💡For example, the price of a Tesla has dropped by nearly 20% over the past 12 months. So, it doesn’t give EV drivers confidence about the future value of its car. And without price stability, it’s no surprise that luxury carmakers are struggling to sell their vehicles.