The value of gas-powered cars in an electric world

Mike O’Donnell is a professional director, writer and animator, and a regular opinion contributor.

OPINION: My buddy Jonathon is a colorful character. By day, he wears bespoke suits, English brogues and runs a communications business in Wellington.

But on the weekends, you’ll likely find him in the mountains, wearing a Swazi jacket and a Trapper Nelson rucksack, out in search of venison for the freezer.

He dropped me duck and venison sausages last week, silently gliding to my house in his electric car.

While that might not seem remarkable, for Jonathon it’s deeply irrelevant, as his other passion has been motor vehicles. When I first met him, he rode around on a leaky Triumph Tiger motorbike. He spent more time fixing it than building it, but he loved it.

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Then followed a series of aging BMW sports sedans as well as an immaculate 1960s Land Rover 2-series, which he named his company after. At last count, he had had nine Beemers, none of them under 20 years old.

But all that is now a thing of the past. Not so long ago, Jonathan rented the cheapest Tesla he could find, a somewhat tired Model 3. Now he’s a changed man.

Over the past couple of years, the value of used premium, specialty and classic cars has skyrocketed.

VANESSA LAURIE / Stuff

Over the past couple of years, the value of used premium, specialty and classic cars has skyrocketed.

He explained to me that it was simply a technological leap. In his words, the days of a small fire burning under your hood to generate power are over.

According to Jonathon, the electric driving experience is better, the operating system keeps improving, it’s family-friendly, range isn’t an issue, and the cost of running is non-existent. After six months of overnight charging, he has yet to notice an impact on his electric bill. In his mind, he drives for free.

As a previously prolific consumer of dino juice, this is quite a turnaround. On the same day Jonathon filed the snarlers, the AA issued a warning that Kiwis should prepare for gasoline to hit $4 a liter this year.

Although I haven’t had any stellar experiences with AA coming to help me on the side of the road, I have found their consumer advocacy to be top notch. So if they say $4 a litre, I believe them.

Consider what that means for a Kiwi family that has, say, a Corolla (50 liter fuel tank) and a Commodore VY (75 liter tank). Filling both cars will cost $500.

The average household income is around $76,000, which equals $1,150 per week after tax. If you fill up both cars once a week, that means you’ll have $650 left over for all your other expenses.

No wonder the government decided this week to step in with an emergency solution to give the Kiwis a break for three months. Reducing 25 cents per liter via excise duties and halving public transport costs is technically elegant and politically expedient. This gives significant relief but also signals two other things.

First by being clearly marked as temporary, Kiwis are told to prepare for the inevitable if they want to hang on to their private fossil fuel transport. Second, it gives all drivers a serious financial incentive to switch from private to public transport.

Being a car guy, I’m interested in the long-term value of the assortment of lightly rusted cars in my stable.

Rising fuel and certain car prices are making electric vehicles more attractive.

David Paul Morris/Bloomberg

Rising fuel and certain car prices are making electric vehicles more attractive.

This is a particularly vexing issue given the profound impact that Covid-enforced saving has had on the value of local cars.

Over the past couple of years, the value of used premium, specialty and classic cars has skyrocketed north. Simply track the value of late model Holden SS Commodores, BMW M cars or Toyota Land Cruisers

They all skyrocketed. Just like veteran cars like Escort Sports, classic Minis and pretty much anything Italian. Minis have literally doubled in value over the past two years. Is it sustainable or is it the last hurrah before the dead cat’s bounce time?

At some point, this price escalation has to stop as EV prices fall, EV charging networks expand, oil prices rise further north, and government encouragement becomes irresistible. The question is when?

Basically, there are two scenarios.

One is that the charging infrastructure is rolling out at pace, manufacturers continue to lower retail prices and gasoline tracks to $4 a liter and remain elevated. Say by 2028 you can buy an electric vehicle for $35,000, there are enough chargers to drive you anywhere in the country, and gas costs $4.50 a liter .

In this scenario, the utility of internal combustion cars will be poor and the market value will drop like a stone for anyone except technical applications or a small group of enthusiasts.

The second is that in 2028 EV prices are close to the current range of $50,000 to $70,000, supply is still tight while charging remains uneven and gasoline remains close to $3. the liter. In this scenario, efficient gas/diesel cars provide real utility to people, resulting in a liquid market with decent values.

In a world where electric atheists like Jonathon have become converts and where the sale of new petrol and diesel cars will be banned from 2030, it must be said that the first scenario seems more likely than the second.

Mike “MOD” O’Donnell is a professional manager/president and owns more cars than strictly necessary.

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