Could second life batteries play a role in increasing the residual value of EVs?

The electric vehicle (EV) industry has revolutionised the way we think about transportation and sustainability. Yet, like any major transformation, it hasn’t been without its challenges. One of the biggest hurdles? Falling residual values for used EVs. These declining values are not only affecting the profitability of leasing companies but are also limiting the overall growth of EV adoption.

But the solution could lie within the vehicles themselves – specifically, their batteries. With a second life, EV batteries could become a key component in driving financial stability and bringing down residual values for the EV industry.

Falling residuals

Residual values (RV), the benchmark for pricing a vehicle at the end of its lease term, are critical to the leasing market, a vital segment of the automotive industry.  Strong residual values are important for sustaining the financial health of leasing companies, but data shows a worrying trend.

Used EV retail prices have fallen sharply, with a 60% decline in used EV prices since 2022, according to the British Vehicle Rental and Leasing Association (BVRLA). This market volatility is creating ripple effects across the industry:

• Pressure on Leasing Companies: The UK leasing market, worth an estimated £13.6 billion annually, has seen profits plummet as EV residuals decrease. Pre-tax profits for the 50 largest companies fell to £1.39 billion in 2024, down from £2.04 billion just a year earlier.
• Inflated Leasing Rates: Falling residuals are forcing leasing companies to increase prices on new EV leases, making them less attractive to consumers.
• Reduced Demand for New EVs: By 2027, nearly 300,000 fewer electric cars will be sold due to the cascading effects of lower used EV values, according to Oxford Economics. This slowdown in EV adoption means more CO₂ emissions remain on the road, delaying progress on climate goals.

Why are residual values falling?

The primary driver for lower RVs is uncertainty surrounding used EVs. Once the market better understands the value of the batteries within these vehicles, EV residuals should significantly improve.

Another factor is that the battery industry is evolving at an incredibly fast rate. This means that newer batteries are lower cost than those produced even five years ago. However, this will ultimately stabilise as we reach the end of the exponential price drop in $/kWh for batteries.

For used EV buyers, these plunging prices may seem like a win. But for the broader industry, they signal a critical issue – one that requires a different way of thinking.

A Second chance for EV batteries

When an electric vehicle reaches the end of its life, the batteries still have plenty to offer. In our experience, they retain up to 80% of their original energy storage capabilities – presenting a huge opportunity.  Instead of recycling these batteries prematurely, repurposing them for stationary energy storage can create immense value – both economic and environmental.

Our experience at Connected Energy proves this concept works. Through our E-STOR systems and collaborations with automotive leaders, we’ve demonstrated the potential of second-life batteries in a variety of applications. This can include supporting EV charging hubs and microgrids and capturing excess solar for decarbonisation goals. And based on our data, we now know that the same principles apply at scale, enabling large scale opportunities for energy storage developments which support the grid on a network level.

By monetising second-life batteries, leasing companies and OEMs can introduce an additional revenue stream, directly boosting the intrinsic value of a used EV. This not only addresses the issue of falling RVs but also enhances the overall sustainability of the global EV industry.

Battery-as-a-Service (BaaS)

We have spent over a decade working on second life applications for EV batteries, giving us unparalleled insights into the financial and operational models of second life energy storage.

We believe that the best way to build residual values for EVs is via a battery-as-a-service, or BaaS model. In this model, we integrate the batteries with our technology to provide energy storage and grid balancing solutions that deliver a proven return on investment.

Based on our data, the revenue generated via second-life applications can equal the cost of a brand-new battery pack – potentially thousands of euros per unit – a huge boost to the residual value of an EV.

For OEMs, it also improves the carbon footprint of an EV because reusing existing batteries for energy storage applications reduces the need to produce new batteries.

Looking further ahead, second life also solves the issue of having to pay for recycling. Recycling lithium-ion batteries remains a costly and energy-intensive process, with a negative scrap value averaging several hundreds of €s per pack. By extending battery lifespans through BaaS, we reduce the immediate need for recycling, giving the industry time to mature and costs to come down. Once the recycling industry matures to the point where it is paying for battery packs, this becomes an additional cost benefit.

Time to act

The EV landscape is shifting rapidly. With increasing volumes of used EVs entering the market, the window of opportunity for incorporating second-life applications is now.

By adopting a second life approach, OEMs and leasing companies can proactively solve the residual value problem and create long-term stability for the EV ecosystem. Talk to us to find out more.