As the market for pre-owned electric vehicles (EVs) expands, third-party companies have begun offering extended battery health warranties to protect buyers against the steep costs of battery degradation or sudden failure.
A typical warranty for a five-year-old EV battery costs approximately £350 per year, but this can climb to over £1,200 for high-performance models or vehicles with high mileage, where battery cell degradation is more advanced. Warranty providers attempt to price policies based on odometer readings and manufacturer-provided battery state-of-health (SoH) metrics. However, individual driving habits—such as frequent rapid DC charging, storing the vehicle at 100% charge in hot conditions, or aggressive acceleration—are notoriously difficult to monitor. Consequently, warranty providers must invest heavily in diagnostics and telemetry tracking. Despite these technological checks, economists suggest that the development of a robust secondary market for EV warranties is severely restricted by market failure originating from asymmetric information.
Using the information in Extract B, explain how 'asymmetric information' can lead to market failure in the market for used EV battery warranties.
