Car finance and leasing companies are losing ‘hundreds of millions’ of pounds at the hands of the rapid depreciation of electric vehicles, the trade body has warned.
In a letter penned to the Government’s Transport Select Committee, The British Vehicle Rental and Leasing Association (BVRLA) said its sector has been the driving force behind EV growth but is now being left to ‘shoulder’ massive losses resulting from plummeting residual values.
This is because demand for used electric cars is ‘struggling to keep pace’ with the volume entering the second-hand market at the end of fleet, lease and rental contracts – something that is predicted to increase by 178 per cent over the next three years.
An oversupply into a used market lacking EV appetite and riddled with public scepticism means preowned electric cars have lost more than half their value in the past two years, depreciating faster than any other fuel type.
And used EV prices are forecast to fall by a further 28 per cent by 2030, when sales of new petrol and diesel cars will be outlawed and used examples become increasingly appealing.
The BVRLA says fleet operators left to ‘absorb the heavy financial impact’ are recouping losses via hiked interest rates and car financing costs for new customers.
Car finance and leasing companies are losing ‘hundreds of millions’ of pounds at the hands of the rapid depreciation of electric vehicles, the trade body has warned ministers this month
A fundamental mismatch of second-hand EV supply and demand has left the fleet sector burdened with unsustainable ‘financial pressures,’ it continued.
This is because fleet operators use residual value predictions to calculate the cost of finance and lease deals for customers.
But EV value forecasts from two or three years ago have proved wildly off the mark due to a lack of appetite for second-hand electric cars.
As a result, the EVs they’ve suppled to customers are today worth much less than they originally expected, leaving providers with the realisation of losing thousands of pounds on every electric car they put into the used market.
Auto Trader, the nation’s largest used car platform, in its latest Retail Price Index said supply of used EVs surged by 54.7 per cent year-on-year in March, largely due to ex-lease vehicles returning to the industry.
This outpaced EV demand growth of 35.9 per cent year-on-year.
‘The imbalance between supply and demand is putting downward pressure on used EV prices,’ it said.
The average value of a used EV in March was £25,190, which is down 1.6 per cent on February.
With finance and leasing providers now attempting to recover their significant losses via increased costs for customers, the BVRLA says this could be a hammer blow to new EV demand, estimating it could wipe out 290,000 registrations over the next 24 months.
The letter said: ‘Without a stronger used EV market where values are stable, the future of the entire transition to electric vehicles is at risk.’
The trade body’s additional warning stated: ‘Such an outcome would be at odds with the ambitious decarbonisation targets set by government and prevent progress from accelerating.’
Auto Trader’s latest Retail Price Index said supply of used EVs surged 54.7% in March, largely due to ex-lease vehicles returning to the industry. However, this outpaced EV demand growth of 35.9%
‘The imbalance between supply and demand is putting downward pressure on used EV prices,’ Auto Trader said
Delivering the letter in Parliament on 4 April, BVRLA chief executive Toby Poston said: ‘The used car market is nearly four times the size of the new one. Maintaining healthy demand and values for second-hand electric vehicles is essential if we want to deliver a sustained transition.
‘A lack of government incentives or affordable public charging infrastructure means that too few used car buyers or dealers are seeing the benefit in going electric.
‘As a result, used EV supply is outstripping demand and prices are continuing to fall.
‘This depreciation is costing fleets hundreds of millions and being passed on to new buyers in the form of higher motor finance costs.’
He added: ‘To restore confidence in the net zero transition and sustain a healthy electric vehicle ecosystem, the Government needs to intervene.’
The BVRLA said EV depreciation is costing fleets thousands of pounds each time they put a used EV into the second-hand market. These losses are being passed on to new customers in the form of higher motor finance costs, which could dramatically slow new EV registrations
The warnings come four months after This is Money revealed the dramatic depreciation of EVs is creating a ‘car leasing crisis’ that threatens to push monthly costs higher for customers and force them to run older battery models with shorter ranges.
Auto Data Solutions – a specialist automotive consultancy firm – told us in December that there is ‘no end in sight for the EV residual values crisis’.
Some EVs, originally forecast to retain over 40 per cent of their list price after three years, are achieving sale values in the 20 per cent range, it suggested.
On a car with a new list price of £40,000, that’s an unexpected loss of over £7,000.
This problem has already cost leasing companies ‘hundreds of millions of pounds,’ it told us.
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