Regulation, cybersecurity and electric transition top 2025 fleet concerns

This article has been taken from the FN50 2024 special report, providing insight into the UK’s biggest car, van and truck contract hire, leasing and fleet management.

The list of challenges facing fleet decision-makers over the next 12 months is as extensive as it was a year ago, according to leasing companies, although many of the issues have changed from those outlined by bosses in 2023.

The one consistent is the transition to electric, particularly for light commercial vehicles (LCVs).

However, uncertainty caused by a new Labour Government, the fear of regulatory and taxation changes, cybersecurity worries and high interest rates are all cited by multiple FN50 companies as concerns.

Nevertheless, electrification of vehicle fleets remains the dominant challenge, with 33 of 35 companies highlighting it.

The main themes include electrifying vans fleets, slumping residual values (RVs), pricing volatility, benefit-in-kind (BIK) tax uncertainty and the impact of cheaper imports from China.

With the Labour Government confirming plans to consult on its intention to bring forward by five years the ban on the sale of new petrol and diesel cars to 2030, several leasing companies pointed to the stresses this is putting on fleets.

John Wright, managing director at Ford Fleet Management, describes the phasing out targets as “ambitious” and adds: “Despite growth in charging infrastructure, there are still gaps, particularly in more rural areas.

“Costs for infrastructure set-up, though essential, can be substantial and there are plenty of economic uncertainties such as fluctuating energy prices and inflation to contend with.”

The ZEV Mandate, which requires manufacturers to achieve increasingly stringent full electric sales targets as a proportion of the total UK registrations, starting with 22% of cars and 10% of vans this year, is forcing some manufacturers to take actions that could unsettle the market.

According to Liquid Fleet, these include “imposing EV ratios on all orders”, forcing fleets to accept a minimum proportion of full-electric vehicles on all bulk purchases.

“Evolving manufacturer tactics – such as the short-term strategy of heavy discounting to move units – may disrupt supply chains and market stability,” says Alphabet chief sales officer Ian Turner.

“While discounts can help in the short term, they often undermine the long term value of fleet.”

Leasys UK marketing director Shane Coomber adds: “As the ZEV Mandate takes hold, we will see further restrictions on internal combustion engine (ICE) vehicle supply and companies are likely to have the need to transition to electric vehicles (EVs) quicker than anticipated.”

Kinto UK believes the ZEV Mandate could act as “a catalyst” for greater battery electric vehicle (BEV) competition and price realignment (list price reductions and increased discounts).

“It has opened the door to other OEMs (Chinese) who have not traditionally distributed in the UK and, along with OEMs developing agency models, will undoubtedly change the face of the UK marketplace,” says Kinto commercial director Lee Hamlett.

There is some scepticism about the pace of change, with Alliance Asset Management stating its primary concern is “the constant drive to reduce CO2 regardless of the science and/or the impact on the industry”.

Weakening RVs and lack of demand in the used market for EVs is exercising the minds of many FN50 leasing companies.

Agility Fleet lays some of the blame at the door of the pricing guides for not reacting quickly enough to the plummeting RVs.

“EV residual values are still too high – we are all writing business based on unrealistic RVs,” says the company.

“Operators are also extending EV contracts to defer/mitigate the loss. All this is going to do is falsely depress the supply, which is kicking the can further down the road.”

Volatility in EV pricing, driven by RV volatility as well as OEM price changes will be a major challenge in the coming year, according to Lex Autolease commercial director Paul Hyne.

“The ability to define policies/employee grade or bandings/costs for company car policies or LCV total cost of ownership (TCO) comparisons to support CO2 reduction and sustainability policies with any sort of confidence or stability will be very difficult,” he says.

RVs will remain an issue for the next three-to-four years, predicts Ogilvie Fleet.

Sales and marketing director Nick Hardy is calling on fleets to work closely with leasing companies and other suppliers to ensure the balance between costs and employee retention is aligned.

“As always, this will mean some degree of compromise on all fronts and it’s the balance of that compromise and the mitigation of increased costs that will be keeping fleets busy this next 12 months and beyond,” he says.

“We’re recommending to clients that they extend existing contracts, review holding terms, realign mileages and reconsider/realign choice lists and parameters.

“With drivers having the benefit of extremely low BIK on EVs, they also therefore have some room for additional contributions if needed.”

One reaction by fleet and some leasing companies to residual value volatility in the electric market is to agree longer leasing terms as a cost-saving measure.

However, this “may backfire” if the market shifts unfavourably, states SG Fleet.

Chris Salmon, its commercial director, says: “Conservative approaches to vehicle selection, combined with manufacturers beginning to restrict ICE vehicle supply and force EV quotas, add further complexity.

“The key to navigating these challenges lies in staying adaptable, continuously assessing options and working closely with a flexible, committed supplier,” he advises.

“This partnership will be crucial in helping fleets pivot as necessary to new approaches in funding, vehicle choice and operational strategies.”

Pure Leasing managing director Zaf Iqbal predicts a “massive swing” in favour of Chinese brands such as BYD who have “a lower capital cost of entry and residuals that appear to be stable and in the right ballpark for the second-hand car market”.

Radius Vehicle Solutions believes it could put additional pressure on RVs “if cheaper Chinese imports flood the market”.

Ayvens, the rebranded ALD Automotive and LeasePlan merger, believes many companies will now be grappling with their pledges to achieve net zero by a fixed deadline.

With renewal cycles of 48 months or more, the next year will be “crunch time” for organisations targeting 2030, it says.

With much of the low hanging fruit already plucked, companies with employees who are unable to charge at home will face a transition dilemma.

“Electric costs for public charging – and how you can reimburse employees for this – continue to be a problem,” says Arval UK managing director Lakshmi Moorthy.

“20% VAT on public charge is a problem for personal drivers who would only pay 5% at home.”

In addition, public charging means taking time out of the working day, says Ayvens, as well as costing “around four times” as much as charging at home.

“For some businesses and fleets, that will make some portion of their fleet uneconomical to run on EVs, meaning they face a difficult decision about what to do and when,” the company says.

LCVs are a particular problem with the TCO of electric vans much higher than diesel models. The operational difficulties “are even more acute”, says Ayvens.

“Few fleets have electrified van fleets to any great extent, and those that have find that reduced payloads, less-than-advertised electric ranges, high levels of charging downtime and/or limited capacity for depot charging place major constraints on the extent to which existing fleet operations can be replicated using EVs.”

Alphabet’s Turner adds: “A limited pool of models, particularly those that can handle heavy payloads and towing with a reasonable range, is restricting the transition to eLCVs. Infrastructure is a major issue, too, as many drivers cannot charge at home and there are still too few usable charging bays, especially for larger vehicles.”

However, van and truck specialist Novuna Vehicle Solutions highlights the heavier assets as being the most challenging for fleets.

Paulo Larkman, Novuna fleet consultant, points to the “attractive tax regime” for cars which is accelerating the transition to electric, while there is a growing number of electric van options available in the UK.

“There are very limited opportunities to decarbonise heavy goods vehicles through electrification,” he says.

“The challenge is to identify journeys that could be undertaken in an EV (as the charging infrastructure is present and growing) and to identify lower-emitting drivetrains where electrification is not possible, such as hydrogen.”

While electric transition is undoubtedly a “significant challenge”, according to VMS (Fleet Management), it also points to the Vehicle Emissions Testing Standards Mandate, with Euro 7 rules due to come into effect across Europe in July 2025.

This will add another layer of complexity, says the company, “requiring fleets to meet stringent emissions standards, which often necessitates additional investment in new technologies and infrastructure while forcing percentages of new fleet on clients”.

VMS also highlights delays in franchised dealer repairs, especially for warranty issues, and “problematic” performance of breakdown operators, “except in cases where manufacturers manage their own in-house services”.

Other challenges raised by a minority of leasing companies included rising maintenance costs and downtime management (Grosvenor Contracts Leasing), the continued ramifications of Brexit (Kinto) and the growing burden of Environmental, Social and Governance (ESG) reporting (Alphabet).

Alphabet also threw cybersecurity risks into the mix as vehicles become more connected.

“With the increasing use of digital systems, telematics and vehicle connectivity, the threat of cyberattacks is becoming more pronounced,” says Turner.

“Robust cybersecurity measures and protocols will be crucial to protect sensitive data and maintain fleet integrity.”

Meanwhile, SG Fleet is keen not to overlook the age-old fleet macro challenges of securing the right vehicle for the right price, avoiding cost leakage, managing financial and operational risks, reducing vehicle downtime and keeping employees satisfied.

“The nature of these challenges can shift over time, and they often cycle in response to broader industry trends,” says Salmon.

“However certain elements remain constant: ensuring optimal vehicle manufacturer availability, managing funding costs and interest rate fluctuations and dealing with residual value market variations.”

Amid the myriad national concerns, one localised political issue was also broached, with a warning from Lime Leasing that it could become a national concern under the Labour Government.

“The new Government have made it clear that they will be targeting the motorist,” says the company, which sits just outside the FN50.

“Wales has had a Labour Senedd for more than 20 years: they have 20mph blanket limits, no new roads built, etc. This is coming down the road for all the UK.”