UK’s leased fleet is the cleanest ever as EV transition accelerates

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 companies. It is sponsored by Ford, Allscreens Nationwide, Cox Automotive, Fleet Procure, FMG, Geotab, Jaama, Leasing Portal, Mer, Nexus, System Edstrom and vGroup International.

Few carrots have proved as swiftly successful as the Government’s highly supportive benefit-in-kind (BIK) tax regime in its goal of luring company car drivers to convert to zero-emission vehicles.

The past three years have seen a 17% decline in the average CO2 emissions of cars on the FN50 fleet to just 76.1g/km, and the average for new cars on order is a super-clean 58.7g/km, 22% down on 2023.

Rewind a little further and the transformation is even more dramatic. In 2019, just 2.8% of new orders were battery electric vehicles (BEVs).

This year, well in excess of a quarter (27.1%) of deliveries were battery-powered, and the technology’s share of future order banks is substantially higher.

Tax-friendly plug-in hybrid cars also grew their market share, up to 16.6% (2023: 13.7%) of the total fleet, and account for 24.7% of orders in the past 12 months, triggering mixed feelings among leasing companies.

For some, these are the natural stepping stones to fully electric cars.

For others, they are an engineering abomination that demands the most disciplined fleet management to ensure drivers do actually recharge the batteries.

Among fossil fuel options, new deliveries in 2024 have seen the continued strength of petrol cars, slipping marginally to 26.2% of orders in the past 12 months (2023: 28.5%), while diesel continues its slide to oblivion, down to 8.1% of deliveries (2023: 10.5%).

The destination of zero emission vehicles, at least for business customers, is now clear, although the trajectories of leasing firms vary greatly.

A granular inspection of FN50 data reveals a significant divergence in the penetration of EVs on leasing company fleets. Unsurprisingly, those with substantial salary sacrifice businesses have the highest proportion of electric cars (sal/sac schemes work best financially for zero emission cars).

But other correlations are evident, too. As a rule of thumb, the larger the leasing firm, the higher the percentage of EVs in its fleet.

Larger corporate customers

These firms are more likely to supply larger corporate customers, which, in turn, are more likely to have ambitious ESG agendas that require a swifter transition to electric company cars than SMEs and personal contract hire customers are pursuing.

“We’ve been putting carbon footprint data onto every quote we have produced for at least five years,” says Nick Hardy, sales and marketing director, Ogilvie Fleet.

“We can report on carbon emissions really easily because we’ve stored all that historic data, and it’s actually become a standard in our online reporting suite.”

Some leasing firms in the top half of the FN50 are now more than 50% electric, and the BEV share of their 2024 orders is even higher.

Looking across the FN50 as a whole, the lowest average CO2 emissions posted by a leasing company is just 17g/km, and the lowest in the top 10 is 38g/ km.

But, lower down the FN50 table, EVs account for as few as 5% of some leasing company fleets, and barely 10% of the orders they delivered this year, which explains why the average CO2 emissions of some leaseco fleets is still above 100g/km.

Even for some medium and large fleets, the cost and operational compromises of electrifying company cars remain prohibitive, regardless of the BIK and national insurance contribution (NIC) savings.

Once the low hanging fruit has been electrified, the next stage is proving to be exponentially more difficult, especially for drivers unable to charge their cars at home.

Public charging costs about four times as much and risks taking time out of a driver’s working day, undermining productivity.

“We often talk of fleets within a fleet – cars acting as vans, business-need workhorse company cars, perk company cars and salary sacrifice,” says Christopher Caddick, head of business development at JCT600 VLS.

Challenges remain

While it’s pushing at an open door to switch a driver from a petrol or diesel BMW 3-Series into an i4 or Tesla Model 3, given the tax savings, finding a viable battery-powered car for an employee accustomed to a lower medium sector diesel estate is far more challenging.

“Those vehicles still don’t really exist at the right price point,” says Caddick. “Do those customers have the deep pockets to invest in the charging infrastructure as well as the cars?

“And can they risk disrupting their business in pursuit of a goal that may be not as important to their shareholders as it is for some large corporates? Possibly not.

“That’s why we’re spending a lot of time helping customers on that journey, providing demonstrator vehicles, doing cost analyses and developing business cases for different user profiles.”

Reticence to switch to EVs aside, there’s no escaping the clock ticking down to the end to the sale of cars with internal combustion engines.

The new Labour Government pledged in its manifesto to restore the 2030 deadline for the ban, and the Zero Emission Vehicle Mandate is forcing the transition.

In 2024, FN50 company deliveries have been well ahead of the 22% share of EVs stipulated by the mandate, and have almost achieved next year’s threshold of 28%.

The trouble brewing is that these EV registrations are dominated by company cars, which are running far ahead of the private car market in the transition to electric.

The Society of Motor Manufacturers and Traders (SMMT) has repeatedly highlighted this year how fleets are accounting for upwards of three-quarters of EV sales, and once registrations were counted for the important new car registration month of September, the data showed that year-to-date private EV demand is actually down -6.3% on the same period of 2023.

Such a sharp disconnect between fleet and retail sales is causing jitters among residual value forecasters concerned that supply of used EVs will far exceed demand when these lease vehicles are defleeted in three or four years’ time (see page 80), perpetuating the disposal losses suffered on EVs this year.

Finally, much as leasing companies and their business customers would like to portray their rapid uptake of EVs as environmentally-driven, most concede that it is BIK tax bills rather than the fate of polar bears and ice caps that have underpinned demand.

This report goes to press before the new Government’s first Budget, and while HMRC has confirmed BIK rates until 2028, any significant increase beyond this date could seriously jeopardise the pace of progress, warn leasing firms.

“The potential adjustments to BIK rates, fuel duty and other elements in the Budget could reshape the fiscal landscape for fleet operators,” says Ian Turner, chief sales officer at Alphabet.

“These changes could have far-reaching effects on vehicle choice, operational costs and overall fleet management strategies.”

The leasing industry faces significant change as electric vehicle residual values continue their two-year decline, impacting profits and prompting calls for government support of the used EV market. The impact has been significant: after the record £2 billion profits seen by the FN50 in 2023, a £645 million reduction has been recorded this year.

Yet, this year’s FN50 also brings signs of robust growth. For the first time, funded fleet levels have surpassed 1.8 million vehicles, breaking a record set only a year ago. Both car and van totals saw increases, with the latter returning to growth after last year’s decline. Additionally, this year has been marked by change across the top 50 leasing companies with 5 new companies entering the list and 8 from last year appointing new leaders. 

This dynamic landscape—driven by innovation in AI, fleet management, and emissions strategies—is explored in 2024's FN50 report, along with key industry challenges and growth areas.

It is sponsored by Ford, Allscreens Nationwide, Cox Automotive, Fleet Procure, FMG, Geotab, Jaama, Leasing Portal, Mer, Nexus, System Edstrom and vGroup International.