Collapsing BEV values pose “existential threat” to leasing industry

The UK’s vehicle leasing and rental industry is facing an “existential threat” due to the collapse in battery electric vehicle residual values, the BVRLA has warned.

After increasing through – and immediately after - the Covid pandemic, the industry has seen BEV RVs drop by around 50 percentage points since August 2022, including a fall of around 25 to 30 percentage points over the past year.

This slump in values has been caused by strong supply into the company car and salary sacrifice sectors, but only limited demand when the vehicles hit the used market.

Toby Poston, director of corporate affairs at BVRLA, told the organisation’s Fleets in Charge conference: “If we can describe climate change as an existential threat to the planet I think, for many, the volatility and the collapse we’re seeing in the used market poses a potential existential threat to our industry.

“The real concern is those depreciation losses that members are seeing. Yes, you can say that there are fantastic bargains out there for used buyers, but that depreciation burden that members are having to bear is eventually going to have to be resolved in higher new vehicle lease rates, which is not good for the EV transition.”

BVLRA chief executive Gerry Keaney agreed. He added: “The used car market for EVs is, I hesitate to say, very close to what any economist would call market failure.”

As part of last year’s FN50 research of the UK’s largest contract hire and leasing companies, Fleet News reported that, collectively, they made pre-tax profits of more than £2 billion thanks to record-breaking used car prices driven by the semiconductor shortage.

However, in February vehicle leasing giant Ayvens reported a 22.2% drop in pre-tax profits year-on-year, down from £1.42bn to £1.1bn.

Figures suggest a £341m year-on-decline in used car sales. Ayvens blamed, in part, falls in residual values as the market normalised.

One of the issues cited at the conference about the used car EV market was a lack of confidence in the technology, as many potential customers fall foul of the many myths about the technology reported in the mainstream media.

Edmund King, president of The AA, said: “I think the main problem with the depreciation is a lot of the misinformation that’s gone around.

“The fact is that used EVs are good. The batteries work well, for example, Quentin Willson (television presenter and campaigner) had a Tesla S model on the recent EV Rally that had done 250,000 miles and the battery was 92% as good as it was when it was new.

“A lot of these myths about EVs just don’t hold up and I do think part of the depreciation problem is linked to that lack of correct information.”

He also called for the consideration of radical solutions to make EVs more attractive on the used market. “In Scotland they looked at a 0% finance deal for used cars, while at the moment some of the salary sacrifice schemes are offering used EVs, so I think we need to encourage those sorts of initiatives,” he added.

However, Ian Plummer, commercial director at Auto Trader, told the conference his company’s statistics show there is a willing pool of buyers for used EVs – if the price is right.

He said: “Are people interested in used EVs, and is there an equation that works? Yes they are and there is an equation that works. It’s price parity.”

And this is where the issue lays, with Autotrader research showing the average new price of a battery electric car is £49,165, compared to £37,435 for an ICE car.

Plummer added: “I will give you an example of how prices have moved for three-year equivalents of a Tesla Model 3 compared to a BMW 3 Series.

“Back in the of 2022, there was a £22,000 price difference between those two models. Over the course of the next year or so, that price gap disappeared.

“If you’re a funder holding these cars on the fleet, it’s very painful.”