Leasing firms have warned at how poor electric vehicle residual values is going to hit their business as EV volumes rise in the used car sector.
In its latest market report it said: “Like meteorologists tracking hurricanes, leasing companies are staring at the horizon and not liking what they see. There’s a named storm coming, and its name is electric vehicle residual values.”
The trade body said so far leasing businesses have been able to weather the impact of the 60% decline in used EV prices since 2022 by offsetting the disposal losses with the proceeds of healthy prices for end of contract petrol and diesel vehicles.
But it said this has only been possible because EVs constitute10% of their defleeted vehicles.
“Looking ahead, EVs now represent 37% of BVRLA members’ total lease fleets and 44% of new additions, with some companies already well above the 50% threshold.
“The concentration of EV residual value risk in the business contract hire and salary sacrifice sectors is extreme, with leasing companies keen to see private motorists account for a greater share of the new EV market.”
But the prospect of increased private EV sales was low given the cost of EVs relative to ICE counterparts.
“And if they are showing minimal interest in new EVs, there’s little hope for an uptick in interest among used car buyers, who will soon be presented with significantly higher volumes of second hand EVs, as well as a VED bill for an extra £410 per year from April if the EV costs more than £40,000 when new.
“Beyond supply and demand, there are further deflationary pressures on used EV prices. New electric cars and vans boast longer ranges and better technology, increasing the risk of rendering current models obsolete.”
The trade body said that EV residuals will also be hit by carmakers offering discounts to shift cars to meet ZEV Mandate targets
“[They are ]deploying discounts that are so large they are destabilising residual values, creating a vicious circle whereby they need to keep increasing discounts to offset ever weaker residual values.
It cited SMMT estimates that discounts have cost manufacturers £4 billion across 2024, a figure it says is unsustainable.