Asterisk: who here genuinely minds holding the baby? Who wouldn’t want to hold the baby? Perhaps I should have selected a different idiom.

Message begins.

The other day, I went to the homepage of the SMMT [Society of Motor Manufacturers and Traders, I think it stands for] to look at their press releases. Well, there was nothing very interesting there. So, I went to the BVRLA [British Vehicle Rental and Leasing Association, probably] to see what they had to say for themselves. Well, they had to say a quarterly report, which dated a couple of weeks ago, was timely if nothing else.

It turned out to be Quite Interesting too: not the bland self-congratulatory (citrus) marmalade I was expecting.

There was a bit of good news, and they led with that: the combined car and van lease fleet exceeded 2 million for the first time, showing a 13% growth on the year, far above the growth in vehicle registrations. The EV sceptic already knows the cause of this seeming anomaly. However, I’ll say nothing.

But by only the 4th paragraph of the summary, we’re into the bad news.

But whether leasing can sustain this growth is debatable. Leasing companies have haemorrhaged so much money on electric vehicle residual values that the percentage increase in [the price of] new lease rentals has risen faster than the percentage rise in the price of new vehicles, in order to cover heightened depreciation.

I had to read this several times to make sense of it. I’ve added a clarification []. Now, anyone who has been paying attention knows that used EVs are bargains. Or at least, they are depreciating as rapidly as fresh bread, so that after three years of lease, the amount the owners hoped to recoup is not in the market. Who would trust a 3-year-old battery that has been in the hands of someone who doesn’t care if it fails a day after it is returned?

Ever greater volumes of used EVs will reach the used market this year, and the majority will carry a disposal loss running into thousands of pounds for leasing companies.

The leasing companies are not looking forward to pay-per-mile, seeing in it a morass of admin.

They note that the strong performance of EVs is entirely due to favourable BiK.

The supportive benefit in kind tax rate for low and zero emission cars remains the prime catalyst for EV uptake, and explains the climate-friendly average CO2 emissions of new business contract hire (BCH) cars at just 43.9g/km. In the personal contract hire (PCH) market, where drivers do not enjoy the BiK advantage, average CO2 emissions are more than twice as high at 90.4g/km. BiK also explains why company car and salary sacrifice drivers account for three-quarters of EV sales in the new car market.

Well, if there is good news in the car leasing market… not so much in van leasing.

Van operators are struggling to afford the inflation in new diesel van rentals in a stagnant national economy, so it is unpalatable to pay even more to lease electric vans that are more expensive to acquire, offer less in terms of usability and performance, and are burdened with dismal residual value forecasts.

H’mm – it’s interesting that the BVRLA are prepared to admit that EV vans come with a usability cost. [HGVs more so.] Leasing companies…

…even question the viability of phasing out new diesel van sales in 2035.

Well, it’s not viable, but it’s nice that the industry is admitting as much. Is M. Miliband listening?

In rough terms, half the lease fleet are pure EVs. Half! Another quarter are “capable of zero emission driving.” Only a quarter are straight petrol or diesel. In fact, go back to 2019 and diesels were more than half the lease fleet; now, they are almost extinct.

The potent combination of supportive benefit in kind tax, a greater number of affordable EVs, and the ‘push’ element of the Zero Emission Vehicle Mandate have created a lease fleet out of kilter with the wider market, with an EV penetration beyond levels that leasing company leaders consider to be natural organic demand for the technology. They continue to seek solutions to avoid haemorrhaging losses on leases that started three or four years ago, and are now resigned to greater depreciation being baked into EV leases, pushing up rentals and slowing demand.

Funnily enough, private lessees, where BiK is not an issue, are not picking up EVs at the rate of business lessees: they don’t want them. Margins are under pressure, and

At the same time, leasing firms are reeling from the body blows of disposal losses on every electric vehicle that reaches the end of its contract.

On profits,

The FN50 report by Fleet News found that the combined pre-tax profits of the 50 largest vehicle leasing companies, responsible for financing close to 1.9 million vehicles, was just £122 million. Worse still, one-in-five firms reported a loss.

Lemme just divide one number by t’other: 122/1.9 = £64 per vehicle. Tight margin!

The major culprit for this downturn in fortunes remains the residual values of electric cars. Initial forecasts made in 2021 and 2022 have proved to be massively over optimistic, with leasing companies tracking a 71% decline in residual values from their peak in September 2022.

H’mm – it’s a pity the analysts making those forecasts didn’t listen to the sceptic sitting in the corner with a whippet and a pint of mild, who warned with a chuckle that he, and therefore everyone else as well, would not touch one with a bargepole. Not only because of the rational buyer’s innate distrust of a used battery, but also because the pace of model evolution was likely to make three-year-old EVs look like ….something from the Flintstones.

Firms now report a degree of stability in used electric car prices, albeit at levels slightly below their petrol and diesel equivalents, despite these cars costing thousands of pounds more when new.

The BVRLA bemoans the incoming pay-per-mile tax: a stupid and desperate imposition by a Chancellor who is allegedly about to receive her cards (rumours say 9th May; we’ll see).

The psychological impact of the tax appears to overshadow its financial cost, and Iceland’s EV sales did not recover until road charging was applied to every type of powertrain.

That’s something to look forwards to, eh guys? And how are the leasing companies supposed to report the mileage? Base it on the contracted mileage, or…?

Alternatively, an automated process that takes mileage feeds directly from connected vehicle telemetry would be even better, although firms acknowledge the political challenges of any system that looks like Big Brother is tracking drivers.

Not to put a tinfoil hat on, but that is the future. For all of us. Get a car that cannot be tracked, is the advice I am offering from my bunker, in my armchair made of tins of baked beans. Anyway. What about the “insurgent” manufacturers?

…cheaper cars are available, with the arrival of new brands sparking a price war. Legacy manufacturers are having to offer even bigger discounts than their Chinese competitors, because their starting prices are typically higher.

EU and US have applied tariffs, cutting the advantage of Chinese vehicles over local manufacturers. The UK has not. Although whether that is bravery, or insanity, is an open question. [If the “total” objective is EVs at whatever cost, then our stance makes sense.]

On the van front, I liked this quote.

One leasing director described the 300 eLCVs in his fleet as “300 too many…”

The depreciation on electric vans exceeds that of diesels by 50 to 100%, according to “a major retailer committed to decarbonisation.”

Manufacturers that have tried to force customers to include electric vans within their orders have seen customers walk away, say leasing firms…

Quite right.

Electric vans are “cost prohibitive and operationally not fit for purpose for most use cases,” according to one director … “Why would you pay more for less functionality? You just wouldn’t,” he said.

I have highlighted a couple of other passages in the report, but I think this is a good moment to say adieu to the BVRLA quarterly report. I salute their honesty.

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12 Comments

  2. Well done for digging that out. I don’t suppose the BBC or the Guardian will report on it.

    In a way, I am almost relieved to read it. I was starting to think that I had over-estimated my knowledge of economics and business models. For quite some time it has seemed to me that the EV leasing model made no sense for the leasing companies at the prices they charge, even after allowing for the bulk purchase discounts they no doubt obtain from the manufacturers/retailers. Now it would appear that I was correct after all. Phew.

    But what were the leasing company finance directors thinking, for goodness’ sake?

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  3. I guess you meant “leasing” companies. Looks like my leased VW hybrid wasn’t a bad deal on the basis of what’s bad for the dealer is good for the client. My actual motivation was not to have an expensive car in my estate when I croak it.

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  4. Max,

    Thanks for pointing out the errors in my post. I have now corrected these. What’s annoying is that I didn’t mis-type “leasing” three times, rather “autocorrect” changed it wrongly three times to “leading”, as it tried to do again just now!

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  6. Jit,  Thanks for digging up this report. It gives a much better picture of what’s really happening in the car market. Clearly the legacy manufacturers are taking a beating, especially in the UK, and it’s only going to get worse for them as the mandate bites harder and imports continue their rapid growth. Furthermore, most of the manufacturers have their own financial arms which support a lot of their sales: aiui they are not part of the BVRLA but must be feeling similar financial pain.

    We need to be careful when discussing depreciation because that is often based on published retail prices so can be deceptive because very few cars are purchased directly these days – and those few are never bought at list. The prices paid by lease and finance companies is, no doubt, very different from the RRP. Even so, the report shows they got it badly wrong, perhaps influenced by the market distortions around covid when the shortage of new cars drove used prices to ridiculous levels.

    Contrary to perceptions, used EVs are probably a safer buying proposition than an equivalent ICE, at least in the 3 – 6 year old bracket. They all have long warranties on the battery and motors – 8 years/100k miles is standard with some companies offering even longer. Further, there are tools available which allow the battery’s history to be examined: how much capacity has been lost; condition of the cells; frequency of rapid charging; etc.. In contrast, as we all know, the condition of a used ICE can only be judged by examination of visible bits, checking the records and, maybe, a test drive. There is no way – short of a strip-down – to tell if it has been repeatedly ragged from cold, run on cheap fuel, not had oil levels checked, yadda, yadda: the full Arthur Daley repertoire.

    I do wonder how much longer the govt will maintain the BiK tax breaks. They must be costing billions every year and the number keeps growing as more companies and employees take advantage. True, there is a phased increase under way but it’s pretty minimal.

    Unrelated to EVs, I was interested to read the section by Autotrader about how the market for older vehicles is showing a surge of interest. It reminded me that I need to do something about my own car!

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  7. Mike, thanks for the perspective. It’s hard for me to judge the value of a battery state of health check: what % is acceptable? I read that >80% is “very good.” [That’s what the AI tells me.] I would say no to an EV irrespective of the price, but I’m in a minority of never-EV curmudgeons, I’m sure.

    Regarding older cars, I may be projecting my own prejudices here, but I suspect that the average age of the fleet will only grow going forwards – I measured the average age at 10 years not long ago, which is the oldest it has been. And that is despite the draconian road tax that is killing perfectly good cars in the 9-20 years old bracket.

    Regardless of warranties, new cars do not appeal to me as an ownership proposition, whatever propulsion method they have. Leasing at least has the security blanket of knowing that any faults will be rectified by the main dealer, and that after three years you get a new one and thus never have to deal with any of the myriad of systems failing.

    Rather than what is the state of battery health, maybe a good question to ask is: can I change a lightbulb?

    Liked by 2 people

  8. Jit, Battery health and longevity are complex issues. The standard warranty (required under the mandate) is that an EV battery should retain at least 70% of original capacity up to 8 years or 100,000 miles. In addition, all manufacturers build in a reserve which is controlled by the management system. Hence you will see descriptions like “The car has an 85 kWh battery (80 kWh useable)”.

    As far as I can tell, battery life is proving to be very good. Replacement under warranty for loss of capacity seems to be very rare (obviously there could be other reasons for replacement). On the EV forums there are lots of comments about capacity loss being very low. The exceptions are the early models of EV which had crude battery systems and tended to lose significant capacity but there not many of those left. There are some cars, particularly Teslas, with stellar mileages that are still on the original battery.

    I’m with you on older cars. My next car will probably be 5 – 10 years old and as “low-tech” as I can find. I hate the idea of being dependent on the car’s system and/or my phone. Quite a few of the latest models rely on your phone to unlock! I am also tempted by something old enough to avoid the stupid VED levels. We shall see.

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  9. 70% does seem like quite a low bar. But hopefully for the owners, they do a lot better than that. Also, warranties for other bits and bobs are not so lengthy. I think you are right to go back in time for your next car: there was nothing wrong with cars of that age, and if they have been looked after, there’s no reason why they shouldn’t go on indefinitely. Pre-touch screen is probably the point in time to aim for, I think. And there’s nothing wrong with a key: presumably dispensing with one saves the manufacturer money, which they badge as convenience for the driver.

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  10. I think a car key is essential, especially one that can be inserted in a door lock. I now carry two car keys round with me since the day when the battery failed on the one I had with me, and I realised I couldn’t open the car door. Fortunately I wasn’t too far from home on that occasion, but I learned a lesson. I’m probably an old fuddy-duddy, but the idea of needing apps on a smartphone to make my car work as I want fills me with dread.

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  11. Jit, I suspect I will end up with something in the 5 – 10 year old range as I prefer diesels and that would get me one which is Euro 6 compliant – a consideration since I live on the edge of the ULEZ. Although I rarely use satnav, I do find the screen is useful as a rolling map but I most certainly do not want to have to delve into menus to change the settings of anything. So a full set of dials and buttons is a pre-requisite: some manufacturers are better than others for that. It’s one of the reasons I like Skodas.

    Mark, I don’t know what brand of car you have but, from luck/experience, it might be worth a careful check of the car and manual. I discovered, somewhat by chance when cleaning my car, that the non-moving part of the door handle has a very neat little plastic cover which can be prised off to reveal…..a slot for the key. I totally agree about having to use tech to drive your car. Many – most? – EV users have multiple apps on their phones in order to control their car’s charging, pre-heating, etc plus a variety of cards to allow them to use a range of public chargers. Then there are the various route-planners…. Nightmare for a technonumpty like me!

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  12. The tide continues to turn….from the Spectator newsletter:

    “Ford has junked plans to become an all-electric car brand in Europe by 2030, announcing three new models of car which are not zero emission. Ford made this commitment all the way back in 2021 and doubled down a year later by getting rid of the Ford Fiesta. In February, Robert Byrce estimated that Ford lost £5.1 billion on electric vehicles in 2024 in an article for The Spectator.”

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