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.