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Electric Vehicle Depreciation Causes Financial Strain for Car Finance and Leasing Firms
The rapid depreciation of electric vehicles (EVs) is costing car finance and leasing companies “hundreds of millions” of pounds, a leading trade body has cautioned. This financial hit comes as the demand for used electric cars struggles to keep pace with supply, deeply impacting the automotive sector and potentially slowing the transition to electric mobility.
EV Market Imbalance Leads to Significant Losses
In a formal communication to the Government’s Transport Select Committee, the British Vehicle Rental and Leasing Association (BVRLA) highlighted the substantial losses its members are experiencing due to the swift decline in used EV values. The association stressed that while the leasing and rental sector has been instrumental in driving the adoption of electric vehicles, it is now disproportionately bearing the brunt of this depreciation.
Oversupply and Weak Demand Depress Used EV Values
The core issue is that the demand for second-hand electric cars is not keeping up with the increasing volume of vehicles returning to the market from fleet, lease, and rental agreements. This influx is predicted to surge by 178 percent in the coming three years. This oversupply, coupled with public hesitancy and limited appetite for used EVs, has resulted in pre-owned electric cars losing over half of their value in the last two years. This depreciation rate surpasses that of any other vehicle fuel type.
Further Price Declines Expected
Compounding the problem, forecasts anticipate a further 28 percent drop in used EV prices by 2030. This is particularly concerning as this date coincides with the ban on new petrol and diesel car sales, a point when used EVs should ideally become more attractive to buyers.
Financial Repercussions and Impact on New EV Market
Rising Finance Costs for Consumers
The BVRLA warns that fleet operators, forced to absorb these considerable financial impacts, are attempting to mitigate losses by increasing interest rates and car financing costs for new customers. This strategy, while aimed at recouping losses, risks undermining the demand for new EVs.
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Threat to EV Transition
The trade body emphasizes that this mismatch between supply and demand in the used EV market is placing “unsustainable financial pressures” on the fleet sector. These pressures stem from the fact that residual value predictions underpin finance and lease deal calculations. However, previous EV value projections have proven inaccurate due to the sluggish second-hand market. Consequently, the actual worth of EVs returning from leases is significantly lower than anticipated, resulting in substantial losses for providers on each used electric car entering the market.
Impact on New Registrations
The BVRLA estimates that these increased costs, intended to recover losses, could severely dampen new EV demand, potentially reducing registrations by 290,000 over the next two years. The association’s letter explicitly states, “Without a stronger used EV market where values are stable, the future of the entire transition to electric vehicles is at risk.” They further cautioned that such an outcome would conflict with governmental decarbonization objectives and hinder progress toward those goals.
Industry Data Confirms Market Trends
Auto Trader Data Highlights Supply Surge
Data from Auto Trader, a prominent online used car marketplace, supports these concerns. Their latest Retail Price Index indicated a 54.7 percent year-on-year surge in used EV supply in March. This increase was largely attributed to ex-lease vehicles returning to the market. However, this supply growth outstripped the year-on-year demand growth for EVs, which stood at 35.9 percent.
Downward Pressure on Prices
Auto Trader noted that “The imbalance between supply and demand is putting downward pressure on used EV prices.” The average used EV value in March was £25,190, a 1.6 percent decrease from February.
Call for Government Intervention
Industry Leader Urges Action
Speaking at Parliament on April 4th, Toby Poston, Chief Executive of the BVRLA, stressed the critical importance of the used car market, which is four times larger than the new car market. He stated, “Maintaining healthy demand and values for second-hand electric vehicles is essential if we want to deliver a sustained transition.”
Lack of Incentives and Infrastructure
Poston argued that “A lack of government incentives or affordable public charging infrastructure means that too few used car buyers or dealers are seeing the benefit in going electric.” This deficiency contributes to the supply of used EVs exceeding demand, leading to continued price declines. He reiterated that “This depreciation is costing fleets hundreds of millions and being passed on to new buyers in the form of higher motor finance costs.”
Need to Restore Confidence
Poston concluded by asserting that “To restore confidence in the net zero transition and sustain a healthy electric vehicle ecosystem, the Government needs to intervene.”
Long-Term Concerns About EV Depreciation
Leasing Crisis and Rising Costs
These warnings echo previous reports highlighting the dramatic depreciation of EVs and its creation of a potential “car leasing crisis.” This situation threatens to escalate monthly leasing costs for consumers and potentially force them to opt for older EV models with reduced battery range capabilities.
No End in Sight to Value Decline
Automotive consultancy firm Auto Data Solutions previously indicated that there is “no end in sight for the EV residual values crisis.” They noted that some EVs, initially projected to retain over 40 percent of their original price after three years, are now achieving sale values closer to 20 percent. On a £40,000 vehicle, this translates to an unexpected loss exceeding £7,000 per car. This issue has already cost leasing companies “hundreds of millions of pounds,” underscoring the severity of the situation.