The decline in resale values for electric cars has led leasing companies, which dominate Europe's auto market, to double their prices over the past three years. Some executives warn they may exit the industry if forced to transition to electric vehicles too rapidly. The rise in electric car lease prices coincides with reductions in subsidies for new electric vehicles in major markets like Germany, potentially slowing Europe's shift towards electrification, just as the European Union aims to accelerate this transition.
Tim Albertsen, CEO of Ayvens, one of Europe's largest auto leasing firms, stated, "If we were pushed to go fully electric too soon, my shareholders would likely withdraw from the market due to the associated risks." Ayvens, majority-owned by French bank Societe Generale, manages a fleet of 3.4 million cars, approximately 10% of which are electric. Leasing companies are crucial in Europe, where 60% of new cars, regardless of fuel type, are leased. For electric vehicles, this figure is estimated to be as high as 80%.
Data from Dataforce reveals that in 16 European markets, including Germany, Britain, France, and Spain, 60% of new electric vehicles are purchased by corporate fleets and commercial buyers, who predominantly use leases. In markets without subsidies for private electric vehicle buyers, corporate dominance is even more significant. For instance, in Britain and Belgium, individuals accounted for only 23% and 8% of new electric vehicle purchases in 2023, respectively.
Lease prices are calculated based on the expected depreciation of a vehicle over a typical three-year lease period. However, if resale values are lower than anticipated, leasing firms face financial losses. Factors such as Tesla's price cuts, concerns over charging infrastructure and battery life, and the influx of affordable Chinese electric vehicles have contributed to a decline in second-hand electric car prices in Europe since October 2022.
Resale values for electric vehicles in Germany and Britain were 24% and 30% lower than pre-pandemic levels, respectively, contrasting with used petrol models, which remained about 15% more expensive. Gary Cambridge, a partner at Cambridge Motors in London, noted, "People are more accepting of used electric vehicles, but they need to be affordable. If they're expensive, people aren't interested."
Leasing companies have been forced to increase prices due to lower residual values, and some have reported significant writedowns. For example, Hertz reported $150 million in writedowns for its electric vehicle sales, while Sixt's earnings were reduced by 40 million euros due to lower residual values for electric vehicles. Bart Beckers, deputy CEO at Arval, stated that while losses from low electric vehicle resale values are currently limited, they are not insignificant.
Some automakers have provided compensation to leasing companies for slumping electric vehicle values. However, leasing companies still bear the risk for electric vehicle resale values, leading to increased prices. In Germany, electric vehicle lease prices have more than doubled over the past three years, while fossil-fuel car lease prices have decreased.
Ayvens has adjusted its leasing strategies for electric vehicles, leasing them for longer periods and retaining them in its portfolio for up to eight years to mitigate resale risks. RVI Group, which offers insurance guaranteeing specific residual values, has seen increased demand from leasing companies and banks in Europe.
Leasing firms are concerned about potential mandatory electric vehicle sales targets, which could increase their resale risks. The European Commission's consultation on accelerating electric vehicle adoption by corporate fleets ended on July 8. Transport & Environment advocates for a 100% electric mandate by 2030 for large corporate fleets and leasing companies, arguing that it would accelerate the electric vehicle transition.
The European Commission's consultation aims to identify market shortcomings that warrant action, but the outcome remains uncertain. Leaseurope warns that an electric vehicle mandate could significantly harm leasing companies, and Arval's Beckers suggests that it would necessitate further increases in lease rates, potentially discouraging corporate fleets from continuing to lease.
