Car finance firms losing "hundreds of millions” in EV depreciation want Govt support

Car finance and leasing firms have asked the Government for financial support after the huge depreciation of EV values has led to the companies losing “hundreds of millions” of pounds – which is currently being passed onto consumers in the form of higher interest rates and car financing costs.

The British Vehicle Rental and Leasing Association (BVRLA) sent a letter on behalf of 25 of the UK’s largest leasing and fleet companies, stating that demand for used EVs is “struggling to keep pace” with supply, which the trade body says is expected to increase by 178 per cent over the next three years.

Such an imbalance means that EV residual values have tumbled by 50 per cent in the last two years and are expected to fall by a further 28 per cent by 2030, after which solely petrol and diesel-powered cars will no longer be allowed to be sold from new.

Weak residual values?

Weak residuals have created what the BVRLA describes as mounting "financial pressure” because finance and leasing firms have long been basing their pricing models on much more optimistic residual value forecasts. As a result, the EVs they’ve been renting out to customers are worth much less now than they originally expected.

In its letter, the BVRLA stated: “This depreciation is costing fleets hundreds of millions and being passed on to new buyers in the form of higher motor finance costs.” Given that firms are now having to charge consumers in order to recoup lost cash, the BVRLA reckons that higher finance and leasing prices could result in 290,000 fewer EV registrations over the next two years.

Despite this, valuation firms, such as CAP Hpi and CLD Vehicle Information Services, continue to project strong residuals for many EVs; CLD currently estimates the new electric Vauxhall Grandland will be worth 62 per cent of its initial asking price after three years – in-line with petrol-powered alternatives.

Head of forecast strategy at CAP Hpi, Dylan Setterfield told Auto Express: “We are very open about our forecasts and assumptions”.

“Three years ago, we took the view that used values for battery-electric models were unsustainably high,” Setterfield continued. “We assumed significant reductions in used values, but the resulting movement was higher, partly due to unforeseen events such as the Russian invasion of Ukraine.”

Government support for the car market

With this in mind, the BVRLA has said that it’s “unsustainable for the industry to continue absorbing the cost”, and asked the Government to intervene and provide “targeted grants to support the used BEV market”. Leasing firms also asked for “clear and standardised battery health information, which consumers can access to help them make the switch” – something that will become a legal requirement in the EU from 2027.

The BVRLA’s submission comes soon after the Government published the outcome of its review into the ZEV Mandate. This saw new hybrid vehicles being allowed to be sold until 2035, reduced fines for manufacturers, and several ways to avoid them, including exemptions and a wider scope to trade “credits”.

However, nothing has yet been announced in terms of customer incentives – Auto Express has asked the Department for Transport whether more is on the way, but is yet to receive a response.

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