Calls for government guarantee on used car values to make EV leasing cheaper

A new proposal has urged the government to act as a guarantor for electric car leases. The plan has been formulated to curb fears over electric car depreciation and, in turn, bring down prices for consumers. It could potentially even earn the Treasury a bit of extra cash.

The plan, devised by the British Vehicle Renting and Leasing Association (BVRLA) alongside the Green Finance Institute (GFI), would see a scheme set up under which government money would be used to absorb any big drops in used EV values. This would protect leasing firms if cars they lease to customers are worth less than predicted at the end of the agreement.

In that event, the proposal states that the lease firm would be responsible for the first 10 per cent of depreciation above the predicted amount. The government would then take the hit on the next 10 per cent. Any further reduction in value above this would be swallowed by the leasing industry itself.

The GFI estimates that such a scheme would theoretically require around £20 million per year of taxpayer cash to execute; the first year would probably cost a bit more to get things up and running. Such large sums of capital, it’s suggested, could be sourced from sources such as the £27.8 billion National Wealth Fund which has been ringfenced for investment in green industries, including transport.

If electric car values hold as are currently predicted, and EVs don’t lose in excess of 10% more than their expected value at the end of the lease, the government would effectively receive all its money back.

In fact, the scheme could actually make the government money; leasing firms wishing to participate would be required to pay the government a fee which, once running costs are accounted for, is estimated could bring as much as £99 million per year to the Treasury. Of course, that’s in the scenario that nothing gets paid out.

The most catastrophic projections, however, could see the government losing money “in the low three-figure millions” per year – although it’s worth noting that such a lofty figure would only materialise if every single vehicle leased under the scheme returned with the most extreme depreciation outcome scenario. The BVRLA was also keen to reaffirm that this outcome is “much less likely than the base case” in which the government would make money.

Lower leasing prices for consumers? 

While all of this may appear like nothing more than a bailout for leasing firms, an anonymous high-level source within the industry hinted to Auto Express that it could actually bring down prices for consumers. 

“The uncertainty around residual values is hurting people across the industry and increasing the costs we pass through to customers,” they explained. “If we don’t have a good idea on how much a car is going to be worth in three years, we have no choice but to price that in.”

That’s not to say the leasing industry won’t benefit from this as well; the BVRLA’s chief executive, Toby Poston, was candid when he told Auto Express that “our members have continued to take losses on EVs, and they’ve got to a stage where they can see no sign of depreciation levelling off.”

With the BVRLA having previously stated that leasing firms have so far lost “hundreds of millions” to severe EV depreciation, Poston says: “This scheme is our attempt at trying to give the confidence back to those people funding these vehicles.”

Auto Express has approached HM Treasury for comment, but is yet to receive a response.

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