Second-hand electric car prices falling at faster and faster rate
Electric vehicles (EVs) are losing value at an “unsustainable” rate as a slowdown in consumer demand sends used car prices tumbling, leasing companies have warned.
The British Vehicle Rental & Leasing Association (BVRLA) warned that so-called fleet operators, such as car leasing firms and rental companies, are having to swallow large losses when reselling EVs because of “accelerated, exceptional depreciation”.
In most cases, these companies buy new cars and own them for three years before selling them.
Consumers who lease cars during these three-year periods effectively cover the value of losses through monthly payments, which are calculated based on estimates of how much a vehicle is expected to depreciate.
But in the past two years, the typical amount of “residual value” left over at the end of a car’s lease has plunged from 60pc to 35pc, the BVRLA said.
This means a car worth £50,000 when new will now drop to £17,500 in value over three years, instead of £30,000.
This leaves leasing companies facing unexpected losses.
Gerry Keaney, chief executive of the BVRLA, has warned the trend is “not sustainable”.
Speaking at an event in Parliament on Tuesday, he said: “The reality is that EV residual values in the last two years have dropped by 50pc.
“That is the evidence of the accelerated depreciation write-off that we’ve seen. And again, when we look forward two years, the rate of used EVs coming back to the market is about to double.”
Mr Keaney said the large numbers of EVs about to come into the used market was partly owing to the success of adoption through salary sacrifice schemes.
He said that EVs currently account for more than 80pc of cars leased through salary sacrifice schemes.
However, he blamed the accelerated drop in used values on a recent slump in consumer demand, as high prices put off consumers.
The weak demand has hit growth in sales of new EVs, forcing manufacturers to resort to more discounting.
That accelerates depreciation further and pushes down the value of similar used cars on the market.
One car leasing executive said their company, a household name, was currently losing “thousands” of pounds on every EV it sold into the used market.
The BVRLA’s members are currently the biggest buyers of EVs in the country.
Of the 4m EVs they collectively own, roughly 2.75m are leased through finance deals such as salary sacrifice or company car schemes.
Rising depreciation costs will force them to raise prices for consumers to compensate, potentially hurting demand for new cars further and constraining the pipeline of EVs into the used car market further at a time when the Government is seeking to boost uptake.
Mr Keaney said: “We need to accelerate the take up by consumers of used EVs and therefore new EVs in the marketplace. To do that, we’re going to need to have some targeted incentives. That’s just the plain truth.”
The BVRLA has launched a campaign calling for market stimulus, including potentially a VAT cut or grants for used car buyers.
It is the latest example of the car industry sounding the alarm as the growth of the EV market slows.
The Society for Motor Manufacturers and Traders, which represents car makers in the UK, has also called for tax breaks to boost EV demand.
This month the lobby group reiterated that the industry is on course to miss the targets set by the Government’s zero emission vehicle mandate, which requires 22pc of sales to be electric from this year and rises to 80pc by 2030.
Manufacturers can avoid fines of £15,000 for every non-compliant car that exceeds this quota by acquiring and spending carbon credits, however.
The Government has said it does not expect any companies to pay fines in the scheme’s first year.