Nick Carey
LONDON (Reuters) – Low resale values for electric cars have led Europe's leading car leasing companies to double prices in the past three years, with some threatening to exit the business altogether if regulators force a rapid shift to electric vehicles, industry executives say.
The surge in electric car leasing prices comes as key markets such as Germany are threatening to cut subsidies for new electric cars, hurting sales and threatening to stall Europe's electric vehicle transition – just when the EU is ready to step on the gas, executives say.
“If we were really pushed to go all electric right away, shareholders would say, 'We don't want to take the risk,' and we would pull out of the market,” said Tim Albertsen, CEO of Ivens, one of Europe's largest car leasing companies. “Frankly, who would take the risk without us?”
Ivens, which is majority owned by French bank Société Générale, has a fleet of 3.4 million vehicles, about 10% of which are electric.
Leasing companies play a crucial role, with 60% of new cars of all fuel types in Europe being leased, according to calculations by environmental group Transport & Environment citing data from market research firm Dataforce.
When it comes to EVs, that proportion is estimated to reach 80%.
In 16 European markets where Dataforce can verify vehicle registrations, including Germany, Britain, France and Spain, 60% of new electric vehicles are sold to corporate and commercial vehicle buyers, according to data provided to Reuters by Dataforce. These buyers are leasing almost exclusively, and about half of the remaining sales to private buyers are also leasing, experts say.
The corporate advantage is even more pronounced in markets without EV subsidies for private buyers: In the UK and Belgium, for example, private individuals will account for just 23% and 8% of new EV purchases in 2023, respectively, Dataforce said.
Lease pricing is based on estimated resale value or residual value and is designed to take into account the vehicle's depreciation over a typical three-year lease term.
However, if the used car price is lower than expected at the end of the lease, the leasing company will suffer a financial hit when the vehicle is returned.
Prices for used electric cars have fallen in Europe since peaking in October 2022 for a variety of reasons, from Tesla price cuts to concerns about charging infrastructure and battery life to an influx of more affordable Chinese-made EVs.
Resale prices for EVs in Germany were 24% below pre-pandemic levels in early July, while in Britain they were down 30%, according to figures provided to Reuters by data firm Autovista.
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This is in stark contrast to used petrol cars, which remained around 15% higher in both markets.
“People are more open to second-hand EVs, but they have to be cheap,” said Gary Cambridge, partner at Cambridge Motors, a London-based used-car dealership. “If they're expensive, people don't want them.”
The price is more than double
Leasing companies contacted by Reuters declined to provide specific details about losses due to declining residual values on EV contracts. Signs of electric vehicle woes are appearing in disclosures from some rental companies.
Hertz reported a write-down of about $150 million on around 20,000 EVs it is selling at heavily discounted prices, while Sixt said lower residual values of its EVs would cut its 2023 profit by 40 million euros ($44 million).
Bart Beckers, deputy CEO of Alval, a leasing company owned by French bank BNP Paribas, said losses from low resale values for EVs are currently limited because they make up only a small part of his company's overall portfolio.
“But the amount is not insignificant,” he told Reuters. “Like other large players in the market, (Arval) has already been forced to increase prices due to falling residual values.”
Like Ivens, EVs account for only about 10% of Albar's fleet of 1.7 million vehicles.
Some automakers are offering cash compensation to leasing companies because of falling EV prices, industry executives said. Reuters reported in May that Tesla had offered discounts and loss-mitigation measures to leasing companies, including Ivens, but Albertsen declined to provide specifics.
But executives say leasing companies still bear the risk of resale prices for EVs, which is why prices are rising.
Leasing companies contacted by Reuters declined to provide details, citing the sensitivity of rising EV prices.
In Germany, Europe's largest auto market, EV leasing has surged over the past three years, according to data provided to Reuters by German think tank CAR Centre Automotive Research.
In August 2021, the cost of leasing a €45,000 EV was €284 a month, significantly lower than the €473 for a comparable fossil fuel model. Now, the rate for an EV has more than doubled to €621, while the rate for a fossil fuel car has fallen to €468.
EV sales fell 16.4% in the first half of 2024 after the German government abruptly removed subsidies for consumers in December, a decline that hit a trend across the EU.
Fully electric vehicle sales in the EU increased to 14.6% of new car sales in 2023 from 6.1% in 2020, but then fell to 14.4% due to weak 1.3% growth in EV sales in the first half of the year.
Is this a must-have sales goal?
Ivens' Albertsen said the company currently leases EVs for longer periods than internal combustion engine vehicles to reduce resale risk.
The company has also begun leasing one or two more EVs “at more affordable rates” and plans to keep them in its portfolio for longer periods of up to eight years, the company said.
Concerns about potential losses led Stamford, Connecticut-based RVI Group, which offers insurance that insures a certain residual value of assets, to open a European office last year to field inquiries about coverage.
Wei Fan, RVI's executive vice president of passenger vehicles, said that requests from Europe – from leasing companies and banks – have exceeded requests worldwide in the past three years.
He said he expects EV price fluctuations to continue over the next five to 10 years as the electrification process progresses.
But leasing companies are concerned that a European Commission consultation on how to speed up the adoption of EVs in corporate fleets could lead to mandatory EV sales targets, which they say would increase the resale risks they already face.
“The bigger the share of EVs in the portfolio, the bigger this problem will become,” said Richard Naven, executive director of Leasing Europe, an umbrella group in Brussels that lobbyes on behalf of car leasing and rental groups.
The European Commission's public consultation on “Greening corporate fleets”, which also looked at possible measures to speed up the uptake of EVs, ended on July 8th.
The Brussels-based Ministry of Transport and Environment (T&E) is calling for the European Commission to require Europe's largest corporate fleets and leasing companies to go 100% electric by 2030. Steph Cornelius, T&E's electric fleet program director, said forcing fleets to be electric would increase the number of used cars available to consumers and accelerate the transition to EVs.
A Commission spokesman said the consultation was aimed at identifying significant market deficiencies that required action, not at gauging support for any kind of initiative.
The poor performance of the Greens and centrist parties in June's European elections has cast doubt on the fate of the EU's 2035 ban on fossil fuel cars, and it is unclear whether the European Commission will push for a 100% mandate. But leasing companies are taking the threat seriously.
Lease Europe says an EV mandate would be a huge hit to leasing companies, and Albar's Beckers says it would require at least further increases in future lease rates. “Simply put, it would mean higher prices,” he says. “This would discourage companies from continuing to lease vehicles.”
(1 dollar = 0.9154 euros)
(Reporting by Nick Carey and David Clarke Editing by David Clarke)
