Leasing model behind Europe’s breakdown-risk electric vehicle drive By Reuters

By Nick Carey

LONDON (Reuters) – Low resale values ​​for electric cars have pushed leasing firms that lead Europe’s car market to double prices over the past three years, with some threatening to go out of business altogether if regulators force them to go electric too soon. quickly, according to industry executives. word.

The rise in electric car rental prices comes as subsidy cuts for new electric vehicles in key markets such as Germany hurt sales and risk stalling Europe’s electric transition, just as Brussels wants to step on the accelerator, executives say.

“If we pushed really, really hard that everything has to be electric too soon … my shareholders will say ‘we don’t want to take the risk’ and we’d be out of the market,” Tim Albertsen said. , CEO of Ayvens, one of the largest car leasing companies in Europe. “Let’s face it, without us, who’s going to take the risk?”

Ayvens, which is majority owned by French bank Societe Generale (OTC:), has a fleet of 3.4 million cars, of which about 10% are electric vehicles.

Leasing companies play a key role in Europe, as 60% of new cars of all fuel types are leased, according to calculations by environmental group Transport & Environment based on data from market research firm Dataforce.

When it comes to electric vehicles, the proportion is estimated to be up to 80%.

According to data provided to Reuters by Dataforce, in the 16 European markets where it can identify fleet registrations – including Germany, the UK, France and Spain – 60% of new EVs go to corporate fleets and commercial buyers. Experts say these buyers almost exclusively use leases, and about half of the remaining sales to private buyers are also leases.

In unsubsidized EV markets for private buyers, corporate dominance is even more pronounced. In the UK and Belgium, for example, individuals accounted for just 23% and 8% respectively of new electric vehicle purchases in 2023, Dataforce said.

The price of a lease is designed to account for the depreciation of a vehicle over the typical three-year lease term, based on estimated resale prices or residual values.

But if second-hand prices turn out to be lower than anticipated at the end of the lease, leasing companies take a financial hit when they get the vehicle back.

For a variety of reasons — from price cuts by Tesla (NASDAQ: when they peaked in October 2022.

According to figures provided to Reuters by data firm Autovista, resale values ​​for electric vehicles in Germany at the start of July were 24% below pre-pandemic levels and 30% lower in Britain.

This is in stark contrast to used petrol models, which remained around 15% more expensive in both markets.

“People have become more accepting of used electric vehicles, but they have to be cheap,” said Gary Cambridge, partner at London-based used car dealer Cambridge Motors. “If they’re expensive, people don’t want them.”

MORE THAN DOUBLE PRICES

Leasing companies contacted by Reuters declined to provide specific details on any losses on electric vehicle contracts from declining residual values. Signs of electric pain have appeared in the disclosures of some rental companies.

Hertz reported write-downs of about $150 million on the roughly 20,000 electric vehicles it sold at deeply discounted prices, while Sixt said lower residual values ​​for electric vehicles cut into its earnings from 2023 with 40 million euros ($44 million).

Bart Beckers, deputy managing director at Arval, the leasing company owned by French bank BNP Paribas ( OTC: ), said losses due to low resale values ​​of electric vehicles are currently limited in number, given that electric vehicles represent only a small part of their total portfolio.

“But the amounts are not insignificant,” he told Reuters. “Like other market leaders … (Arval) has already been forced to raise prices due to lower residual values.”

Like Ayvens, electric vehicles make up only about 10% of Arval’s fleet of 1.7 million vehicles.

Some automakers have offered cash compensation to leasing companies for declining electric vehicle values, industry executives say. Reuters reported in May that Tesla had offered rebates and other ways to mitigate losses to leasing companies, including Ayvens, though CEO Albertsen declined to say what they were.

But executives say leasing companies still bear the risk for electric vehicles’ resale values, which is why prices have risen.

Leasing firms contacted by Reuters declined to provide details on the price hike for electric vehicles because the subject is sensitive.

In Germany, Europe’s largest car market, data provided to Reuters by the German think tank CAR Center Automotive Research show that electric vehicle rentals have increased over the past three years.

In August 2021, a lease for a €45,000 electric vehicle cost €284 per month, well below €473 for an equivalent fossil fuel model. Now, the cost of the electric vehicle has doubled to €621, while the fossil fuel car has dropped to €468.

Electric vehicle sales in Germany fell 16.4 percent in the first half of 2024 after the government abruptly canceled consumer subsidies in December, and the decline bucked the overall EU trend.

Sales of fully electric vehicles in the EU rose to 14.6% of new car sales in 2023 from 6.1% in 2020, but this fell to 14.4% in the first half as sales of electric vehicles increased by 1.3%.

MANDATORY SALES GOALS?

Ayvens’ Albertsen said the company now leases electric vehicles for longer than combustion engine cars to reduce resale risks.

It has also started leasing the EVs once or twice more “at a more affordable rate” and keeping them in the portfolio longer, possibly up to eight years, he said.

Such is the concern about potential losses that RVI Group, a Stamford, Conn.-based company that offers insurance that guarantees a certain residual value for an asset, opened an office in Europe last year to answer coverage questions.

Wei Fan, RVI’s executive vice president for passenger vehicles, said it has received more applications from Europe in the past three years – all from leasing companies and banks – than in the past 14 years worldwide.

He said he expects EV price volatility to continue over the next five to 10 years as the electrification process unfolds.

Leasing firms say they are concerned, however, that a European Commission consultation on how to speed up the adoption of electric vehicles by corporate fleets could lead to mandatory electric vehicle sales targets, as this would increase the risks of resale they already face.

“The bigger the share of electric vehicles in their portfolios, the bigger this problem will be,” said Richard Knubben, managing director of Leaseurope, a Brussels-based umbrella body that lobbies on behalf of leasing and rental groups. cars.

The European Commission’s open public consultation “Greening corporate fleets”, which included the analysis of possible measures to accelerate the adoption of electric vehicles, ended on 8 July.

Brussels-based Transport & Environment (T&E) wants the Commission to mandate that large corporate fleets and leasing companies in Europe become 100% electric by 2030. Stef Cornelis, director of T&E’s electric fleet programme, said that forcing fleets electrifying would lead to more used cars for consumers and accelerate the EV transition.

A Commission spokesman said the consultation was intended to identify substantial market failures that warrant action, but was not aimed at gauging support for any kind of initiative.

The poor performance of the Greens and centrist parties in June’s European elections raised questions over the fate of the EU’s 2035 ban on fossil fuel cars, so it is uncertain whether the Commission will push for a mandate of 100 %. But leasing companies are taking the threat seriously.

Leaseurope said an electric vehicle mandate would significantly hurt leasing companies, and Arval’s Beckers says it should, at the very least, further increase future lease rates. “Simply put, prices would go up,” he said. “That would discourage corporate fleets from continuing to lease.”

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