The electric car market in Europe is facing significant challenges due to low resale values and cuts in subsidies for new electric vehicles (EVs). Leasing firms, who play a major role in the European auto market, have been forced to double prices for EV leases over the past three years. Some industry executives even warn that they might exit the business altogether if regulators push for a rapid transition to electric too soon. This threat could have severe consequences for the growth of the electric market in Europe, as leasing firms are crucial for assuming the risk associated with EVs.
Leasing companies, such as Ayvens and Arval, account for a substantial portion of the European auto market. Around 60% of new cars, regardless of fuel type, are leased in Europe, and this percentage can be as high as 80% for EVs. These leasing companies help drive sales, especially to corporate fleets and commercial buyers who rely heavily on leases. In markets without EV subsidies for private buyers, such as the UK and Belgium, individual purchases of EVs are significantly lower compared to corporate purchases.
The pricing of leases is based on estimated residual values, which take into account the depreciation of the vehicle over a typical three-year lease period. If second-hand prices are lower than anticipated when the lease ends, leasing firms face financial losses. Currently, second-hand EV prices in Europe have been declining, while petrol models have remained more expensive. This trend, coupled with concerns about charging infrastructure and battery life, has contributed to a decrease in EV resale values.
Leasing firms have started to feel the impact of low EV resale values. Hertz and Sixt have reported significant writedowns due to reduced prices for EV sales, and Arval has already increased prices to offset lower residual values. To mitigate losses, some automakers, such as Tesla, have provided cash compensation to leasing companies. However, the risk still lies with the leasing firms, leading to price increases for EV leases.
Leasing companies are now grappling with the possible introduction of mandatory EV sales targets by the European Commission. If implemented, these targets would increase the resale risks already faced by leasing firms. The concern is that a mandatory EV sales target would significantly impact leasing companies and result in higher future lease rates. This, in turn, could discourage corporate fleets from continuing to lease EVs.
The future of the European electric car market remains uncertain, especially with the recent poor performance of Green and centrist parties in European elections. Whether the European Commission will push for a 100% mandate on electric fleets is unclear. However, leasing companies are taking the threat seriously and are prepared to raise lease rates further if necessary.
In conclusion, the challenges facing the electric car market in Europe, such as low resale values and cuts in subsidies, have had a direct impact on leasing firms. These companies are essential for assuming the risk associated with EVs and driving sales to corporate fleets. If regulators push for a rapid transition to electric, leasing companies warn that they might exit the business altogether. The introduction of mandatory EV sales targets could exacerbate the resale risks already faced by leasing companies. The future of the European electric car market relies on finding a balance between encouraging adoption and mitigating risks for leasing firms.
