Market Analysis

The EV drive's leasing concept in Europe is susceptible to malfunctioning

Amos Simanungkalit · 13 Aug7.1K Views

The rising resale values of electric vehicles (EVs) have led leasing companies in Europe, which are crucial to the auto market, to more than double their prices over the past three years. Some are even considering exiting the market if regulators push for a rapid shift to electric vehicles, industry leaders warn.

The surge in lease prices for EVs coincides with a reduction in subsidies for new EVs in major markets like Germany, which is impacting sales and potentially slowing Europe’s transition to electric vehicles. This is particularly concerning as Brussels aims to accelerate the adoption of EVs.

Tim Albertsen, CEO of Ayvens, one of Europe's largest auto leasing firms, expressed concern that excessive pressure to switch to electric vehicles could lead shareholders to withdraw, thereby reducing market risk. “Without us, who will take the risk?” he asked. Ayvens, which is primarily owned by French bank Société Générale, has a fleet of 3.4 million vehicles, with around 10% being EVs.

Leasing firms are pivotal in Europe, with 60% of new cars, across all fuel types, being leased, according to environmental group Transport & Environment and market research firm Dataforce. The proportion for EVs is even higher, estimated at 80%.

Dataforce reports that in 16 European markets, including Germany, Britain, France, and Spain, corporate fleets and commercial buyers account for 60% of new EV registrations, while these buyers almost exclusively use leases. In the UK and Belgium, private buyers represented only 23% and 8% of new EV purchases in 2023, respectively.

Lease prices reflect the anticipated depreciation of a vehicle over the typical three-year lease period, based on projected resale values. However, if second-hand prices are lower than expected when the lease ends, leasing companies face financial losses.

Second-hand EV prices have been declining in Europe since reaching a peak in October 2022, due to factors such as Tesla’s price cuts, concerns about charging infrastructure, battery life, and the influx of more affordable Chinese EVs. Resale values for EVs in Germany and Britain were 24% and 30% below pre-pandemic levels, respectively, whereas petrol models remained about 15% more expensive.

Leasing companies, such as Ayvens and Arval (owned by French bank BNP Paribas), have had to raise lease prices due to these lower residual values. Arval’s deputy CEO, Bart Beckers, noted that while losses from low EV resale values are currently limited, they are not insignificant and have forced the company to increase prices.

Automakers have provided some compensation to leasing companies for declining EV values, including discounts from Tesla. However, leasing companies still face substantial risk, which is driving up prices.

In Germany, EV lease costs have more than doubled over the last three years. For example, leasing a 45,000 euro EV cost 284 euros per month in August 2021, compared to 621 euros now, while the lease for a similar fossil-fuel vehicle has decreased to 468 euros.

The drop in EV sales in Germany by 16.4% in the first half of 2024, following the removal of consumer subsidies, has impacted the overall EU trend. Although EV sales in the EU rose to 14.6% of new car sales in 2023, the growth rate has slowed.

Leasing companies are now opting for longer lease terms for EVs to mitigate resale risks, with some extending leases up to eight years. RVI Group, which offers residual value insurance, has seen increased interest from European leasing firms, reflecting ongoing concerns about EV price volatility.

Leasing firms are also wary of potential mandatory EV sales targets as part of European Commission plans to speed up EV adoption. A consultation on this matter ended on July 8, but the outcome remains uncertain. The European Commission’s stance could significantly impact leasing companies, potentially leading to higher lease rates and reduced leasing activity if a mandate is imposed.

Leaseurope, an umbrella body for car leasing and rental groups, warns that a 100% EV mandate could severely damage leasing companies and lead to higher lease rates, discouraging corporate fleets from leasing vehicles.