The electric vehicle (EV) market is facing a significant challenge as depreciation rates soar to unprecedented levels. Gerry Keaney, chief executive of the British Vehicle Rental & Leasing Association (BVRLA), has raised concerns about the sustainability of current market conditions.
Over the past two years, the residual value of EVs after a typical three-year lease has plummeted from 60% to 35% of the original price. This rapid depreciation is causing substantial financial strain on leasing companies, which are now absorbing unexpected losses when reselling vehicles.
The BVRLA reports that a £50,000 EV now depreciates to £17,500 after three years, compared to £30,000 previously. This accelerated depreciation is attributed to a combination of factors, including market saturation and weak consumer demand due to high prices.
"The reality is that EV residual values in the last two years have dropped by 50%. 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."
The situation is particularly concerning given that BVRLA members are currently the largest purchasers of EVs in the UK, with approximately 2.75 million vehicles leased through various finance schemes. The industry's ability to absorb these losses is limited, potentially leading to increased leasing costs for consumers and further dampening demand.
To address this issue, the BVRLA has launched a campaign calling for market stimulus measures, such as VAT reductions or grants for used car buyers. This aligns with similar appeals from other industry bodies, including the Society for Motor Manufacturers and Traders (SMMT), which has warned that the UK is at risk of missing its zero-emission vehicle targets.
The current trajectory poses a significant challenge to the government's ambitious goals, which include requiring 22% of car sales to be electric this year, rising to 80% by 2030. While manufacturers can avoid fines through carbon credits, the industry's struggles highlight the need for a comprehensive strategy to support EV adoption.
It's worth noting that the EV market has seen remarkable growth in recent years. In 2023, Norway became the first country where EVs accounted for over 50% of new car sales, demonstrating the potential for widespread adoption. Additionally, the global EV market is projected to reach $823.75 billion by 2030, underscoring the long-term potential of the sector.
However, the current depreciation crisis threatens to undermine this progress. As the industry grapples with these challenges, it's clear that a collaborative approach between government, manufacturers, and leasing companies will be crucial to maintaining the momentum of EV adoption and ensuring a sustainable transition to electric mobility.