Growing numbers of used car buyers are going electric. A total of 46,773 used battery electric vehicles were acquired by new owners in the second quarter, up 52.6% year on year resulting in the highest market share yet of 2.4% according to the Society of Motor Manufacturers and Traders (SMMT).
It was also interesting to note that the demand for used EVs increased in July following a 16.5% fall in prices during quarter two according to the latest Aston Barclay Market Insight report. Prices fell by £3289 to an average of £15,625.
This fall in prices means that used EVs are now similarly priced to Internal Combustion Engine (ICE) cars in the used vehicle market which is encouraging more consumers to switch. Dealers are now competing to buy used EVs between £8000 and £18,000 to meet consumer demand, which is positive news regarding future EV adoption.
However, this is only part of the story because dropping used values equates to increased depreciation on new electric vehicles. Data provided by Autovista shows that the average trade price across all powertrains is £15,228 compared to £28,991 for the new car equivalent while the average price for electric vehicles is £16,748 trade value compared to £44,256 average new price. The percentage drop for the three-year old 60,000-mile vehicle is 62.2% for the electric vehicle compared to only 47.5% for the ICE car.
This provides a massive headache for leasing companies quoting contract hire prices; and has also for motor dealers also over the last two years of dropping used values. Recent financial results from two motor dealer groups bear this out. JCT600’s profits declined by 16.3% to £36.03 million on turnover down just 2.5% in 2023. Pre-tax profits at Barrett’s of Canterbury fell 56.9% to £2.2 million on turnover up 6% reflecting the fall in used car values.
The dilemma for leasing companies is how to make lease rentals attractive when depreciation rates are increasing. A fall in EV values of £27508 compared to £13763 on all powertrains clearly presents a problem. One way leasing companies have overcome the problem for vehicles on fleet where they are sustaining losses is to re-lease the vehicle for a secondary term instead of crystallising losses; but the challenge remains regarding writing new business. Car manufacturers are providing greater discounts and subsidies to the leasing industry but the industry itself is needing to be creative on length of contract term to spread the depreciation over a greater number of months.
The days of a three-year 60,000-mile contract seem to be over. Writing four-year leases at lower mileage is now reality according to information provided by leasing company Arval. The mileage reduction is no doubt facilitated by the growth in home working and online meetings.
Further creativity relating to potential five-year contracts and short term leases, or car subscription services, will also be part of the mix being considered by the Industry going forwards.
Author: Ian Hare
