Falling Resale Prices Put European EV Leasing at Risk

The recent fall in secondhand electric vehicle prices may be a boon for drivers looking for affordable EVs, but it doesn’t bode well for Europe’s fledgling electric-vehicle leasing market. According to new European car registrations, around 60% of all new cars on the continent (both EVs and fossil fuel cars) are leased rather than bought.

With many European nations taking major steps to boost electric-vehicle adoption, the share of leasing revenue generated by electric vehicles is increasing steadily. However, falling secondhand EV prices coupled with rising leasing costs threaten to cut this revenue. Some stakeholders even warn that leasing companies may be forced to leave the market if their financial backers are given a strict electrification timeline.

As trade-in values for electric vehicles have fallen in recent months, many European leasing companies now charge more to make up for their vehicles’ drop in resale value. An analysis of the most prominent leasing companies on the continent reveals that they have doubled EV leasing costs due to falling resale costs. The rise in electric-vehicle renting costs also comes as major European markets start cutting back on electric-vehicle subsidies for newer leases and purchases.

These subsidy programs have been critical to most major electric-vehicle markets, and their loss will have significant effects on the electric vehicle industry, especially if EV production and sale costs aren’t brought down in the near future. European markets that are winding down their subsidy programs, such as Germany, have already seen a drop in sales even as they strive toward electrifying their roads.

Ayvens CEO Tim Albertsen posits that an overly aggressive push for electrification could see many of the leasing companies’ shareholders simply choose not to invest in electric cars. They would be too costly to buy without government subsidies, and their low resale prices would basically make it impossible for leasing companies to recoup their investments by selling their electric vehicle fleets.

In such a scenario, Europe could see its EV-leasing segment plummet in size as more leasing companies opt out of investing in electric cars. This would then threaten Europe’s electrification efforts because, without a leasing option, purchasing would be the only way most of the market could access an EV. This would lock out the majority of drivers who can’t afford to buy an electric car outright.

Data shows that electric-vehicle lease rates stand at around 80%, making leasing significantly more popular than buying. Furthermore, corporate fleets and other businesses purchased 60% of all new electric cars in France, Great Britain and Spain. If leasing companies continue to experience falling profits amid increasingly strict electrification requirements, they could pull out of the EV market with potentially catastrophic effects on Europe’s electrification plans.

Electric vehicle makers in different markets, such as Workhorse Group Inc. (NASDAQ: WKHS),  will have to work doubly hard to reduce production costs so that the penetration of these new vehicles accelerates faster.

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