Slumping EV prices force carmakers to repay leasing firms
Fleet Carmakers With Or Emission Need To Pay Levels Ply Tightening Fines
Carmakers have begun compensating leasing companies for the sliding value of used electric cars as Tesla’s price cuts rip through an industry that must sell more EVs or face hefty fines.
Ayvens, the biggest multi-brand leasing firm, already has received checks in recent weeks to make up for slumping prices, according to chief executive Tim Albertsen.
Leasing companies are demanding concessions from EV makers, including agreements that manufacturers will buy back vehicles, to protect against further erosion in the $1.2tn second-hand car market.
Prices for used EVs plummeted last year as weakening demand for new battery-powered cars prompted Tesla to slash sticker prices, forcing others to follow suit. The moves are reverberating through leasing firms, such as Europe-focused Societe Generale’s Ayvens and BNP Paribas’s Arval, which serve as middlemen in the corporate car market that accounts for roughly 60% of sales in the region.
“Manufacturers today need to keep selling EVs,” Mr Albertsen said during the company’s earnings call this month. “We then need some kind of protection from the manufacturers in terms of their future pricing.”
Typically, leasing agreements are based on the estimated used value of a vehicle at the time the contract expires, with payments designed to cover depreciation. If the value drops more than expected, as it has recently for EVs, the leasing companies lose money on those cars.
A range of carmakers operate leasing arms, like Volkswagen Financial Services, Stellantis and Credit Agricole’s Leasys or Mercedes-Benz Mobility. Ayvens, formed from the 2022 merger of ALD Automotive and LeasePlan, has more than half a million EVs in its fleet. The company is in talks with carmakers to cover the risk of depreciation — such as agreements to re-lease well-maintained cars a second or third time — Albertsen said last week.
Fuelled by generous subsidies and tax breaks, corporate cars are especially popular in Europe, with Volkswagen, Stellantis, and BMW leading the market with nearly 13 million deliveries last year. Fully electric cars made up nearly 16% of sales then.
Carmakers need to comply with tightening fleet emission levels, or pay fines. In the EU, the permissible level of carbon dioxide emissions will drop next year with Volkswagen still some way off, according to an analysis by market researcher Jato. In the UK, zero-emissions vehicles must make up 22% of sales this year, rising to 28% the year after.
But without stable pricing in the used-EV market, Europe’s target for phasing out sales of new combustion-engine cars by 2035 looks less likely.
To recoup the drop in second-hand values, EV leasing rates have started to go up to exceed those for combustion-engine cars, according to a study by Car Institute that focused on Germany.