Automakers are taking steps to address the declining value of used electric vehicles (EVs) as Tesla Inc.’s price reductions send shockwaves through an industry grappling with the imperative to ramp up EV sales or face significant penalties.
Ayvens, a prominent multi-brand leasing company, has already begun receiving compensation in response to plummeting prices, according to CEO Tim Albertsen. Leasing firms are pushing for concessions from EV manufacturers, including agreements for vehicle buybacks, to mitigate further devaluation in the $1.2 trillion second-hand car market.
The depreciation of used EVs accelerated last year as waning demand for new electric vehicles compelled Tesla to slash prices, prompting competitors to follow suit. These price adjustments are resonating across leasing entities like Societe Generale SA’s Ayvens and BNP Paribas SA’s Arval, which facilitate corporate fleet transactions constituting approximately 60% of sales in the European market.
“Manufacturers need to maintain EV sales,” emphasized Albertsen during the company’s recent earnings call. “We require some form of protection from manufacturers regarding future pricing.”
Typically, leasing agreements hinge on the estimated residual value of a vehicle at contract termination, with payments structured to cover depreciation. However, the recent sharp decline in EV values has left leasing companies facing losses.
Various automakers operate leasing divisions, including Volkswagen AG Financial Services, Stellantis, Credit Agricole’s Leasys, and Mercedes-Benz Mobility. Ayvens, a result of the ALD Automotive and LeasePlan merger in 2022, oversees a fleet of over half a million EVs. Discussions are underway with manufacturers to mitigate depreciation risks, potentially through arrangements for re-leasing well-maintained vehicles multiple times, Albertsen revealed.
Benefitting from subsidies and tax incentives, corporate fleets are particularly prevalent in Europe, where Volkswagen, Stellantis, and BMW dominate a market that saw nearly 13 million deliveries last year, with electric vehicles comprising nearly 16% of sales.
To adhere to stringent fleet emission regulations or face penalties, automakers must accelerate their EV offerings. In the European Union, allowable carbon dioxide emissions will decrease next year, with Volkswagen currently lagging behind, as per Jato’s analysis. In the UK, zero-emission vehicle sales targets are set to increase annually.
However, without stability in the used EV market, Europe’s goal of phasing out new combustion-engine vehicle sales by 2035 appears less feasible.
“A structured and liquid secondary market, where EVs retain their value, is imperative for a successful EV transition,” noted Jefferies analyst Philippe Houchois. “Ultimately, the price differential between new and used vehicles is the true cost of a car.”
Major corporate clients have begun reassessing their EV strategies. SAP SE recently announced the discontinuation of offering Teslas to employees due to pricing volatility complicating planning and risk management. This decision follows Hertz Global Holding Inc.’s plan to divest 20,000 EVs from its fleet and Sixt SE’s decision to discontinue Tesla offerings.
All EV manufacturers are now providing buyback assurances to leasing companies to sustain new battery car sales, observed Ursula Weigl, a partner at McKinsey consultancy. While this defers risk, automakers remain responsible for securing used car buyers at reasonable prices to avoid write-downs.
Residual value insurer RVI Group reported a surge in demand for specialized coverage amid mounting concerns over declining EV values.
“The EV market is heavily influenced by incentive programs globally,” Weigl remarked. “Demand is artificially stimulated, culminating in the second-hand market.”
