Government policy to incentivise company car drivers into electric cars as the fastest way to drive a wider EV transition appears to be unravelling, due to the failure to provide matching incentives to encourage demand in the used market. 

That’s the implication of a new report from Auto Data Solutions, which predicts that “plummeting EV values and waning confidence in forecast residuals” will force leasing companies to extend contracts and look at re-leasing vehicles, as they can’t afford the losses if they sell them.

According to ADS, this could negatively impact the sales of new EVs in the business and fleet sector, making it even harder for car manufacturers to meet the Government’s ZEV Mandate sales targets, which are already proving challenging.

The report says a fundamental mismatch between market forces for new and used EVs is at the heart of the crisis, as volume growth in new EVs is driven by tax incentives – primarily salary sacrifice schemes – without a corresponding increase in used vehicle demand.

On top of this consumer push-back, there’s the added factor of steep discounts driving down the new price of EVs, says ADS.

The report claims: “Some EVs, originally forecast to retain over 40% of their list price after three years, are achieving sale values in the 20% range. On a car with a new list price of £40,000, that’s an unexpected loss of over £7,000. This problem has already cost leasing companies hundreds of millions of pounds.

“Additionally, the cost-of-living crisis and consumer uncertainty are exacerbating the situation, leaving the industry to explore ways to generate as much revenue as possible from existing assets through lease extensions or offering used EV leasing as a service.”

Commenting on the report’s findings, ADS Commercial Director Amanda Morgan said: “This is not about anti-EV sentiment and it’s clear that the leasing sector is fully behind the transition to zero-carbon driving, but the pace of EV success has created an imbalance between the demands of the new and used car markets.

“We are seeing recent analysis conducted across the fleet and finance sectors which indicates no end in sight for the EV residual values crisis, and companies investigating ways to best postpone exposure to the used market.”