The BVRLA’s car lease member fleet rose 3.3% in Q3 2024 on the back of booming salary sacrifice demand and rising business contract hire (BCH) uptake but the association has issued a ‘storm warning’ for electric vehicle residual values.

Salary sacrifice is the driving force for the zero-emission transition

The association’s latest Leasing Outlook report shows that salary sacrifice soared 51% year-on-year in Q3, while BCH was up 6.3%, helping to offset a 51% decline in personal contract hire (PCH).

Sal-sac continued as the car sector’s “stellar” performer, propelling the UK’s transition to cleaner, greener models thanks to a new wave of smaller, cheaper electric vehicles and fledgling developments in second-hand EV sal-sac schemes.

Toby Poston, BVRLA chief executive said: “Salary sacrifice is the zero-emission transition’s driving force. Its popularity continues to grow, bolstered by a wave of smaller, cheaper electric vehicles and innovative new leasing products providing second hand EVs. More employers are seeing the appeal and more employees – at all income levels – can make the switch.”

BCH also showed healthy demand, with the 6.3% year-on-year increase giving a 60% share of the lease fleet; levels not seen since the first half of 2019 before coronavirus struck.

The new Leasing Outlook report also reveals that the combined BVRLA car and van fleet grew 1.4% to 1,938,585 in Q3 2024; up by 26,295 vehicles but down on the previous quarter.

EVs dominate BCH market, but PCH lags behind

The report also shows a dramatic transformation in powertrains of BVRLA members’ car fleets. Over a four-year replacement cycle, electric cars have increased their market share to 65% in Q3 2024, from 17% in 2020. The improvement is testament to the supportive Benefit-in-Kind tax regime for ultra-low and zero emission cars.

Battery electric models now constitute 37% of the total fleet, 53% of new business contract hire orders and 87% of new salary sacrifice orders. Plug-in hybrids represent 19% of the total fleet, and 17% of new orders, while hybrids have a 9% share of the total car fleet and account for 7% of new orders.

In the consumer market, however, BEVs represent just 16% of new orders, down from 21% last quarter, despite OEM offers and discounts.

Without buoyant retail demand for new EVs, leasing companies are deeply worried about the future values of used EVs.

The association warns that financial support from the Government for the buyers of used EVs is urgently required to stimulate demand, shore up values and ensure the industry can remain at the forefront of decarbonising the UK’s vehicle parc.

Leasing firms are already avoiding sending their used EVs to market by developing second-life leasing products targeted at SMEs, salary sacrifice customers and private drivers, mitigating depreciation over a longer period in the hope that the used EV market picks up.

And with the volumes of EVs reaching the end of their lease contracts set to increase significantly, concerns are mounting that uptake of new and used BEVs will fall if the matter is not addressed.

Chief executive Toby Poston said: “The fleets that have championed the switch to zero-emission vehicles are now being hit with eyewatering costs in vehicle depreciation. Our Happy EV After campaign highlights how support is required to help bring confidence and stability back to this vital part of the automotive ecosystem. Supply of used BEVs will continue to surge and we must work with government and wider industry to create and sustain demand for these vehicles.”

Electric vans are also a major issue. eLCV uptake remains extremely limited, and even leasing companies with eLCV penetrations above the ZEV mandate attribute demand to a handful of major fleets trying to make the technology work.

Closer analysis suggests demand is limited to the smaller van sector, with regulations and capabilities making larger 4.25-tonne eLCVs operationally unsuitable for the majority of applications. The Government is now consulting on fully aligning 3.5-tonne diesel and 4.25-tonne eLCV regulations, which could shift demand.

The BVRLA report also looks at the changing face of leasing – including shortening lease terms and changes for maintenance contracts – and includes commentary from Fleet Assist on SMR trends, insights from Cap HPI on the impact of ZEV mandate and an Auto Trader look at expectations for 2025.

The full report can be read on the BVRLA website.