The electric vehicle crisis is set to deepen further, bringing further disruption to leasing firms, fleets and the automotive sector.

The fundamental mismatch between market forces for new and used EVs is at the heart of the crisi

That’s the prediction from automotive data expert ADS, which has contributed to confidential analyses of future exposure to EV residual values in the fleet and motor finance sectors.

Over the last 24 months, used EV values have dropped by more than 50%, according to industry data, and ADS says the worst is yet to come.

It’s warning that plummeting EV values and waning confidence in forecast residuals will increasingly force leasing companies to extend contracts and encourage the re-leasing of used EVs in a bid to mitigate losses.

The fundamental mismatch between market forces for new and used EVs is at the heart of the crisis.

Volume growth in new EVs is being driven by tax incentives, primarily salary sacrifice schemes. But there’s no corresponding increase in used vehicle demand.

Even as the used EV market grows, consumers are typically seeking cars at lower price points than typical leasing company disposals and most buyers continue to prefer cheaper ICE vehicles.

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.

ADS has also warned that at future EV values will continue to fall short of current forecasts. The pace of EV innovation means relatively recent models are quickly perceived as outdated ‘old technology,’ reducing their appeal.

And steep discounts on new EVs are driving down used EV values even further.

The BVRLA recently launched its #happyEVafter campaign, run in conjunction with Auto Trader, EVA England and the NFDA, and calling for the Government to take action now to avoid further volatility in used electric vehicle values. It’s warned of a “negative loop set to accelerate in the coming years”, with ever-increasing numbers of ex-fleet EVs set to hit the used market, particularly as the new government reinstates the 2030 ICE phase-out.

While leasing firms are fighting back, exploring ways to generate as much revenue as possible from existing assets through lease extensions or offering used EV leasing as a service, ADS says this could negatively affect new EV registrations in the fleet sector and impact manufacturers’ ability to meet government-imposed targets.

For employees, the value of their vehicle ‘perk’ is also diminished, as they are left driving older vehicles for longer instead of upgrading to a new EV.

Consumers are also set to feel the impact, as leasing companies face pressure to increase monthly rates to cover current shortfalls and avoid future losses when disposing of ex-lease vehicles.

Manufacturers will be affected by any reduction in demand for new products due to lease extensions. Historically, OEMs used the daily rental sector to offload excess vehicles during periods of weaker demand, but EVs are widely seen as unsuitable for that role.

“This is not about anti-EV sentiment and it’s clear that the leasing sector is fully behind the transition to zero-carbon driving,” said Amanda Morgan, commercial director and leasing sector lead at ADS, “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.

“That means extending existing contracts wherever possible, to maintain revenue, and also re-leasing ex-contract vehicles rather than send them back into the market.”

ADS suggests manufacturers have a role to play too, says ADS, by re-examining list prices which are widely seen as a barrier to adoption in new and used markets.

Morgan added: “We are already seeing more companies re-leasing ex-contract EVs, which provides the double benefit of not contributing to oversupply while also providing a more affordable EV leasing option for consumers taking their first step into the market.

“The only certainty in the current situation is that obtaining risk-related data from as many sources and perspectives as possible is more important than ever to avoid future shocks.”