A recent report from the British Vehicle Rental and Leasing Association (BVRLA) highlighted the challenges of weaker than forecast residual values facing car finance and leasing companies. The finger of blame is firmly pointed at electric vehicles (EVs).
The challenge, at its worst, may largely be historic, with today’s market showing signs of stabilisation according to Cox Automotive. However, as Bluestone Credit Management’s Head of Business Development, Simon Frost, observes, it is creating unwelcome headaches for lenders right now.
“Car finance firms are losing ‘hundreds of millions’ in EV depreciation, according to the BVRLA. While they are looking for government support in the future, today’s reality is that many are haemorrhaging money as cars financed over the last three years, on PCP and leasing agreements, often fail to meet their forecast end-of-contract value. Add in the cost of transportation and remarketing, and the losses per car escalate.”
Simon’s view that the problem may be a short to medium term one is borne out by industry valuation experts CAP hpi, whose forecast models many lenders rely on. Three years ago, it identified unsustainably high used values for EVs, adjusting their forecasts downwards. While residual values have deteriorated further than anticipated due to unforeseen global events, they are likely to be less damaging to lenders than those in place before 2022.
While from a residual value perspective, the outlook is more positive for EVs, the immediate challenge of losses remains. It is something that Simon believes can be mitigated at least in part, concluding;