A proposal suggests the government step in as a guarantor for electric vehicle (EV) leases, aiming to alleviate consumer concerns over rapid EV depreciation and potentially lower lease prices. This plan, spearheaded by the British Vehicle Renting and Leasing Association (BVRLA) and the Green Finance Institute (GFI), envisions a system where taxpayer funds would cushion leasing companies against large drops in used EV values at the end of lease terms.
The scheme operates on a tiered depreciation absorption model. Should an EV’s value fall short of projections, the leasing company initially covers the first 10% of this shortfall. Subsequently, the government steps in to absorb another 10%. Any further depreciation beyond this point would be borne by the leasing industry.
According to estimates from the GFI, such a safety net would necessitate approximately £20 million annually from the public purse, with an anticipated higher initial cost for setup. This investment could potentially be drawn from existing green funds like the £27.8 billion National Wealth Fund, dedicated to bolstering sustainable industries, including transportation.
In a scenario where predicted EV values hold steady and depreciation doesn’t exceed 10% above expectations, the government would effectively recover its investment. Interestingly, the scheme could even generate revenue for the Treasury. To participate, leasing firms would pay an entrance fee, projected to yield around £99 million annually after operational costs are factored in—provided no payouts are needed due to EV depreciation exceeding anticipated levels.
While a worst-case scenario envisions government losses reaching “low three-figure millions” annually, this extreme outcome hinges on every leased vehicle experiencing the most pessimistic depreciation projection. The BVRLA emphasizes that such an event is statistically less likely than a more favorable scenario where the government realizes a profit.
The potential benefits for consumers could extend beyond mere financial protection for leasing companies. An anonymous industry insider suggested to Auto Express that reduced uncertainty regarding EV resale values could translate into lower lease prices for consumers.
“Uncertainty around residual values is driving up costs across the board, which we ultimately pass on to customers,” explained the source. “Without a clear picture of future value, we need to factor in potential losses.”
BVRLA Chief Executive Toby Poston acknowledges the industry’s current struggles with EV depreciation, stating that leasing firms have collectively incurred “hundreds of millions” in losses. He views this scheme as an attempt to restore confidence within the sector and secure sustainable EV leasing practices.
The proposal is awaiting a response from HM Treasury regarding its potential implementation.
