Are EV buyers being overcharged for private leases?

A new report from eco think-tank Transport & Environment (T&E) claims that electric car buyers are being ripped-off when leasing their electric vehicles (EVs).

Leasing, traditionally a business solution to buying a car, has expanded in recent years to encompass private buyers too. For a monthly fee, you get the car and, in some cases, inclusive servicing and other costs covered. The limitation is that, at the end of the lease, you won’t own the car and will simply have to hand it back – although some companies do offer the possibility of an outright purchase at the end of the lease.

According to T&E, those going to leasing firms looking for an EV are getting gouged on their monthly rates to the tune of as much as 57 per cent.

There’s a balance of costs to be observed here. In general, electric cars cost more to buy than an equivalent petrol or diesel model and in the past it has been assumed that the EV will depreciate more too, as the second-hand market had shown an initial reluctance to buy into the electric models.

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T&E claims that’s no longer the case and that residual values for EVs have firmed up significantly, erasing any justification for charging higher leasing fees. “The higher leasing prices for battery electric cars are unjustified. T&E analysis of 2.7 million used car prices reveals that EVs do not depreciate more than other types of cars. Depreciation for EVs in Europe’s biggest markets – Germany, France and the UK – is on par with diesel and petrol. In Spain, there is still a difference but the gap is closing,” said Stef Cornelis, director of electric fleets at T&E.

“Today customers are being overcharged by leasing companies if they want to switch to a battery electric car. Leasing firms are too conservative when setting their monthly prices. Their rates reflect the state of play from five years ago. With this pricing strategy, their profits are obviously high and consumers are overpaying to go electric. At the same time, they are harming the EV transition.”

T&E’s contention is that leasing companies – with a fleet of 12 million vehicles in Europe – have an “outsized role” to play in the transition to battery electric cars. In 2022, they accounted for 22 per cent of new car registrations in Europe, the T&E study finds. Leasing companies are often owned by banks and car manufacturers, the likes of Lloyds Bank (Lex Autolease), Société Générale (ALD), BNP Paribas (Arval), Volkswagen (VW Financial Services) and Mercedes-Benz (Athlon).

T&E is flagging that none of these financial companies have set targets to become fully battery electric by 2030 – although doubtless, the ones owned by carmakers will claim to be part of those companies’ overall carbon-reduction plans.

According to Cornelis: “These giants of the auto world have gone unnoticed and are slipping through the cracks. Looking at their weak targets for battery electric vehicles, leasing companies are climate laggards and not green leaders. Unless they rapidly accelerate their electrification plans, we will struggle to supply a second-hand market that will make EVs affordable to far more people and we further delay the decarbonisation of the transport sector.”

T&E’s research did seem to indicate a significant difference in the cost of leasing an EV compared to a petrol or diesel model in key markets such as France, Germany, the UK and Spain.

However, in Ireland, the picture is not quite that cut and dried. T&E used only two cars for its examples – a Volkswagen Golf and a Volkswagen ID.3. While these two models are broadly comparable in terms of size and performance, they are not on price – to begin with, the ID.3 is significantly more expensive.

T&E also seems not to have used models where there is a direct comparison between internal combustion and electric power in the same lineup. Looking at the Irish website of Leaseplan, a leading global car lessor, the picture is far less clear.

In one case, that of the Peugeot 208, the monthly lease cost for the electric version is indeed more expensive – €466 compared with €388, but this is a difference of 20 per cent, not 57. In other cases, the electric models have a distinct price advantage in terms of their monthly fee.

For example, an electric BMW i4 costs €100 less per month to lease than a petrol-engined 420i. A Kia Niro EV is more expensive to lease than its plug-in hybrid stablemate, but in K3 specification the gap is not very significant – the PHEV costs €561 per month, the EV €576 per month. An Opel Mokka-e SRi has, at €502 per month, a major price advantage over its 1.2-litre petrol-powered equivalent, which costs €563 per month. Those are all personal lease prices, but the costs for business leases seem broadly comparable.

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Oh, and the VW ID.3 versus the Golf? Well, there is only one ID.3 model currently available on Leaseplan and it costs €566 per month. It’s true that you can get a Golf for significantly less – €449 per month – but that’s the most basic 1.0-litre Golf available. A more comparable e-TSI mild hybrid, with the 1.5-litre turbo petrol engine and an automatic gearbox and in Style spec, costs €545 per month.

The Irish Times contacted Leaseplan Ireland for comment, but after initially being told that the company was preparing a stern rebuttal to T&E’s report, claiming that it contained a number of inaccuracies, that was later reduced to a simple “no comment at this time”.

However, it is true to say that residual prices for electric vehicles are coming under pressure, but much of that pressure is coming directly from EV carmakers themselves.

Indeed, according to figures from the UK’s CAP HPi (a used-car valuing and history checking service) second-hand values for the Tesla Model 3 fell by more than 9 per cent in December – before Tesla cut the prices of its new cars – and that of the Mercedes-Benz EQC fell by more than 10 per cent, while the Polestar 2 saw a 7.8 per cent trim in its used values.

Why? Because more and more EVs are hitting the used market as more and more EV models go on sale. FleetEurope magazine quoted one lessor as saying that they had “delayed remarketing a batch of Model 3 cars at the end of last year due to diminishing demand” while CAP HPI is also reporting that there is dwindling consumer demand for second-hand EVs, suggesting that the market may be getting swamped.