John Phillipou, SME Lending Managing Director at Paragon Bank discusses how, after the successful business adoption of battery electric vehicles (BEVs), the Government must now turn its attention to the used market, introducing tax incentives and measures to encourage a broader adoption of electric vehicles (EVs).
Figures released by the SMMT, the UK motor industry trade body, showed that corporate and fleet purchases accounted for two-thirds of new car registrations in February, many of which were zero-emission variants.
The figures are a continuation of a trend we have seen over the past 18 months and highlight the success of Government tax incentives to encourage businesses to adopt cleaner vehicles for their fleets and employees.
But whilst the uptake of electric and hybrid vehicles by businesses should be lauded, we must ensure we are not storing up problems further down the line through the lack of a mature used market for BEVs.
The asset finance sector has been one of the main beneficiaries of the corporate adoption of BEVs, with industry data highlighting lending on new car purchases by businesses driving overall market growth over the past year.
What’s new today becomes used tomorrow and the flow of petrol and diesel vehicles through the system from fleet to consumer is tried and tested. Cars have been one of the most consistent assets to price in the used market for decades, using the CAP value method.
We are in a new world with BEVs. Used purchases of BEVS have been muted, particularly in more recent months as insurance premiums for these vehicles have risen compared to traditionally powered cars.
Government data shows that BEVs accounted for just 1% of used car transactions in 2022, with hybrids accounting for 3%. That grew from 0.1% and 1.2% in 2018, but still small fry. A survey by the Green Finance Institute showed that consumer concern about long-term battery health was a key barrier to acquiring used BEVs.
Purchasers in the used market value certainty. Unlike fleet vehicles or company cars that benefit from warranties and servicing built in, used buyers are essentially taking a punt on a vehicle, knowing they will have to front the cost of any repairs or maintenance, especially if out of warranty. The appeal of opting for the tried and tested in these circumstances is clear, even though many BEVs have extended warranties for the battery.
Additionally, BEVs typically still command a premium. Searching for a 30,000-mile 20-plate Hyundai Kona, a popular small SUV, shows that the petrol version in the used market is priced between £13,000 and £14,000 from the manufacturer’s dealerships, whilst the electric version options are typically priced over £16,000.
With questions still to be answered on the future taxation model of EVs (the Government will need to find a way of plugging the gap left by a reduction in fuel duty and road tax), incentives must be developed for the adoption of used EVs, just as they have for the purchase of new ones.
The Environment and Climate Change Committee published a report in February that called for a number of measures to encourage a broader adoption of EVs, including the reintroduction of grants for the purchase of EVs, including used models, boosting the charging infrastructure and marking it more cost-effective to charge on the public network through VAT cuts.
It also suggested a kitemark-style system for battery health, plus it said the Government should look to the Netherlands, where buyers of used BEVs can benefit from a €2,000 subsidy and a healthy used market has been nurtured.
These are all strong suggestions that could help build broader consumer confidence in BEVs, but the Government must move quickly. As an asset finance sector, we will be working with them to ensure this happens.
