The effects of falling and uncertain residual values (RVs) on electric vehicles (EVs) are starting to cause concern for fleets, according to fleet manager body the Association of Fleet Professionals (AFP).

Chair of the U.K.-based AFP, Paul Hollick, said reductions of between 10% and 20% were not uncommon. This then had ramifications for the fleet affordability of EVs.

“Until perhaps a year ago, it was possible to make a convincing financial case for EVs at board level. Yes, they were expensive to buy new, but residual values were remarkably strong … now that argument has started to fall away.

“Of course, fleets are still going to want to continue the process of electrification thanks to benefit-in-kind advantages for drivers, the 2030 deadline edging closer and for environmental reasons. However, as AFP members continually testify, being able to back all of this up with a sound financial argument has always made the process much easier.”

Hollick said the industry needed strengthened RVs but admitted this was going to be a “challenge.”

However, according to Cox Automotive’s most recent analysis of the U.K. auto sector, widespread uncertainty about the cost of ownership and residual value in the ever-growing market for used electric cars could be eased by government intervention and industry knowledge sharing.

Cox pointed to the “unstoppable rise” of EVs in the market, with more than a fifth of new vehicles in the U.K. expected to be EVs by the end of the year. Its report said that figure should more than double (for cars up to three years old) by 2027.

Yet, according to industry reports, just 64% of franchise dealers stocked used EVs in 2022, while nearly 90% of independent dealers did not have them in stock. This, reported Cox Automotive, created a knock-on effect over pricing and availability.

“How do we change the perceptions of used car and van buyers, convincing more of them that these vehicles are desirable?” continued AFP’s Hollick.

“It seems to us that doing so centers around making EVs more affordable while ensuring that consumers view them as practical propositions on a day-to-day basis.”

Hollick pointed out that other countries had government subsidies aimed at encouraging the used EV market, which ranged from low cost loans to lump sums.

Cox Automotive’s insight and strategy director Philip Nothard holds a similar opinion, saying the U.K. government should stimulate demand for used EVs by following the example of countries such as France, Germany, the Netherlands, and the U.S. where ownership makes more financial sense in comparison.

He said: “In the U.S., the Biden administration has introduced a $4,000 tax credit for the purchase of used BEVs under $25,000, which has led to a significant increase in their adoption.

“It is essential that similar initiatives are implemented here to encourage the adoption of used EVs and support the growth of this market. Until then, there will only be more instability and volatility.”

According to the Startline Used Car Tracker, a monthly report on the used car market, dealers believed finance companies needed to do more to support EVs.

Almost six out of 10 dealers (58%) believed more support was needed from their motor finance providers to retail EVs. The report found that dealers considered lenders were less keen to finance EVs, wanted higher deposits from buyers or some charged higher interest rates. A further 5% said their lenders simply would not touch EVs.

Paul Burgess, CEO at Startline Motor Finance, added:

“The residual values of EVs are among the most important metrics when it comes to making a lending decision, but they have been extremely unpredictable over the last year, with falls of 25% not unknown on popular models. This makes financing EVs quite difficult.

“Most dealers understand these background problems but this doesn’t change the fact that, in a retail environment, dealers are having trouble finding finance for EVs which, of course, makes them less likely to offer these cars for sale at exactly the point in time when they are probably looking to start adding them to their stock mix.”

Cox Automotive’s Nothard added that there was a discrepancy between the demand for EVs and their availability in the used vehicle parc. He said: “I think a powerful antidote to this clash would involve improving awareness, more knowledge-sharing in the industry and, of course, legislative change that makes the process of stocking and buying EVs both more affordable and streamlined.”