The European Commission's upcoming 2040 climate target necessitates a substantial reduction in CO2 emissions from road transport, which constitutes over a quarter of total EU emissions. Shifting from internal combustion engine (ICE) cars to battery electric vehicles (BEVs) is a critical strategy, with particular focus on the overlooked second-hand car market, where nearly eight out of ten EU citizens purchase their vehicles. To achieve a widespread and affordable transition to zero-emission transport, electrifying the used car market is imperative, especially for low- and middle-income households.
Leasing companies, owning fleets with a typical ownership period of three to four years before entering the used market, stand as key players in driving this transition. However, despite their significant financial capacity, leasing companies are not leading the switch to BEVs, and their uptake aligns with the market rather than setting ambitious targets. Notably, some leasing firms, particularly in France, are steering clients towards fossil fuel cars instead of BEVs.
The more electric cars now, the more second-hand cars in the near future
A T&E analysis reveals that expediting the electrification of the EU leasing sector, with major companies going 100% electric by 2028 and the entire sector by 2030, could introduce an additional 18 million BEVs to the used car market by 2035. This represents a 50% increase compared to a business-as-usual scenario, with eight million of these additional used BEVs priced below 10,000 euros, the average expenditure for middle-income households on used cars. Consequently, leasing companies hold the key to accelerating the electrification of the used car market and making BEVs affordable for a broader population. Despite this potential, leasing companies are currently missing the opportunity due to a lack of green leadership. To unlock the full potential, T&E advocates for leasing companies to commit to phasing out fossil cars by 2028, transforming into true green leaders. Simultaneously, policymakers are urged to reform company car taxation by increasing taxes for fossil cars and plug-in hybrids at the national level. At the EU level, binding electrification targets for corporate fleets, reaching 100% by 2030 at the latest, are recommended to drive systemic change. In conclusion, achieving the EU's climate targets requires a robust shift to zero-emission transport, particularly in the second-hand car market.
Leasing companies as a potential pivotal role
Leasing companies, through their substantial fleets, can play a pivotal role in this transition. However, their current lack of commitment and direction hinders progress. T&E calls for a shift in policies and practices to ensure leasing companies become leaders in green initiatives, thereby unlocking the full potential for accelerated electrification of the used car market. The used car market holds paramount significance in the European Union (EU), representing an affordable gateway to personal mobility, particularly for low- and middle-income families. It is three times larger than the new car market in terms of registrations, with almost eight out of ten EU citizens purchasing their cars from this market. This market plays a crucial role during economic downturns when consumers prioritize affordability. Affordability is a key concern for low- and middle-income households when buying a car, making the used car market indispensable. The market offers vehicles at lower upfront costs as cars lose a significant portion of their value during the first ownership period. The majority of households with the lowest incomes exclusively opt for used cars, and even middle-income groups heavily rely on the used car market. In the context of BEVs, they are emerging as the winning technology for a sustainable transportation shift. The report emphasizes that the electrification of the used car market is pivotal for the EU to achieve its climate goals and make BEVs accessible to a broader population. Leasing companies, which own fleets with short ownership periods of three to four years, are identified as key players in driving this transition. However, the report points out that leasing companies are not leading the shift to electric. Despite their size, financial capacity, and influence, their uptake of BEVs is in line with the market, and none have set targets to phase out fossil fuel cars. The report identifies a significant opportunity for leasing companies to accelerate the electrification of the used car market, potentially bringing an additional 18 million BEVs onto the market by 2035, representing a 50% increase compared to business as usual.
Phasing out fossil fuel cars, the role of Legislators
Moreover, the report highlights that nearly half of these additional BEVs could cost less than €10,000, aligning with the average budget of low- and middle-income households for a used car. The affordability of these used BEVs is further emphasized as their total cost of ownership is considerably lower than that of petrol cars, with potential savings exceeding €8,000 for the second and third owners combined. The report underscores the importance of leasing companies becoming green leaders by committing to phasing out fossil fuel cars. Policymakers at both national and EU levels are urged to reform company car taxation, increase taxes for fossil cars and plug-in hybrids, and set binding electrification targets for corporate fleets, aiming for 100% electrification by 2030. In addition, the report advocates for the production of smaller and cheaper BEV models to enhance affordability further. Car manufacturers are encouraged to prioritize the development of cost-effective BEVs, and leasing companies are urged to incorporate these models into their portfolios. In conclusion, the report stresses that the potential and responsibility of leasing companies in accelerating the electrification of the used car market are crucial.
A paradigm shift is needed
By proactively becoming green industry leaders, leasing companies can contribute to a more affordable, accessible, and eco-friendly used car market. The transition requires increased efforts from leasing companies and supportive policies at both national and EU levels. Despite their substantial size, financial capacity, and influence in the automotive sector, leasing companies, particularly the largest ones, are not leading the transition to electric vehicles in the new and used car market. The report indicates that the uptake of BEVs in the leasing sector during H1 2023 is either below, above, or in line with the rest of the market in different EU countries. The analysis suggests that leasing companies have the potential to drive the adoption of BEVs, given their significant market share, but they are currently not fulfilling this role. To explore the impact leasing companies could have on the used car market if they were to lead the shift to electric, the report models a "green leasing leadership scenario." In this scenario, the top seven leasing companies commit to registering only BEVs starting in 2028, with the rest of the sector following suit by 2030. The results of the modelling exercise indicate that if leasing companies were to accelerate their transition to electric vehicles, an additional 2.2 million cheaper used BEVs could enter the market by 2030.
The cumulative effect is substantial, with 18.3 million more used BEVs by 2035 and 23.9 million by 2040, compared to a business-as-usual scenario. This represents a 56% increase in BEVs entering the used car market by 2035. The report highlights country-specific variations, with Germany showing the largest absolute impact due to its market size, while Italy and Spain stand to benefit significantly with a faster electrification of leasing. Poland, where a majority of new registrations are used cars, would experience a substantial increase in used BEVs. Moreover, the modelling exercise suggests that nearly half of the additional 18 million used BEVs could cost less than €10,000, making them accessible to low- and middle-income households. The acceleration of leasing companies' shift to electric could also impact prices, making used BEVs cheaper and more accessible for households, with leasing companies adapting strategies to include second-hand leasing options in response to market dynamics.
The leasing channel emerges as a key driver in accelerating the adoption of second-hand BEVs. Leasing companies, which currently hold over 50% market share in new car purchases, play a pivotal role in supplying vehicles to the used car market. The profitability of leasing companies, with profit margins ranging from 12% to 50%, underscores their financial capacity to influence the market positively. Leasing companies, with their short ownership periods of three to four years, significantly impact the used car market as major suppliers. Remarketing at the end of the leasing period introduces a substantial number of cars into the used market each year. This dynamic turnover, estimated at 4.6 million cars annually from the leasing segment alone, showcases the leasing industry's vast impact on the used car market. Furthermore, leasing companies act as gatekeepers for new technologies, making them accessible through used sales. The continuous renewal of their fleets enables leasing companies to incorporate the latest BEV models with advanced technology and features. This constant influx of relatively newer BEVs into the used market shapes consumer choices and perceptions. Leasing companies absorb the initial depreciation of BEVs, making them more cost-effective for second-hand buyers.
The filtering effect of leasing companies on the car market is crucial, as they prioritize the inclusion of the latest BEV models in their fleets. This approach ensures a continuous supply of relatively newer BEVs in the used market, making electric vehicles more accessible and affordable for a broader range of consumers. It also addresses concerns about rapid depreciation associated with early generations of BEVs, ultimately contributing to the widespread adoption of electric mobility. In summary, the leasing channel, with its financial strength and strategic position in the automotive sector, has the potential to drive the accelerated uptake of second-hand BEVs, making them more accessible and affordable for a diverse range of consumers in the EU.
