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In this blog, we will explore the electric vehicle market, the advent of innovative leasing models, and the collective impact they may have in ushering in a sustainable, eco-friendly era for used EVs.
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When it comes to the global adoption of electric vehicles, we find ourselves witnessing a transformative era in transportation. As the world grapples with the urgent need for sustainable solutions, the EV market is offering a cleaner and more environmentally conscious alternative to traditional internal combustion vehicles. The accelerating pace of technological innovation, coupled with increasing consumer interest, has fueled the growth of EV’s globally. Governments, industries, and consumers alike are recognizing the pivotal role that EVs play in mitigating climate change and reducing our carbon footprint.
With the automotive industry undergoing a shift towards sustainability, the question of extending the life cycle of electric vehicles (EVs) is now taking center stage. The emergence of new and innovative leasing models holds the potential to reshape the trajectory of used EVs, breathing a second life into these environmentally conscious vehicles.
Automotive ownership is transitioning from a conventional model to a more flexible and dynamic system, with leasing and subscription models quickly gaining popularity. With a focus on environmental sustainability and changing consumer behaviors, these innovative leasing models might hold the key to unlocking the latent value in used EVs. In this blog, we will explore the electric vehicle market, the advent of innovative leasing models, and the collective impact they may have in ushering in a sustainable, eco-friendly era for used EVs.
A Shift in the EV Market: New Trends and Challenges
As the initial wave of BEVs nears the end of its lifecycle, the automotive industry finds itself at a crucial turning point. There is a growing need to open up avenues for innovative strategies to extend the life cycle of these vehicles and sustain the momentum of EV adoption. This shift also signals a need for stakeholders to reevaluate their approaches, fostering opportunities for advancements in electric mobility.
The concept of used vehicle leasing as well as subscription and rental business models emerge as an alternative fix, offering a second life for EVs and aligning with shifting consumer preferences. This transition towards used vehicle leasing aims to contribute to a more sustainable and eco-friendly approach to electric mobility.
In 2017, reforms were introduced that limited tax incentives to vehicles emitting 75g/km CO2 or less, creating a significant preference for plug-in vehicles. This measure has demonstrated its effectiveness, as per recent BVRLA data, revealing that 94% of vehicles delivered through salary sacrifice are either plug-in hybrids or fully electric, with the majority (86%) falling into the latter category. This signifies a paradigm change in consumer preferences and the need for alternative ownership models, prompting a closer examination of the implications and challenges shaping the electric mobility sector.
However, the shift to used vehicle leasing is not without challenges. Pricing considerations become paramount, coupled with uncertainties surrounding the long-term maintenance of these vehicles. Industry stakeholders are tasked with strategically navigating these challenges, ensuring that the extended life cycle of BEVs is not only economically viable but also accessible to a broader demographic.
Government support becomes pivotal in mitigating challenges faced by fleet owners and making environmentally friendly options more accessible to diverse demographics. Tax relief, social leasing schemes, and government grants can help incentivize the adoption of used EVs. As governments worldwide commit to sustainability goals, collaborative efforts between policymakers and industry stakeholders can shape initiatives that not only address current challenges but also foster a thriving ecosystem for the continuous growth of the electric mobility sector. Additionally, addressing energy prices, particularly in the context of public charging, is essential, as current rates are reported to be 30% higher than traditional fuels, necessitating a more cost-effective infrastructure.
The current evolution in the EV market, characterized by the prevalence of BEVs in salary sacrifice programs and the approaching end of the first generation, underscores the need for adaptable strategies and innovative solutions. These emerging trends, coupled with challenges in pricing, long-term maintenance, and the crucial role of government support, collectively shape the electric mobility landscape, steering it towards a sustainable and inclusive future.
Challenges in the EV maintenance landscape
The rapid ascent of EVs, while promising, introduces a myriad of challenges when it comes to Service, Maintenance, and Repair (SMR). As EVs transition from novel concepts to mainstream choices, the industry grapples with several hurdles that demand immediate attention.
1. Shortage of Trained Technicians:
The accelerating popularity of EVs has outpaced the training of technicians equipped to handle these advanced vehicles. Alarming data from the Institute of the Motor Industry (IMI) reveals that merely 6.5% of the UK automotive workforce possesses the qualifications to work on electric vehicles as of June 2021. While this number has gone up since, there still remains a shortage of technicians adequately trained to work on BEV vehicles. This shortage not only raises concerns about prolonged fleet downtime but also poses safety risks as unqualified individuals may attempt repairs, leading to potential harm or even fatalities.
2. Competition and Challenges for Repair Outlets:
In these early days of the EV market, repair outlets find themselves in a competitive landscape, striving to meet the growing demand for specialized services. The surge in EV adoption has lead to an increased need for repair and maintenance facilities equipped to handle the unique requirements of electric vehicles. The challenge lies in the industry's capacity to scale up rapidly, providing accessible and efficient services across diverse regions. Repair outlets face the dual challenge of staying competitive in this burgeoning market while simultaneously adapting to the evolving technologies embedded in the latest generation of EVs.
3. Inflation in Parts Costs:
The novelty of EVs contributes to an inflation in the cost of components, presenting a significant challenge for fleet owners and maintenance providers. While these innovations and technological advancements propel the industry forward, they also contribute to the inflation of EV parts' costs. From advanced battery systems to intricate electric drivetrains, the components that power these vehicles come with a hefty price tag. This inflation directly influences the overall cost of EV maintenance, posing a challenge for both consumers and the industry at large. Because EVs are so new to the market, new technological advances are to be expected. This has led to more uncertainty for garages as well as challenges when it comes to budgeting. With a lower demand for these unique parts due to the relative newness of EVs in the market, fleet owners face the dilemma of managing these elevated costs. As the demand for EVs surges, managing the affordability of replacement parts becomes a critical aspect for sustainable growth.
4. Lack of Historical Data:
As EVs carve their place in the automotive landscape, the lack of historical data poses a substantial challenge. BEV SMR is a relatively new management discipline and even the most well informed experts have limited data. Unlike Internal Combustion Engine ICE vehicles, which have accumulated decades of repair and maintenance insights, EVs operate in uncharted territory. Repair centers for EV fleets are relatively new, requiring substantial upfront investments in training and infrastructure. Manufacturers, unfamiliar with the intricacies of EV repair, grapple with uncertainty and risks, encompassing factors such as industry expansion, supply chain stability, energy considerations, and more.
5. Comparable SMR Costs to ICE Vehicles:
The transition to EVs necessitates considerable investment for garages in various locations. From substantial upgrades to the training of technicians and the acquisition of new tools, charge points, diagnostic equipment, and ramps, the costs associated with EV Service, Maintenance, and Repair mirror those of traditional ICE vehicles. This parity in costs presents a financial challenge for garages aiming to adapt to the evolving automotive landscape.
As the automotive industry grapples with these challenges, collaboration between manufacturers, training institutions, and maintenance providers becomes imperative. Only through collective action and continuous adaptation can the EV maintenance landscape evolve to meet the demands of this era in transportation.
A Second Life for Used EVs
As the electric vehicle (EV) market rapidly evolves with the introduction of cutting-edge models and advanced technologies, the dynamics of the used EV segment are undergoing a shift. While the prevalence of used EVs is relatively low due to the novelty of this technology, those available often face a unique challenge – consumer preferences favor the latest and most innovative models, rendering existing used EVs less appealing.
This imbalance in the market presents an intriguing opportunity for the integration of innovative leasing models, particularly in the realms of car subscription and car leasing programs. Leveraging these models can breathe new life into existing EVs, addressing both environmental and economic considerations. There are many benefits to the circulation of used EVs in the subscription and leasing market. These include -
Integrating used EVs into subscription and leasing models provides these vehicles with a renewed sense of purpose. Rather than sitting idle in the market due to consumer demands for newer models, they find a second life, contributing to a more sustainable and circular economy.
For individuals hesitant about committing to EV ownership, leasing and subscription models offer a risk-free opportunity to experience the technology. This not only broadens the market by addressing consumer uncertainties but also fosters increased adoption of EVs as users get firsthand experience with the technology.
The shift from traditional vehicle ownership to flexible subscription and leasing models is a prevailing trend in the automotive industry. Integrating used EVs into these models aligns with the evolving preferences of consumers, providing cost-effective and adaptable alternatives to ownership.
Increased adoption of used EVs through subscription and leasing translates to more electric vehicles on the road. This, in turn, contributes to reduced traffic congestion, lower emissions, and a positive environmental impact.
By strategically incorporating used EVs into forward-thinking leasing programs, the automotive industry can bridge the gap between consumer demand for the latest technology and the sustainable repurposing of existing electric vehicles. This shift not only aligns with the evolving landscape of transportation but also reinforces the industry's commitment to environmental responsibility and technological innovation.
Comparing SMR for EVs and ICE Vehicles
Service, Maintenance, and Repair operations for EVs differ significantly from those of Internal Combustion Engine (ICE) vehicles. While the latter has established infrastructures and standardized practices, EVs introduce a paradigm shift in maintenance. The intricacies of electric drivetrains and battery management systems demand specialized knowledge and tools. Repair outlets face the challenge of adapting to these new requirements, necessitating investments in training and infrastructure. Bridging the gap between the well-established ICE maintenance landscape and the evolving demands of EVs remains a key challenge for the broader automotive service industry.
The comparison between Internal Combustion Engine (ICE) vehicles and Battery Electric Vehicles (BEVs) in terms of their lifecycle, particularly in the context of used and second-hand vehicles, reveals distinctive characteristics. ICE vehicles tend to experience higher depreciation rates over time, with the value diminishing faster compared to electric counterparts. Traditional vehicles also incur higher maintenance costs due to more moving parts and the need for regular upkeep, contributing to the overall expenses of ownership.
On the other hand, BEVs present a contrasting picture in the used vehicle market. With simpler drivetrains and fewer moving parts, electric vehicles generally incur lower maintenance costs. The slower depreciation rate of BEVs, attributed to advancements in battery technology and increasing demand, makes them an appealing choice in the second-hand vehicle market. Additionally, the modular nature of electric vehicle platforms allows for easier upgrades, addressing concerns related to technological disuse.
Battery life and range are crucial considerations for both ICE and electric vehicles. While the performance of internal combustion engines in traditional vehicles may degrade over time, electric vehicles face challenges related to battery degradation affecting their range. However, advancements in battery technology, coupled with the ability to replace or upgrade batteries, contribute to the longevity and sustainability of BEVs in the used vehicle market.
Ultimately, the environmental impact becomes a defining factor, with ICE vehicles contributing to air pollution and greenhouse gas emissions, while BEVs offer a more eco-friendly option, especially when charged using renewable energy sources. The dynamics of the used vehicle market for both ICE and electric vehicles are shaped by these factors, reflecting the evolving landscape of automotive choices.
Innovative Leasing Models
Innovative leasing models have emerged in response to changing consumer preferences, technological advancements, and a shift toward more flexible and sustainable transportation solutions. These business models showcase the industry's responsiveness to evolving consumer demands, offering alternatives that prioritize flexibility, sustainability, and cost-effectiveness. Here are some notable examples:
Car Subscription Services:
Car subscription services allow users to access a fleet of vehicles for a monthly fee, covering maintenance, insurance, and often charging costs. Subscribers can switch between different models based on their needs, providing flexibility without the long-term commitment of ownership.
Peer-to-Peer Leasing:
Peer-to-peer leasing platforms connect vehicle owners with individuals looking to lease a car. Rental companies like Turo are pioneers in Peer-to-Peer leasing. This model promotes a sense of community and allows car owners to monetize their idle assets while providing others with access to vehicles without traditional dealership involvement.
Corporate Car Leasing Programs:
Companies are increasingly offering employees the option to lease vehicles as part of their benefits package. These programs often include maintenance, insurance, and other perks, providing employees with a convenient and cost-effective transportation solution.
Pay-per-Use Leasing:
This model charges users based on their actual usage of the vehicle. It's a dynamic approach that suits individuals with irregular driving patterns or those who may use the vehicle for specific purposes, such as weekend getaways.
Leasing for residential buildings:
Many residential buildings are collaborating with car rental companies and builders to come up with innovative mobility solutions that let residents of a particular building rent vehicles as a part of their agreement on a pay-per-use model.
The Rise of Subscription and Leasing Models
The rise of subscription or mobility models in the EV market signifies a significant departure from traditional ownership structures. Subscription models have gained traction in the EV sector by addressing the uncertainty and risk associated with owning a new EV while providing flexibility for consumers. This approach has found a sweet spot between ownership and long-term leasing, by removing the responsibilities tied to ownership, making it more accessible and affordable for individuals to explore the EV landscape. Subscription models facilitate a low-cost entry, allowing users to experience various EV models, enabling informed decisions on the right fit for their needs and preferences. As the subscription model evolves, it is becoming a more long-term solution, attracting both rental and leasing companies due to its versatility.
The attractiveness of subscription models extends beyond consumers, presenting opportunities for OEMs and leasing companies. While the model opens up innovative possibilities, managing large-scale fleets with regular pick-ups and drops remains a challenge. Unpredictable journeys further complicate logistics for companies, yet the subscription model continues to grow, especially in segments like high-end vehicles and BEVs. Although traditionally challenging for OEMs, the subscription model's increasing popularity suggests potential adaptations in the future, creating an intriguing prospect for the evolving landscape of automotive ownership and mobility solutions.
Amidst these challenges, leasing companies are recognizing the potential of the used EV market, understanding that while costs and risks may pose hurdles, this avenue represents the future of sustainable mobility. However, the supply-demand dynamics and the associated risks need careful consideration, urging businesses to be prepared to navigate uncertainties and take calculated risks. OEMs also play a significant role, with questions arising about their stance on vehicle recycling. While some, like Toyota, aim to remanufacture vehicles to retain control over the fleet, the overall landscape remains uncertain, necessitating a balance between sustainability goals and market dynamics.
Navigating Regulations and Consumer Dynamics
Consumer duty regulations in the automotive industry are also transitioning towards a focus on demonstrating customer satisfaction and positive outcomes. This change underscores the evolving landscape where the emphasis moves beyond mere compliance to ensuring that customers are content with the leasing experience. While this shift introduces a more customer-centric approach, the challenge lies in striking the right balance between regulation and flexibility. Governments around the globe are recognizing the need for adaptable solutions that align with dynamic consumer demands, especially in the context of subscription models, which currently face regulatory challenges due to their loosely defined nature. Striking this balance becomes crucial as regulations need to cater to a spectrum ranging from short-term subscriptions of one hour to long-term commitments that may span years, ensuring consumer rights and minimizing risks without stifling innovation.
Subscription services, with their varying durations and terms, pose a regulatory challenge in defining standards that cater to both consumer protection and industry growth. Striking the right balance is imperative to encourage innovation while safeguarding consumer interests.
Regulation in the automotive leasing sector encompasses the Consumer Credit Act, FCA guidelines, and peer review sites, collectively outlining responsibilities for consumers, finance providers, and leasing companies. The advent of subscription models brings its own set of challenges, given the product's ambiguous definition and the need for flexibility. Striking the right regulatory chord becomes essential to address consumer risks, uphold contractual rights, and ensure transparent information distribution. While the industry acknowledges the importance of self-regulation, especially in scenarios like vehicle damage, broader considerations include decarbonization goals, production targets, and the review of data to inform future regulations and foster a sustainable automotive ecosystem.
To conclude,
The evolving EV landscape appears poised for continued growth, innovation, and widespread adoption. The integration of new and sustainable leasing models presents an opportunity to not only extend the life of used EVs but also contribute to the overall shift towards cleaner and more environmentally friendly transportation. As advancements in technology, government initiatives, and consumer preferences converge, innovative leasing models may become a driving force in shaping the future of the EV market, offering a sustainable and accessible path to a greener mobility landscape.
