{"text":[[{"start":9.25,"text":"Second-hand electric vehicle prices in the UK have declined at the sharpest rate in Europe this year, despite a boom in new EV sales sparked by rising fuel costs as a result of the Middle East war. "}],[{"start":21.25,"text":"Industry executives warn that the influx of EVs from Chinese brands and the UK government’s ultra-ambitious sales targets will make it even harder for banks and leasing companies to forecast the residual value of EVs, a key measure for customers securing finance to buy a car. "}],[{"start":38.4,"text":"As of April 1, the residual value of three-year-old electric cars in the UK was 38 per cent of their original list price. That average compared with more than 46 per cent in Germany, Spain and France, according to research firm Indicata. The residual value of petrol vehicles was 45 per cent and 51 per cent for plug-in hybrids in the UK."}],[{"start":61.65,"text":"Second-hand pricing is critical in a market where the vast majority of new cars are bought using a lease. The cost of a financing deal is typically determined by how much value a vehicle is predicted to lose over two to four years, rather than the total cost of the car. A decline in residual value will increase the financing costs for buyers, making EVs less affordable. "}],[{"start":83,"text":"“The key to new EV car adoption continuing to grow is to have a healthy used-vehicle market, and if we don’t have that, then the new car adoption will stall,” said Richard Jones, chief executive of Zenith, a UK-based vehicle leasing company."}],[{"start":97.6,"text":"Calculating future second-hand prices of EVs has been historically difficult due to the smaller pool of data compared with petrol vehicles. But it has been made even harder by a surge in sales of EVs made by BYD, Chery and other newer Chinese brands, which now account for 15 per cent of the UK market. "}],[{"start":117.39999999999999,"text":"“With Chinese cars, there’s no information on how they perform when they’re seven, eight, nine years old,” said David Betteley, an automotive finance expert who has held senior roles at the financial service units of Jaguar Land Rover, Vauxhall and Toyota. “There’s no reason to believe that they won’t be just as reliable and as durable as any other car but there’s no data.”"}],[{"start":null,"text":"
"}],[{"start":138.75,"text":"Chinese carmakers have been aggressively expanding outside their home market to find new revenue, and the UK has been a particularly important market in the absence of higher tariffs imposed by the EU. "}],[{"start":150.2,"text":"The UK also has an ambitious target of 80 per cent of new cars being electric by the end of the decade. That has forced manufacturers to push out EV models with heavy discounts to leasing companies and consumers to avoid paying large fines for missing the sales targets, which increase each year. "}],[{"start":167.04999999999998,"text":"Andy Shields, the former global business unit director at Indicata, said Chinese manufacturers were pushing “significant amounts of cars” into the UK market using all channels including fleets, leasing brokers, daily rental companies and “demonstrators” for test drives at dealerships — a method also used by the western carmakers as well. "}],[{"start":189.04999999999998,"text":"“Very simply, it is additional pressure on the market,” Shields said. While new Chinese EVs are “well-priced” considering the advanced software and other high specifications included in the models, their prices get “very very cheap” after they are pushed through these various different methods."}],[{"start":205.04999999999998,"text":"Still, Chinese brands were not necessarily the worst performing in terms of EV residual value in the UK. As of April 1, a BYD electric vehicle’s residual value was at 39.8 per cent, which means it has lost 60 per cent against its original list price. That compared with 32 per cent for SAIC-owned MG, 37 per cent for Ford and 34 per cent for Peugeot, according to Indicata data."}],[{"start":null,"text":""}],[{"start":232.29999999999998,"text":"Electric vehicles now account for 23 per cent of the UK’s new car market but 70 per cent of those were classed as “fleet,” which includes company cars and those buying vehicles for work, while only 30 per cent were retail, according to the Society of Motor Manufacturers and Traders. "}],[{"start":250.6,"text":"At the end of a three-year leasing or financing deal, consumers are suddenly hit by “a tsunami wave of cars”, Shields said, putting pressure on prices of used EVs. "}],[{"start":262.35,"text":"Moves by carmakers to price new models can also have a knock-on effect on second-hand vehicles: Tesla, the world’s second-largest EV maker, triggered a decline of about 25 per cent in prices of its used EVs in the UK following price cuts of its new models to boost demand in 2023. The sheer size of Tesla meant the move also hit the broader second-hand market. "}],[{"start":288.90000000000003,"text":"In addition to the sheer volume of new EVs coming into the market, Betteley added that future pricing will become even more challenging with the advancement of battery technology — where developments, particularly around rapid charging, mean existing batteries risk price erosion and redundancy — being driven by the likes of CATL and BYD. "}],[{"start":310.8,"text":"Jones at Zenith said the rapid influx of new brands meant that leasing companies also need to assess which will survive the competition. "}],[{"start":318.8,"text":"“We’re at a moment in history where it’s never been more difficult to predict who will survive because of the number of entrants coming into the market and the scale of shift to EV and new technologies,” Jones said. "}],[{"start":330.75,"text":"Chinese manufacturers have meanwhile hired local finance executives to manage residual value risk particularly because Europe has a starkly different market for used EVs compared with China. "}],[{"start":342.65,"text":"BYD, for example, established its certified pre-owned scheme to ensure that its used cars are inspected, refurbished and sold with an extended warranty backed by the manufacturer. It also hired an executive from Tesla to run its fleet business in the UK."}],[{"start":358.29999999999995,"text":"“We have long recognised that used vehicles are an important way for many customers to switch from traditional internal combustion engine models to cleaner new-energy vehicles,” BYD said. “In order to best serve our customers, we are committed to bringing onboard local expertise and talent.”"}],[{"start":375.4,"text":"BYD has also partnered with Santander Consumer Finance for auto finance deals, while Chery has a deal with BNP Paribas. "}],[{"start":null,"text":""}],[{"start":383.54999999999995,"text":"Banks, which have significantly grown their motor lending divisions in recent years, in turn are using artificial intelligence and other tools to contain risks from the fall in the residual value of EVs. "}],[{"start":395.69999999999993,"text":"Lloyds Banking Group, the UK’s biggest provider of auto financing through its Black Horse division, has amassed a fleet of 360,000 vehicles and has even become the country’s biggest buyer of car tyres to sustain its army of vehicles. Lloyds also bought the motor leasing company Tusker in 2023, which provides financing for EVs through company car schemes such as salary sacrifice. "}],[{"start":420.74999999999994,"text":"But that growth also exposes it to increasing residual value risk. Last year the group’s operating lease depreciation, which measures the loss in value of the assets it lends out to clients, rose by 10 per cent to £1.5bn. The bank’s annual results flagged that this was in part down to “fleet growth, the depreciation of higher value vehicles and declines in used electric car prices”. "}],[{"start":445.3999999999999,"text":"In a sign of changing times, banks are now sharing more of the residual risk with carmakers. "}],[{"start":451.74999999999994,"text":"Under a deal Lloyds has with Tesla, for example, both parties would share the revenues from Lloyds loans used to finance the purchase of Tesla vehicles but would also split the costs of any defaulted loan, according to two people briefed on the details of the plans."}],[{"start":468.69999999999993,"text":"Nick Williams, the CEO of Lloyds transport business, said that such agreements were commonplace between lenders and car manufacturers: “Ultimately banks manage risk, but the original equipment manufacturers also want to protect their residual values. To do this, they also need to be willing to share some of that risk with you.” "}],[{"start":487.8499999999999,"text":"If EVs do not retain their value then there are likely to be higher leasing costs, which could damp demand for car sales and hit manufacturers. Other manufacturers balance these agreements through their captive financing arms, which Tesla does not have."}],[{"start":502.7999999999999,"text":"Tesla did not respond to a request seeking comment."}],[{"start":506.7499999999999,"text":"Lloyds has drawn up bespoke insurance policies to hedge against losses. The bank pays an insurance premium to insulate itself against an unexpected drop in residual values so that if a vehicle depreciates below a certain threshold, then the insurer will pay out and the bank is protected. "}],[{"start":524.8999999999999,"text":"“This way, we limit our loss beyond what we are predicting in a depreciation, and the insurance covers the shortfall,” Williams said. "}],[{"start":532.4499999999998,"text":"Banks have also fallen back on a favoured tool: securitisation. Lenders are well versed in packaging together millions of loans and slicing them up into various tranches to different investors based on risk, and motor loans are no different. "}],[{"start":548.6499999999999,"text":"Lloyds and its rivals pool EV loans and sell them on to private credit firms and asset managers to make a return and to move some of the credit risk off their balance sheets. "}],[{"start":559.8499999999999,"text":"Gurjeet Grewal, chief executive of Octopus Electric Vehicles, which provides electric car leasing and financing, said the industry is getting better at pricing the residual value of EVs as second-hand prices converge with those of used petrol vehicles. "}],[{"start":575.8499999999999,"text":"“The Chinese carmakers are increasingly sophisticated in spending time and resources on protecting their residual values,” he said. “I think we will only get better with that as we see an increased diversification of cars coming through.”"}],[{"start":589.3,"text":"Data visualisation by Clara Murray and Martin Stabe in London"}],[{"start":600.6,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1779523469_1286.mp3"}