The automotive industry was severely hit by the pandemic, with a 13.6% dip in global car sales in 2020, a more significant slide than during the financial crisis of 2008. However, one segment that bucked the trend was electric vehicles (EVs). In 2020, new electric car sales grew by 40% from 2019 levels, and by 2021, global EV sales reached around 6.5 million. The growth story of EVs is far from over. Europe has been at the forefront of this growth supported by government policies, incentives, fleet operators’ transition to EVs to meet emission mandates, and customer excitement around these clean mobility alternatives. Europe, is followed by China, where electric cars captured a 15% share of new car sales as of 2021.
Such strong growth notwithstanding, the market faces challenges, such as the higher cost of EVs, rapid changes in technology, and uncertain residual value. Raw material and battery costs are skyrocketing, putting pressure on manufacturers who continue to pour billions of dollars into R&D in a bid to reduce costs.
New Business Models in the EV Segment
Meanwhile, market participants are boosting electric car sales through business models such as leasing and car subscription. Frost & Sullivan’s dedicated Fleet and Leasing program – a comprehensive database tracker of market and competitor trends and revenue forecasts across 41 countries – finds that the UK and Germany have a high volume of vehicles under the private operational leasing segment. In Finland, this segment is expected to grow at a CAGR of 15.4% during 2020-2025. The advent of EVs is expected to amplify the growth of operational leasing in France, a country where financial leasing is preferred. The penetration rate of private leasing in retail registrations, which accounted for just 20.6% in France in 2015, jumped to 42.2% as of 2021. The operational leasing option allows individuals and corporates to eliminate the risk of the depreciation associated with EVs.
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To tap into emerging growth opportunities, leasing companies have built strategic partnerships and well-devised leasing contracts focused exclusively on EVs. For example, the Automotive Club of Luxembourg (ACL) has developed a solution – ‘Electrolease’ in partnership with Leaseplan for individuals leasing EVs. By offering support right from the testing of the vehicle to guiding the customer in choosing the option that best meets their needs and having a no-deposits needed policy to providing consultancy services during the contract period, Electrolease acts as a one-stop solution.
A Range of Strategies
OEMs are also offering captive leasing solutions to establish direct contact with their customers. Not surprisingly, Tesla has such lease offers on models like the Model 3, Model X, Model Y, and Model S in many states across the US. The highly popular Tesla Model 3 has lease prices ranging from $409 to $670 per month for 36 months and at 10,000 miles per year. The acquisition fee also varies based on the trim level.
Leasing and rental companies should offer flexible short-term contracts. Such contracts will play a major role in the retail and commercial segments. For instance, Shenzhen (China) has electrified 100% of its taxis and municipal buses with the share of EVs in the city’s logistics fleet having grown to 35% during 2015-2020. Much of this success is chalked up to the operational leasing and short-term rental contracts ranging from weeks to months that were offered when the electric logistics vehicle market was getting started in 2015 as part of China’s national strategies on EVs.
Pricing and short-term leasing contracts will be crucial in driving EV sales as stiff competition emerges from new business models like car subscription. Information dissemination campaigns will be crucial for leasing companies hoping to consolidate their market position in developing nations, where awareness about leasing is low. Capitalizing on the growth opportunities presented by EVs will boost the revenues of leasing companies.
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