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Electric vehicle residual value setting is single biggest leasing industry challenge

The fact that electric vehicles were a step into the unknown with no meaningful volume in the marketplace coupled with a lack of historic data on which to base used vehicle values, were all reasons why residual value setting was proving to be a challenge.

McNally, who is also chairman of the British Vehicle Rental and Leasing Association’s Residual Value and Remarketing Committee, said Alphabet disposed of 30,000-40,000 vehicles a year and to-date had remarketed just one electric vehicle.

He continued: ‘Some leasing companies don’t want to know about electric vehicles. But I believe that is a fear of the unknown rather than venturing into the unknown.’

Alphabet is owned by BMW and has launched AlphaElectric, the company’s four-step approach to electric vehicle mobility adoption.

‘There is a long way to go before electric vehicles are taken up by a significant number of fleets. But there is an incentive for us to get it right, while other leasing companies may not be in that position and that appears to be the case. There is a higher risk than they are willing to adopt.’

Alphabet has written electric vehicle contracts on four, five and six year replacement cycles to make model usage viable on a whole life cost basis.

But McNally said: ‘Those vehicles will be disposed of in the future, so we don’t have the disposal data in our data bank.’

But, he said, against that background a “bold” residual value risk stance had been taken because a lack of volume meant Alphabet would not incur significant losses.

He also highlighted how plug-in range extender vehicles such as the Vauxhall Ampera, had a broader appeal so the company had set higher residual values on those than on pure electric vehicles.

‘We are not favouring range extender vehicles, but we are reflecting the flexibility they offer drivers,’ said McNally.

However, he concluded that electric vehicles were part of the carbon-reducing mobility solution and added: ‘From a leasing company perspective I want to see the opportunity that electric vehicles can give. To close the door on electric vehicles seems short-sighted from a leasing company perspective.

‘There is a risk, but there is also an opportunity. The safest residual value is the one you never write.’

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Natalie Middleton

Natalie has worked as a fleet journalist for nearly 20 years, previously as assistant editor on the former Company Car magazine before joining Fleet World in 2006. Prior to this, she worked on a range of B2B titles, including Insurance Age and Insurance Day.