THE changes made to company car benefit in kind taxation in April 2020 have started to affect the type of vehicle being leased, according to industry association the British Vehicle Rental and Leasing Association (BVRLA).
In its latest Quarterly Leasing Survey, the BVRLA reports that zero emission electric vehicles (EVs) have surged to take a 15% share of new lease car registrations in Quarter 3, 2020.
In April, the Government dropped the percentage rate EVs were taxed at from 16% to 0%, providing the opportunity for fleet drivers to have a company car at no personal cost. At the same time, it also made ultra low emission vehicles with CO2 emissions below 50g/km – and the ability to travel a certain distance on battery power alone – more fiscally attractive for drivers of fleet cars.
In total, electric, plug-in, hybrid and mild hybrid vehicles accounted for a 36% share of new lease registrations, overtaking diesel (21%) and closing in on petrol at 43% over the same period.
BVRLA Chief Executive, Gerry Keaney, commented:
“Quarter three of last year delivered the long-awaited surge in EV registrations that we expected after the introduction of the zero-rate BiK incentive. A massive 21% of new business contract hire car registrations were EVs, once again demonstrating that the company car sector is driving the transition to zero emission motoring.”
The change in drivetrain sentiment has been mirrored in statistics revealed by fleet management and leasing provider Fleet Alliance.
According to the Glasgow headquartered company, which manages a fleet of more than 30,000 vehicles, it has seen a 214% increase in electric vehicle orders during the last 12 months.
Business Car Leasing Continues To Drop
Nevertheless, despite the boost in EV new leasing registrations, the number of business car leases continues to drop, according to the BVRLA survey.
The Association said that the car leasing market shrank by 6%, with the biggest reduction seen in the business fleet, which was down 8.7% year-on-year. This decline was driven by an 11% fall in the business contract hire fleet compared with the same period of 2019. A +4% year on year increase in personal leasing numbers helped to offset some of this decline.
While the BVRLA gave no analysis as to what lay behind this long term decline in business leasing, fleets have made contract extensions during the pandemic.
Epyx, a fleet vehicle management technology provider, said it had compared the period April-August 2020 to the same period the year before on its 1Link booking service platform to get a feel for the level of fleet contract extensions.
The company said there was a clear increase in SMR (Service, Maintenance and Repair) for vehicles that had passed their stated contract end. Overall, it said that around 10,000 additional routine services were carried out at a cost of £1.6m.
Debbie Fox, Commercial Director at epyx (pictured above), explained:
“Like the rest of the fleet sector, we were anecdotally aware that widespread contract extensions were occurring but not really the full extent and these figures help to shine some light on what has been happening. Usually, there are very few maintenance actions concerning contract-extended vehicles on 1link Service Network but, in 2020, there have been significant numbers.
“The causes of this were probably twofold. On one hand, getting hold of new vehicles and having them delivered was very difficult during the period in question and, on the other, some fleets were undoubtedly extending contracts on existing vehicles, almost certainly in order to minimise future financial commitments while they took stock of their situation.”
Can Business Leasing Recover?
The boom in battery electric vehicle leasing registrations suggests that business leasing may start to recover as previous takers of cash for car return to the company provided vehicle.
Vehicle leasing and fleet management company, Arval, says that it expects drivers that have taken the cash option to step back into the company car, thanks to taxation benefits of electric vehicles.
Shaun Sadlier, Head Of Consulting at Arval UK, said:
“Many cash takers liked their company car but didn’t like paying what they perceived as high benefit in kind and that was why they opted-out. Now, with low benefit in kind in place for EVs for at least five years, many more are now returning to company car schemes.
“We predicted that this would start to happen some time ago, but it’s now becoming noticeable In several of the major fleets with which we work. It’s a welcome development that will feed demand for zero-emission vehicles and lead to wider, faster adoption.”
It’s a view with which Martin Brown concurs. He says many of the SME fleets that the company manages after are indicating a willingness to reconsider their company car provision in light of the benefit in kind taxation changes. Brown said:
“Urban myth would have you believe that the company car had fallen off a cliff in recent years, it hadn’t – there was undoubtedly a decline as a proportion of drivers opted out of the company car scheme to allow them to choose higher CO2 models. That said, we are now in the early stages of what I think will be significant growth in company car numbers. The benefits from a BIK perspective just can’t be ignored and as our stats show with the surge in EVs, our position as leading player in the B2B sector gives us a perfect platform to assist SMEs with their transition from ICE to EVs.
“The chat in recent years was always of the ‘opt out’ story from company car to cash allowance, we now see it as ‘opt in’ time.”
The change to electrified powertrains in the new lease registration figures from BVRLA has been reflected in the average CO2 emissions, which has fallen from 107g/km to 105g/km in Q3-2020, a new low and around 8% lower than the national average.
In 2020, the Society of Motor Manufacturers and Traders (SMMT) reported that pure battery electric vehicles accounted for 108,205 units, a rise of 185.9% in 2020. Combined with plug-in electric hybrids, plug-ins accounted for 1 in 10 registrations.
The SMMT added: “Encouragingly, there is room for further growth as most of these registrations (68%) were for company cars, indicating that private buyers need stronger incentives to make the switch, as well as more investment in charging infrastructure, especially public on-street charging.”
BVRLA Urges Caution On Outlook
Nevertheless, the BVRLA urges caution. In its BVRLA Leasing Outlook (March 2021), the association says that, despite rising demand, it still expected numbers to fall:
“The speed of decline is slowing and the fleet remains more than twice the size of the fast-growing personal contract hire sector, but responses suggest a cautious outlook, where business contract hire defleet volumes outpace demand for new vehicles, potentially amid changing working patterns, where there is reduced requirement for a car.”
Such caution about future working patterns is noted by Spencer Blake, the Sales Director from Wessex Fleet, a leasing broker and fleet management supplier.
Speaking at an Industry Outlook webinar, he said that he expected 2021 to be strong for leasing, with more balance between the company’s retail and fleet activity.
“Traditional core fleet has gone to zoom-style meetings, but there will be a need to get back to those face-to-face meetings. There is some concern that the longer home working goes on the greater strain that puts on employees in terms of mental health. It can also have an effect on the company culture beginning to seep away. So that will bring us challenges going forward but we see, like many others, a more hybrid version of working in the office. It is also the case that we are starting to see green shoots of recovery in the fleet sector. For all those businesses that have been impacted by COVID, there have been those that have gained. And in particular, In the business space, there has been demand for premium electric cars, with owner-directors looking into EVs for their tax advantages.”
There is also the impact of the cut to the Plug-in Car Grant which was announced on 18 March.
Paul Hollick, Chair of the Association of Fleet Professionals, said:
“Our view on this is that it is just too much, too soon. While we have seen massive enthusiasm growing for EVs in the fleet sector over recent months, the whole subject is still very much in its infancy and there is general agreement that the help that the grant scheme provides remains if not essential, then very important. We’re especially disappointed around the £35,000 ceiling on cars. There are a number of models that fleets are adopting in number that will be affected by this.”
Is it enough to reverse the flow for battery electric leasing, though?
It may hit initial plans for larger fleets, but with a signposted path out of lockdown, SME fleets and owner-directors still look set to be a driving force in the greater adoption of electric vehicle leasing. With or without the grant.