MORE SMEs are expected to electrify their fleets this year, aided by an improvement in lead times for new car orders and clarity about future benefit-in-kind (BIK) tax rates.
The Government announced in November that from April 2025, BIK rates for electric cars will increase modestly by one percentage point annually to a maximum of 5%.
That long-term certainty saw a “resurgence” in business contract hire, up 4% last year, according to industry organisation the British Vehicle Rental & Leasing Association (BVRLA), which saw the overall size of its leasing fleet grow by 0.3% to 1,882,261 vehicles despite supply constraints.
About half (53% of new business contract hire additions were battery electric vehicles (BEVs) and leasing chiefs predict the upward trajectory will continue this year.
Clarity around BIK rates for at least the next five years has definitely strengthened the market and is reflected in the order bank for electric vehicles.
“Inexorable march” to electric
Andy Bruce, CEO of Fleet Alliance, a fleet management company, described the move to electric as “an inexorable march”.
“Nearly everybody is thinking about electrifying their fleet, and more and more people are doing something about it,” he said.
SME fleets who look beyond the higher upfront cost of electric cars and focus on wholelife costs recognise there is a “compelling argument” for going electric, even if the gains are not as great as when fuel prices were at record highs last year, Bruce said.
Despite the financial benefits, EV adoption is ultimately founded on sustainability, in Bruce’s view.
“We’ve all, individually and corporately, got a responsibility to focus on sustainability,” he said. “And that’s basically at the heart of it.”
However, Lawes warned that “shortfalls” in electric vehicle charging infrastructure remain a “key stumbling block for fleets to fully embrace an electric future”.
“Our own research shows that the UK will need to put 30,000 new charging points in the ground every single year for the next seven years, to meet the demand. That’s a tenfold increase in the number achieved in the past decade,” he said.
SME fleets that have concerns about running pure electric vehicles are turning to plug-in hybrids (PHEVs).
Bruce said that PHEVs were equally popular on Fleet Alliance’s fleet as BEVs – despite the BVRLA’s figures showing BEVs taking a much greater share of new car orders.
However, SME fleets may need to wait longer to get a PHEV as Fleet Alliance is seeing lead times for plug-in hybrids at least a month, if not two months, longer than BEVs, diesel and petrol vehicles.
When will lead times return to normal?
Hopes that the market would be “back to normal” by the start of 2023 have proved unfounded, with “no significant improvement in lead times for new vehicles, especially vans”, according to the BVRLA.
However, both Fleet Alliance and Novuna Vehicle Solutions have seen reductions in wait times for cars recently.
We’re seeing lead times - which averaged around six to nine months - gradually reducing as BEV stock improves, the challenge lies in satisfying the demand for electric commercial vehicles.
SME fleets could still be waiting more than a year for some vans but otherwise it’s an improving picture.
Fleet Alliance was seeing average order to delivery times of seven months in 2022, with EVs “a bit better”, particularly towards the end of the year as car manufacturers prioritised them to hit emissions targets, and now it’s “somewhere between five and six months” across the board, according to Bruce.
He predicts that ‘normality’, with wait times of around three months, isn’t likely to happen until the end of this year.
Look out for leasing deals as manufacturer incentives return
There are “pockets” of available models from many car brands, according to Bruce, making it possible to get a vehicle that’s in stock in a matter of weeks rather than months.
Encouragingly, manufacturer incentives are beginning to creep back in.
Bruce said that manufacturers had no choice but to push prices up when supply was particularly constrained last year – with some up 40% compared to 2019 – and cut discounts to fleets. Although prices won’t return to the levels of 2018/19 prices are unlikely to hit the highs of 2022.
Prices of used cars remain high – up circa 6% in March, according to data from Auto Trader but are not at the all-time high of 32.2% year on year in April 2022.
Some SMEs have been turning to the used market to source vehicles, particularly, vans. The BVRLA reports that the number of secondhand LCV leases increased by almost 10,000 to 17,061 between Q3 and Q4 2022 while the number of used cars supplied to businesses also rose sharply, by 56%, during the second half of last year.
It said that “several leaving companies are exploring the possibilities of second life leasing” for electric vehicles as they are “confident that older EVs will not suffer a steep rise in maintenance bills, and keen to tap into a new market of SMEs and private drivers who cannot afford new EV leases”.
Salary sacrifice up 34%
Salary sacrifice schemes, which work best for cars with CO2 emissions of 75g/km or less, are also a growth area, with the number of cars funded this way growing 34% year on year between Q4 2022 and Q4 2021, to 42,616 vehicles, according to the BVRLA.
Bruce sees salary sacrifice as a core part of Fleet Alliance’s future growth.
“It’s the biggest single opportunity in its own right,” he said, highlighting that the BIK certainty was “hugely helpful” to salary sacrifice.
Given the popularity of salary sacrifice schemes and electric vehicles, it’s no surprise that many BVRLA members are forecasting growth this year, with predictions of a 2% increase in Q4 2023 versus Q4 202 for cars and a 1% increase for vans.
How salary sacrifice worked for a Welsh whisky distillery
Penderyn Distillery, based in what was the Brecon Beacons and is now renamed Bannau Brycheiniog, already had a strong sustainability ethos. It had installed free staff charging for electric vehicles. But the next step for the SME was to get more drivers into electric vehicles. Stephen David, Chief Executive of Penderyn Distillery, said salary sacrifice, provided by SME fleet management provider GoFor, was the next logical step. “This salary sacrifice scheme means all our employees can not only personally benefit but help us deliver on our net zero ambition.”
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