European Car Leasing System Will Blow Up Tesla & Other EV Sales

Sign up for daily news updates from CleanTechnica on email. Or follow us on Google News!

Our recent article about the consequences of depreciation and resale value on the financial health and calculations of leasing companies begs for a European leasing sequel. In Europe, leasing is a bit different from the thing with the same name in the USA.

Leasing as a private financing instrument for automobiles is a new phenomenon, not well known by the public and very rare. When talking about leasing in Europe, it is mostly about company cars for private use by employees. The company leases the car and supplies it to the employee as a “benefit in kind.” The employee even pays extra income tax for the benefit in kind received. The type of lease used is a full operational lease. It includes the costs of repairs and maintenance, insurance, taxes, fuel, and often roadside assistance and replacement during repairs. There is no option to buy the vehicle at the end of the lease term.

In the UK, Germany, and Netherlands, way over 50% of all new cars are sold through these contracts. In many other European countries, it is about the same. In the category where Tesla, BMW, Audi, Mercedes, etc. are active, the share of leased vehicles is a lot higher than the average.

Companies with hundreds of thousands or over a million of vehicles on the road know exactly what costs can be expected of which type of car. The monthly lease payment is not just based on the MSRP price of the vehicle or even the price including the discounts the lease company pays to the carmakers, as would be the case with a financial lease. Tires, accidents, taxes, and insurance are also factored in.

In most cases, getting a car for an employee is a very simple process. The employer tells the employee the monthly price that is acceptable and the leasing company the employer is using. The employee can then go shopping for a car, visit dealer showrooms, go on test drives, salivate over the most appealing options, debate the color with partner and kids, you name it.

What is not happening at the dealerships is negotiations about the price or conditions. Also, the date of delivery is a minor issue, mostly expected a few months in the future.

What is of interest is the budget and the monthly tax burden. Often, the employee is using a list of available vehicles sorted by the tax burden, without a mention of the price. This is a completely different sales process from what is happening in the USA with sales people who have to move inventory on the lot for the best price they can negotiate.

With the glut of fully electric cars entering the market this and next year, the same dynamic for resale value will happen in Europe as is happening in the USA. Only, in Europe, it will be immediately part of the all-in total cost of ownership (TCO) base price the leasing companies use.

At the moment, the Tesla Model 3, BMW 3 Series, Audi A4, and Mercedes C-Class are in the same budget basket. When the leasing companies start to compute the TCO of electric leases differently from fossil fuel leases, the sales dynamic will drastically change.

The Model 3 will get in the same basket as the BMW 2 Series, VW Passat, Ford Mondeo, or just one or two classes lower than it is now compared to its traditional competitors. Other electric vehicles like the new VW ID.3, Peugeot e-208, and Opel Corsa-e will get the same favorable treatment. When the “Capital One experience” (or “Tesla Effect,” as Capital One calls it) gets translated into the European lease prices, the market will start shifting even faster than in the USA.

This will highlight the three biggest problems for other carmakers. Those are: batteries, batteries, and batteries.

Note that what is described here is the more luxurious leasing arrangement. More competitive arrangements work with a shortlist the employee can choose from. What will happen when the Model 3 is on the same list as the VW Golf or Honda Civic?

Chip in a few dollars a month to help support independent cleantech coverage that helps to accelerate the cleantech revolution!


Have a tip for CleanTechnica? Want to advertise? Want to suggest a guest for our CleanTech Talk podcast? Contact us here.

Latest CleanTechnica.TV Video

Advertisement
 
CleanTechnica uses affiliate links. See our policy here.

Maarten Vinkhuyzen

Grumpy old man. The best thing I did with my life was raising two kids. Only finished primary education, but when you don’t go to school, you have lots of time to read. I switched from accounting to software development and ended my career as system integrator and architect. My 2007 boss got two electric Lotus Elise cars to show policymakers the future direction of energy and transportation. And I have been looking to replace my diesel cars with electric vehicles ever since. At the end of 2019 I succeeded, I replaced my Twingo diesel for a Zoe fully electric.

Maarten Vinkhuyzen has 280 posts and counting. See all posts by Maarten Vinkhuyzen