The full-service automotive leasing market is facing a number of different headwinds. The rise of electric vehicles (EVs) and the fall in their residual values, increased inflation, challenging economic conditions, geopolitical tensions, increased interest rates, new strategies of OEMs, and changing consumer demands are all impacting the industry.
While full-service leasing remains a favourable option for businesses and individual private consumers seeking financial flexibility, the attractiveness of the leasing business model is under pressure. High inflation, high interest rates, the ramp-down of grants aimed to stimulate ‘greenification’, increasing purchasing prices of new vehicles with internal combustion engines (ICE), and uncertainty about residual values of EVs are pushing lease prices upwards, creating a challenging environment for leasing companies to capture new lease orders.
The recent short-term financial performance of leasing companies reveals that their balance sheets are under pressure. This is mainly a result of the negative trend in the residual values of EVs, not even considering that the implementation of agency retail models by different OEMs could bring additional uncertainty to the ability of (particularly medium- and small-sized) leasing companies to get hold of (discounted) new cars.
At the same time, the industry is witnessing an irreversible shift toward electrification. Corporate fleets are committing fully to EV adoption, fuelling demand but also introducing new risks. The nature of the EV maintenance cost curve will increase average contract durations. The current volatility of residual values and expected declining service revenues for EVs are forcing leasing companies to rethink their strategies.
However, these challenges also present opportunities. The market is not shrinking – it is evolving. The leasing industry must adapt by exploring new business models to remain competitive, by optimising commercial strategies, and by leveraging data-driven insights. SMEs are emerging as a key growth driver, and new revenue streams such as charging solutions and energy provision are rising in importance.
Levers for value creation to improve financial performance include partnerships with or investments from large financial institutions, collaboration with parties interested in EVs and the broader e-mobility ecosystem, consolidation through strategic M&A, and operational excellence.
Overall, leasing companies are also well-positioned to continue benefitting from the resilience of company car tax incentives in Europe and will still be seen as a key sales channel for OEMs.
So, what does the future hold? How will leasing companies navigate the complex landscape ahead? And which strategies will define success in an era of electrification, a shifting market amongst car brands, and shifting customer expectations? These are all critical questions shaping the road to 2030. Enjoy the read!
