The rapid transition to electric vehicles (EVs) within the corporate sector has created a significant market distortion. While the shift toward electrification is a key policy goal, a new report from the British Vehicle Rental and Leasing Association (BVRLA) suggests that the surge in electric company cars is outstripping “organic” consumer demand, creating a looming crisis for the used car market.
The Drivers of the EV Surge
The explosion in EV registrations is not merely a shift in consumer preference, but the result of specific economic and regulatory levers:
- Aggressive Manufacturer Discounting: To meet government Zero Emission Vehicle (ZEV) mandates, manufacturers are offering heavy discounts to move electric stock.
- Tax Incentives: The primary driver remains the ultra-low Benefit-in-Kind (BIK) tax rates. In 2026/27, an EV driver will be taxed on just 4% of the vehicle’s list price, compared to 25% for efficient petrol models. This makes EVs significantly cheaper for employees to drive through company schemes.
- The Rise of Salary Sacrifice: These schemes—where employees lease cars via pre-tax wages—have seen massive growth. Salary-sacrifice volumes surged by 125% in 2025, with EVs making up 77% of those new deliveries in the final quarter.
This combination has lowered the barrier to entry so effectively that nearly half of these lease deliveries are now going to 20% taxpayers, a demographic that previously would not have qualified for such schemes.
The Growing Disconnect: Corporate vs. Private Demand
A stark divide has emerged between business-driven leasing and private consumer behavior. While Business Contract Hire (BCH) fleets grew by 10%, Private Contract Hire (PCH) fleets shrank by 4%.
This indicates that while companies and employees are rushing into EVs due to tax advantages, the general public is not following suit. This “artificial” demand is inflating the number of electric vehicles on the road that will eventually need to be sold on the used market.
The “Body Blow”: Financial Risks for Leasing Firms
The mismatch between new registrations and actual market demand is creating a financial “perfect storm” for leasing companies:
- Depreciation Shocks: Leasing firms forecast “residual values” (what a car is worth at the end of a lease) when a contract begins. However, because there is an oversupply of used EVs and low retail demand, these cars are being sold for much less than expected.
- Heavy Losses: Firms are reporting “body blow” losses, often amounting to thousands of pounds per vehicle when remarketing ex-fleet EVs.
- Rising Rental Costs: To protect themselves from these losses, leasing firms are raising monthly rental fees for EVs faster than the actual list prices of the cars are rising.
Future Headwinds and Structural Flaws
The BVRLA warns that several factors could further destabilize this fragile equilibrium:
- Policy Uncertainty: The introduction of the pay-per-mile tax (eVED) for EVs in April 2028 is already cooling order rates.
- Economic Volatility: Geopolitical tensions, such as the conflict in Iran, threaten to increase borrowing costs and inflation, which could stall the entire new car market.
- The BIK “Lock-in”: A major structural issue is that BIK tax is fixed based on a vehicle’s original list price for its entire life. The BVRLA suggests that if tax were based on a vehicle’s used value, it would better align the market and help absorb the influx of ex-fleet vehicles.
The current EV boom is being fueled by tax advantages and mandates rather than natural consumer demand, creating a massive surplus of electric vehicles that the used market may not be able to absorb.
Conclusion
The leasing industry is facing a period of high volatility as the artificial surge in corporate EV adoption meets the reality of a weak retail market. Without structural changes to taxation or a stabilization of residual values, the industry faces significant financial losses from an oversupplied used EV market.
