ANALYSIS
Finding their level: The delicate, temporary equilibrium of used electric vehicle values
Rising used EV demand brings temporary wholesale stability ahead of a major mandated supply wave. By Simon Harris.
The second-hand battery-electric vehicle (BEV) market has reached a position of temporary stability.
Data from the Society of Motor Manufacturers and Traders (SMMT) shows transactions surged by 67% over the second quarter, with a record 110,761 units changing hands to secure a 5.5% share of the total used car market. This increased volume has effectively met consumer demand, helping to establish a baseline for residual values after several years of volatile depreciation. For fleet operators managing vehicle lifecycles, this current balance suggests that ex-fleet vehicles are finding immediate buyers on retail forecourts.
According to data from automotive tracking experts at Cazana, three-year-old electric vehicle values climbed by 1.6% in July, completing a steady 7.0% rebound – amounting to an average of approximately £1,500 per vehicle – since the spring. Derren Martin, consultant analyst at Cazana, noted: “Once again, the main story is electric vehicles, which continue to increase in price and sell quickly. With petrol and diesel prices at the pump remaining high as events in the Middle East remain volatile, the used EV market is showing genuine forecourt stability.”
But this equilibrium is highly artificial, as the vast majority of volume driven by the Zero Emission Vehicle (ZEV) mandate remains entirely absent from the secondhand market. The electric cars currently entering wholesale channels are primarily older corporate assets leased before the mandate’s escalating quotas came into effect. The true structural test will occur when the heavily subsidised new registrations currently being forced into the market to meet manufacturer compliance targets reach the end of their typical three-year leasing cycles.
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Fleets that buy their vehicles outright must prepare for heavier depreciation and reduced returns at disposal time if wholesale values come under sudden downward pressure.
For leasing companies and contract hire providers, managing this transition is a delicate balancing act. Vehicle manufacturers are currently providing huge subsidies through heavy upfront discounting to artificially hit their mandatory new EV sales targets. While these registration incentives lower initial vehicle procurement costs, funders must weigh this short-term benefit against severe long-term asset risk. As leasing providers bear the financial burden of residual value drops, any sharp correction in future used car pricing will result in immediate underwriting losses when these cars are eventually sold.
To mitigate this exposure, funders are actively altering their remarketing business models by pivoting toward secondhand salary sacrifice car provision and used EV leasing. By introducing structured ‘second-life’ leasing packages, contract hire companies can retain control of defleeted vehicles at the three-year point rather than offloading them into an unpredictable wholesale market. This strategy allows leasing providers to sweat the asset over a longer multi-year cycle, smoothing out depreciation spikes while offering highly attractive, pre-depreciated monthly rates to budget-conscious employees through workplace benefit schemes.
When these mandate-driven volumes return to the market simultaneously, wholesale supply will require a corresponding, exponential scale-up in secondhand consumer demand to absorb the vehicles. The critical unknown is whether private retail buyers will become familiar enough with battery technology over the next 24 months to sustain current pricing levels when volumes double or triple. Fleets that buy their vehicles outright – although most prefer leasing providers to take the risk on future values – must also prepare for heavier depreciation and reduced returns at disposal time if wholesale values come under sudden downward commercial pressure.
Commenting on the shift, Mike Hawes, chief executive of the SMMT, warned: “As the used market is where most people buy their cars, plentiful and affordable supply is vital. However, increasingly unrealistic targets in the new car market risk constraining that supply and pushing up costs. Urgent regulatory reform is needed to deliver a transition that works for every driver.”
A primary constraint on this expansion is the infrastructural divide regarding domestic charging. The initial used buyers have predominantly been motorists with off-street parking, who can easily accommodate a home charging unit to utilise cheaper domestic electricity tariffs. As supply expands into the mass market, vehicles must increasingly appeal to buyers living in terraced housing or flats who are entirely dependent on public infrastructure. Without an acceleration in affordable, local kerbside charging networks, the used electric market risks hitting a firm demand ceiling, leaving future fleet residual values highly vulnerable to the impending wave of mandated volume.
