As we step into the exciting but unknown 2024, one thing we can guarantee in the car leasing world is that it will be another year of great change. With older electric cars now starting to flood the second-hand market coupled with high interest rates and government pressures, DreamLease expect some excellent leasing deals to appear throughout the year. In this article, we look to investigate the key factors that could affect this complex marketplace and give you the tools and incite to find your dream lease car in 2024.
2024 UK Government Policies
In September 2023 the UK Government announced that they would postpone the 2030 petrol and diesel ban for five years due to immense pushback from major manufacturers. However, this doesn't mean that the pressure is off. On the contrary, manufacturers will still need to follow what's called the ZEV (Zero Emissions Vehicles) Mandate. This targets them to sell a whopping 22% of ZEVs in 2024.
To enforce this target, the government have put in place considerable fines of up to £15,000 per car if this target is not met. This ZEV target percentage is then planned to rise to 28% in 2025, 33% in 2026, 38% in 2027, 52% in 2028, 66% in 2029 and 80% in 2030. This is a sharp increase especially when EV sales have slowed in the later part of 2023 due to high prices and reduced demand. Some say this high rate is currently unreachable in the current financial climate and many of our customers choosing to lease petrol and diesel cars for another 3 years to 4 years.
Additionally, it is crucial to bear in mind that these targets are credit-based, allowing companies to bank, purchase, or sell credits in the event of surpassing or falling short of the targets. This dynamic implies that companies exclusively focused on electric vehicles, such as Tesla, Polestar, and BYD, have the flexibility to sell their credits to those who may need to meet their target. This exchange mechanism adds a layer of flexibility to the regulatory framework, fostering collaboration and assisting companies in navigating the evolving landscape of electric vehicle adoption.
So what does that mean for the consumer this year? As EV sales last year totalled around 16.4% here in the UK there is a strong likelihood that manufacturers will continue increasing discounts to drive sales. This is especially true if EVs continue to be more expensive than their ICE (Internal Combustion Engine) vehicle counterparts and if stock continues to improve over past years.
This suggests that individuals considering leasing a new Electric Vehicle (EV) may find that 2024 is the optimal time to do so. Manufacturers are currently in a state of urgency, seeking to understand the evolving market dynamics in anticipation of the heightened targets set for the upcoming years. Therefore, prospective lessees can take advantage of this moment, benefiting from a competitive market as manufacturers adapt to the evolving landscape of both electric cars and the fast reduction in the petrol and diesel space.
Residual Values in 2024
In the car leasing industry, the residual value refers to the estimated future value of a vehicle at the end of its lease term. It is a crucial factor for funders in determining monthly lease payments as this residual value is the price they expect to get when reselling the vehicle. When you lease a car you essentially pay for the depreciation of the vehicle's value during the lease period, in addition to any finance charges and fees.
At Dreamlease, we don't have the luxury of a crystal ball, and various funders employ different metrics, including factors like quality, to calculate residual values. Unfortunately, these metrics are often kept confidential. Our advice is to gain an understanding of how residual values impact funders and, consequently, their pricing. This knowledge will empower you to recognise exceptional deals when they arise, providing confidence that the deal aligns with your needs.
New and Future Entrants
We can’t discuss the leasing industry and not touch on the myriad of new manufacturers entering the UK market in 2024. The automotive landscape is evolving with the introduction of these players, each bringing their unique offerings and innovations. Brands such as BYD, a Chinese multinational company, have already joined the UK market and with positive feedback. Auto Express, a well-known British automotive magazine, has already this year placed the BYD Dolphin as the 5th cheapest electric car. The BBC has also reported that BYD’s total sales have overtaken Tesla’s in Q4 of 2023 adding to the problems facing companies such as BMW, Jaguar, Stelantis, and Hyundai to name a few. These new entrants will ultimately seize market share from the legacy brands putting additional pressure on internal and external targets, especially with electric vehicles. For the leasing consumer, this shift will again provide an opportunity to find a great deal as the battle between car manufacturers and funders ensues.
Historically, leasing discussions often neglected to underscore the significance of insurance premiums. The broader conversations surrounding leasing tended to overshadow the crucial aspect of insurance costs. However, in recent times, there has been a growing recognition of the pivotal role that increasing insurance premiums play a role in the overall financial landscape of leasing agreements. This is especially true in the EV market currently as underwriters and insurers consider electric cars riskier than Internal Combustion Engines (ICE) vehicles. This is partly due to the generally higher value EVs attract and partly due to the lack of data when it comes to repair costs.
Insurance companies employ a risk-to-reward business strategy that hinges on their analysis of past data. This comprehensive assessment of historical information serves as the bedrock for determining pricing structures. By meticulously scrutinising past trends, incidents, and claim data, insurance companies gain insights into the potential risks associated with various factors. Here lies the problem. Past data for EVs is very thin on the ground due to their short lifetime and new entrants only exacerbate this issue.
Here at Dreamlease we are not an insurance broker and don't claim to be experts. All we can suggest is to keep up to date with insurance costs month by month as this marketplace over the next few years will be turbulent at best.
In summary, the factors shaping the car leasing industry in 2024 include EV trends, government policies, residual values, new market entrants, and the evolving landscape of insurance costs. To keep up to date with the best lease deals in 2024 join our mailing list below or view our Special Offers Lease page where we post the best leasing deals DreamLease have to offer.