The car leasing industry is on the verge of a major financial reckoning, and it’s all because of one cold, hard truth: electric vehicles coming off lease are worth far less than originally forecast. It’s a problem that could send shockwaves through the industry, but there may be a way to turn these losses into long-term gains.
The Residual Value Crunch
Three years ago, leasing companies banked on EVs holding their value. Demand was strong, supply was constrained, and government incentives sweetened the deal. But now, reality has hit hard. A flood of three-year-old Tesla Model 3s, Nissan Leafs, and Polestar 2s are entering the used market, and their resale values are tanking.
Take the Tesla Model 3 as a case study: When these cars were first leased, providers expected them to retain around 60% of their value after three years. Instead, used examples are now selling for under £20,000—far lower than expected. The gap between forecasted and actual values leaves leasing companies facing significant financial shortfalls.
With these cars devaluing faster than the industry anticipated, traditional disposal methods—selling to the trade, remarketing to consumers, or even exporting—aren’t stacking up. So what’s next?
The Subscription Lifeline
Leasing companies need to rethink vehicle lifecycles, and subscription models present a compelling alternative. Instead of taking a one-time financial hit on resale, companies can extend the useful life of these EVs and generate revenue long after their initial lease term ends.
Let’s break it down with simple numbers:
- A three-year-old Tesla Model 3 can be subscribed at around £735 per month.
- Holding costs (storage, insurance, admin) run at roughly £300 per month.
- Depreciation continues at around £200 per month.
- Maintenance averages £40 per month.
- Financing costs hover around £60 per month.
That leaves a comfortable margin to not only claw back losses but potentially turn these vehicles into a profitable long-term asset. By keeping EVs in circulation for five or six years rather than selling them off at a loss, leasing firms can build a recurring revenue model that smooths out the financial turbulence caused by unexpected depreciation.
Why It Works
Car subscription isn’t just a short-term fix; it’s a structural shift in how the industry can manage vehicle residual values. Instead of being shackled to the old leasing model of fixed depreciation schedules and resale assumptions, subscription allows for:
- Revenue Maximisation: EVs continue generating income beyond the initial lease term.
- Flexible Consumer Demand: The appetite for flexible, commitment-free car access is growing, particularly among urban drivers and those unsure about EV ownership.
- Market Adaptability: Instead of flooding the used market with excess supply and further driving down prices, leasing companies can stagger vehicle defleeting.
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The Next Move for Leasing Companies
Subscription models won’t replace traditional leasing overnight, but they offer a strategic hedge against the residual value crisis. Forward-thinking providers will start experimenting with mixed-fleet strategies, balancing outright sales with extended subscription lifecycles.
The UK leasing market is facing an inflection point: either absorb heavy losses as residuals collapse or adapt and find ways to extract more lifetime value from each EV. Subscription might just be the escape route the industry desperately needs.
