According to Mercia Fleet Management, the fleet management division of Tamworth-based EV salary sacrifice specialist Fleet Evolution, the replacement cycles and the make-up of fleets are having to undergo a strategic rethink.

A prime factor are the impending rises in Vehicle Excise Duty (VED) announced in Chancellor Rachel Reeves’ first budget in October. Considered inflationary by many observers following a rise in employers’ National Insurance Contributions and the Minimum Living Wage from April, the 2024 Budget also introduced major road tax rises, which it is estimated will increase the tax burden for most vehicles, particularly those costing over £40,000.

New electric vehicles with a list price of more than £40,000, which encompasses most EVs currently on sale, will from 1st April have to pay the expensive car supplement of £425 a year from the second tax payment onwards, plus the new standard rate for EVs of £195 per annum.

The new costs equate to £620 annually, which is thought likely by some experts to raise leasing costs by £50 a month for cars registered after April.

Meanwhile residual values for EVs are falling, to a great extent driven by manufacturers heavily discounting new models in an attempt to meet the requirements of the Government’s zero-emissions vehicle (ZEV) mandate. This required 10% of a manufacturer’s sales to be zero-emission by the end of 2024, rising to 16% by the end of 2025, with the threat of major fines for non-compliance.

As a result some outright purchase fleets are pausing their replacement cycles due to the fear of heavy losses on their vehicles when they come to deflect them.

According to Andrew Leech, head of Mercia Fleet Management and founder of Fleet Evolution, fleet operators are having to rethink their strategies and trying to be more flexible in their approach.

“We are in a very erratic market at the moment, with many businesses having to re-asses their fleet strategies from two viewpoints,” Leech said.

“Firstly, fleet managers are looking at the timing of the replacement of their fleets, especially those on outright purchase with a high percentage of EVs. We are seeing such fleets deferring their replacement cycles and staying out of the used markets in the hope that residual values on EVs will improve. As a consequence, some are turning to short-term rental to plug any gaps in the fleet, which can be very expensive.

“Secondly, those that already use daily rental vehicles for short-term requirements are facing expensive rises in rental rates due to the increase in VED, which rental companies charge on top of their daily rate. Either way, fleet operating costs are on the increase.”

Mercia believes that one way of exerting greater control over costs could be to adopt a more flexible fleet policy, that is not locked into a long term leasing strategy, such as introducing EVs on subscription.

Leech is reporting a record increase in enquiries for schemes such as Mercia’s Subscribe Electric, which while more expensive than long-term leasing, are significantly cheaper than resorting to daily rental.

“We have been able to reduce operating costs by up to 40% by putting in place three-month subscriptions for EVs to give clients more breathing space to assess their fleet options,” he said.

“Our most popular EV remains the MG4 at around £300 per month – far less than the same vehicle on daily rental.

“We firmly believe that ‘flexing the fleet’ should be considered as an important part of a fleet strategy, and that introducing EVs on subscription is one way of achieving that.”