Written evidence from Arval UK (ELV0068) 

 

House of Lords Inquiry: Electric Vehicles

Arval UK response

 

Arval UK, part of the Arval Group, is a leading provider of mobility solutions including vehicle funding and fleet management. Arval responsibly funds more than 37,000* are battery electric vehicles which form part of its 190,000* car and van fleet in the UK. It employs around 750 people with its UK headquarters in Swindon, with offices in Birmingham and Manchester. Specialist teams are dedicated to supporting more than 89,000* customers from individuals and small businesses with a single vehicle, through to FTSE 100 companies with thousands.

 

As a BNP Paribas Group company, its products and services include vehicle funding, vehicle maintenance, energy management, accident management, breakdown service, short- and medium-term rental, insured lease vehicles, full outsourcing salary sacrifice and consultancy services. It is committed to increasing adoption of low and zero emission mobility for all, and aiding adopting of more sustainable mobility solutions, and is a member of the British Vehicle Rental and Leasing Association (BVRLA).

*Data end of August 2023.

 

Government approaches

 

Are the phase-out dates realistic and achievable? (Q1)

 

  1. More than 25% of our car fleet in the UK is a battery electric vehicle (BEV), and 40% of our car orders today are BEVs. So, for cars, the phase-out is realistic, and the transition is well under-way.

 

  1. However only 3% of our light commercial vehicle (LCV) / van fleet by the end of August 2023 is a BEV. For van fleets in particular, customers (from utility companies and service providers to small tradespeople) are struggling because their business (for larger customers) has set a net zero target but there isn't a suitable EV product out there to meet their exact needs. While manufacturers are innovating as a result of the phase out dates, the choice of capable electric 4X4s, vans with 200+ miles range or with ample towing / payload allowance, just isn’t readily available yet – that’s a barrier to the energy transition which may make the 2030 phase out date for new diesel vans /4X4s more challenging than for cars.

 

The role of the 2030 and 2035 phase-out dates to incentivise the development of an EV market in the UK (Q2).

 

  1. PREPARE & ACT: The 2030 and 2035 deadline has ‘sparked’ businesses to make a plan to transition to electric vehicles for their van and car fleets. As a leasing company, we have communicated with our customers to call for advanced planning in order to achieve the deadlines. Business customers are acting and due to the deadline being 2 vehicle replacement cycles away (c.4yrs per cycle), the call is to adopt a ‘marathon rather than a sprint’ approach to the transition.  This includes planning, mapping journey profiles and adopting a total cost of ownership model (rather than a lease cost alone), to implement the transition to electric vehicles in order to meet their own sustainable business goals through fleet decarbonisation.

 

  1. The need to ‘prepare & act’ is less pressing in the non-business leasing sector where individual consumers are driven by their personal desire to decarbonise before the deadline, rather than corporate sustainability strategies.  Here we may see slower transition, however with the accelerated transition in business fleets, we do see a strong boost to the development of the EV market in the UK, with more manufacturers as well as ancillary service providers (e.g., chargepoint providers) increasing their activity and investment.

 

The success of specific national policies, regulations, or initiatives (Q3)

 

  1. Low company car taxation on EVs is a particularly successful policy, which we believe should be continued as long as possible. Company car taxation remaining low for BEVs and low emission vehicles (including the foresight on this till 2027/28), has given employees confidence to choose a company car or salary sacrifice vehicle, which may have a lease duration of around 4-5 years. More than 25% of our car fleet in the UK is already a battery electric vehicle (BEV) by the end of August 2023.

 

  1. In addition, the tax incentives for taking a car through a salary sacrifice arrangement has made this doubly effective. Employers have been able to satisfy both their decarbonisation and employee retention aims by offering company and salary sacrifice cars to employees. 87% of Arval UK’s total salary sacrifice fleet is a BEV. Salary sacrifice arrangements are particularly inclusive of employees who earn more than the living wage, whereas company cars focus on drivers who are either ‘business need’ or a more senior grade of employee (eligible for both a cash allowance or a company car) with low taxation on BEVs drawing employees back into company car or salary sacrifice arrangements.

The role for clearer communication of the case for EVs from the Government and who should take the lead on delivering that? (Q4)

 

  1. The transition to electric vehicles represents a national transport change and we believe customer education and communication is key. For example, Arval UK’s multifaceted communications campaign, ‘Leading the Charge’, has utilised consultancy expertise, customer case studies to increase confidence in the transition to electrified vehicles using knowledge transfer. We are also acting to correct myths and organise EV ride and drive events for example for our used car buyers/dealers.

 

  1. If we consider other national changes such as the introduction of automatic enrolment in the pensions industry, here the Department for Work and Pensions, NEST and the Pensions Regulator contributed towards behavioural change communications plans. The government’s role in the national transition to electric / zero emission vehicles, could focus to increase business and driver understanding of EV technology and related infrastructure, to host accurate information on the terminology and to support knowledge transfer through fleet and driver case studies on the transition. The relevant departments may include the Office for Zero Emission Vehicles and the Department for Transport.

 

Accuracy of information in the public domain (Q5)

 

  1. In order for consumers and fleets to make informed decisions on electric vehicles, accurate information is imperative to build trust in the technology. For vehicles, understanding of factors such as the range capability of an EV (how far it will travel when fully charged), the capability of the vehicle to charge rapidly or ultra-rapidly and its capability to tow or carry payload supports informed decision making. The industry is innovating and resources such as The EV Database and Zap Map are helping to collate data.   

 

EV Market and Acquiring an EV

 

  1. We believe acquiring an EV has significantly become easier in the UK –as the choice of product itself has widened with the entry of new manufacturers and models across various price points, as well as because we now have several financing products which make it easier to spread the cost over time (as against having to make a large initial outlay) – see answer to Q8 below (paragraph 11 – 15).

Routes to access an EV and areas for improvement (Q8)

 

  1. Business contract hire (new vehicles) – which includes salary sacrifice and company cars – is the most popular route to access electric cars within our business model.

 

  1. In particular we believe that contract hire products may help boost acquisition of EVs for customers who are unsure regarding EV technology / battery life concerns in this transitional period. (Note in contract hire, the customer/ lessee merely ‘uses’ the car and doesn’t own it, and thus doesn’t need to worry about the used car price at the end of term and can simply return the car to the lessee). The popularity of salary sacrifice arrangements, wherein the employee can access an EV on contract hire via a scheme employed by their employer, has particularly democratised access to EVs for people.

 

  1. Personal contract hire (on new vehicles) is significantly lower in number in our estimate. While we had started to see growth as EVs become available at new price points, the recent cost of living concerns may have put a brake on EV penetration as consumers had lower affordability for EVs (even when the cost is spread over the duration of a lease)

 

  1. However here we believe there is opportunity to widen access for EVs through used EV leasing. For example, used electric cars are available for purchase and lease through Arval Re-Lease. Around 20%-25% of our current stock in Arval Re-Lease is made up by electric cars and this number is expected to increase as the volume of company car and salary sacrifice vehicles are returned by businesses.

 

  1. Currently around 25% of our used EVs are on lease to customers through Arval Re-Lease, the rest are sold via Auto Trader or Arval MotorTrade, our used vehicle sales platform for dealers which then on-sell these used EVs to consumers via their own channels.

 

Main consumer barriers to acquiring an EV through purchase, lease or other route (Q9)

 

  1. Cost – even while EVs become available at wider price points, in general they are still more expensive than the ICE equivalent. So, except for company cars, salary sacrifice and to some extent used electric vehicle leasing, there are still barriers for wider access to EVs.

 

  1. Perception – negative press and a lack of understanding of EVs.

 

Government help to ensure that EVs are affordable and accessible for consumers (Q10)

 

  1. Company car taxation – has been a huge catalyst for the adoption of electric cars. Particularly with salary sacrifice, employees earning above the living wage can access an electric car with up to a 45% saving on a monthly lease cost.

 

  1. Used electric vehicles are also becoming available through salary sacrifice, which will further increase their affordability and provide budget clarity for employees due to arrangements including servicing, maintenance, and repair costs as well as an insured lease vehicle.

 

  1. It is critical that this favourable taxation regime (now with foresight until 2027/28) is retained and even extended in a phased manner.

 

  1. Used EV incentives: this is a key need, as explained in Q 13-14-15 (para 24 -28).

 

The range of EVs on offer in the UK (Q11)

 

  1. Newer entrants to the UK market have focused mainly on the EV segment, where vehicle electrification has driven significant market innovation. Increased vehicle choice is great for the fleet landscape as it helps businesses and drivers to choose the right vehicle to suit their needs, and of course, their budget. Due to the demand for electric cars for businesses, the choice of cars is developing with longer range vehicles arriving regularly.

 

  1. However, the LCV / 4X4 sector is challenged. For example, if a business has a task which needs the EV to cater for ancillary equipment – such as tail lifts and fridges, or cherry picker cranes or Luton boxes, or to carry / tow a heavy payload – there isn't currently a capable EV product for the application.

 

The second-hand EV market (Q13, 14, 15)

 

  1. CONTEXT: Arval UK funds cars and vans through contract hire (operational leasing, where the leasing company takes residual risk on the car at the end of lease, when it is returned to them by the lessee), finance lease (where the customer manages the residual risk of the vehicle) and salary sacrifice (similar to contract hire, the leasing company takes the residual risk).

 

  1. The majority of EVs today in the UK go through company car schemes, i.e. contract hire.

 

  1. Used EV demand: We have recently in the UK seen a sharp drop in used EV prices, as supply of used EVs went up vs demand for them. The increase in supply of used EVs is driven by leasing EVs over the past 2-3 years, and the number of these cars is expected to increase as the volume of company car and salary sacrifice vehicles are returned by businesses. Additionally, as businesses try electric vans through leasing and rental arrangements, these vehicles will then move into the used market – the ‘new business vehicle’ lease acts as a channel into the used vehicle market.

 

  1. Confidence in a used vehicle is important, particularly in the EV space, and the lack of any incentives for a used EV buyer, coupled with lack of information regarding EVs, means the used EV market has been very volatile recently. This in turn means higher residual risk expectations for EVs in future, which would curtail the ability for leasing companies to set attractive rentals at the front-end. We believe some government intervention to boost used EV demand can help ensure a robust used EV market, which is critical for overall EV adoption in the UK.

 

  1. To boost used EV demand we have undertaken certain action as a business. For example, used vehicle dealers are imperative to the sale and leasing of electrified vehicles. Here, Arval UK recently held a ‘ride and drive’ event to increase understanding and enable vehicle dealers to drive electric cars and vans. The majority of vehicles entering dealer forecourts are currently petrol and diesel, therefore increasing used vehicle dealer’s knowledge will build confidence in selling EVs. 

 

  1. However, we believe government intervention is also needed to support a robust used EV market in the UK in the form of incentives for a retail consumer to buy a used EV (which in turn also democratises EV penetration across all demographic segments).

 

  1. Used EV battery health: concerns re used EV battery life are a top reason cited to not buy a used EV. So, a common approach to battery testing may help to build trust in the used EV market.  The initiative might not be needed for a long duration, but whilst the life span of the battery is relatively untested in the mass market. If we compare the value of an engine and its component parts in a petrol or diesel vehicle, there is not an engine specific test – but while the battery technology is less understood by consumers, the battery test could be introduced and then ended as confidence develops.

 

The value and role of alternative mobility models (Q16)

 

  1. Arval Beyond, our global business strategy to 2025, recognises the importance of offering sustainable mobility options. Our customers should be able to choose the right vehicle for the right journey. This approach may see travellers use an electric car for a longer journey, then transferring to an electric bike or electric cargo bike taxi to take them to the door. 

 

  1. To support our customers with the transition we:

 

      1. offer EVs also for shorter durations via our ‘mid-term rental’ product (3 to 24 months duration) and have revised this product to increase the number of electric vehicles as an option for business fleets to choose. Where we are seeing challenges is with electric rental cars, where customers may be switching from a petrol or diesel vehicle for a temporary period, there is less flexibility to choose an electric car. However, electric van rental is proving popular as a means for business fleets to test electric vans within their business operations.
      2. now offer electric-Bikes and electric-Cargo bikes on contract hire schemes.
      3. are piloting a car sharing scheme for corporate customers, who may wish to have an internal pool of cars for employees without a dedicated company car,
      4. Low company car tax for electric cars has inspired adoption. Government policy may wish to focus on ‘all’ business travel being zero emission, by looking at policy to increase EV car sharing or electric bikes, as well as an electric car – to choose the right vehicle for the right journey.

 

Experience of using an EV

 

Improvements to accessibility and equitability for electric vehicle charging infrastructure (Q24)

  1. Price: We believe equity and access at suitable price points for charging is a key barrier to overcome. Customers without access to private home charging or workplace charging have to rely on public charging, which is not uniformly available across the UK yet, nor is it always economical.

 

  1. Access: Particularly for van fleets, where drivers may not be able to have a charger installed at home, where vehicles are larger or may need to recharge while towing a load, the accessibility of charge points is an important consideration when shaping planning policy. Arval UK is supportive of the BVRLA’s engagement with local authorities, so they are aware of fleet needs. Additionally, improved guidance for charge point operators, regarding the size and accessibility needs, could be shaped by a government body.