Automakers playing dangerous game on EV leases warn experts

Car manufacturers have been relying on lease discounts and other incentives to drive electric vehicle adoption in the U.S., but analysts are warning this strategy may be dangerous in the long run.

What they are saying:

• Barclays, an international investment bank headquartered in the U.K., warned in a June 11 note that EV deals may be undermining automaker revenue.

• “We’ve become increasingly concerned about the profitability of notably aggressive lease offerings and believe that OEMs [Original Equipment Manufacturers] are effectively delaying EV losses with some of the new schemes,” commented Barclays Senior Equity Research Analyst Dan Levy.

Examples of “aggressive lease offerings” can be found across multiple brands and models. For instance, the 2024 Kia Niro EV Wind is presently on the market for $199 a month, while Hyundai is giving qualifying leasees a $10,000 discount on the 2024 IONIQ 5 SEL.

So far, this strategy does seem to be driving EV adoption rates. Roughly 35% of all electric cars financed during Q1 were leased, according to Experian’s State of the Automotive Finance Market Report, triple the number seen in early 2023. However, those numbers include Tesla, which sells directly to consumers. At the dealership level, Edmunds reports that leases accounted for more than 70% of all EV sales. Comparatively, leases represented only a quarter of all car sales during the period.

The problem:

• However, this becomes a risky maneuver when taking into consideration the decline in used electric car values. Although price drops stabilized in Q2 according to EV insights platform Recurrent, Manheim data reveals that wholesale values for preowned EVs are still down about 12%, a much greater decline than the market average.

• When recently leased EVs return to the market in the coming years, prices may be so weak that automakers won’t be able to recoup any losses they sustained by offering their original discount.

Bottom line: It remains to be seen whether the gamble with EV leases is worth it. But if automakers hope to really improve their chances here, then addressing the core issues suppressing electric car adoption, such as limited driving range and inadequate charging availability, needs to take priority over every other strategy.

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