Lex Autolease, part of Lloyds Banking Group, has reported a £10.6 million loss in its annual accounts, just three years after pre-tax profits hit more than half a billion pounds.
The vehicle leasing giant – ranked second in last year’s Fleet News FN50 – blamed the decrease in reported profit on a combination of factors.
They included an increase on underlying depreciation charges on the funded fleet, lower profits on the disposal of vehicles, particularly electric vehicles (EVs), and an increase borrowing costs from interest rate rises.
The £10.6m loss, which was set against a backdrop of revenues rising to £2.4 billion from £2.2bn year-on-year, came after Lex Autolease reported a record downturn in profits in 2023.
Last summer, it revealed pre-tax profits had plummeted by more than £400m year-on-year to £124.4m, a dramatic decline on the £544.2m reported for 2022.
Again, the fall in profits came despite Lex Autolease’s revenue increasing over the same 12 months from £2bn to £2.2bn as new vehicle supply improved.
Blame, in part, was levelled at lower profits on the disposal of vehicles “due to market conditions” and increased interest expense on its borrowings.
Its total risk fleet has fallen year-on-year to 278,000-plus vehicles, from just over 281,000 in 2023, following a reduction in deliveries and informal extensions.
The overwhelming majority – 92% of the total funded fleet – is funded through operating leases, with the remaining 8% under finance leases, contract purchase agreements and employee car ownership schemes, which is unchanged year-on-year.
Meanwhile, the value of the total funded fleet grew by 6%, after a rise of 14% in 2023, due to increases in the cost of new vehicles and customer interest switching to more expensive battery electric vehicles (BEVs) or hybrid systems. Its market share of deliveries remains at 17%.
Electric vehicles accounted for 45% of new orders it received last year virtually the same year-on-year (46%), and it expects this to grow as corporate customers take action to meet net zero emissions targets.
Worryingly, however, it notes that rising levels in supply of used BEVs is likely to keep downward pressure on prices.
Price pressure on used EVs
Lex Autolease is not alone in seeing profits plummet thanks to the volatility in used electric vehicle prices, with many leasing companies reporting a downturn in profits due to EV resale values.
Earlier this year, Zenith reported used EV values had hit its overall adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation), which was £33.8m, down 28.4% year-on-year.
In an effort to protect margins, one-in-three BEV contracts have been formally extended by Zenith as part of Project Volt, the group’s lease extension programme to address the decline in used plug-in prices.
In its annual financial report, Lex Autolease says it anticipates a continued “heightened propensity” for customers to enter into informal extensions, or request formal extensions, to their current leases, due to the “increased cost of leasing a new vehicle compared to their current monthly rental payments”.
The average used EV price has fallen 46% between 2021 and 2024, compared to 19% for cars with an internal combustions engine (ICE), according to the British Vehicle Rental and Leasing Association (BVRLA).
Its recently released annual Road to Zero report, claimed that the UK’s EV future hangs in the balance, with used values “falling relentlessly”, costing the fleet and leasing sector hundreds of millions of pounds.
And, while welcoming the Government’s new electric car grant, the BVRLA has warned that without incentives to help stimulate the used market alongside the new EV market, it could put further downward pressure on residual values (RVs).
BVRLA CEO, Toby Poston, says stimulating new EV registrations without supporting the used market risks creating an “even greater supply/demand imbalance, putting even more pressure on fast deflating second-hand values”.
“The resulting losses will erode confidence and result in higher finance costs for new EVs, eliminating much of the benefit from the original grant,” he added.
In terms of emerging risks, Lex Autolease says that the growth in the EV market, as customers transition from ICE vehicles, poses a continuing risk of uncertainty for RV estimates it’s assuming in its pricing, “especially in the second-hand EV market which remains relatively immature”.
It also warns that there remains uncertainty with the UK economy following financial challenges caused by the impacts of inflation pressures and rising energy costs.
This, it says, could adversely affect the performance of the company, as small and medium sized business profits are impacted.
Speaking to Fleet News prior to the publication of Lex Autolease’s annual accounts, commercial director Paul Hyne said that the company had invested in a new residual value forecasting tool, which has been built from scratch, and provides predictions for vehicles from new to 15 years ago.
“It doesn’t mean higher or lower RVs; it means a material improvement in accuracy. And it also enables us to react more quickly to any changes, such as distress selling,” added Hyne.
“When we operate with £20bn of RV risk across the business, this tool will have a significant impact.”
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