A shortage of financing options for consumers and businesses could restrict the market’s growth and negatively impact the UK’s ability to meet carbon emission targets, according to Shoosmiths.
In a legal briefing, lawyers from the London-based firm said that financing packages on offer from ‘captive’ (or manufacturer-owned) and ‘non-captive’ finance providers have largely “failed to adapt to the distinctive characteristics of EVs.”
The report, entitled ‘Financing for electric vehicles’, explained that traditionally, finance providers designed and built their IT systems to support straightforward products which have worked for diesel and petrol cars, as they are bought and sold as a single asset.
However, one size does not fit all. As Shoosmiths said: “EVs are not so simple. As well as the vehicle itself, an EV requires a battery, often worth several thousand pounds – and there may also be a need to take account of new charging technology, including its installation, care, maintenance and use limitations.”
Stephen Dawson, sector head of financial services at Shoosmiths, warns that a failure to tackle these issues may finance providers may “find it increasingly challenging to produce finance documents for their EV loan books that are fully compliant with the law.”
Shoosmiths said irrespective of the way the vehicle is powered, the car finance market is being further complicated by wider shifts in attitudes to ownership.
Consumers are moving towards a user-based subscription model which enables them to swap their small weekday run-around for a larger vehicle at weekends for longer journeys and activities.
Dawson added: “Subscription models lend themselves to hire rather than credit plans, but this presents additional challenges. With customers also wanting to bundle more elements into the core price such as insurance, batteries, Amazon deliveries to the boot, for example, this could require a plethora of agreements.
“At a time when major manufacturers are increasingly prioritising the development of EVs, everyone along the supply chain, from manufacturers through to dealerships, needs to work closely with their finance partners to ensure that proposed EV-friendly finance offerings cover all the issues associated with purchasing EVs,” he added.
Dawson said this could create a need for multiple agreements, legally and practically with customers needing to sign a combination of regulated hire and credit agreements.
“There are huge problems ahead for both the industry and consumers if the financing for EVs isn’t overhauled to meet the demand of this growing market,” he concluded.
Figures published by the Society of Motor Manufacturers and Traders (SMMT) in August 2019 showed UK registrations of fully electric vehicles were up by 158% year-on-year.
EV registrations have also proved to be the silver lining in the UK new car market, which is currently at its lowest level since 2013, according to recent figures by the SMMT.
In December the SMMT released figures showing the demand for EV batteries had surged a staggering 228.8% in November amidst a 1.3% decline in new car registrations in November.
UK new car registrations dropped 2.4% in 2019 to 2.3m units which marked a third consecutive year of decline.
The SMMT cited a number of factors impacting sales, including weak business and consumer confidence and economic instability.
Mike Hawes, SMMT chief executive, said: “A third year of decline for the UK new car market is a significant concern for industry and the wider economy. Political and economic uncertainty, and confusing messages on clean air zones have taken their toll on buyer confidence, with demand for new cars at a six-year low.
“A stalling market will hinder industry’s ability to meet stringent new CO2 targets and, importantly, undermine wider environmental goals. We urgently need more supportive policies: investment in infrastructure; broader measures to encourage uptake of the latest, low and zero emission cars; and long term purchase incentives to put the UK at the forefront of this technological shift. Industry is playing its part with a raft of exciting new models in 2020 and compelling offers but consumers will only respond if economic confidence is strong and the technology affordable.”