Sponsored by Webcast Reviews Opportunities and challenges in 2025 for equipment finance Published: 4th February 2025 Share Summary In 2025, the equipment finance industry stands at the crossroads of transformative opportunities and complex challenges, as highlighted in the AFC European Unconference session, sponsored by Alfa. With governments playing a pivotal role in fostering green asset classes through social leasing and state sponsorship, the future of such support remains uncertain amid shifting priorities. Meanwhile, subscription models and pay-per-use arrangements continue to gain traction, with certain asset classes leading the way in redefining alternative funding mechanisms. At the same time, the growing focus on eco-reporting faces hurdles, as rising sustainability reporting requirements clash with concerns over data reliability and privacy. This session unpacks these critical themes, providing insights into the evolving landscape of equipment finance. True or false markets: the role of governments is critical in building new green asset classes, but will support continue? Government intervention is playing a key role in the demand for green assets, with the offer or withdrawal of incentives determining the size of the market in many countries. The removal of purchase grants for new electric vehicles in Germany, for example, led to a decline in EV sales last year, while France’s experiment with social leasing to help lower paid households get behind the wheel of a battery-powered car proved so successful that its budget was exhausted within just a few weeks. Discussions among lenders at a European level at the AFC European Unconference, sponsored by Alfa, came to the conclusion that larger EU member states with bigger automotive markets would have more success at distributing social leasing subsidies. Lenders are also cautious that temporary subsidies might stimulate a market in the short term, but they cannot secure it long term. A permanent market requires healthy initial demand, comprehensive infrastructure and robust demand for used products. Given the decline in residual values for electric cars, lenders are keen to see government money used to support the second-hand market, where it would also reach more customers. Where Government has to play a role is in the production of clean and cheaper electricity to manufacture and power decarbonised assets. Mario Draghi’s report last year on the future of European competitiveness highlighted the fact that EU companies face electricity prices that are two to three times higher than those in the United States and in China, a cost that places manufacturers in the EU at a distinct disadvantage. The new US administration’s mantra of ‘Drill, baby, drill’ is only going to widen the energy cost gap between European and American enterprises. High electricity costs also undermine total cost of ownership calculations of companies looking to transition to zero emission assets, such as electric cars and light and heavy commercial vehicles, with the business case weakened further by patchy charging infrastructure. Even the environmental case for battery-powered assets is flawed if companies cannot access renewable energy and instead rely on power from higher emitting sources, such as coal and gas. This cost and carbon balance is evident in a number of green assets, with delegates hearing how corporates are exporting their investments in energy-intensive assets, like data server centres, to countries with an abundance of renewable electricity. The coastal location of Google’s data centre in Eemshaven, Netherlands is no coincidence, with its round-the-clock availability of carbon-free energy from local wind turbines and solar panels. And at a local level, state sponsorship is proving vital to encourage the installation of solar panels and heat pumps, priming a market for which the payback period without a subsidy is too long to create a mass market. But governments can equally turn from incentives to penalties to drive markets, with growing cases in Norway of authorities demanding that construction projects use only electric plant and equipment. Combining both bonus and malus, the UK Government is offering grants towards the installation of heat pumps, while warning that new gas boilers will be phased out from 2035. Where next for subscriptions and pay-per-use: certain asset classes are blazing a trail for alternative funding facilities Early industry enthusiasm for pay-per-use and subscription-based finance models is starting to manifest itself in certain asset classes, but not perhaps those the industry first imagined. Uncertainties in the European economy strengthen the case for shorter or more flexible arrangements, with businesses and private individuals showing an appetite for contracts that do not lock them in for years at a time. These flexible agreements naturally come at a higher price, leaving bill payers to weigh up the premium they are prepared to pay for the freedom to terminate contracts when they want. Private cars had been earmarked as the sector where subscriptions would flourish, but significant demand has failed to materialise, according to lenders. Put bluntly, customers have not been prepared to pay the premium required to deliver a fully flexible, all-inclusive product, according to delegates at AFC’s European Unconference, sponsored by Alfa. But in the IT sector, where there are no lulls in demand and regular updates to hardware and software, rolling subscription models are increasingly common. For other asset categories, pay-per-use facilities enable customers to budget more accurately and price their services accordingly. One taxi company, for example, added a substantial number of electric vehicles to its fleet on a pay-per-use basis, and as a result now has the potential to repay its funding facility earlier than a traditional asset finance facility. In agriculture, too, the relatively short seasonal demand for specialist machinery lends itself neatly to pay-per-use finance models, with farms able to share sprayers and combine harvesters. Likewise, the usage pattern of expensive medical equipment lends itself to pay-per-use, although delegates to the AFC Unconference said the structure of finance agreements was typically much closer to a standard lease, albeit with a more aggressive residual value forecast. Looking ahead, it could still be the automotive sector that drives subscription finance, suggested delegates. In the face of impending import tariffs, Chinese OEMs could use this type of arrangement to market their electric vehicles – Lynk & Co’s subscription model in the Netherlands is already popular – while maintaining control and ownership of the battery, the most valuable component in the vehicles and one with a long ‘after life’ value. “A subscription model could be really smart and very disruptive,” said one industry expert. In many industry sectors, however, delegates said corporate cultures among manufacturers mitigated against subscription and pay-per-use models, with sales teams measured and remunerated according to the unit volumes they sell, rather than the long-term revenue they generate. “Bonuses are only related to turnover and margin, so initiatives of pay per use will not get off the ground if that does not change.” Rising reporting requirements run into obstacles: the reliability of data and privacy issues are complicating sustainability reporting Management theorist Peter Drucker is credited with the saying, ‘What gets measured gets improved.’ The pressure of reporting requirements is starting to weigh heavily on asset finance companies. Institutional investors, pension funds and regulators are all becoming more demanding in their expectations of environmental reporting, although borrowers are not showing the same levels of appetite for this data, according to industry experts who attended the AFC European Unconference, sponsored by Alfa. Building on the philosophy of management guru Peter Drucker, that you can only manage what you can measure, environmental reporting is the necessary first step to reduce greenhouse gas emissions, although the need to push on with emission reduction strategies is urgent in the face of the climate crisis. Industry IT systems have developed the capabilities to input and analyse this data, with information on Scope 1 and 2 greenhouse gas (GHG) emissions reasonably accessible. This presents an opportunity for leasing companies to become valuable sustainability reporting partners for both OEMs and end user customers, supporting emission reduction strategies and recording progress. “The reality is that most of our lessees don’t have the capacity to actually do the Scope 1 and 2 reporting that they need to do,” said one industry expert. “They have very little knowledge about the assets that they’re using. Most of them don’t know what the actual CO2 emissions of those assets are or what the lifecycle emissions of those assets are or even how the reporting should be done. It is an opportunity for leasecos, because as asset specialists they do actually have those systems in place.” Where the challenges for the industry lie are in integrating data that is not accessible via open APIs, and especially in calculating downstream Scope 3 emissions. Sometimes this data does not sit in an easily consumable form, and sometimes it is problematic to source this information due to data privacy issues. The GHG emissions of staff commuting to work provides a prime example. These are Scope 3 emissions and mandatory to report for larger companies in Europe under the EU Corporate Sustainability Reporting Directive (CSRD). In theory, these emissions should be straightforward if time-consuming to report, but in practice they are proving more challenging to capture. Official tailpipe data for employees’ individual cars is available, as are accepted national figures for each kilometre travelled by bike, bus, tram or train. The difficulty arises from multiplying these factors by the daily journey lengths of employee commutes, because this relies on knowing exactly where staff start their daily journeys to work, knowledge that is considered an invasion of privacy. “You get the clash of legislation, where privacy prevents you from delivering what the Scope 3 regulations actually demand,” said one expert. And there are further contradictions in the European Commission (EC) setting decarbonisation targets while also outlawing low carbon products made with forced labour – an accusation frequently levelled at electric vehicle batteries made in China. The EC appears to have acknowledged that its current sustainability reporting requirements are unworkable, and is expected to propose an omnibus package that will simplify and remove overlaps and contradictions in the CSRD, the Corporate Sustainability Due Diligence Directive (CS3D) and the Taxonomy Regulation (EU Taxonomy), although it is not clear how far its proposals will go. “The European Parliament has been very clear that anything to do with ESG reporting needs to be substantially simplified, and reporting requirements need to be reduced,” said Richard Knubben, Director General at Leaseurope. Moving on from reporting, the higher priority is to eliminate GHG emissions, rather than simply measure them, with government, business and private individual action required to maximise the opportunities presented by renewable energy. Using smart technology to charge storage batteries and electric vehicles when there is an abundance of wind or solar power would lower peak demands on national grids that could otherwise only be met by gas or coal-generated electricity. It also opens the possibility for bi-directional vehicle-to-home and vehicle-to-grid services that treat electric vehicles as mobile power banks. These systems recharge the batteries when electricity is at its cleanest and cheapest, and have the capacity to feed the energy back into the household or the wider grid when demand and prices are high (and potentially creating a profit opportunity for EV owners). AFC European Unconference Session moderated by David Betteley, head of content at Asset Finance Connect. With governments playing a pivotal role in fostering green asset classes through social leasing and state sponsorship, the future of such support remains uncertain amid shifting priorities. Subscription models and pay-per-use arrangements continue to gain traction, with certain asset classes leading the way in redefining alternative funding mechanisms. The growing focus on eco-reporting faces hurdles, as rising sustainability reporting requirements clash with concerns over data reliability and privacy. Sponsored By Sign up to our newsletters Featured Stories Webcast ReviewsTech trends shaping the future of asset finance Webcast ReviewsManaging the margin challenge in a changing market Webcast ReviewsWhy lenders are adopting an eco-system approach to green risk Read a summary of the AFC European Unconference opening interview with Richard Knubben, director general at Leaseurope.
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