Rising RFLs and falling RVs create ‘perfect storm’ for fleets

Fleets are having to rethink their replacement cycles and the make-up of their fleets in the light of impending rises in the Road Fund Licence (RFL), and falling residual values for electric vehicles (EVs), according to Mercia Fleet Management which describes the current situation as a ‘perfect storm’ for fleets.   

The fleet management division of Tamworth-based EV salary sacrifice specialist Fleet Evolution, Mercia is currently witnessing businesses carrying out a strategic rethink in the light of the tax increases announced in Rachel Reeves’ first budget in October.

Considered inflationary by many pundits following a rise in employers’ National Insurance Contributions and the Minimum Living Wage from April, the 2024 Budget also revealed steep rises in the RFL which will increase the tax burden for most vehicles, especially those costing over £40,000.

For example, new electric vehicles with a list price of over that level will, from April 1, have to pay the expensive car supplement of £425 a year from the second tax payment onwards, plus the new standard rate for EVs of £195 per annum, also from the second year.

That’s a total of £620 per annum which is thought likely by some experts to raise leasing costs by £50 a month for cars registered after April.

At the same time, falling residual values for EVs are causing some outright purchase fleets to pause in their replacement cycles to avoid heavy losses on their vehicles.

“We are in a very erratic market at the moment, with many businesses having to re-asses their fleet strategies from two viewpoints. Firstly, fleet managers are looking at the timing of the replacement of their fleets, especially those on outright purchase with a high percentage of EVs.

“We are seeing such fleets deferring their replacement cycles and staying out of the used markets in the hope that residual values on EVs will improve. As a consequence, some are turning to short term rental to plug any gaps in the fleet, which can be very expensive.

“Secondly, those that already use daily rental vehicles for short term requirements are facing expensive rises in rental rates due to the increase in RFL, which rental companies charge on top of their daily rate. Either way, fleet operating costs are on the increase,” he said.

Mercia believes that one way of exerting greater control over costs could be to adopt a more flexible fleet policy, one that is not locked into a long term leasing strategy.

“An option is to flexibly introduce EVs on subscription rather than long term leases – especially for businesses with seasonal or contractual requirements,” said Leech.

“We are currently seeing a record increase in enquiries for EVs on subscription as a way of helping mitigate these increased costs,” he added.

Although more expensive than long term leasing, EVs on subscription of anything from three to 12 months were significantly cheaper than resorting to daily rental, said Leech.

“We have been able to reduce operating costs by up to 40% by putting in place three month subscriptions for EVs to give clients more breathing space to assess their fleet options,” he said.

“Our most popular EV remains the MG4 at around £300 per month – far less than the same vehicle on daily rental.

“We firmly believe that ‘flexing the fleet’ should be considered as an important part of a fleet strategy, and that introducing EVs on subscription is one way of achieving that,” he said.

Mercia recently launched an EV subscription service, Subscribe Electric, to give corporate customers a taste of going electric at affordable prices while meeting short-term business needs.

Andrew Leech added: “We are seeing record-levels of enquiries for Subscribe Electric at a time of rising costs for most businesses. It should also be remembered that EVs can play a role in helping businesses meet their corporate sustainability targets and reduce their carbon footprint at the same time.”