Why big fleet buyers are going into reverse on electric cars

Three years ago, London’s biggest taxi company reached a fork in the road.

Regulations announced by Transport for London meant all private hire vehicles registered in the capital would have to meet tougher green emission standards by 2023.

For Addison Lee chief executive Liam Griffin, it meant a choice: invest in plug-in hybrid cars, or “go full electric” and stump up millions for a new fleet of electric cars.

He chose the latter strategy. Griffin ordered 1,000 Volkswagen ID4s as part of a move to “fully embrace” electric vehicles (EVs).

The plan has backfired. Last month, the company was forced to make an about-turn, abandoning its pledge to reach zero emissions by the end of 2023. “We were slightly oversold the dream,” Griffin says.

A similar story is playing out across the entire private hire car sector. Rental companies and taxi operators across the world are backing away from electric cars amid low uptake from drivers and losses caused by plummeting used car prices.

Hertz recently announced plans to sell-off 20,000 electric cars and buy petrol and diesel-powered vehicles instead, while Uber has admitted it is struggling to get drivers to adopt EVs in the numbers it expected.

The collective change in attitude towards EVs threatens to send used prices tumbling as the market is flooded with stock and means manufacturers may struggle to meet ambitious government targets on electric car sales.

As well as ID4s, Addison Lee spent £30m on new Volkswagen Multivans, which are plug-in hybrid electric vehicles. However, it soon ran into issues with drivers not having access to public charging.

“Less than 20pc of our drivers have got off-street parking and have the ability to charge overnight,” Griffin says. “For those that don’t, they have got to seek the alternative and that’s when things start to unravel.”

Addison Lee tried to install its own bank of chargers to help drivers. However, “red tape and bureaucracy” meant it took 18 months to install a set of fast chargers at its depot in West Drayton, Griffin says.

So-called “range anxiety” about how far EV batteries will take a driver between charges was a serious concern, compounded by a lack of public charging infrastructure.

“We have the issue of what jobs you may be able to do, because if you’ve only got half a charge and you suddenly decide you want to go to Manchester then are you going to want to take it?,” says Griffin.

By the end of December, there were 53,906 charge points across Britain, according to Zap Map, a location service for charge stations. The Department for Transport hopes there will be 300,000 installed by the end of the decade.

Mounting issues left Addison Lee no choice but to abandon its pledge to reach zero emissions by the end of 2023.

Griffin says: “We were very enthusiastic about the benefits of going fully electric. We saw that the idea of providing clean air solutions for drivers and for customers was the future.

“We were promised that the infrastructure would come on stream and facilitate the growing number of cars that were being added by the day. Unfortunately, the experience didn’t quite match the vision.”

Across the globe, car hire and taxi companies are similarly finding that the shift to fully electric is far more difficult than they had expected.

In the US, Uber is offering drivers up to $2,000 towards the purchase of a Tesla to boost takeup.

Andrew Macdonald, the company’s senior vice president of mobility and business operations, said: “We know from listening to Uber drivers that the cost of ownership and access to convenient charging are the top two barriers preventing them from going electric.”

Last week US rental giant Hertz announced it would replace 20,000 EVs with petrol cars, taking a $245m (£193m) hit as it sold the plug-in vehicles because of a rapid depreciation in their value.

Three years ago, Hertz announced plans to buy 100,000 Teslas to electrify its fleet.

But the company said renting out electric cars had proved to be less popular and profitable than traditional vehicles and the cars had also come with higher repair costs.

Europe’s biggest car rental company, Sixt, announced in December that it would be phasing out Teslas altogether, however a spokesman said this was part of its “regular de-fleeting process”.

It is understood Teslas made up a small proportion of Sixt’s fleet to begin with, but the company had concerns over how quickly they lost their value.

Tesla aggressively cut prices of its new cars around the world last year amid a sales war with incumbent manufacturers and a generation of Chinese car makers.

Used electric car prices in Britain have fallen by 23pc in the last year alone, according to Auto Trader, as thousands of EVs bought on car finance were released back into the market. The company has warned of “unsustainable levels of depreciation”.

Ian Plummer, commercial director at Auto Trader, says: “Demand for EVs fell in the latter part of 2022 because energy prices were up and petrol was down, so EVs went from quick sellers to the slowest sellers.”

Tumbling prices have benefitted drivers hoping to make the switch to electric. Part of the Government’s strategy for decarbonising motoring was to flood the used car market with EVs via fleet operators and company car schemes.

But the slump is detrimental to rental companies who face higher-than-expected losses when selling their old EVs. Dealerships trying to shift stock face a similar problem.

Mr Plummer says: “A car dealer doesn’t want used cars sitting around the forecourt for longer than 30 days, so what the retailer does when there is a slowdown is they cut the price.

“If you funded that vehicle, that’s a problem for you. They’ve ‘taken the bath’ by having to sell a car they’ve held on stock for a loss.”

The car hire and taxi industry’s decision to u-turn on electric vehicles is bad news for manufacturers.

More than three quarters of battery electric vehicles registered last year were bought by businesses and fleets, according to the Society of Motor Manufacturers and Traders, an increase from previous years when it was nearer two-thirds.

Commercial buyers have made up a growing proportion of the market as ordinary motorists have cooled on EVs and instead shifted back to petrol and diesel.

The Government is forcing car manufacturers to ensure EVs make up an increasing proportion of their sales until 2035, when the sale of new petrol cars will be banned. A downturn in fleet buyers means car makers face the threat of fines unless they can boost demand elsewhere.

Edmund King, president of the AA, says car rental firms should take some of the blame for not educating drivers about “the nuances of electric cars”.

He said: “If you turn up at Heathrow to rent a car and you have never driven an EV before, and you’re worrying about things like whether you have to pay congestion charge, or emission zones, the last extra thing you want to worry about is how you charge the car.

“They have to be explained. Often with car rentals they have such a fast turnover they don’t have the time to explain the nuances of an EV and their customers are put off.”

Griffin, meanwhile, is left to rue his decision to go all electric at Addison Lee on the promise that the world would change around him.

He says: “It’s not the electric utopia that we would have hoped for.”