Opportunities for Vehicle Electrification

Speaker A: Welcome to Insight Exchange presented by LEK Consulting, a global strategy consultancy that helps business leaders seize competitive advantage and amplify growth. Insight Exchange is our forum dedicated to the free, open and unbiased exchange of the insights and ideas that are driving business into the future. We exchange insights with the brightest minds of the day, the most daring innovators and the doers who are right now rebuilding the world around us.

Speaker B: Hi everyone. Um, welcome to another episode of the Insight Exchange podcast here from lek. Today's topic, uh, which I'm joined by Will Chamberlain to talk about is about automotive electrification. Clearly, uh, a uh, disruptive trend happening around the world. As a way of personal introduction, my name is Ashish Khanna. Um, I lead our financial services business in Europe and have a broad based passion for all things automotive as it intersects into the world of financial services. Alongside me here today to discuss uh, a number of these topics, here is is Will Chamberlain. Will, go ahead and introduce yourself.

Speaker C: Hi everyone, I'm Will Chamberlain. I focus on automotive services, uh, covering the full life cycle of cars and vans, uh, taking it from new purchase, leasing and finance associated with that through to service, maintenance and repair, the associated insurance, uh, with cars and supporting infrastructure, uh, such as car parks, motorway service areas and EV charging.

Speaker B: Thanks Will. Maybe we'll start in a non traditional place. We're guilty as consultants of being tagged with PowerPoint and Excel, but let's start in a different place today. What's your experience with electric vehicles in your household?

Speaker C: Thanks Ashish. Yeah, so uh, one of our cars is electric. Um, so it sort of fulfills what we call the family second car now actually we probably end up using it more frequently than the uh, diesel other car. Um, we use the diesel car for the long journeys uh, if we really enjoy family holidays in the uk. So trying Scotland or Cornwall and we use our larger diesel for that knowing that we can get all the way there in one trip with the kids. Uh, but our electric car is used for everything else local around home. So the school run, the shops, all sorts of local activities. The real reason for this is the cost. It's um, quite amazing. So it's a salary sacrifice electric car so we're able to get out of pre tax income and the cost per mile it works out. So we get 3 or 4 miles per kilowatt hour. We're able to uh, charge for 7 pence per kilowatt hour on an overnight uh, charging rate. Um, so when I did the maths and worked it out it was equivalent to getting 300 miles per gallon in terms of cost, which my Land Rover definitely was not anywhere near in terms of its uh, miles per gallon. So it's been great. So it's been about almost two years now, um, of having the electric car on the driveway. Uh, my wife and I argue over uh, who gets to take uh, it in the morning because obviously, uh, we both think it's a more enjoyable driving uh, experience.

Speaker B: So you're one of the promoters here. Well, uh, good to get that context on the table. Uh, uh, let's sort of take it up a level. Of course here we're talking about uh, your experience in the uk, these trends of course being replicated across many, many countries that we work across. Maybe just set the scene. Will, you're one amongst how many people driving electric vehicle adoption? What are the high level market stats, uh, around this industry that we should be uh, thinking about?

Speaker C: Yes, so the growth has been really very strong. So if you look at new car registrations, it's roughly 20 to 25% of new car registrations in leading European markets that are now battery electric vehicles. So one in every four or five that are fully electric and that's up from around just 5% uh, five years ago. So really strong growth from 1 in 20 to 1 in 4 or 5. And whilst it takes time to filter through to the park of cars on the road, um, the growth rate there is quite astronomical. So you can imagine with that many new registrations coming in, there used to be back in 2021, only about 400,000 cars, uh, fully electric cars on the UK roads. It's now 1.6 million. Um, so it's increased four times in under four years. And um, the SMMT forecast that by the end of this year it'll be up to about 2 million electric vehicles on the road. So you can see really fast growth if you think about what's driving demand for the electric vehicle, aftermarkets, et cetera.

Speaker B: And will clearly this is not happening linearly across customer segments or demand segments or indeed geographies. What are the key areas you think that are driving adoption? What are the relevant considerations people should be thinking about as they think about the market opportunity here around new car sales?

Speaker C: Yeah, so I think maybe starting with what's common across markets. Uh, so a common point uh, is the cost of electric vehicles. Uh, that's come down a lot in recent years. Um, so many makes and models now offer uh, uh, parity in terms of the upfront price of an electric vehicle with an ICE equivalent. That's internal combustion Engine, so petrol or diesel and particularly after discount or deposit contributions here. Electric vehicles can be very well priced as a new price now. And that's only continuing uh, in the UK market with the entrance of Chinese manufacturers, uh, that are really expanding the pool of people who can afford a quite impressive electric uh, suv. There's obviously as you mentioned, variation between countries. So we run an annual survey, um, in that we ask people who are making, who expect to make a purchase of a new or used car in uh, the next three years, their attitudes uh, towards electrification, various other things. But in that actually it's showing that some markets like the UK and Germany are uh, leading in terms of people's expectations. So 40% of people who plan to buy a new or used car in the next three years express that they think it's most likely that will be electric. Uh, whereas in other markets actually France, Spain, Australia and the US are um, uh, trailing that and a much lower level of expectation uh, from consumers about their next vehicle being electric.

Speaker B: Now while upfront costs have come down, Will, there's clearly been a lot of government support, uh, perhaps uneven in some countries. What's your view of the degree to which that has supported this and the extent to which that level of government support continues over the next few years?

Speaker C: Yes, it's a really good question. Uh, at the extreme you have countries like Norway, uh, where there's been billions poured into subsidizing electric vehicle adoption and now above 95% um, proportion of new cars being fully electric in Norway. Now I don't think very many other countries are able to support uh, that level of subsidy. You're already seeing in the UK some of the attractions of driving electric. For example our uh, congestion charge that used to be exempt from it's being removed. A key driver in the UK of uptake has been the salary sacrifice tax scheme where you have a lower benefit in kind rate on fully electric vehicles. Gradually, uh, the government is putting that, putting that rate up, uh, that you pay, although it is still better and lower tax than getting a petrol or diesel vehicle. And really that's driven by the reality that as electric vehicles reach the mass market governments can't be affording to continue uh, the subsidy on such a wide uh, basis.

Speaker B: That's right Will. I mean we do see that across even the US markets where state by state the dynamics are somewhat different in level of support. Uh, maybe just uh, double clicking a little bit on uh, first the car segment and we'll come back to vans in a minute. But who should we be thinking about as being the first adopters and the fast followers in terms of the take up of EVs.

Speaker C: Yes. So I think it's again a really interesting question. So there's in terms of demographics often people who live in large urban uh, centers. So uh, in Europe, London, Paris, Madrid, Barcelona have much higher uptake of electric vehicles than uh, more regional locations. And within that there's also a factor regarding access to off street parking uh for charging. So I mentioned that I'm able to charge at a very compelling 7 pence per kilowatt hour whereas if I was relying on public charging it could be eight, ten times uh, that amount. So clearly the uh, use cases where you're able to have your own private off street charging uh make it much higher uptake. We are expecting though uh, as that continues more people who the early adopters are people who have off street parking but as it continues to proliferate through drivers there will increasingly be people who don't have that option and rely on on street charging or charging sort of

Speaker B: as the followers hold that thought, we'll come back to charging I'm sure uh, in due course. Uh, but maybe just to close off our rather long introduction we'll maybe just uh, talk about uh, it's easy to get lost in the world of cars but there's a whole business context around commercial vans and heavy vehicles and light commercial vehicles as well. What's happening in those domains?

Speaker C: Yes, so generally they do lag slightly behind uh cars. So in terms of vans, uh across Europe it's typically less than 10% of new registrations. So comparing that to 20 to 25% in cars um, that are fully electric, it's uh, broadly expected to follow the same trajectory but slightly behind that of cars. There are within that though use cases um, and where adoption varies. So whenever there are ah controlled or relatively certain daily driving distances, for example for I guess car but ride hail or last mile logistics delivery. So delivery vans, they are able to certainly they're not going to have to on one charge drive more than uh the range of the vehicle. So one of the barriers, the range anxiety as it's known, isn't there. We're seeing those segments as being some of the first to adopt uh electric vans. Obviously heavy vehicles are then slightly further behind the vans. There are some use cases mainly uh in the US actually you have the Tesla trucks. Um and in Europe there are lots of trials but it hasn't really uh, reached any sort of widespread adoption yet.

Speaker B: But we do see well in that Context quite a few as you said last mile logistics fleets like the Amazon fleets or the postal service fleets, very rapidly converting it into electric vehicles. As you said, targeted use cases around last mile logistics does have quite a bit of adoption. Okay, well I guess to our first intersection will then in terms of actors in the financing and leasing spaces, clearly new car sales moving from internal combustion engines into electric vehicles. How does that play through and how should actors uh, and participants in the financing landscape be thinking about these trends? How does that impact their businesses?

Speaker C: Yeah, so in terms of the new car sales as I described, there's a huge disruption um, in terms of the vehicle sales and a requirement to really educate uh, the customers with what it's like to drive an ev. Those who aren't familiar with it, Some of the benefits of it need explaining in a way that perhaps you wouldn't have to to a customer that was just replacing an existing uh, internal combustion engine vehicle. We do see really big shifts in um, OEM loyalty. So loyalty to a particular brand at the point of electrification, uh, people who perhaps had previously just always got the same brand they had before are ah, switching. So we've seen and you can see this with the entry of Chinese OEMs. Um, our survey again found 30% of Germans, nearly 40% um, of Italians and similar in UK and France, um, were saying that they would consider new uh, Chinese OEMs and was ready to buy. Um, but when we did dig a bit deeper on the perceptions, they did see them as uh, less luxurious and of a lower quality than most European brands. Um, and it'll be really interesting to see how that plays out in the future because I think if people who actually do go and test drive or see um, these, these new entrant brands and EV only, uh, specialists I think have been quite impressed with the, the quality and all of the features. So it'll be interesting how that uh, sort of new entrant versus incumbent dynamic plays out.

Speaker B: And how about. Well in that context the ability of these new brands to reach the target customers. Clearly there has been an established franchise dealer network in place in most uh, uh, Western economies for a while. How is that changing with all of these developments?

Speaker C: Yeah, so obviously new entrants don't have established distribution channels, um, and we see them develop typically now actually developing large footprints of dealers. It's really interesting how this has played out in recent years because some of the pioneer EV only entrants, Tesla Polestar, uh, did follow a direct sales or agency model, um, which is great for uh, controlling that uh, sales process, um, the need to educate with experience centers or spaces as uh, Polester call them. Um, it's interesting. Polestar have the spaces um, where they would, you could go and experience the brand, arrange a test drive, uh, it could be in a shopping center, et cetera. But then uh, they wouldn't allow you to do the transaction in the store so you'd have to then go away and transact online. Uh, and that worked really well for Polestar in terms of building their brand image. People heard of them because they saw them in the shopping centers, et cetera. Um, and actually for a brand like Polestar where I think 70, 80% of their sales are fleet sales, it makes even more sense because uh, people who are getting it through their work salary sacrifice scheme or as a company car might have wanted to test drive before committing. Um, but uh, if they had gone to a dealer they'd have been wasting their time. But we do see that these brands, for example Polestar transitioning their facilities to more traditional dealer model, actually selling vehicles. Part of that is having built the brand they're able to move to a more traditional model. But also the need to be able to deal with used vehicle stock as well.

Speaker B: How about the new Chinese OEMs, uh, or challenger OEMs beyond the polestars and the Tesla's Will?

Speaker C: Yeah, so the more recent uh, Chinese entrants have. So Amoda and J.K. entered the UK really at the start of this year and uh, they've gone through a fairly traditional route. So they have dealers of scale quite rapidly. I think they're up to about 70, 80 uh, dealers now and are targeting 130 by the end of this year. Leap Motor, similarly I think they have a partnership with Stellantis. Um, but also we've gone through the dealer route now, 44 dealers having launched only in March this year and scaling uh, up that ah, traditional dealer uh, route.

Speaker B: And why is that important? I guess in the context of SMR and aftermarket Will, what's the reason why the dealer channel continues to remain attractive?

Speaker C: Dealers obviously know how to sell cars and have teams of people, the real estate, et cetera. So um, a ah, key partner for getting the sales. But then also I think a key challenge for new entrant brands that we pick up from both consumer customers and business customers is a concern around the ability of these new entrants to support their vehicles. Service, maintenance, repair needs, the parts availability. A classic um, comment would be how do we know if something goes wrong? We won't be waiting for months for the part to come from China. Even if it is coming from China, it could probably get here quite quickly. And having the on the ground presence and the ability to serve that, the aftermarket is a uh, really important thing for them to get over in terms of addressing buyer concerns.

Speaker B: Thanks. Well that's, that's good to know. I guess as we just think about the next leg of the customer purchase journey. You've selected the car, it's still the prices as you ah, are coming down as you, as you said earlier, but still remain quite substantial. Financing becomes a huge part of that purchase decision from there onwards. Now clearly in the UK and this, this differs everywhere, there's manufacturer offered financing, there's independent financing institutions, and of course you've got banking institutions as well offering car financing. But I guess we talk a lot about leasing in the context of electric vehicles. What's going on? How should we think about lease versus finance in EVs?

Speaker C: Yes, so it's really interesting. There's some quite good data here about leasing penetration of electric vehicles versus ice. So if you look at the data you can see there's much, much higher uh, proportion of electric vehicles that are registered to a leasing company compared uh, to the proportion of ICE vehicles that are registered to a leasing company. Um, and in cars that's particularly extreme in uh, the UK partially because of the salary sacrifice scheme I mentioned earlier. But even in other countries and in vans where that distortion uh, from taxation isn't present, you see typically a 10 plus percentage point higher leasing penetration, um, where customers or businesses buying vehicles are saying actually I would rather lease and pay monthly and have no residual value exposure. On this new foray into electric vehicles, uh, that we're doing. As I mentioned, it's for several reasons. So partly it's that uh, I mentioned the lack of exposure to the residual value. So you're in essence paying a leasing company to take on and manage that risk given they are likely better suited to manage the residual value uncertainty around uh, electric vehicles. Uh, but also we think lack of familiarity with service maintenance repair requirements, the availability also has a factor, uh, on uh, the decision to lease rather than own, such that if leasing where it includes service, maintenance, repair is uh, a lot more attractive, uh, for customers.

Speaker B: Absolutely. And all of this in the context of what you mentioned in terms of the relatively higher upfront price point at which EVs have been being sold anyway. Maybe, I guess the other side of that coin will, is how the leasing companies themselves think about residual value risk. Uh, the infamous RV Term um, which means something completely different in a different automotive context. But let's talk about residual value here for a second. How are our leasing uh, industry customers thinking about that particular dimension?

Speaker C: Yes, it's clearly a really big issue for leasing uh companies to focus uh on particularly as electric vehicles take on a greater proportion of their uh portfolio. The residual value after a lease for an EV is typically both lower and more volatile. So you've got to pay for the increased depreciation on the vehicle. But also the leasing company has a lot more uncertainty around exactly where that will be due to the volatility of the potential residual value. We see leasing companies trying to manage this in several ways, so being quite proactive about uh, finding second leases. So after a first lease has ended, the ability to remarket that that vehicle potentially to your own customers or through different channels at a lower price point is used. Leasing um, is one route that many uh, are pursuing um to try and control that residual value slightly better. We've also seen uh, some leasing companies trying to expand for electric vehicles into broader services that they can offer. And that's not just to help manage the residual value risk because if you are providing some of the charging infrastructure, the service, maintenance, repair, that can help you give some more control over the quality of the vehicle at the end of the lease, the battery health, etc. Uh, so it gives you more control of that. But it also has the added benefit of helping improve the stickiness of the customer, uh through having more frequent touch points with them etc.

Speaker B: And of course align, that is diversification of the revenue streams in your business model as well does reduce the importance of are we uh, driven profitability impact. Moving on from the new car market world, perhaps um, the one that is I know close to your heart, uh, as an electric vehicle owner, I feel it day to day myself as well is there is clearly a different uh set of uh requirements around repair and maintenance of electric vehicles. What do we see in terms of the impact of that? As you said, there's a relatively high penetration of these cars coming into the uh, into the new car market and it will undoubtedly roll into the car park as well. Uh, what's the impact on the aftermarket?

Speaker C: Overall there's generally a like for like reduction in the service maintenance, repair spend. So with fewer moving parts um, you do get overall a reduction but within that there are winners and losers. So for example tyres require more frequent replacement, um, as they wear faster due to the heavier weight and also often the starting tread is lesser uh, than is put on a petrol or diesel car. So there's uh, less time until it wears out as well. Uh, some other services though cease to exist. So oil changes, traditional things you'd have on a petrol diesel vehicle are no longer required. Um, but that's not to say there is an opportunity here because when you think about it the supply and demand dynamics are really very interesting. So whilst many new electric vehicles don't have to have very much done in the first couple of years, once they start to get into three to eight year old uh, space there will be needs for um, servicing of them for all sorts of components. And the ability to work on electric vehicles can differentiate uh, players in this space from more legacy players that often just aren't very familiar with uh, the needs of electric vehicles. And the growth here is really significant as you'd imagine that the growth in new vehicles has grown so much. If you look at the say number of three to eight year old electric vehicles on the road, that's tripled in the last couple of years and will double again in the next two years. And that's in the context of 40,000 or so um, repair businesses in the UK that are largely fragmented and without the capabilities to service uh, these rapidly growing segment of vehicles. And we can see where companies have invested in capability to serve electric vehicles, they're able to achieve higher labor rates. So for example in body shop repair, insurers are very aware of that and also achieve um, higher growth and stronger margins for the people uh, who are investing in EV repair that now.

Speaker B: Well, franchise dealers of course had ah, a very important role to play in the ecosystem for new car sales and managing the warranty period for a period of two to three years after the car left the lot. How should they be thinking about the opportunities around EVs as that art of the business starts to proceed?

Speaker C: Yes. So uh, as you mentioned, as it recedes I think they either need to refocus and double down on the sales aspect or seek other value added services that can compensate for the loss of the service maintenance repair income. So there will also alongside that there is an added problem of customer retention. So it's a great way of getting the repeat sales of new vehicles if people are coming in for their annual service maintenance. So making sure that even if it is lesser, um, um, uh, the overall demand for electric vehicle that you do what you can to get them in and finding other ways to keep in touch uh, with customers and uh, seek that repeat purchase will be key.

Speaker B: Well of course we've talked about the moving parts and the need for oil changes or tire replacements. Uh, well, the core differentiating component here for EVs is of course, the battery itself. Um, what is happening in the aftermarket with respect to our capabilities collectively to manage battery health or repair and replacement.

Speaker C: Yeah. So on the health side, it's a key concern for buyers in the used car space. So there, um, are companies like Decra or Autelium that are able to do battery health checks. So you can, if you are buying or selling a used car, can help demonstrate the quality of that battery. Um, I think this is a point where, uh, it's from a customer's perspective, if you own the vehicle, have that residual value risk. I have friends who very proactively manage their charging cycles, etc to try and retain their battery health, whereas people who are leasing and are not exposed to that are able to sort of, uh, not think about that, uh, concern.

Speaker B: And what do you do, Bill?

Speaker C: Yeah, no comment. Don't tell. There are also opportunities here in the repair of batteries. So when you think there's going to be in the future a huge number of older vehicles, and I think in the UK there are over 6 million vehicles that are over 15 years old now. There are very, very few electric vehicles that have got that old yet. So it's a bit of an uncertainty around what the batteries will be like at that point. But I think it's essential that we find the ability to repair batteries when they are damaged. Um, I think there's some analysis regarding the environmental impact and the environmental cost that goes into a new battery. So replacement is not a good solution when batteries are degraded or damaged. And there is an opportunity here that I think will have a huge opportunity in the future for whoever gets it right in terms of the ability to repair batteries, which at the moment is quite a complex and difficult process in terms of sourcing material, the labor to do it, et cetera.

Speaker B: I guess putting that all together, Will, and I'd love your personal take on this, given you have both an internal combustion engine as base vehicle as well as an electric vehicle. I guess we've talked about upfront costs, we've got, we talked about the cost of the fuel, uh, and we've now touched on the cost of repair and maintenance. You put all of that together and we talk about total cost of ownership. What's your take on that overall? Is this economically a viable product for a consumer?

Speaker C: Yes. So like, for, like, we think a new vehicle, we think the total cost of ownership, if you've got home charging Is say for me is better for an electric vehicle. Now I must say having a new electric vehicle is more expensive than having a secondhand older, uh, internal combustion engine vehicles. So it's still not the cheap choice. But as quality electric vehicles age, there will be opportunities for older uh, electric vehicles. And I think that will be the truly best total cost of ownership for people looking for a budget.

Speaker B: Talking about the world of motor insurance, clearly an important sector in the financial services domain, a very significant proportion of those costs are related to the cost of servicing vehicles in the case of accidents. How is the insurance industry thinking about growth of electric vehicles into the car park? Uh, how is that being factored into their underwriting decisions and, or their pricing decisions?

Speaker C: Yes. So as you'd imagine as the stock of electric vehicles on the road scales, it's becoming an increasing issue for motor insurance to understand the repair costs of electric vehicles so they can correctly, uh, price the insurance, uh, and also manage their uh, risk when accidents do occur. There is greater unpredictability in the cost of repair, uh, after accidents due to the novel nature of electric vehicle technology. You've got vehicles that uh, are new in the UK and actually it's not just like a new model where you can look at a previous version and understand how much that cost to repair for the same, uh, mark, etc. You've got completely new models by new OEMs coming into markets. And that is combined with a lack of qualified or suitable um, replacement locations for electric vehicles. So rapid growth in demand for electric vehicle repair coinciding with a, ah, lack of supply. So high growth in cost of repair has been seen in recent years. The way they're responding to this is to try and manage uh, that cost exposure and seeking to get even more involved in controlling the expenditures that could be through forming strategic partners and also trying to aggregate their data. So there are companies like GECO Risk that uh, pull data from different insurance providers to allow insurers to better price, uh, the cost of repairing electric vehicles.

Speaker B: I think that's right, Will, and we do see it as the rise of electric vehicles being an underlying inflationary factor coming into the price of motor insurance. So as governments seek to uh, mitigate the rise of costs, uh, due to inflation over previous years, we still have this underlying secular, demographic, uh, driven trend around the impact of EVs in the car park. Okay, charging. Will, you're one of the lucky ones with a home charging solution with 7 pence per kilowatt hour. Clearly this is one that's quite emotive amongst people, particularly those segments of consumers who rely on public charging infrastructure for their primary charging. How has that sector developed and what remains to be done in that sector in that space?

Speaker C: Yeah, so there has been huge investment going in to public charging infrastructure around the world. Um, so you can see in the UK the number of public EV charging points now about 85,000 charge points across 40,000 locations and it's more than doubled compared to 2022. There is as you mentioned, sort of a huge inequality between off street charging on your own private tariff where even if you're paying the daytime rate it's cheaper and if you have access to off peak rates, much cheaper uh, than what you can achieve from public charging. Part of that I think is a government question with full vat, uh, on the public charging, whereas it's much cheaper on home charging. And also just the cost of investing, uh, the companies that are investing in the property, the equipment, etc. And particularly where fast charge is involved, there is really significant cost in terms of grid upgrades, connections and the equipment that does need to be recovered from the higher uh, charging cost for the

Speaker B: charging point operate as well. Utilization remains one of those key issues that they are grappling with as they face demand uncertainty here. What do you see happening, uh, in terms of their strategies to help reduce uh, some of the time between investment to break even on a very significant amount of capital expenditure that you referred to.

Speaker C: It varies so much by location. Um, so we talked earlier about the leaders and fast followers of electrification. Uh, so based on which city you're in and the location within that, you have very different demand dynamic. So affluent cities with lots of people who want electric vehicles where none of them have off street parking would be the perfect place for you to have your public charging, uh, network. We do see over the long term that we think the majority of charging will happen where a car is overnight. So for those with off street parking at home, but even when it's on street parking, it is just the most logical time to charge because you can have a very slow charger, but if it's overnight it works really well. So having continued rollout of on street charging is very, very effective. Beyond that, the other key charging locations that we see, and you can see this in more advanced, um, countries in the electrification journey, like Norway is on route charging. So when people are driving long distances and they need to stop and refuel, um, so having motorway service areas or locations near the motorway network is key and then also locations with natural dwell time. So if there Are, uh, places where people naturally go and spend several hours. That also works quite well for charging.

Speaker B: Thanks, Will. From a vehicle sales market, we often default into the new vehicle sales market. In the UK that's about 1 and a half to 2 million vehicles being sold, uh, new every year. Uh, but the real gorilla, uh, in that space is actually the used car vehicle market, where for every new car sold there's another three to four used cars sold in the UK market at least. And I suspect the trends are quite similar, uh, in other markets, uh, as well. Now as we go through, and you mentioned earlier, the number of used car, uh, EVs, uh, doubling and tripling in very short order. How should we be thinking about the used EV space, the opportunities and the challenges with getting, uh, transactions and sales happening in that segment of the car sales market?

Speaker C: Yeah, so on the demand side we see key limiting factor, um, being the uncertainty around battery health, service, maintenance, repair and reliability. And that's on top of the concerns people have with new electric vehicles regarding brains, anxiety, access to charging, etc. Overall, there's generally a big opportunity here in solving these problems and unlocking that demand. So things that I mentioned earlier like battery health checks or any way you can have a used vehicle lease that includes full service and maintenance, we see there's really good opportunities and people who get that right, uh, will have a lot of success.

Speaker B: Do you see the government playing a role in lubricating the used car market with subsidies?

Speaker C: Yeah, I think it would be a really good idea, um, because it would uh, both help the used market and the new market because ultimately it would feed through in terms of making new purchase more attractive because of the uh, lower depreciation that would result in Now.

Speaker B: Well, clearly from a demand side you've been very clear that there are some challenges to overcome, but there are some solutions from a government support point of view that could help. But we also have to recognize, as you said, a very significant proportion of new car sales have been through fleets and through leasing companies which are coming up for end of term disposal. Um, points. How should fleets be thinking about the decision on whether to on sell a vehicle or put it into a second life use case? What's happening on the supply side to mitigate that uncertainty on demand?

Speaker C: So leasing companies definitely are exploring used car leasing and you've seen many of them launching in recent months, years, their uh, used car offer. Uh, I think it is quite a small proportion at the moment if you look at the volumes that are coming off these fleets in terms of how Many were registered two, three, four years ago. We see it as only being a very small part of that. And they will need to find other ways to offload those vehicles.

Speaker B: And of course, underpinning any second, uh, life use cases, uh, is, uh, an expectation of the lifespan of the vehicle itself and of the battery that underpins it. What's your view on where that's headed with respect to longevity of the battery and the life of the vehicle?

Speaker C: Yeah, it's very difficult to get a sense of, um, the true life of the vehicles because you can look at electric vehicles from a decade ago, but the technology has moved on. But I think even when you do that, it is quite encouraging, actually. So if you look at Teslas from 2012, 2013, or Nissan Leafs from a similar era, uh, after they've done 150,000 miles, their battery capacity has only degraded 10, 15, 20%. So they're still very usable vehicles. Now, some of those vehicles didn't have very large batteries to start with. Uh, so that's more of the problem. Uh, but it's expected also with newer technology, um, sort of heat management, etcetera, they're expected to perform even better than that. So certainly when you're looking at 10 to 15 years, it looks quite encouraging. But as I noted, if you look at the total car park, um, there are many cars that are over 15 years old, um, uh, and ICE vehicles have probably maintained, do continue working for a very long time. And that really remains an outstanding question, how electric vehicles will perform.

Speaker B: Thanks, Will. I really enjoyed this discussion. I learned a lot about what's happening in the electrification domain for the automotive sector. That wraps up our discussion on this topic for today. We're happy to provide more detailed discussions on request and we really invite our listeners here to connect with us to learn more about LEK Consulting's extensive experience in providing strategic support across this automotive electrification, uh, topic. I want to thank Will for being very generous with his time and for a really insightful, engaging and exciting conversation. Until next time, thanks for listening.

Speaker A: Thank you, our listeners, for joining us today at the Insight Exchange presented by LEK Consulting. Links to resources mentioned in this podcast can be found in the show Notes. Please subscribe or follow for future episodes wherever you listen to your podcasts. Also, we encourage you to submit your suggestions for future insights online@lek.com.