Leasing Normalizes, Partly Due to EV Transactions

Auto leasing is making a comeback after falling sharply during the Covid era, according to a new report, thereby providing more used vehicles down the line to help meet growing demand by cost-crunched consumers.

The TransUnion research shows that in the 12 months ended in the first quarter leasing volume rose from 539,000 units to 714,000. That’s closing in on the 781,000 leased in the first quarter of 2020, at the end of which the pandemic took hold in the West.

The return of normal leasing volume is being driven in part by electric-vehicle leases, the study found. EVs made up about 17% of leases in the second quarter, up from 11% two years earlier, TransUnion said. In fact, more auto consumers are leasing EVs than are financing them. It said almost half of second-quarter EV originations were leases, over twice the level three years earlier, while financed EV transactions were down to a third.

“Multiple factors have contributed to this, but two of the most significant include an increase in lower-priced models being introduced, as well as more new dealer leasing incentives on EVs,” said TransUnion auto and mortgage business leader Satyan Merchant.

Federal tax credits are available for EV leases, TransUnion pointed out. In fact, leases have been exempt from restrictions on eligible vehicle models related to where their battery materials are sourced. The Inflation Reduction Act that authorized the credits treats leased vehicles as commercial and therefore exempts them from such restrictions.

The report pointed out that there’s room to grow leasing further. It said just 30% of lessees are leasing for the first time, down slightly from 33% in 2019.

“… many consumers who may be looking for a pre-owned vehicle later in 2024 and into 2025 may find fewer lease returns resulting in a smaller inventory,” Merchant said. “That’s a group that dealers should consider trying to turn into first-time lessees and should aggressively market towards.”

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