Liam Mifsud, programme manager at EV battery analytics specialist Silver Power Systems, on how the switch to electric vehicles will transform the way fleets look at residual value management.
Talk about running a vehicle fleet and it won’t be long before the topic of residual value (RV) comes up. Along with fuel economy and servicing costs, it’s the key attribute that ultimately decides whether a car or van makes it onto a fleet in the first place.
The estimation of RVs though is about to get much more complex as the industry transitions from petrol and diesel to a plug-in future. Why? Because there will soon be a fundamental change in the way the industry defines what a vehicle is worth.
We’ll get to that in a moment. First let’s consider the current situation. When an ICE vehicle comes to the end of its fleet contract, its value is calculated based on commonly accepted factors such as condition – kerbed wheels, stone chips, body damage, mileage and whether it has been serviced according to the manufacturer’s schedule and standards.
What doesn’t come into it is the condition of the most expensive component – the engine itself. And why should it? Thanks to modern engineering, provided the vehicle has been maintained correctly, any assessor valuing the vehicle will assume the engine is healthy.
As a fleet owner, you’d also consider yourself extremely unlucky to have a serious engine issue over the course of a typical three-year lease – and even if you did it would, of course, be covered by the terms of the lease agreement.
Once the vehicle is de-fleeted – and the vehicle is outside of its standard three-year warranty – the next buyer wouldn’t normally be concerned with a loss in engine performance because of how the vehicle was used by the previous owner. The end-of-life value is predominantly dependant on the mileage and visual body condition of the vehicle.
However, with an electric car or van, the value of the overall asset is intrinsically linked to one vital, and very complicated, component: the battery. As with an engine, an electric vehicle’s battery is covered by a robust warranty, but what typically isn’t covered is battery degradation, in other words wear and tear, which is dependent on how the battery is treated during its life. And battery performance can vary significantly according to use.
There are several issues to consider here. For the owner of the asset, and here we mean the leasing company, a large fleet which buys its vehicles outright and operates them for longer than a standard contract (e.g., a utilities company), or an owner-operator (such as a taxi driver), it is vital to understand the actual condition of the battery, reported by the vehicle as battery ‘state of health’. Or, in other words, the capability of the battery compared to its original manufactured performance.
In very simple terms, state of health is the ability the battery has to hold energy. A reduction in energy storage capability means the vehicle’s driving range and power output will be reduced. And this can vary greatly between two vehicles that, on the surface at least, may look identical. Why does it vary? Because of the way those vehicles have been used. And variations in performance don’t take many years to appear, there can be significant differences in two BEVs in a matter of months depending on how they have been used.
What degrades a battery? Repeated fast charging, repeated charging to 100%, letting the battery completely discharge on a regular basis and extremes of temperature. On the flipside, it’s possible to look after the health of a battery by charging it regularly at low kW rates (for instance a home 7kW charger overnight) and keeping it operating within the 20%-80% range and observing the recommendations from the vehicle supplier as to optimum driving behaviour.
All batteries degrade with time and usage, but if a battery is not looked after according to recommended guidelines, it can lose capacity faster than expected – and degradation cannot be assessed with the naked eye or a clipboard checklist.
The good news is that it is possible to understand more about what is happening inside a battery, giving the industry greater understanding of current battery health (and value), and even to manage and right the wrongs of any poor charging practices.
Increasingly, the industry is waking up to this problem. When the Renault-Nissan-Mitsubishi Alliance announced its BEV strategy earlier this year, it also revealed new tech that would give data on exact battery health to consumers, directly helping residual value setting. Hopefully more OEMs will be more transparent in this area in years to come, enabling RV setters to more fairly value de-fleeted vehicles.
At Silver Power Systems, we’ve developed technology that independently monitors and analyses battery performance, giving fleet operators and asset owners an unprecedented understanding of their vehicles, and by building up a profile of the battery’s usage history, creating a vital ledger too – in other words, a battery passport – which can be used to assess value.
The industry is undergoing more fundamental change than at any time in the last 50 years, and vehicle value setting must adapt with it. Only with greater access to knowledge on battery vehicles can the fleet industry successfully navigate the transition, no matter the vehicle.
