Colin Dart, a technology manager at business incubator SETsquared Exeter, is the proud driver of a brand new Mazda MX-30. The electric model has better navigation, sharper acceleration and more comfortable seats than his old diesel car, a trifecta that Dart says has “added a lot of comfort” to his daily commute.
Dart’s family of five has long wanted an EV, but costs were prohibitive. Even the mid-size MX-30, which retails for £31,250 ($38,000) isn’t exactly cheap. But Dart doesn’t own the car outright—he leases it via his employer. The monthly payments, discounted thanks to government incentives, come right out of his paycheck.
As the UK’s EV transition kicks off in earnest, fleets are leading the way. Thanks to certain tax breaks on electric cars, company cars—on which employees only pay a bit of extra tax—and “salary sacrifice” cars, where employees give up part of their pre-tax pay for use of a company-leased vehicle, are experiencing a resurgence.
Companies buy a lot of cars in the UK: Some 53 percent of new cars sold last year went to businesses. Estimates by the British Vehicle Rental and Leasing Association, an industry group, suggest that the overall number of vehicles used as company cars reached 790,000 for the 12 months ended in March, up 3.5 percent from a year earlier. Salary sacrifice cars rose by 41 percent over the same period, to almost 50,000.
Drawn by the emissions benefits—and the appeal of shiny new cars at lower prices—workers like Dart are increasingly expecting access to EVs as part of their employment. Those expectations are helping businesses embrace electric models, which afford them tax perks, too, as well as a reduced carbon footprint and environmental cred with investors. The number of battery electric vehicles in fleets is up 50 percent since last year, according to the Society of Motor Manufacturers and Traders, even as private EV purchases are down by 14 percent.
Fleet electrification can also be considered a hedge against potential regulation, which might eventually require companies to report their employees’ carbon footprint from commuting.
While company cars have long been a staple of the UK car market, salary sacrifice in particular has taken off in recent years. Employees who wouldn’t qualify for a company car—a perk typically reserved for senior staff or those who drive a lot for work—can pay for a car out of their pre-tax earnings, giving them a big discount as well as price certainty for the length of the lease.
These arrangements are especially attractive for electric cars. On petrol vehicles, the employee is charged tax on up to 37 percent of the car’s value; for EVs, it’s just 2 percent. That’s up from 1 percent in 2021 and 0 percent in 2020, but still puts a driver’s likely annual tax bill at hundreds of pounds instead of thousands. (The employer, meanwhile, doesn’t have to pay as much tax on the employee’s salary.)
At Zenith, a car leasing management company, over 40 percent of the fleet is now electric, up from 27 percent just a year ago. “It’s very, very popular. It’s very, very attractive,” says Ian Hughes, chief executive officer of Zenith’s corporate division. “And it’s working incredibly well.”
The UK has rolled back some incentives for private EV ownership in recent years, making the salary sacrifice model even more appealing to would-be converts looking to save money. An upfront grant of up to £1,500 was withdrawn in 2022; since then, private buyers’ share of new EV sales fell from 36 percent to 24 percent, according to the Society of Motor Manufacturers and Traders.
Still, there are risks ahead for fleets—especially if the market for secondhand EVs starts to soften. In the UK, used-car sales outnumber sales of new cars by a factor of three to one.
The fleet company business model depends on making enough money selling secondhand cars to private owners to be able to offer business customers affordable leases on newer models. That means cars that do well in the secondhand market are cheap upfront for business lease customers, while those less likely to sell secondhand are more expensive. If EVs start to struggle on the used market, it could spell price hikes for more models in company car programs.
And the market for secondhand electric cars is looking shaky. In June, the average price of a used EV in the UK was down around 20 percent year over year, to £31,340. Hundreds of thousands more used models are expected to enter the market over the next few years, as company cars come to the end of their lease periods.
There’s also concern about consumer demand. The government’s recent decision to delay until 2035 a ban on sales of new petrol and diesel cars—plus a flurry of negative press for EVs in recent months—have alarmed fleet companies, according to the BVRLA.
“There is a big imbalance between the supply of those vehicles coming onto the market and the demand from used buyers,” says Toby Poston, director of corporate affairs at the BVRLA. “Some of our members have real concerns that they could see a market failure, unless we get that right set of incentives, and we get the consumer confidence going.”
Not everyone can access a car through their employer. But while the company car stereotype might be a wealthy executive, a growing number of salary sacrifice customers have lower incomes.
Dart’s MX-30 lease was arranged by Tusker, a salary sacrifice management company that was recently bought by Lloyds Banking Group. Over 50 percent of Tusker’s customers are basic-rate taxpayers, meaning they earn less than £50,270 ($60,994). Insurance and servicing are included with the leases, and employees are less vulnerable to interest rate rises that could push costs up.
Secondhand EVs are also starting to become available through salary sacrifice, which increases affordable options for business customers and could in theory help fleet companies profit from their cars for longer.
Loveelectric, another salary sacrifice company focused on electric cars, says it had a record day of orders and app logins when it launched its secondhand offering last month. “We’re really trying to make a big push to make this as inclusive an employee benefit as possible,” says Steve Tigar, the company’s founder and CEO.
Teslas have long been the most popular cars on Loveelectric, but the electric Mini Cooper—infrequently chosen among new cars—is one of its most sought-after secondhand models. A used Mini leased through Loveelectric costs a worker around £259 a month, or just over 10 percent of monthly pay for someone earning £30,000 a year. A private lease would cost over £400 a month.
“It just shows the appetite of people to get an EV,” Tigar says, “but for it to be as affordable as possible.”