Restricted vehicle production, rising energy costs and the war in Ukraine are creating uncertain conditions for fleet operators – here’s how it might affect you.
Still recovering from the disruption of Covid-19, the automotive industry is facing unprecedented global supply chain issues, and it’s impacting the cost and availability of new cars and vans. LeasePlan data reflects a 5.71% increase in list prices for the most popular cars and light commercial vehicles since the start of 2021, while the time between ordering and delivery doubled to almost 120 days during the same period.
We’ve outlined the most important developments below, including how you can keep your fleet and drivers moving.
What is the problem?
Semiconductor chips are a vital component of modern vehicles, underpinning everything from engine management to safety assistance features, and supply isn’t keeping pace with demand. Only a handful of specialist facilities – called ‘fabs’ – supply the automotive industry and a combination of Covid-19 mitigation measures, extreme weather and fires have reduced output. With a six-month lead time to bring fabs online , there’s no quick fix.
How does this affect fleets?
Manufacturers have removed equipment and prioritised popular models to sustain production, but shortages have led to extended lead times, cancelled orders and a stifled post-pandemic recovery for Europe’s new car and van market in 2021 [2, 3]. Despite record order banks, car and van registrations in the UK were down 32.3% and 21.5% year on year at the end of May [4, 5].
Some manufacturers have shored up their own supply, but semiconductor shortages are expected to continue disrupting production for most of this year . MG has temporarily stopped taking orders for new vehicles , while the SMMT says a declining fleet share of new registrations suggests private customers are being prioritised in the short term .
What is the problem?
Global electric vehicle sales doubled during 2021, to 6.6 million units, according to the International Energy Agency , and it’s putting pressure on battery supply chains. Following an 89% reduction in the cost of lithium-ion battery packs between 2010 and 2021 , strong demand caused a 10-20% rise in raw material costs at the end of last year . That trend has continued, with suppliers claiming a five-fold price increase in material costs compared to early 2021 .
How does this affect fleets?
Battery packs account for around a third of the cost of an electric vehicle , so big cost increases could affect list prices. The latest BloombergNEF report predicts this will delay price parity between combustion engines and electric cars by two years , while Tesla, Ford and Volkswagen [14, 15, 16] are changing battery chemistry to reduce the nickel content. In a rapidly growing EV market, some analysts are warning that price rises could be an even bigger incoming challenge for the automotive industry than semiconductor shortages .
Fuel and energy prices
What is the problem?
Europe is in the midst of a once-in-a-generation energy crisis. Global demand for gas spiked as economies recovered from Covid-19, leading to wholesale prices four to eight times higher than seasonal norms last autumn and predictions that this will stay well above the average during the summer . Because almost 40% of the UK’s electricity comes from gas power stations , this has caused record rises in energy costs.
Meanwhile, wholesale fuel prices increased 44% in the 12 months to May 2021 , alongside operating costs for forecourts . In turn, average pump prices for petrol and diesel had increased by 30% and 38% respectively at the end of May [22, 23] and the average cost to fill a typical family car exceeded £100 for the first time in June, according to the RAC .
How does this affect fleets?
Rising fuel and energy prices affect operating costs for all businesses. More than three quarters (77.4%) of domestic freight is transported on the road , and the logistics sector has warned that the 5p per litre fuel duty reduction in isn’t enough to cover additional costs, which means they get passed on to customers . This affects the price of consumer goods, including parts and materials to build and maintain vehicles.
This affects running costs for fleets and a growing number of drivers too. HMRC’s advisory fuel rates (AFRs) were adjusted at the start of June to reflect rising pump prices. However, the advisory electric rate (AER) remained at 5p per mile for all electric vehicles. That’s despite public charging costs rising 21% since last autumn  and the Ofgem price cap raising home energy prices (per kilowatt-hour) by a third in April .
|Efficiency||Cost per mile||AFR/AER
|May 2021||May 2022|
|46.1mpg ||12.7p ||16.5p ||17p|
|51.3mpg ||11.2p ||15.5p ||16p|
|Electric||3.5mpkWh||5.4p ||8.0p ||5p|
This is an ongoing problem. Cornwall Insights is projecting the Ofgem price cap could rise a further 51% in October , which would take charging costs over 12p per mile for many drivers.
War in Ukraine
What is the problem?
Russia’s invasion of Ukraine triggered unprecedented global sanctions on its economy, including movement of goods, as well as disruptions to Ukrainian industry as a result of the conflict itself. It’s still too early to predict how long this will last, what additional measures will be introduced, and how long those will continue.
How does this affect fleets?
Alongside the human tragedy, the conflict is leading to higher inflation rates and further disruption to supply chains and energy production. Russia and Ukraine both have pivotal roles, including:
- Fuel: Russia supplies 41% of natural gas, 47% of the coal and 27% of the crude oil imported into the European Union , and member states have voted in favour of a complete embargo . Although the UK only gets 4% of the UK’s gas  and 8% of its oil  from Russia, an international embargo would restrict supply and could increase energy prices.
- Components: Ukraine has 17 factories making wiring looms for cars and vans , and they cannot be built without these critical components. Volkswagen Group has said it will shift some capacity elsewhere to keep production going , while BMW, Mercedes-Benz and Porsche have all cited supply problems due to the conflict .
- Materials: German automotive association VDA has warned that Ukraine is a vital producer of neon gas used in semiconductor manufacturing, while Russia supplies palladium for catalytic converters and nickel for batteries . Any shortages could extend lead times and increase vehicle manufacturing costs.
A recent forecast by analysts at S&P Global Mobility suggests vehicle factory shutdowns and sanctions in Russia and shortages of components and materials from the war in Ukraine could reduce global vehicle production by 2.6m units in 2022 .
Changes to grant funding and regulations
What is the problem?
Grant funding for electric vehicles is steadily being wound down in the UK, prioritising growth areas as the market for electric vehicles takes off.
- The Plug-in Car Grant was removed for most electric cars on 14 June 2022 . Grants of up to £2,500 are still available for wheelchair-accessible vehicles with a pre-conversion RRP of up to £35,000. Read more about the grant removal
- Plug-in Van Grants are still available. Small vans (<2,500kg GVW) qualify for up to £2,500 (down from £3,000), while the large van category is now capped at £5,000 (previously £6,000) and the maximum GVW has been raised from 3,500kg to 4,250kg .
- The Electric Vehicle Homecharge Scheme is no longer available for single-occupant properties (such as houses and bungalows) . Separate regulation comes into force on 30 June, requiring all units to include a data connection and accurate usage monitoring  which is estimated to add between £100 and £400 to the cost of a domestic chargepoint . Find out more here.
How does this affect fleets?
Reduced funding and tighter criteria will result in higher prices for some models, and also adds cost for customers installing home chargepoints.
What can you do to minimise disruption, and how is LeasePlan UK helping?
The challenges amount to a perfect storm for the automotive industry, but we’re working hard to keep your business on the road. In the short term, however, we would advise taking some extra steps to minimise any disruption:
- Expect delays: Long lead times and higher prices are likely to be the norm for the rest of this year. With delays likely, it’s worth identifying future fleet needs earlier than usual, particularly for mission-critical cars and vans, so we can highlight any supply challenges in advance and find solutions to keep you moving.
- Plan ahead: Aim to place orders between six and nine months ahead tell us as soon as possible if vehicle contracts need to be extended.
- Think electric: With incentives and CO2 targets furthering demand for plug-in vehicles, some manufacturers are prioritising production of these models. Accelerating your electrification plans could help keep orders on track.
- Consider Alternatives: If your needs change, LeasePlan Flexible provides fast access to specific cars and vans from our own stock, including low-CO2 plug-ins, from several weeks to two years. There’s no long-term commitment, so you can simply extend, or off-hire, vehicles as needed.
- Let your drivers know: To help you communicate some of the challenges being experienced to your fleet drivers, we have prepared this guide and FAQ. Driver Comms Global Challenges 2022 June
- Speak to Us: We’re here to help! Your LeasePlan account manager is on hand to listen to your concerns and will help keep your business moving.
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[Article updated 28 June 2022]