The EV (Electric Vehicle) Market is Here It Will Never Again be Business as Usual

The relationship we share with the cars we drive is about to change and we will not be going back. There was a time when horse carriages and buggy whips were in high demand then came along the internal combustion engine and it changed the world. Similar events are upon us now. The electric vehicle (EV) era has arrived worldwide to be quickly followed by autonomous piloted vehicles but we get ahead of ourselves let’s deal with the immediate issue the EV.

Looking at this emerging automobile market through new eyes, professional eyes, there is a lot for us to learn from the professional fleet managers that we can apply to our personal vehicle holding portfolios. After all, cars are the second most expensive item most of us control next to our homes – this exercise makes sense.

For starters, automobile fleet managers do not see their stock their inventory in the same appreciative personal light that we consumers do. Their stock is an investment that produces income they are dispassionate towards it; it is not something they dream about or spend hours at the end of the day lying in bed on their phones reading relevant articles like we do. Once they have pragmatically determined the best value for their money they will only hold it as long as feasibly responsible, maximum 3 years, then it is liquidated.

April tax increase on all fuel burning cars

Most of you are aware that there was a tax increase on all fossil fuel burning cars including hybrids, in April this year. This was the first shot across the bow preparing us for the coming EV (electric vehicle) market.

Within the next 36 months, we are slated to have over 3000 EV charging stations placed around the state. The transportation minister has projected by 2030 that new cars sales will consist only of EV vehicles, a bit optimistic perhaps but you see where the trend and the market is heading.

The April tax hike was unpleasant, new taxes always are, but we’ve endured them before and we are adjusting, however that is not the whole story this time. The tax hike was not a singular dimension event as consumers suppose. What comes next in this story is what has the professional fleet managers concerned.

When there is a storm there can be damage but once it passes in some parts of the world, like where I live in the Jordan Valley, what comes next can be more dangerous even deadly – the flood waters.

Dramatic metaphor yes but it deftly illustrates our point. The April tax hike was the storm that we wish we did not have to endure; it came and went. You may now ask, what then are the flood waters that are coming which will cause more problems than the storm? The flood waters are that once the EV’s arrive, the new generation cutting edge technology cars, the ones not burdened by the additional taxes levied on fuel burning cars, the ones promising us less expensive operating costs, there presence in the market makes predicting the future value of the fuel burning cars bought today impossible. The uncertainty of the next 3 to 5 years has caused irregular movements among the major importers and the large leasing companies.

Up until now the fleet managers were able to play around with their end of contract value projections on the stock they were buying and holding to lend out to their customers. There were models they could take liberal positions on regarding their future values to stimulate sales. Until now they could make up any deficiencies on the over valuations of their stock when the time came for their inventory to be retired and retailed to the general public in 3 or 5 years’ time – can’t do that anymore. They are now forced to be more realistic, conservative if you will, even at the expense of losing sales, in their approach to these future value projections. No one knows to what extent the depreciation percentages will increase only that they most certainly will.

Another trend that has come into vogue with fleet managers is offering current lease contract extensions. The lease company wants to retain their clients of course, but if they can delay making another purchase of a new car for a couple of years this is preferable to them, it gives the market a little time to stabilize.

So the take away for us as individuals and what we try to convey to our potential clients is that if the professional fleet managers are concerned and have changed previous business practices shouldn’t we be questioning our positions as well? Is it really a good time to buy a new car?

Keep in mind the lease companies have tools at their disposal to help them overcome the future liquidation processes, as the market values move against them. They have large marketing budgets, commission sales personnel, and retail stores where they have the ability to offer financing and extended warranties to increase a vehicles perceived value, we as consumers don’t.

New cars will always have a place in our lives for sure, there offer us advantages that used cars cannot provide. But maybe this time, even if you have never seen yourself as one who would lease a car, consider making an exception for the next 3 to 5-year cycle.

Allow this new and exciting time in automobile history to come into existence and begin the process of stabilization before making any long-term purchasing commitments.

Km Restrictions in Purchases as well as Leasing

Did you know that lease contract km parameters/limits are set by the Levi Yitzak purchase catalog, not the lease company?  This may sound like a distinction without a difference, but  we assure you this is not the case. 

Possibly the number-one myth surrounding a purchase versus leasing of a car is that when buying a car there are no km restrictions. This is indisputably NOT the situation.  There is only one way to avoid km restrictions: buy a car, and at the end of its life, strip it of its registration thereby taking it officially off the road and selling it for scrap metal.  

Full disclosure —  once a car reaches its’s 10th birthday the kilometers become less of an issue, since most of the value the car is gone by that time, and it will be a cash sale anyway.  This will not, however, stop the prospective buyer from using the overages in negotiations, although at a diminished capacity.   

If, however, you are in a new or new-ish car, the 20,000 km per year average is always in effect. The only difference lies is in how and when you will pay for these extra kilometers.  In a lease, you will pay contractually;  in a purchase, you will pay it effectually (adjustment to future value using the Levi Yitzak catalog at point of sale).  The leasing companies are simply setting themselves up for the eventual sale of the vehicle you leased once it’s completed its contract period. 

You are allowed to increase the kilometers per year, which will increase the payments slightly since the typical depreciation is going to be accelerated by the additional kilometers, but it is preferable, and more economically feasible, to adjust the contract payments before instead of paying the penalty at the end.  

We Are Not….But We Are…

We are not a new car dealership,  pushing our one-and-only line of cars, convincing people we have the best value in the current market.

We are not an independent dealership selling what we happen to have in stock today from last week’s purchases and trades.

We are not a leasing company competing for market share, promoting lease packages with higher profit margins designed to make the client feel good but, on the backside, knowing the client is now exposed to unnecessary risks and does not really have what he or she thinks they have.

Our stock is our reputation, our word, and our knowledge of what to look for and look out for in the very confusing and changing automobile market.

If you look at our site, you may get the impression that we are only about leasing; that is by design. We know that 7 out of 10 people we come in contact with will benefit from leasing, so our website and company is devoted to assisting persons falling into those averages.  But when we encounter the 3 out of 10 that will be better served by other methods of car ownership, we advise them to look elsewhere, even making recommendations.  We are Olim, and we want to do our small part in assisting fellow Olim to have a successful transition into their new life in Israel.

The Second Most Expensive Item in Your Personal Portfolio

Taking on the responsibility of a car (purchase/lease/rental) is not like buying a ₪ 400 electric appliance.  Paying ₪ 60 more for an appliance in one place over one  that  could be purchased elsewhere will not financially damage you. 

  • By contrast, a reliable car, for most, will require long-term financing, and is the second most expensive item in our small “family corporations”.
  • It’s twice as expensive here as we were accustomed to from our previous homes.
  • It’s a continually depreciating capital asset.

To exacerbate this depreciation problem, the country is now on track to go all electric by 2030, meaning that everything we are buying today will quickly become outdated.

April 1st  of 2019 marked a massive change in the automotive world.  There was a major tax increase on all fuel-burning cars, even hybrids.  The general public was not excited about this, understandably, but we have endured tax hikes before. This is nothing new to us or the market. But that increase is only the tip of the iceberg of what occurred.   

Professional fleet managers know and reacted to what this tax signaled.  They were forced to lower future value projections on their current and short-term future inventories.  This tax’s sole purpose is to set the stage to provide future incentives (in 36 to 48 months) to move the market, away from the internal combustion fossil fuel burning engine, into the coming EV market – on track to be completed by 2030.