The UK’s used electric vehicle (EV) market is expanding rapidly, driven by growing supply from lease returns and regulatory pressures such as the ZEV mandate. But as volumes increase, so do risks for motor finance companies. Unlike internal combustion engine (ICE) vehicles, where mileage is a reliable proxy for condition and value, the key determinant of a used EV’s worth is its battery.

Oliver Phillpott (OP), CEO of battery testing start-up Generational, argues that this shift requires a new approach from financiers. In this Q&A with Alejandro Gonzalez (AG), editor of Motor Finance Online, he outlines why battery-health verification should be treated with the same rigour as mileage checks for ICE vehicles, and how lenders can protect their portfolios by integrating simple testing protocols into their processes.

AG: Can you introduce Generational to our readers and explain its role in the used EV market?

OP: Generational was founded with a simple purpose: to eliminate uncertainty in the used EV market.

In recent times, sales of used EVs in the UK have been on a hugely encouraging trajectory – but these figures only tell half of the story. We’ve seen an alarming lack of support for the used market (which represents seven out of eight purchases). The whole transition is now threatened by the excessive depreciation of EVs compared to combustion-engine vehicles, and the minimal assistance we’re seeing on the demand-side for the strategically important pre-owned segment.

Given that price-setting for finance on new cars is determined by used EV values, and the supply of used EVs is increasing dramatically, there is a critical need to address the market imbalance in order to ensure the transition is a success in the long term.

The Generational team and I are focused on delivering transparency and reassurance in the used EV market with simple, high-quality EV battery testing. Consumers are asking for it: figures from Cox Automotive show that 70% of those looking to buy a used EV want more information on the vehicle’s battery health before they make the purchase.

Government incentives are helpful, but a confidence-rich market is needed to create a sustainable future for the industry. And our battery testing solution is delivering the transparency required to help buyers make confident purchases.

AG: Why is battery-health validation as crucial for EV financing as mileage verification is for ICE vehicles?

OP: We see the importance of this first-hand on a daily basis, so I’ll share a recent example.

One of our customers – a dealership that normally tests all batteries – recently acquired a vehicle with a highly degraded battery on a part-exchange deal. Unusually, it simply slipped through the net, and didn’t get tested.

Compared to its condition when new, the vehicle had a battery capacity of 44%, and would only do roughly 35 miles on a full charge. There is of course a potential use-case for that vehicle – but it’s very niche.

Whilst this type of situation is rare, it does occasionally happen, and a financial hit like that is a big pill to swallow. However, given that the volume of EVs on the roads is growing exponentially, with waves of stock coming off lease and the ZEV mandate becoming increasingly stringent, situations like this are more common. Auction houses are increasingly testing EV batteries, so the disposal options for that vehicle were limited. But if that asset had been the security for a funder, it would have had to take a significant loss had the vehicle been returned, repossessed or the agreement terminated early.

Funders should not have to bear such a burden – and battery-health testing, like mileage verification for ICE vehicles, is the most effective way to remove risk in the asset’s value.

AG: What are the key risks motor finance companies face when financing used EVs without battery testing?

OP: Without requiring battery testing, finance companies – especially those financing used EVs – are flying blind on the risk position they are taking. In the same way that mileage is a prerequisite to finance an ICE car, knowing the battery is in good condition – particularly as battery degradation accelerates later on in life – reduces the risk of financing vehicles that may depreciate rapidly or become unsellable.

Integrating battery testing into the finance checks therefore provides assurance that the collateral value is accurate, which enables finance companies to confidently set the GFV.

We should also be thinking a couple of steps ahead; information asymmetries tend to be a breeding ground for malpractice. Battery fraud schemes will likely be the electric equivalent of clocking. It would help if battery health was recorded with every MOT.

AG: How does Generational’s battery-health testing work, and how can it be integrated into motor finance processes?

OP: We wanted to provide an easy battery-health assessment that can be conducted by anyone, in as little as two minutes. All that’s needed is a small and cheap OBD unit, which plugs into the vehicle’s diagnostic port, and a smartphone or tablet. You use our app to interrogate the battery’s health, then it creates a certificate to show you the results. It requires no training, is vehicle-agnostic, and is benchmarked against the OEM’s own diagnostic results for maximum accuracy.

A standardised requirement for simple, accurate testing like this would mirror existing practices for mileage checks in combustion-engine vehicles, and give lenders the objective data they need to make fully informed decisions in managing their assets.

AG: What are the strategic benefits for finance companies that adopt battery-health testing now?

OP: The rise of easy battery testing gives finance companies the means to protect themselves and their profit margins. Integrating this into their assessment process allows them to secure their collateral, reduce exposure to underperforming assets, and avoid being the low-hanging fruit for potential fraud.

Those that fail to address this face a blind spot of escalating risk, as battery-related liabilities will compound as their EV portfolios grow.

AG: How do you see the role of battery-health verification evolving in used EV financing over the next five years?

OP: Battery-health metrics won’t immediately replace annual mileage caps in finance agreement pricing, as some challenges remain. First, the industry needs good correlations between usage patterns, battery degradation, and residual values. Second, these metrics must be translated into consumer-friendly terms that are easily understood by the average buyer.

In the near term, more vehicles are being remarketed with battery certificates in order to maximise resale values. Battery-health data will increasingly drive portfolio management decisions – determining whether returned vehicles should be re-leased, remarketed, or repurposed for second-life applications. We also expect to see battery condition increasingly factored into financing decisions for used EVs, with clear minimum thresholds established for approval. Forward-thinking finance companies are already collecting this data to build predictive models and establish competitive advantages.

The implications are significant: lenders without good battery data will face a stark choice – either withdraw from certain market segments or price in unknown risks, making their rates less competitive. Vehicle finance is a critically important market, and like any market, transparency is fundamental for it to be efficient and thrive. Lenders who recognise that batteries will constitute a significant portion of their portfolio value and incorporate battery data into their strategy will gain a decisive advantage in risk and portfolio management in the electrified future.

Oliver Phillpott is CEO of Generational