Smartgroup Faces Uncertainty as PHEV Discounts End and Inflation Looms

Strong Start to 2025 Amid Stable Revenue

Smartgroup Corporation Ltd (ASX: SIQ), a leading provider of employee services and fleet solutions, has kicked off 2025 with encouraging operational momentum. The company’s Q1 average monthly revenue held steady compared to the second half of 2024 and marked a 10% increase over the same period last year, underscoring resilience in its core business segments.

Novated leasing settlements, including refinanced vehicles, rose modestly by 1% compared to H2 2024 and 9% year-on-year, while new novated leasing orders (excluding refinanced deals) surged 9% versus H2 2024 and 21% against the prior corresponding period. This growth reflects sustained demand for both traditional internal combustion engine (ICE) vehicles and electric vehicles (EVs).

Electric Vehicles Gain Ground

Electric vehicles now account for a majority, 51%, of new vehicle orders in Q1 2025, with battery-electric vehicles (BEVs) making up 30% and plug-in hybrid electric vehicles (PHEVs) 21%. Notably, PHEV orders accelerated sharply, increasing 177% year-on-year, driven by the impending expiry of the Federal Government’s Electric Car Discount Policy for plug-in hybrids at the end of March 2025. This policy shift appears to have prompted a pull-forward effect in PHEV leasing demand.

Despite the end of the PHEV discount, BEVs continue to benefit from government incentives, positioning Smartgroup well to maintain its leadership in the EV novated leasing market. ICE vehicle orders remained stable quarter-on-quarter and grew 4% year-on-year, indicating balanced customer preferences amid the transition to electric mobility.

Strategic Investments and Partnerships

Smartgroup is investing $11-13 million in capital expenditure for 2025, focusing on technology and digital transformation to enhance customer experience and operational scalability. The company highlighted progress on strategic priorities, including new partnerships with Intellihub’s Enreal and BMW Financial Services, which are expected to broaden its service offerings and strengthen market positioning.

Managing Director and CEO Scott Wharton expressed cautious optimism, emphasizing the importance of digital assets in driving efficiency and customer engagement. He noted that while leasing demand remains stable, the company is mindful of external risks such as inflation, interest rate fluctuations, and international economic factors that could influence future performance.

Outlook and Market Position

Smartgroup’s diversified exposure across government, health, not-for-profit, and corporate sectors, combined with a capital-light business model and strong recurring revenue, provides a solid foundation for growth. The company’s focus on simplifying benefits, expanding EV offerings, and enhancing digital capabilities aligns with broader market trends toward sustainability and digitization.

As the EV market continues to expand and customer preferences evolve, Smartgroup’s ability to adapt and innovate will be critical. The company’s steady yield improvements and growing novated lease volumes suggest it is well-positioned to capitalize on these opportunities, though the full impact of policy changes on PHEV demand remains to be seen.