When the government announced laws forcing carmakers to sell more electric vehicles, ministers hailed it as a victory that would put Britain at the forefront of the clean energy transition.
But eight months later, there are fears that these ambitions are clashing with reality.
The zero-emission vehicle (ZEV) mandate came into force in January, requiring 22% of new cars sold in the UK to be electric by 2024, rising to 80% annually by 2030.
The aim was to give manufacturers the confidence that they could ramp up production of new electric cars while creating a steady stream of supply for the much larger used car market.
Along with the reward, there is also a stick: those who break the rules risk a fine of £15,000 for each car that exceeds the non-green quota.
Still, there are concerns that the government’s push to increase EV adoption is currently stalling as drivers refuse to join in. While sales from January to July 2024 rose 10% this year, that compares with an increase of around 18% the year before.
According to recent research from Auto Trader, many consumers are put off by high prices and the perception that the charging infrastructure is not good enough.
Carmakers are worried they will struggle to meet their ZEV targets. Vertu Motors, one of the UK’s largest car dealers, claims some manufacturers have withheld supplies of petrol cars in an attempt to artificially boost their share of electric car sales.
“It’s almost like we can’t deliver the cars that people want, but we have plenty of cars that they might not want,” Robert Forrester, the company’s CEO, told The Telegraph on Monday.
Fundamentally, the biggest barrier to switching to an EV remains price. Many drivers like the idea of a more environmentally friendly car, but after years of inflationary pressures, they are less willing to spend big on one now, says Marc Palmer, head of insights at Auto Trader.
This has been exacerbated by a number of factors. Rising interest rates have made the car finance deals that many people use to buy new cars more expensive, while the more affordable end of the market has also almost disappeared.
According to a report from Auto Trader this year, new car prices have risen by 40 percent since 2019. The rise has been attributed to both the higher price of electric cars and the decision by brands such as Ford to stop selling cheaper models, such as the best-selling Fiesta.
That means that five years ago around 21 per cent of new cars on the market were priced under £20,000, while today that figure is just 4 per cent, Palmer said.
“You have less choice, while cars are generally also becoming more expensive,” he adds.
This makes more expensive new electric cars even harder to sell. Manufacturers who want to meet their ZEV targets now have to make major cuts or reduce the number of petrol cars they sell.
Stellantis, the car giant behind Vauxhall and Citroën, has repeatedly complained about this, with the company urging ministers to adjust the mandate targets to better match consumer demand. It has threatened to close some of its UK factories if they refuse.
Still, some consumer groups are happy with the benefits of all these discounts for electric car buyers, especially since many of these cars are now ending up on the used market.
The ‘mid-range’ models, which are between three and five years old, are selling particularly well, partly because they are almost the same price as the petrol models.
In July, the average mid-market electric car cost £18,964, compared to £18,076 for an equivalent petrol car.
But the new-car slump threatens to disrupt the functioning of the rest of the automotive supply chain, including the second-hand market, due to the impact on fleet operators, who are by far the biggest buyers of electric cars.
According to the Society of Motor Manufacturers and Traders (SMMT), these businesses, such as car leasing and rental companies, accounted for around 80% of electric vehicle sales in the first seven months of 2024.
Their business model is typically to own a car for a few years and then sell it. But the value of electric vehicles is depreciating so quickly that it is putting a lot of pressure on many fleet managers.
According to data from the British Vehicle Rental and Leasing Association (BVRLA), two years ago the average electric car would lose 40 percent of its value over three years and retain 60 percent of its original value.
Now they are down about 65% in value and retain only 35% of that value – and the decline is getting worse.
It prompted Gerry Keaney, the director of the BVRLA, to warn in July: “The second-hand electric car market is, I daresay, very close to what any economist would call a market failure.”
According to Palmer of Auto Trader, this is one of the factors that is driving up the cost of car finance. Normally, the consumer pays the cost of depreciating a car over a period of time.
Leasing companies are now trying to reduce their own exposure to that risk by asking consumers for a larger down payment or higher monthly payments.
Toby Poston, BVRLA spokesperson, added: “Car finance companies cannot afford to continue to absorb these kinds of losses on thousands of expensive electric vehicles, so they are forced to factor these depreciation costs into their leasing rates for new electric vehicles.
“In recent years we have seen double-digit percentage increases in leasing rates, making leasing a new electric car less attractive for businesses and consumers.
“This has been a major contributor to the slowdown in new EV registrations. We have already lost hundreds of thousands of potential new EV sales due to this weakness in the used market.”
Ultimately, this gap must be bridged somehow, Poston argues: by consumers, companies or the government, which is the driving force behind the transition to electric cars.
However, the SMMT and other motoring organisations have repeatedly pointed out that while the ZEV mandate forces manufacturers to sell more electric cars, ministers two years ago scrapped the main incentive for consumers – the plug-in subsidy.
They are now lobbying Finance Minister Rachel Reeves to offer some kind of tax break or subsidy to electric car buyers to help boost sales.
Nick Parker, an automotive expert at AlixPartners, says most European countries where subsidies have been withdrawn have seen a drop in demand.
“Until the cost difference between electric cars and internal combustion engine cars becomes much smaller, there will always be a challenge. And you need some level of incentive to close that gap,” he says.
Mike Hawes, the director of the SMMT, wants the government to launch a comprehensive campaign to highlight the benefits of switching to electric and promote the advantages of the technology.
He said: “Manufacturers are committed to delivering net zero and the ambition set out in the ZEV mandate. The industry is investing billions in both developing an ever-expanding range of electric vehicles and helping consumers get into these new cars and vans.
“While record numbers of drivers are making the switch, achieving a mass market transition will require action from everyone.
“Investment in charging infrastructure should be made mandatory, consumers should be supported with attractive purchase incentives such as a reduction in VAT on the purchase of new electric vehicles and a tax system that is fair and treats electric vehicles as essential rather than a luxury, with a positive narrative about the undeniable benefits of electric driving.”
However, convincing Reeves to spend taxpayers’ money on tyres for electric cars may be a tough task, given she already faces a £22bn “black hole” in the public finances ahead of next month’s Budget.
Conversely, says Auto Trader’s Palmer, cheaper vehicles may already be on the way from China – although many brands have so far failed to sell them at the same low prices they are selling for in Asia.
“When you get price parity, like with middle-aged electric cars, these cars sell very quickly, so it’s not an entirely negative picture,” he says.
“We also see that when manufacturers give discounts and demand shoots up. But we just don’t see that at a sustainable level, so there is a risk that you end up in a spiral.
“We believe that people still need some support to switch to electric cars.”
Ben Nelmes of consultancy New Automotive, on the other hand, believes that car manufacturers should be able to achieve their goals without any help.
“I don’t think it’s realistic to expect government to provide support,” he says, “and I also worry that these kinds of things create disruptive effects that you ultimately have to remove.”
He points to his own firm’s analysis, published Tuesday, showing that many brands are now on track to meet their ZEV mandate goals. New Automotive predicts that 23% of cars sold in August were electric vehicles, exceeding the industry’s overall target.
Despite this, the figures also show that major brands, including Volkswagen, Stellantis, Ford, Nissan and Renault, are still not meeting their quotas.
A government spokesman stressed this week that the UK car market is “growing strongly”.
The spokesperson added: “The target for zero-emission cars in 2024 is 22%, which gives manufacturers the flexibility to sell a range of products, as they have done in previous years.”
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