Industry calls for EV grants to build demand for ZEV mandate

So far this year, 16.4% of all new cars sold in the UK have been battery-electric models

Car brands in the UK need 22% of their sales to be EVs in 2024, but demand from private buyers is stalling

Car industry executives have called for incentives for private electric car buyers to be reintroduced ahead of the start of the zero-emissions vehicle (ZEV) mandate in 2024.

Under current plans – which have still to be finally signed off just three months before their implementation – 22% of all manufacturers’ new car sales in the UK will need to be ZEVs from 1 January 2024, rising annually to 80% in 2030 and 100% in 2035, when sales of new hybrid cars will be banned. Fines will be imposed upon manufacturers who do not hit the targets.

However, sales of new battery-electric cars (BEVs) – by far the dominant form of ZEV in the UK – are currently far behind the 22% target. During the first six months of 2023, BEVs represented 16.1% of all new car sales in the UK. Their market share remained at 16.1% in July, but a particularly strong August – in which they represented one in five new-car sales – increased their year-to-date share to 16.4%.

Giving evidence to the House of Lords Environment and Climate Change Committee’s inquiry on electric vehicles, Vauxhall managing director James Taylor partly attributed this stagnation to the withdrawal of the Plug-in Car Grant (PiCG) in June 2022. This has “subdued demand in those smaller car segments where we’ve got vehicles available today,” said Taylor.

The PiCG was offered from 2011 and initially offered £5000 off the purchase of all plug-in models – including plug-in hybrids (PHEVs) and BEVs.

The PiCG’s value was reduced on several occasions as uptake of plug-in vehicles grew. It was cut to £4500 for BEVs and £2500 for PHEVs in 2016. Two years later, the sum provided for BEVs fell to £3500, and PHEVs were entirely omitted from the scheme. It dropped by a further £500 in 2020 and again in March 2021, when it was also limited to BEVs costing less than £35,000.

There were swingeing cuts  in December 2021, when the grant was limited to £1500, and the value of compliant cars was capped at £32,500. The price cap significantly limited the choice of models available to EV buyers.

Six months later, the grant was withdrawn entirely, with the government hailing “success in the electric car revolution” as the rationale behind its cancellation.

Taylor told the inquiry that manufacturers face a challenge in ensuring “at a market level, the demand is there to achieve these targets holistically”.

“We don’t want to be forcing people to have an electric [car],” he added.

“Again, that comes back to [improving the charging infrastructure] and the total cost of ownership, and particularly pertinently, incentives are needed for private retail customers within the small and family car area to help that transition and to help that cost of ownership.”

Research published by car sales platform Auto Trader in April, nine months after the grant was axed, stated that the number of enquiries sent to retailers about new electric cars had fallen by 65% year on year. BEVs accounted for 9% of all new car enquiries at that point, a third of the proportion recorded a year earlier.

Nonetheless, sales of BEVs continue to rise. During the first half of 2023, 152,968 new electric cars were sold in the UK, 32.7% greater than during the same period last year, according to figures published by industry body the Society of Motor Manufacturers and Traders (SMMT) in July. 

However, the SMMT believes that business and fleet buyers are driving this growth, rather than the private market, “thanks to the attractive financial incentives on offer” to fleet and business users.

Chief among the incentives given to business users of electric vehicles are low benefit-in-kind company car tax rates: zero-emission cars are taxed at 2% until 2025, whereas the least polluting electrically unassisted petrol or diesel cars are taxed at 15%. This makes it significantly cheaper to run an electric car as a business user.

In contrast, there has been minimal government-provided financial incentive for private buyers to choose an electric car since the PiCG was axed in June 2022. Owners of electric cars are currently not liable for vehicle excise duty or the expensive vehicle supplement (a tariff charged for cars with a list price of more than £40,000). However, both exemptions are set to end in July 2025, which will slightly increase the annual cost of EV ownership.

Some manufacturers have stimulated demand themselves by offering significant discounts on electric models. Fiat, for example, cut £3000 from the price of the electric 500 and its convertible variant, branding the move an ‘E-Grant’ to mark the one-year anniversary of the PiCG’s end. Volkswagen has now followed suit with cash discounts of up to £4500 on the ID 3, ID 4 and ID 5 (also offering lower reductions on several petrol models), linking these to the London Ultra Low Emissions Zone (ULEZ) scrappage scheme.

SMMT chief executive Mike Hawes, who also gave evidence to the Environment and Climate Change Committee inquiry, noted that financial incentives have played a key role in boosting the electrification of Norway – the world's EV capital.

Until 1 January 2023, Norway exempted electric cars from VAT and high import tariffs, amid other bonuses such as exemption from toll charges (until 2017) and free municipal parking (also ended in 2017).

As a result of government support, BEVs held a 79.2% market share in the nation at the end of 2022 and it is on track to completely phase out sales of petrol, diesel and hybrid cars by 2025.

Hawes told the inquiry: “If you look at where demand is for EVs across Europe, we’re not dissimilar [in the UK]. We accelerated to around 20% and it’s plateauing around 16-20%.

“Where it’s different is where there are incentives still in place. Norway maintains its incentivisation. Consumers don’t always respond to sticks. They like a carrot.”

He suggested that the UK could reduce the VAT charged on new electric cars to stimulate demand, adding that “you need to look at every single lever, because you’re trying to shift a marketplace that has been familiar with one or two types of technology for 120 years”.

Responding to a suggestion that the government cut VAT on public EV charging from 20% to 5% – which would bring it into line with private home charging – Lauren Pamma, programme director for the Green Finance Institute, said the industry would be “absolutely delighted” with such a measure.