When the Government announced laws forcing carmakers to sell more electric vehicles (EVs), ministers hailed it as a triumph that would put Britain at the vanguard of the clean energy transition.
Eight months later, however, and there are fears these ambitions are making hard contact with reality.
The zero emission vehicle (ZEV) mandate, which came into force in January, requires 22pc of new cars sold in the UK to be electric in 2024, rising annually to 80pc by 2030.
It was designed to provide manufacturers with certainty they could ramp up production of new EVs, while providing a steady stream of supply to the much bigger used car market.
Next to this carrot, there is also a stick: those who don’t comply face fines of £15,000 for every car that goes over their non-green quota.
Yet there are fears that the Government’s drive to increase EV ownership is currently stalling, as motorists refuse to play ball. While sales from January to July 2024 rose by 10pc this year, that compares to an increase of about 18pc the previous year.
Many consumers remain put off by high prices, as well as the perception that charging infrastructure is not good enough, according to recent research by Auto Trader.
It has left car manufacturers worrying they could struggle to meet their ZEV mandate targets, with Vertu Motors, one of the UK’s biggest car dealers, claiming that some have resorted to withholding supplies of petrol cars in a bid to artificially push their share of EV sales higher.
“It’s almost as if we can’t supply the cars that people want, but we’ve got plenty of the cars that maybe they don’t want,” Robert Forrester, the company’s chief executive, 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 being battered by inflationary pressures, they are less willing to spend big on one right now, according to 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 segment of the market has also nearly vanished.
New car prices have increased by 40pc since 2019, according to an Auto Trader report this year, driven by both higher price tags of EVs as well as decisions by brands including Ford to stop selling lower-priced models such as the best-selling Fiesta.
It means that five years ago about 21pc of new cars available were priced below £20,000 but only 4pc are today, Palmer says.
“You’ve got less choice, while cars are generally becoming more expensive as well,” he adds.
It has made more pricey new electric cars an even harder sell, forcing manufacturers who want to meet their ZEV mandate targets to either discount heavily or cut the number of petrol cars they are selling.
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 have cheered what all this discounting means for buyers of electric cars, particularly with many now coming through to the second-hand market.
“Middle aged” models that are between three and five years old are selling particularly strongly, partly because they have reached near price-parity with petrol models.
In July, a typical middle-aged EV cost £18,964 compared to £18,076 for a similar petrol car.
But the malaise for new cars threatens to store up problems for the functioning of the rest of the car supply chain, including the used market. This is because of the impact on fleet operators, who are by far the biggest buyers of EVs.
In the first seven months of 2024, these businesses – such as car leasing companies and rental firms – accounted for about 80pc of EV sales, according to the Society of Motor Manufacturers and Traders (SMMT).
Their business model typically involves owning a car for a few years and then reselling it. But EV values are depreciating so quickly that it is putting many fleet operators under serious pressure.
Two years ago, the average EV would be expected to depreciate by 40pc over a three-year period and retain 60pc of its initial value, according to data from the British Vehicle Rental and Leasing Association (BVRLA).
Now, they are depreciating by around 65pc and retaining just 35pc of that value – and the decline is continuing to get worse.
It prompted Gerry Keaney, the chief executive of the BVRLA, to warn in July: “The used car market for EVs is, I hesitate to say, very close to what any economist would call market failure.”
This is one of the factors pushing up the cost of car finance deals, according to Auto Trader’s Palmer, which typically see the consumer pay the cost of a car’s depreciation over the set period.
Leasing companies are now seeking to reduce their own exposure to that risk by asking consumers for bigger deposits or monthly payments.
Toby Poston, a spokesman for the BVRLA, adds: “Vehicle finance companies can’t afford to carry on absorbing these kinds of losses on thousands of expensive EVs, so they are forced to price these depreciation costs into their lease rates for new EVs.
“We have seen double-digit percentage increases in lease rates in recent years, which has made leasing a new EV less attractive to businesses and consumers.
“This has been a big contributor to the slowing 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, Poston argues, this gap must be bridged somehow: by consumers, businesses or the Government, which remains the driving force behind the push towards EVs.
However, the SMMT and other motoring groups have repeatedly pointed out that while the ZEV mandate forces manufacturers to sell more EVs, ministers scrapped the main incentive for consumers – the plug-in grant – two years ago.
They are now lobbying for Rachel Reeves, the Chancellor, to offer up some kind of tax break or subsidy for EV buyers to boost sales again.
Nick Parker, an automotive expert at AlixPartners, says a slowdown in demand has been experienced in most European countries where subsidies have been withdrawn.
“Until that cost differential between EVs and internal combustion engine cars has come much closer, there will always be a challenge – and you’ll need some level of incentive to close that gap,” he says.
Mike Hawes, the chief executive of the SMMT, wants the Government to launch a full-blown campaign that will make the incentives of switching to electric clearer and talk up the benefits of the technology.
He says: “Manufacturers are committed to delivering net zero and the ambition set out by the ZEV mandate. Investment in the billions is being made by the industry both in the development of an ever-increasing range of EVs, and in helping consumers get into these new cars and vans.
“While a record number of drivers are switching, however, achieving mass market transition requires action by everyone.
“Charging infrastructure investment must be mandated, consumers supported with compelling purchase incentives such as a reduction on VAT on new EV purchases and a taxation regime that is fair and treats EVs as essentials rather than luxuries, with a positive narrative of the undoubted benefits of driving electric.”
However, convincing Reeves to spend taxpayers’ cash on bungs for EVs may be a tough ask when 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 price them at the same low levels they are sold for in Asia.
“When you get price parity, like you have in middle-aged EVs, these cars sell really quickly, so it’s not a wholly negative picture” he says.
“We also see that when manufacturers do discounts, and demand rockets. But we just aren’t seeing that at a sustained level, so there is a risk you could get into a spiral.
“Our view is that people still need some support to get into electric cars.”
Ben Nelmes, of consultancy New Automotive, instead argues that car makers should be able to meet their targets without any help.
“I don’t think it’s realistic to expect the Government to offer support,” he says, “and I also worry about that kind of thing creating distortion effects which you eventually have to take away.”
He points to analysis by his own company, published on Tuesday, showing that many brands are now on course to meet their ZEV mandate targets. New Automotive predicts that 23pc of cars sold in August were EVs – exceeding the industry’s overall target.
Despite this, the figures also show that major brands including Volkswagen, Stellantis, Ford, Nissan and Renault were all still failing to meet their quotas.
A government spokesman this week insisted the UK car market “is growing strongly”.
The spokesman added: “The target for zero emission cars in 2024 is 22pc, which gives manufacturers flexibility to sell a range of products, as they have done in previous years.”
