Electric vehicles: driving the transition Contents

3EV purchase support

Consumer barriers to EVs

27.Vehicle costs remain a major barrier to EV uptake in the UK.46 The upfront costs of most electric vehicles are substantially higher than their internal combustion engine (ICE) equivalents, even after Government support. For example, the list price of a VW Golf starts at £18,340, whilst the price for an e-Gold starts at £32,730, falling to £28,230 after the Government’s Plug-in Grant at current levels (discussed further below).47 The price gap is understood to be a particularly strong deterrent for individuals, who have less flexibility to offset upfront costs against longer term savings than commercial buyers.48

28.Market projections suggest that EVs could reach price equivalency with ICEs by the mid-2020s.49 In the meantime, however, financial incentives will be required to help bridge the gap if the Government is to deliver on its ambition to grow the EV market.50 At present support is provided through grants and fiscal incentives, which we discuss later in this chapter.

29.Additional challenges for vehicle technology include battery capacity—a concern exacerbated by patchy provision of charging infrastructure—and the limited choice of EV models. Although EVs cannot yet match ICEs on range per single charge, battery technology is improving, with many vehicles now having a range in the region of 200 miles.51 Plug-in hybrids can alleviate range anxiety, as they combine a plug-in battery with a petrol or diesel fuelled internal combustion engine, which can be used when the battery is depleted.

30.Lack of vehicle choice is also a problem.52 The range of models has grown considerably during our inquiry, with 77 plug-in cars and vans available in August 2018.53 However the range of pure electric models and commercial vehicles remains limited. We return to this issue in Chapter 4.

Grants

31.The Government’s Plug-In grant scheme provides direct support towards the cost of buying an electric vehicle.54 The grant currently covers: 35% of the cost of a car, up to a maximum of £2,500 (for plug-in hybrids) or £4,500 (for fully electric cars); 20% of the cost of a van, up to a maximum of £8,000; 20% of the cost of a motorcycle, up to a maximum of £1,500, or 20% of the cost of a purpose-built taxi, up to a maximum of £7,500.55 Separate grant schemes provide help for motorists and employers with the costs of installing a charge point at their home or workplace (maximum 75% of installation costs, capped at £500).56

32.The Government has confirmed that the plug-in grants will continue in some form until at least 2020.57 However on 11 October 2018 it announced that the grants for cars would be cut from 9 November. The maximum grant for fully electric cars will reduce to £3,500, and the grant for plug-in hybrid cars will be removed entirely.58

33.This decision risks undermining the UK’s burgeoning EV market. Not one witness to our inquiry suggested that EVs would be able to compete without grants in the near term. Energy UK, UKEVSE and BMW specifically warned against the sudden removal of support, which has recently caused the collapse of EV markets in Denmark and the Netherlands, and led to the breakdown of the UK’s liquid petroleum gas (LPG) vehicle market in the early 2000s.59 The complete removal of support for plug-in hybrids is a particular concern; whilst we do not believe that these vehicles should be part of the UK’s long-term decarbonisation strategy, they could play an important role in the near-term, as we explained in Chapter 2. Further, the decision runs counter to advice published by the Committee on Climate Change (CCC) on the day of the decision’s announcement, as part of its technical assessment of the Road to Zero Strategy.60 This stated that:

“[Plug-in car and van grants] are not high enough to achieve full cost parity with conventional vehicles… It is important that government commits to extend support for EVs until they become cost-competitive with conventional vehicles, and that the level of the grant is sufficient to provide an effective incentive for prospective EV customers.”61

34.It is likely that the impact of the grant cuts will be felt beyond new car sales. Indirectly the plug-in grant is an important support mechanism for charge point operators and vehicle manufacturers, as it provides confidence that demand for their products will continue. The resulting lower purchase costs of new EVs are also understood to trickle through to the second-hand EV market.62

35.Rather than sudden cuts - such as those recently announced—witnesses to our inquiry suggested that the plug-in grants should be gradually phased out as EVs reach price parity with ICEs—a position shared by the CCC.63 Tesla, Greenpeace and the NFDA called on the Government to set out clear and predictable conditions for phasing out the grants, for example by linking support levels to the number of EVs sold.64 The Minister did not share these concerns, arguing that the “sector is unreasonable” to request clarity on future support, and that “it is not fair to give longer term targets than that because … costs are going to come down”.65 While we welcome ongoing cost reductions in EVs, we do not agree that it is “unreasonable” for the EV sector to call for more than two years’ notice on the future of policy support. The newly announced, very substantial cuts provide only four weeks’ notice, an unreasonable and unrealistic period in which to expect businesses to adapt.

36.The Government’s decision to cut substantially grants for pure electric vehicles, and to remove entirely those for plug-in hybrid vehicles, has been made too soon and too suddenly. We recommend that purchase support for EVs should be maintained at October 2018 levels for the time and more generally until the cost of EVs nears price parity with conventional ICE vehicles. We further recommend that the Government sets out its intentions for the future of plug-in grants for the next five years. If the Government is unable to commit to ongoing support, it should at least set out the terms under which grants will be phased out, well in advance of the implementation of any reductions.

Fiscal incentives

37.Fiscal incentives have been effective in driving historical transitions in vehicle technology. The UK’s switch from petrol to diesel cars during the 2000s was largely driven by fiscal policy, particularly the linking of Vehicle Excise Duty (VED) and company car tax to the carbon dioxide emissions of vehicles,66 and Norway’s world-leading 39% EV market share has been achieved almost entirely through fiscal measures.67

38.The Norwegian approach combines bonus and malus measures,68 which minimise the cost of EV support to the Treasury by offsetting the costs of EV incentives against revenues gathered from ICE disincentives. Benefits currently afforded to EVs include exemption from import tax, VAT, annual road tax and re-registration tax, and reduced company car tax. To pay for this, ICE vehicles are charged an additional tax for the first three years after registration, with the specific rate of tax depending on the vehicle’s emissions.69 Norway has historically levied high rates of tax on new vehicle registrations, giving scope to provide substantial discounts for EVs - which it has implemented. Norway has also adopted a “50% rule” under which fees for parking, ferries and toll roads paid by EVs are at most half the level of fees paid by ICEs. We recommend that the Government follows the example of EV world leaders, and provides support to make EV prices more competitive with conventional cars and vans.

Box 3 Fiscal incentives for EVs

Vehicle Excise Duty

Since 2003 Vehicle Excise Duty (VED) rates have been linked to the carbon dioxide emissions of vehicles. From 2003 to 2017 cars that emitted less than 100g/km of carbon dioxide were exempt from VED. Rates for other vehicles were on a sliding scale, with the most polluting paying the highest levels of tax.70

VED rates were reformed in April 2017. Cars that emit less than 50g/km of carbon dioxide continue to be exempt, but all other vehicles now pay the same standard rate (the rate after the first year of registration). Cars with a list price greater than £40,000 also pay a supplement of £310 for the first five years in which a standard rate is paid.71 In practice the strict 50g/km limit means that only fully-electric vehicles qualify for the exemption, and the flat rate for other vehicles has removed the incentive to purchase alternative ultra-low emissions vehicles, such as plug-in hybrid EVs or hydrogen fuel cell cars. Further, as electric vehicles are more expensive than equivalent conventional models, they are disproportionately affected by the VED supplement.

Benefit-in-Kind for Company Cars

Benefit-in-Kind rates for EVs are currently set at 13%. They are due to reduce to 2% in 2020–21, but will first rise to 16% over 2019–20.72 This is effectively encouraging company car purchasers to wait until 2021 before they invest in an EV.73

39.Unlike Norway, the fiscal landscape in the UK does not provide such clear policy signals. Changes to Vehicle Excise Duty (VED) introduced in 2017 have reduced incentives for all but the cleanest EVs, whilst company car tax is set to increasingly weaken incentives for EVs until 2020–21 (see Box 3). British motorists are being told that—in the short term at least—the case for buying an EV is weakening.74 When we raised this issue with the Minister, he told us he would be willing to disincentivise motorists from using ICEs, provided that any measures were “reasonable … but not draconian”.75 We welcome this pragmatic approach. While the Government may, understandably, have reservations about increasing taxes on motorists, it is likely that a review of vehicle-related taxation and spending will be necessary over the coming years to assess and mitigate the impacts of reduced revenues from fuel duty as use of ICEs declines: estimates by Policy Exchange suggest this reduction in tax receipts could total £170 billion by 2030.76 Fiscal signals should send a clear and consistent message about the Government’s ambition to move to a zero emission vehicle fleet. There is little sense in introducing changes which reduce incentives to purchase an EV, or which encourage consumers to delay, when the Government has clearly set out its ambition to increase EV uptake. We recommend that the Government aligns new fiscal changes with the zero emissions target. It should bring forward the introduction of preferential rates on company car tax without delay, or at least hold company car tax on EVs level until the preferential rates come into effect.

Accessibility of EVs and support mechanisms

40.Consumers are deterred not only by the high upfront costs of EVs, but also by concerns and perceptions about costs over the lifetime of the vehicle. These include the cost of replacement batteries, more expensive insurance, and low residual values.77 Paradoxically, the real lifetime costs of an EV are often lower than those of an ICE, due to lower fuelling and maintenance costs.78 It is therefore essential that EVs are made more accessible to motorists from all socioeconomic backgrounds, particularly the less affluent and the 63% of UK workers who commute by car or van.79 Tesla and Engie also noted the need to improve communications around EVs, to help consumers compare not just retail prices but also lifetime costs.80

41.Currently grants towards the purchase of EVs are available only to individuals with sufficient capital to buy a new car (or those with a company car), whilst support for charge points is available only to motorists with off-street parking. The Scottish Government has introduced interest-free loans to cover the full cost of purchasing a new EV (up to £35,000), which are understood to have had a substantial impact on motorists’ vehicle choices.81

42.It will be essential to develop a buoyant second-hand market for EVs. This would make EVs more affordable to consumers who typically do not purchase new vehicles, and also support the growth of the wider national EV fleet by improving residual values and so bolstering the economic case for new EVs.82 We welcome the Government’s recent commitment, in the Road to Zero Strategy, to revise vehicle log books to include specifications on battery size and electricity consumption; this should help to address concerns that the lack of EV-relevant information in the current documentation is holding back growth of the second hand market.83 Increased support for leasing schemes (which mitigate the depreciation risk carried by motorists) and car clubs would further the accessibility and affordability of both new and second-hand EVs.84 EVs should not be the sole preserve of the relatively affluent. We recommend that the Government introduces more creative support mechanisms to ensure that all motorists are able to benefit from EVs. This could include public car clubs, and improved communications and documentation to enable consumers to better assess the real world financial and environmental performance of both new and second-hand EVs.


46 Q4 [NFDA]; Anglian Water Services [EVD0011], Automobile Association [EVD0021], Broadspeed Ltd [ELV0023], Centre for Business in Society [ELV0020], Ecotricity Group Ltd [EVD0004], Ecotricity Group Ltd [EVD0086], Energy Saving Trust [ELV0046], ENGIE [ELV0053], Energy Technologies Institute [ELV0022], Greenpeace UK [ELV0042], Greenwatt Technology [EVD0008], Innovate UK [EVD0027], Innovate UK [EVD0085], MAL [Research & Development] Ltd [ELV0034], Mark Clemence [ELV0019], National Franchised Dealers Association [ELV0038], National Grid [ELV0065], Office for Low Emission Vehicles (OLEV) [ELV0064], Petrol Retailers Association [EVD0050], Mr Philip Allen [EVD0014], POD Point Ltd [ELV0059], RAC [ELV0014], RAC Foundation [ELV0029], Renewable Energy Association [ELV0049], SPACE for Gosforth [ELV0039], CDT Energy Storage [ELV0040], Tesla [EVD0032], BluePointLondon [ELV0051], UK Petroleum Industry Association [ELV0036], UKEVSE [ELV0055], Unite the Union [EVD0024], University of Southampton [EVD0046]

47 Volkswagen, New range, accessed 16 October 2018.

49 Bloomberg New Energy Finance, Electric Vehicle Outlook: 2018 (May 2018); HM Government, The Clean Growth Strategy; leaving the way to a low carbon future (October 2017)

50 Tesla [EVD0032]. Energy Saving Trust [EVD0056], Q13 NFDA, Q53 Tesla.

51 Next Green Car, EV price vs range comparison (August 2018)

52 Innovate UK [EVD0085], Anglian Water [EVD0011], BD Auto [ELV0010], London Taxi Company [ELV0047], Licenced Taxi Drivers Association [EVD0060], Octopus Energy Group [ELV0066], RAC Foundation [ELV0029], Q5 NFDA, Q47 NFDA

53 Innovate UK [EVD0085]; OLEV [ELV0064]; Next Green Car, Electric car market statistics (2018)

54 The Plug-in Grant Scheme is administered the Office for Low Emission Vehicles (OLEV). OLEV is jointly hosted by the Depart for Transport and the Department for Business, Energy and Industrial Strategy.

60 Committee on Climate Change, Letter to Chris Grayling and Greg Clark (11 October 2018)

61 Ibid.

63 Anglo American plc (ELV0044) (EVD0073), BD Auto (ELV0010), Broadspeed Ltd (ELV0023), BYD UK Ltd (ELV0009), Energy Saving Trust (ELV0046) (EVD0056), Greenpeace UK (ELV0042), Mark Clemence (ELV0019), National Franchised Dealers Association (NFDA) (ELV0038) (EVD0055), POD Point Ltd (ELV0059) (EVD0040), RAC (ELV0014), Renewable Energy Association (ELV0049), Society of Motor Manufacturers and Traders (SMMT) (ELV0050), CDT Energy Storage (ELV0040), WWF-UK (ELV0056), Green Alliance (EVD0041), Nissan (EVD0083), RAC Foundation (EVD0067), Tesla (EVD0032), UK Hydrogen and Fuel Cell Association (EVD0043), Committee on Climate Change, An independent assessment of the UK’s Clean Growth Strategy: From ambition to action (January 2018)

64 Q18 [Tesla]; Tesla [EVD0032]; Greenpeace [ELV0042], NFDA [ELV0038]

66 Although ultimately misguided (due to the carbon benefits of diesel being offset by its effect on air quality), this initiative was highly successful: in 2000 petrol cars accounted for 85% of new car registrations, but by 2011 sales of diesel cars had gained a 50.3% market share

67 Annex 2.

68 A bonus-malus system is one which alternately reward (bonus) desired behaviours, and penalise (malus) undesired ones. In this, the Norwegian Government offers bonuses to motorists choosing to purchase EVs, and penalises those choosing a petrol or diesel vehicle.

69 Annex 2

70 HM Revenue and Customs, Policy paper; Vehicle Excise Duty (July 2015)

71 Ibid.

72 Office for Low Emission Vehicles, Tax benefits for ultra-low emission vehicles (May 2018)

73 Tesla [EVD0032], POD Point [ELV0059], Renewable Energy Association [ELV0049]

74 Tesla [EVD0032]; London Taxi Company [ELV0047], RAC [ELV0014]

79 Q9 [RAC Foundation], Energy Saving Trust [EVD0056], NFDA [ELV0038]

80 Tesla [EVD0032], ENGIE [ELV0053]

81 Survey data from the Energy Saving Trust indicates that the loans have been an important factor in purchasing decisions, with 35% of respondents indicating they would not have bought an ultra low emissions vehicle without the loan, while 29% would have bought an ultra low emissions vehicle, but less quickly. Energy Saving Trust [EVD0056].

82 Qq 32–25 [RAC Foundation]; Q135 [Unite]; SMMT [ELV0050], RAC Foundation [ELV0029], Unite [EVD0024], BVRLA [EVD0037], ENGIE [ELV0053]

84 Energy Saving Trust [EVD0056], NFDA [ELV0038], RAC Foundation [ELV0029]




Published: 19 October 2018