11.In 2020, total car sales in the UK decreased by 30%, perhaps due to the coronavirus pandemic. However, battery electric vehicle (BEV) registrations rose by 185.9% to take a record 6.6% market share and ultra low emission vehicles, which includes both BEVs and plug-in hybrids, took some 11% of market share. However, Norway, Iceland and Sweden are leading the way in Europe, recording market shares for plug-in vehicles of some 75%, 45% and 32% respectively in 2020. The vast majority of BEV registrations in the UK were made by business or fleet purchasers, with just 2.1% of BEV registrations made by private consumers. The Society of Motor Manufacturers and Traders (SMMT) told us that increasing consumer uptake is essential to accelerating the transition to ZEVs.
12.The Government has introduced various incentives to stimulate the new EV market. These incentives include favourable company car tax rates until 2024–25 and £582 million to extend plug-in grants for new electric vehicles until March 2023. The Department has argued that because fleet operators are major suppliers of second-hand vehicles, helping them to transition to ZEVs will support the growth of the second-hand market. The Government recently reduced the plug-in car grant from £3,000 to £2,500 per car and the price cap from £50,000 to £35,000.
13.A sustainable second-hand electric vehicle market is crucial to the roll-out of ZEVs. Used cars make up a significant share of vehicle sales. In 2019, 2.3 million (22%) new cars were registered compared with 7.9 million (78%) used car sales. In 2020, overall used vehicle sales in the UK declined by 14.9%. However, used battery electric vehicle sales increased by 29.7% with some 19,000 units sold. This still only represented a fraction of market share at 0.3%. The second-hand EV market is critical in providing market access for people who cannot afford to purchase a brand-new electric car. Green Alliance told us that lower-income households could benefit from significant total cost of ownership savings—the real cost of running a vehicle over the course of ownership—of between £700 and £2,300 for a medium-sized, second-hand BEV. Third-hand owners may save between £3,500 and £5,600. In our survey of 979 drivers (see Annex A), 56% said that they would consider buying a second-hand electric vehicle. However, consumers still see the initial advertised price of EVs as a barrier to purchasing both new and second-hand models.
14.Auto Trader data show that the advertised, or upfront, costs of younger used electric vehicles are more expensive than petrol and diesel cars, with the price gap getting much closer after a car is three years old and older. No incentives or support are currently provided for the used EV market. Bright Blue recommended that the Government introduce a plug-in vehicle grant of at least £2,000 to help people on lower incomes purchase a used EV. Similar purchase incentives for second-hand EVs have been introduced in the Netherlands and France. Another potential incentive is an interest-free loan for second-hand EV purchases, such as the scheme introduced by the Scottish Government in September 2020. Ed Birkett, Senior Research Fellow at Policy Exchange, argued that purchase incentives for second-hand EVs would increase the price of those vehicles and that any incentives should be targeted at those who need them most.
15.Most new vehicles are purchased using finance schemes with the cost of leasing based on the estimated residual value—in other words, the second-hand value—of the vehicle at the end of the lease. The BVRLA told us that by 2025 the number of used BEVs on the market is expected to be more than 250,000 and that they are entering the used market at a significant higher price than comparable ICE vehicles. That could lead people buying cars on the used market to opt for cheaper ICE vehicles. Representatives from the motor finance and leasing sector told us that vehicle finance companies, concerned about potential losses, will typically set their residual values for EVs at a considerably lower level than that for ICE vehicles. This leads to higher monthly payments for customers looking to lease or finance a new BEV. If zero emission vehicles remain expensive to lease on the new market, this will have a detrimental effect on the development of the second-hand market.
16.The Government’s position is that stimulating the early EV market will ensure that plenty of vehicles are in circulation and that those vehicles will filter through to the second-hand market. The Minister argued that the Government’s strategy to stimulate the early market is working. She cited 500,000 electric vehicles on the road today in the UK as proof of the success of this approach. Richard Bruce asserted that residual values are improving for second-hand electric vehicles and that a healthy second-hand market is developing. However, the Department did not set out the evidence base underpinning its belief in the future operation of the second-hand market in older electric vehicles.
17.A healthy used electric vehicle market is critical to ensuring that electric vehicles are not the sole preserve of people who can afford new models. The Government’s position is that current incentives to stimulate the sale of new EVs are sufficient to support the development of the second-hand EV market. However, electric vehicles that will be traded on the second-hand market in three to five years’ time are likely to be more expensive to buy upfront than comparable ICE models. To drive mass consumer uptake of ZEVs, the Government must ensure that the market facilitates the supply of affordable new and used electric vehicles.
18.In order to ensure that the Government achieves the targets set out in the Transport Decarbonisation Plan, it may need to intervene to support the second-hand market in electric vehicles until price parity with comparable ICE vehicles is reached.
19.Although sales have increased in recent years, the uptake of ZEVs needs to accelerate throughout the 2020s to reach the Government’s phase-out dates and meet the UK’s emissions reduction targets. According to the Climate Change Committee (CCC), for the transition to ZEVs to have a meaningful impact on the UK’s net zero ambitions, battery electric vehicles must comprise almost 50% of new car sales by 2025, with hybrid technology playing a limited role (figure 1 outlines the projected sales curves for different phase-out dates). To achieve this, the CCC recommended that the Government should, as a priority, introduce a zero emission vehicle mandate. A ZEV mandate would require car manufacturers to sell an increasing proportion of ZEVs over the next decade, reaching 100% by 2030.
20.Several witnesses to our inquiry supported the introduction of a ZEV mandate. A mandate would incentivise specialist ZEV manufacturers to compete in the UK market, because such specialist ZEV manufacturers would be able to sell credits to other manufacturers. Under such a system, each electric vehicle sold would generate a set number of tradeable credits based on the vehicle’s zero emission range. Manufacturers would be required either to sell an increasing number of ZEVs each year, reaching some 100% by 2030 or to buy credits from other manufacturers. The trading of credits should facilitate competition between manufacturers while facilitating the market to grow in line with the Government’s 2030 phase-out date. Because the Government has clarified the phase-out date, the credit requirements could be set out in advance, providing even more certainty for manufacturers, the public and investors. The 2030 deadline also provides a clear end date, after which a ZEV mandate would no longer be required. Financial penalties could also be introduced on manufacturers that fail to meet compliance targets.
Figure 1: Sales curves for different phase-out dates
21.Alongside the Transport Decarbonisation Plan, the Government published a Green Paper on the UK’s post-EU regulatory regime for CO2 emissions from new road vehicles, which considered a ZEV mandate. Some regional and national governments have successfully implemented a ZEV mandate, such as California, two Canadian Provinces and China.
22.The BVRLA does not support the introduction of a ZEV mandate. It called for policy measures to be aligned with European markets, where grants and incentives have apparently facilitated increases in market share for electric vehicles. The SMMT stressed that the Government should focus on longer-term consumer incentives to drive the ZEV market. Green Alliance supported the introduction of a ZEV mandate and told us that purchase incentives should remain in place to encourage the uptake of new electric vehicles, which would support the second-hand market. It highlighted that new, medium-sized electric vehicles are already cheaper on a total cost of ownership basis than ICE equivalents due to the plug-in car grant. It argued that removing subsidies would unhelpfully increase price disparities with ICE vehicles.
23.A ZEV mandate would be a cost-effective way in which to support the uptake of ZEVs compared with taxpayer-funded incentives. The UK taxpayer currently contributes approximately £135 million a year to the plug-in car grant. Witnesses argued that although the plug-in car grant has stimulated the early EV market, the Government should abandon purchase incentives to drive the sales of new EVs. Policy Exchange told us that to continue with the grant, alongside other incentives such as favourable tax treatment for ZEVs, would be “unnecessarily expensive” as the UK recovers from the coronavirus pandemic. Sarah Owen-Vandersluis, Head of Public Sector Mobility at KPMG, suggested that some of the funding used for the plug-in car grant could be repurposed to support the roll-out of charging infrastructure. A ZEV mandate would encourage global vehicle manufacturers to invest in electric vehicle production for the UK market, increasing vehicle supply, which in turn would reduce the cost of those vehicles for the consumer.
24.Some witnesses called on the Government to set progressively tighter CO2 emissions standards for new road vehicles over the next decade. However, regulation based on overall exhaust emissions standards would be insufficient to achieve the target phase-out date. CO2 emissions regulation should either be replaced by or work with a ZEV mandate. Without a ZEV mandate, industry would be left to scale up ZEV production, imports, and sales targets by itself. However, by introducing a ZEV mandate, the Government would provide a strong message to business, consumers and international partners that the UK is serious about its net zero ambitions. That is particularly important, because the UK is hosting COP26 and can exercise international leadership.
25.The Minister told us that the Government has used taxpayers’ money to stimulate the early ZEV market. However, with purchase incentives such as the plug-in car grant being phased out, she acknowledged that something else is required to ensure that industry supplies sufficient ZEVs to achieve the Government’s 2030 ambition. Richard Bruce said that the critical factor is not the mechanism used, such as a ZEV mandate or regulation, but the shape of the sales curve. He argued that an overly aggressive approach would increase the price of the vehicles, meaning people would hold on to fossil fuel models for longer, which in turn would produce more CO2. In its recent Green Paper on the CO2 emissions regulatory framework, the Government stated that a ZEV mandate combined with a CO2 emissions target is its preferred option.
27.In order to achieve its 2030 and 2035 targets, the Government must introduce a ZEV mandate to incentivise manufacturers to sell an increasing proportion of ZEVs or to purchase tradeable credits year-on-year, reaching some 100% ZEV sales by 2030.
28.Although the Government pledged to end the sales of new petrol and diesel cars and vans by 2030, ahead of the CCC’s recommended date of 2032, sales of full hybrids and plug-in hybrids with significant zero emission capability will be permitted until 2035. The Government’s recently published consultation on CO2 emissions for new road vehicles will address the definition of ‘significant zero emission capability’.
29.The Government argued that hybrid vehicles are among the cleanest on the market today and play an important role in meeting interim carbon reduction targets. However, notwithstanding reduced CO2 emissions from the exhaust, several witnesses raised concerns about the potential carbon emissions that manufacturing electric vehicles could produce. The Government added that hybrid vehicles support consumers in transitioning to ZEVs. It claimed that PHEVs contribute to behaviour change in how drivers refuel their vehicles and to building consumer confidence in battery technology. Richard Bruce highlighted the “spectrum of options” and argued that allowing hybridisation to continue until 2035 would “allow phase-in for certain manufacturers, especially those who have a lot invested in hybrid technology.”
30.Several witnesses informed us that real-world driving emissions from PHEVs are two to four times higher than during test levels, which makes them comparable to conventional vehicles. That is because drivers do not take full advantage of driving in electric mode. PHEVs have a relatively limited electric-only range of some 25 miles, and they require frequent recharging to avoid using the internal combustion engine. Energy UK told us that PHEVs are only used in their zero emission mode for around 37% of miles driven. Green Alliance claimed that the Government’s decision to allow the sale of hybrid vehicles until 2035 may be “a missed opportunity to turbocharge the transition to zero emission cars and vans.” Several witnesses told us that the Government should limit the sales of all hybrid vehicles between 2030 and 2035 to help the UK meet its decarbonisation commitments.
31.Two car manufacturers told us that they are seeking clarity on what hybrid technology they can sell after 2030. Honda Motor Europe asserted that its advanced hybrid technology (full hybrid and PHEVs) can already operate for long periods in zero emission mode and will deliver significant CO2 emissions savings in the short and longer-term. McLaren Automotive argued that the Government should ensure that hybrid technology is not “stigmatised in the short term” while it continues to play a key role for consumers and the automotive sector in the transition to ZEVs. Sarah Owen-Vandersluis from KPMG warned that the lack of clarity around the transition for hybrid vehicles may also have a negative effect on residual values and the second-hand market.
32.The Government must define ‘significant zero emissions capability’ for the automotive manufacturing industry, while ensuring that only the cleanest possible hybrid technology is available until 2035. It should also maintain a technology-neutral approach to the transition to ZEVs and explore the potential of alternative fuels, such as hydrogen or other alternatives to petrol and diesel, where possible.
37 SMMT (), SMMT, , accessed 15 July 2021
38 World Economic Forum, , accessed 19 July 2021
39 SMMT, , accessed 15 July 2020
40 SMMT ()
41 Department for Transport ()
42 , (on Electric Vehicles: Sales), 12 April 2021
44 Q3 (Sarah Owen-Vandersluis)
45 Electric Vehicles and Infrastructure, , House of Commons Library, 23 June 2021, p.14
46 SMMT, , accessed 19 July 2021
47 Q4 (Caterina Brandmayr), RAC Motoring Services (), Bright Blue ()
48 Green Alliance ()
49 Bright Blue (), RAC Motoring Services (), Electric Vehicle Association England ()
51 BVRLA ()
52 Bright Blue ()
53 Energy Savings Trust, , accessed 15 July 2021
54 Q12 (Ed Birkett)
55 Q11 (Sarah Owen-Vandersluis), Q91 (Richard Bruce), BVRLA (), Finance and Leasing Association ()
56 BVRLA ()
57 BVRLA (), Finance and Leasing Association ()
58 Q90 (Rachel Maclean MP)
59 Q91 (Richard Bruce)
60 SMMT (), Green Alliance ()
61 CCC ()
62 Ibid, Q10 (Ed Birkett), Q15 (Caterina Brandmayr), Q11 (Tanya Sinclair), Green Alliance (), Policy Exchange (), Energy UK (), ChargePoint (), Transport & Environment (), Transport for Quality of Life ()
63 This is the range that an electric vehicle can travel without re-charging, or for hybrid models, using the internal combustion engine.
64 Policy Exchange (), Energy UK ()
65 Energy UK ()
67 ChargePoint (), Transport & Environment ()
68 Department for Transport, CO2 emissions regulatory framework for all newly sold road vehicles in the UK, , July 2021
70 BVRLA, , accessed 16 June 2021
71 SMMT ()
72 Q15 (Caterina Brandmayr), Green Alliance ()
73 Green Alliance ()
74 Policy Exchange (), Energy UK ()
76 Q15 (Sarah Owen-Vandersluis, Ed Birkett)
77 Policy Exchange ()
78 Q11 (Sarah Owen-Vandersluis)
79 Q15 (Caterina Brandmayr), Green Alliance (), Energy UK (), ChargePoint ()
80 Energy UK (), Shell UK (), CCC ()
81 Transport & Environment (), Energy UK (), Green Alliance, Accelerating the electric vehicle revolution: Why the UK needs a ZEV mandate, 26 May 2021
82 Transport & Environment (), Energy UK (), CCC ()
83 ChargePoint ()
84 Energy UK ()
85 Q107 (Rachel Maclean MP)
86 Q106 (Richard Bruce)
87 Department for Transport, CO2 emissions regulatory framework for all newly sold road vehicles in the UK, , July 2021, p.28
88 Ibid, p.19
89 Department for Transport and OZEV, accessed 21 July 2021
90 Parliamentary Advisory Council for Transport Safety (), Living Streets (EVP0104), Confederation of Passenger Transport ()
91 Department for Transport and OZEV, accessed 21 July 2021
92 Q104 (Richard Bruce)
93 CCC (), Energy UK (), Q9 (Caterina Brandmayr)
94 Dr Steve Melia (), Mr David Haggie (), Chartered Institute of Logistics and Transport (), University of Sheffield ()
95 CCC ()
96 Energy UK ()
97 Green Alliance ()
98 CCC (), Green Alliance (), Transport & Environment ()
99 Honda Motor Europe (), McLaren Automotive ()
100 Honda Motor Europe ()
101 McLaren Automotive ()
102 Q11 (Sarah Owen-Vandersluis)