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EV strategy: rapid recharge needed Contents

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Chapter 3: Acquiring an EV

42.The Zero Emissions Vehicles (ZEV) Mandate guarantees the sale of electric vehicles (EVs) in line with the Government’s phase-out target. However, the ZEV mandate is one tool in service of a broader policy aim: as the Government stated in its delivery plan for transitioning to zero emission cars and vans by 2035, its ultimate goal is to support “mass ownership of zero emission vehicles.”73 Therefore, our inquiry examined progress towards mass ownership of zero emission passenger cars, evaluated the success of Government interventions thus far in this regard, and identified barriers where further action is needed.

43.We found that the purchase of new and used EVs is increasing, as is the number of EVs being leased. However, we heard that uptake of EVs thus far has been led by corporate fleets and early adopters, and significant barriers exist for the remaining majority of drivers—particularly those on lower incomes.74 We heard concerns that growth in EV adoption is fragile, and constrained by factors including the upfront cost of EVs, limitations in fiscal incentives and an immature used EV market.

44.The principle concerns highlighted throughout our evidence were

(1)the upfront cost of an EV, and

(2)concerns about the charging infrastructure (which we discuss in Chapter 4).75

A 2023 Auto Trader poll of 4,000 UK drivers indicated that upfront cost was the most significant barrier to adoption, cited by 56 per cent of respondents.76 This was echoed by a range of submissions we received from individual members of the public, and students in our Youth Engagement Programme.77 While the young people we spoke to were enthusiastic about owning an EV in principle for its environmental benefits, many said the cost was prohibitive, particularly given cost of living challenges. Phill Jones, Chief Operating Officer at car advertising business Motors.co.uk, told us:

“When you put yourself in the shoes of the consumer, electric vehicles still appear quite expensive. We have seen a change in consumer anxiety, which is now less about infrastructure and more about pounds and pence, the cost of these cars.”78

Purchasing new EVs

45.We heard that an increasing proportion of new car owners are choosing electric vehicles. The most recent data from the Society of Motor Manufacturers and Traders (SMMT) shows that from January to November 2023, 286,846 new EVs were registered, a market share of 16.3 per cent. This was a 27.5 per cent increase on the same period in 2022.79

46.However, the growth in EV uptake has slowed over the past two years. The Office for Budget Responsibility had previously forecast that by March 2023, EVs would account for 17.7 per cent of new car sales based on previous growth. Yet in 2022–23 the proportion was 16.5 per cent.80 Some other countries are much further ahead: the table below shows new EV registrations as a proportion of new cars in the UK, France, the Netherlands and Norway:

Table 3: New EV car registrations in January–November 2023 by country

European Country	Proportion of new car registrations that are EVs
United Kingdom	16.3%
France	16.4%
Netherlands	29.9%
Germany	18%
Norway	83.3%

Source: ACEA, ‘New car registrations: +6.7% in November; battery electric 16.3% market share’ (20 December 2023): https://www.acea.auto/pc-registrations/new-car-registrations-6-7-in-november-battery-electric-16-3-market-share/ [accessed 14 January 2024]

47.We also heard that UK growth has thus far been led by the corporate market more than individual consumers. Corporate car registrations make up around half of UK new car registrations.81 In the first quarter of 2023, 49 per cent of new corporate cars were battery EVs.82

48.We heard that the new EVs on the market are significantly more expensive than Internal Combustion Engine (ICE) vehicles. Two issues underlie this. First, there is a smaller range of affordable EVs than ICE vehicles in the UK market. Second, even EVs at more affordable prices are typically more expensive than their ICE equivalents (primarily due to the costs of producing batteries). Change is necessary on both fronts for EVs to be an attractive and feasible option for the majority of UK consumers by 2035. The growth in EV uptake will not continue if new electric vehicles remain out of reach for the majority.

A lack of affordable EVs

49.We heard significant concern that there is an inadequate range of affordable EVs.83 Indeed, the number of new electric models available to buy for under £30,000 fell from 11 at the end of 2022 to 9 at the start of September 2023. In comparison, there were 87 new internal combustion engine models available for under £30,000 in the same month.84

50.In recent years, more expensive sport utility vehicle (SUV)-type vehicles have become increasing popular, across both ICE and EV models.85 The figure below shows how this trend has been particularly pronounced in the EV market:

Figure 1: Sales of sports-utility vehicles (SUVs) as a proportion of all new car sales

Source: Climate Change Committee, 2023 Progress Report to Parliament (June 2023) https://www.theccc.org.uk/publication/2023-progress-report-to-parliament/ [accessed 29 January 2024]

51.We heard additional concerns that as well as being less affordable for consumers, these larger, heavier vehicles incur higher emissions in their production, are more likely to cause excessive road wear and increase demands on the grid.86

52.As well as there being a smaller range of affordable EVs than ICE vehicles, EVs at all price levels also currently have higher upfront costs than their ICE equivalents.87 An August 2023 sample of 35 models by Auto Trader found that on average EVs were 33 per cent more expensive than petrol equivalents.88 Similarly, the Advanced Propulsion Centre found that the price difference between a mid-range EV passenger and ICE passenger car is currently between £7,000 and £10,000.89

53.According to the Office for Budget Responsibility (OBR), the price gap at point of purchase between EVs and ICE vehicles has been declining in recent years, but the rate of decline has begun to slow—with a 15 percentage point fall in the two years to March 2022 but only a 6 percentage point fall since.90 The OBR concluded that “In the absence of low cost EVs, the steep sales growth of the past years, boosted by (usually high-income) early adopters, is expected to slow.”91

54.We heard that the primary reason for EVs being more expensive to produce is the cost of batteries.92 Mike Hawes, Chief Executive of SMMT, told us that the cost of an EV battery is a smaller proportion of the cost of production for an electric SUV than for a smaller EV, and is therefore of less significance:

“if a small car costs £15,000 for internal combustion and you put a battery pack in there, it is more likely to cost £30,000 … whereas on an SUV, if it is normally around, say, £45,000, it will be 25 per cent to 30 per cent more expensive than a petrol vehicle. So the market will accept it more readily because the step up is not so great.”93

55.We heard that Chinese manufacturers are currently producing a greater range of affordable EVs than manufacturers in the UK and EU. According to SMMT, Chinese-owned brands account for 10 per cent of the UK new EV market, with a further 20 per cent accounted for by non-Chinese brands manufactured in China.94 According to SMMT, approximately 80 per cent of all cars produced in the UK are exported,95 and in the first half of 2023, over 90 per cent of all new cars and almost 97 per cent of new EVs were imported.96 Several respondents noted that the influx of a greater range of affordable Chinese-produced EVs may incentivise UK manufacturers to compete at the more affordable end of the market.97 We also heard suggestions that the current range of new EVs for sale in the UK follows the typical market rollout of vehicles, with manufacturers prioritising premium vehicles first before rolling out a wider range of options to the rest of the market.98 The Electric Vehicle Association Scotland told us that “the adherence to this model by UK and EU manufacturers creates a void for Chinese manufacturers to fill. This will result in the opportunity for a price war to reduce the cost of EVs while also increasing the range available.”99

56.Some manufacturers raised concern that they would not be able to compete with Chinese-produced EVs, which enjoy significant domestic subsidy.100 Ford Motor Company told us that manufacturing in Europe is relatively more expensive “because our environmental, health and safety, and employment standards are broadly more stringent than elsewhere.”101 Mike Hawes also noted that Chinese models often have higher embedded carbon costs in production.102 There is therefore a risk that an overreliance on Chinese imports to provide affordable EVs may undermine the transition’s contribution to carbon emission reductions.

57.However, we note that the prospect of smaller EVs from UK and European manufacturers has recently become more promising, and heard optimism that while China invested early in battery and EV technology, there is an opportunity for UK and EU manufacturers to catch up.103 Research by Transport & Environment UK suggests that under “favourable market conditions”, small EVs could be produced in Europe in 2025, priced at €25,000 (£21,321)104 with a “reasonable” 4 per cent profit margin.105 Other predictions for when average EV prices will meet those of petrol and diesel vehicles range from 2025–27106 to the end of the 2020s.107

58.Robin Brundle, Executive Chairman at Technology Minerals Plc, told us that new battery technology innovations were already leading to the price of EVs “tumbling in their thousands periodically,” adding that he believed European car manufacturers would become “far more competitive” through 2024.108 BMW’s Oxford plant was cited in our evidence as a positive recent sign of investor confidence in UK manufacturing.109 Subsequently in November 2023 Nissan also announced an “up to £3 billion” investment to build three electric car models at its Sunderland factory (though we note that these models will be e-SUVs, not smaller affordable vehicles).110

59.Mike Hawes told us industry was trying to drive down the cost of producing EVs, and that “we need to get Government to pull every lever to encourage that.”111 On 26 November 2023 the Government launched the UK Battery Strategy and the Advanced Manufacturing Plan, with over £2 billion earmarked for the automotive industry, including battery production.112 The House of Commons Business and Trade Committee, which had found that the UK’s battery manufacturing capacity was “insufficient” and “lags far behind many of its competitors”, noted that these plans should help to address an historic lack of investment.113

60.The Climate Change Committee (CCC) suggests that the trend towards heavier, more expensive SUVs needs to be slowed.114 As well as through increased competition at the cheaper end of the market, we heard that this could be achieved in part through improvements in the UK’s charging infrastructure. In a recent survey of 11,500 drivers, 70 per cent said they did not currently have confidence in the UK’s charging infrastructure.115 Electrifying.com noted that this undermines the potential appeal of more affordable EVs, which typically have smaller ranges.116 Mike Hawes said that currently “people demand 200 or 300 miles capacity. If you had the confidence of being able to recharge anywhere—let us say allowing capacity of 100 or 150 miles—the battery put into a vehicle could be that much smaller and lighter.”117 We discuss the UK’s charging infrastructure further in Chapter 4.

61.The UK EV market remains concentrated around high value cars (costing over £40,000) and SUVs. Unless the market changes to offer more affordable options to consumers, the Government’s objective of mass ownership of EVs will not be met. This must also change to avoid issues caused by the trend towards heavier SUVs, including excessive road wear and typically higher embedded emissions in production. As set out in further detail below, this change may be enacted through investments in UK production, fiscal incentives to bring price parity at the more affordable end of the market, or taxation on heavier vehicles. The Government should keep the trend towards SUVs under review and consider what measures may be necessary to counteract it given its many negative consequences.

62.By the end of the decade, a broader range of affordable EVs should become available to UK consumers. The growing import of cheaper Chinese EVs will help in this regard, providing more options to consumers and stimulating competition in the market. However, in the longer term the UK must avoid reliance on foreign imports, which are currently mainly Chinese, to support mass ownership of EVs. This is important for the UK’s economy, strategic priorities and net zero targets.

63.We welcome recent announcements on new investment in the UK’s car manufacturing industry. This is positive news for British jobs as well as for the environment. Strong domestic strategies on electric vehicle and battery production will be essential to support further UK EV production and the circular economy. We welcome the recent publication of the Government’s Advanced Manufacturing Plan and Battery Strategy. The Government should provide a progress update on the Advanced Manufacturing Plan and Battery Strategy by summer 2025.

64.The Government must accelerate the rollout of the UK’s EV charging infrastructure which is essential in giving UK consumers the confidence to choose smaller, more affordable EVs, which typically have smaller ranges. We discuss this in further detail in Chapter 4.

Incentives

65.The Government currently offers some incentives to lower the upfront and running costs of EVs. Currently available grants for purchasing an EV are:

• Motorcycles: up to £500;
• Mopeds: up to £150;
• Small vans: up to £2,500;
• Large vans: up to £5,000; and
• Taxis: up to £7,500.118

66.However, there is currently no grant in place for passenger cars. Previously, the Government offered a Plug-in car grant, which ended in June 2022.119 When it first launched in 2011, the grant was a £5,000 discount applied to new EVs and petrol hybrid EVs; at the end of its operation, the grant provided a £1,500 discount to new EVs under £32,000.120 The then Transport Minister Trudy Harrison MP said “Government funding must always be invested where it has the highest impact … Having successfully kickstarted the electric car market, we now want to use plug-in grants to match that success across other vehicle types”.121. We heard mixed views on the success of the grant. Some told us it was helpful in catalysing early adoption,122 but others suggested that it only benefitted consumers already able to afford an EV, and therefore its removal had minimal impact on demand.123

67.We did not hear any calls to reinstate the grant on its original terms. However, there was support for a new version of the grant targeted at creating price parity for cheaper models with their ICE equivalents and incentivising consumers on lower incomes to make the switch.124 Transport & Environment UK told us that though “the Government was right to remove the universal plug-in car grant last year, it is clear that targeted incentives … could be needed to support the next group of potential [EV] buyers into the vehicles.”125

68.Research from the Centre for Climate Change and Social Transformations suggests that “pull” incentives such as EV subsidies are more likely to be accepted by the public than “push” incentives such as restrictions on the range of ICE vehicles available.126 Mrs Diane Moir, a respondent to the inquiry, shared her view with us that “I do not think the range of EVs at the lower end of the market is sufficient to meet the needs of the average car buyer. The current incentives are also not sufficient to encourage me to buy an EV.”127 We heard concern that the Government had chosen to remove grants for the purchase of passenger EVs, particularly at a time when price parity has not been reached.128 Students in our Youth Engagement Programme were enthusiastic about driving EVs, but told us that the removal of grants for purchasing EVs had underscored the perception that EVs were not an accessible mass-market option.

69.Other countries have gone further with fiscal incentives to create price parity with ICE vehicles. In Norway, 79 per cent of new car purchases in 2022 were electric, which the World Economic Forum attributes primarily to fiscal incentives.129 In the Netherlands, sales of new EVs have increased significantly in recent years, from only 1 per cent of new registrations in 2016 to over 23 per cent of registrations in 2022.130 The Netherlands’ grant scheme provides €2,950 for purchasing or leasing a new EV costing between €12,000 and €45,000.131 France provides up to €5,000 towards the purchase of new EVs up to €47,000 (or 27 per cent of the cost of acquisition, whichever is lower.)132 Germany provides €3,000 towards the purchase of EVs under €45,000 until 31 December 2024.133

70.Octopus Electric Vehicles argued that these types of intervention, targeting upfront cost, would have the greatest impact on the EV transition:

“countries where price parity has been created (e.g., Norway) prove that charging and range anxiety are actually a perception, not a barrier (as we have better infrastructure and the same vehicles available) … the reality is that if customers could access an EV for the price of an equivalent ICE, the majority of drivers would make the switch.”134

71.The RAC suggested that a modified version of the grant should apply to vehicles with a list price of less than £30,000 “to stimulate the affordable market, which in turn will feed into the second-hand market where most drivers buy their cars.”135 Similarly, Zouk Capital recommended a form of grant for lower income drivers to support them with the upfront cost divide which will likely remain for a few years, “but this should be more focused than the previous grants so that the money can go much further.”136

72.There is currently an insufficient range of affordable EVs, and price parity between EVs and ICE vehicles has not yet been reached. The growth in EV uptake, originally driven by early adopters and corporate fleets, is stalling as upfront cost barriers put EVs out of reach of the majority of drivers.

73.The Government’s stated aim is to support “mass ownership” of EVs. Yet unlike other major European markets, the Government has removed incentives to support consumers with upfront purchase costs.

74.The Government should explore targeted grants to incentivise the purchase of EVs with a view to facilitating a list price under an appropriate threshold. This would stimulate the affordable market, support the move to price parity and help counteract the trend towards SUVs which have broader environmental costs. These incentives should be accompanied by an exit strategy for when and how they should be tapered; this should only be as price parity is reached.

Purchasing used EVs

75.The UK used car market is typically 3 to 4 times larger than the new car market,137 but EVs still only represent a very small proportion of used car sales. EVs grew from 0.7 to 1 per cent of used car sales in 2022.138 Motors.co.uk told us that used EVs currently make up 3 per cent of their listings and “it will take seismic movements in new car registrations over time to significantly alter the proportions away from internal combustion engine (ICE) vehicles.”139 There are some signs of continued growth: SMMT told us their latest figures show the used EV market rose by 4.1 per cent during the second quarter of 2023, representing 1.7 per cent of used sales overall.140

Table 4: Used car transactions: market share by fuel type

Year	Battery EV	Hybrid	Petrol	Diesel
2018	0.1%	1.2%	56.7%	41.8%
2019	0.2%	1.5%	56.6%	41.6%
2020	0.3 %	1.8%	56.6%	41.1%
2021	0.7%	2.6%	56.1%	40.5%
2022	1.0%	3.0%	56.6%	39.1%

Source: Written evidence from SMMT (ELV0134)

76.Though increases in new EV sales will lead to increased supply to the used EV market, we heard concerns that demand may not keep pace. We were told that the most significant factor holding back used EVs sales was concerns about battery health. 62 per cent of consumers surveyed by the Green Finance Institute who said they would not buy a used EV cited concerns about battery lifespan as a reason.141 Similarly 64 per cent of drivers surveyed by Electrifying.com said they did not believe the battery would last as long as the engine on a petrol or diesel car, despite the fact that in many cases, EV batteries are guaranteed by the manufacturer for longer than the car itself.142

77.Witnesses suggested that these concerns were persistent misconceptions perpetuated by inaccurate media reporting.143 Toby Poston, Director of Corporate Affairs at the British Vehicle Rental and Leasing Association, told us that there are “myths about batteries that will not work and will rapidly lose their efficiency over a short space of time. The facts just do not bear that out.”144 Ken Byng, Senior Manager at CarTakeBack.com, noted that when EVs first entered the European market, “the general thinking was that the batteries would be good for about eight years. They have far outlasted that and have proven to be very resilient and to last a lot longer.”145 This was supported by the RAC.146 Professor Benjamin Sovacool, Professor of Energy Policy at Sussex Business School, told us that EV batteries can last for up to 20 years.147

78.Some witnesses suggested existing evidence about battery longevity and manufacturers’ guarantees needed to be better communicated to consumers as part of a broader information and communication campaign.148 Many also called for a cross-industry battery health testing standard to provide clear information and reassurance to consumers.149 This would also help facilitate the reuse of EV batteries at the end of a vehicle’s life, as discussed in Chapter 5. Zouk Capital suggested this could be administered by trusted organisations such as the RAC and the AA.150 We heard that industry is developing tools to increase the speed of battery condition tests, which are currently possible but take a number of hours.151 The Government told us it was working with industry “to explore options for improving the availability and standardisation of information for consumers on used EVs at the point of sale” and that this may include data on the remaining battery health or range of an EV.152

79.Another barrier that risks demand not keeping up with supply is the upfront cost of used EVs. We heard that the majority of EVs entering the second-hand market now are generally the higher value vehicles and SUVs favoured by early adopters and the leasing market.153 Jonathan Marshall, Senior Economist at the Resolution Foundation, noted that given current EVs are “predominantly premium, there are risks that structurally there may not be enough demand for the product from the usual used buyers.”154 Even at second-hand prices these higher value vehicles may still be unaffordable for the large majority. A June 2023 study found that only 29 per cent of the used electric vehicle stock was priced under £20,000. Marc Palmer, Brand Director at Auto Trader, told us this meant “the majority of electric cars available” were “well out of the reach of most buyers”.155 27 per cent of those surveyed by the Green Finance Institute who said they would not buy a used EV cited cost as a major factor.156

80.If supply to the second-hand market continues to increase without a corresponding rise in demand, this may lead to a sudden sharp loss in value, and a corresponding rise in prices charged to new leasing customers.157 We discuss this in further detail in the section on leasing below.

81.Since 2020, the Scottish Government has offered support for the purchase of second-hand EVs in the form of an interest-free loan for individuals, repayable over five years. The scheme is funded by Transport Scotland and individuals purchasing electric cars costing £30,000 or less are eligible to apply for a maximum £30,000 loan.158 We heard that the uptake of the loan has increased year on year, with 96 loans paid in 2020/2021 at a value of £1,214,738 up to 1,148 loans in 2023/2024 at a value of £26,384,256.159 At the time of writing the scheme has been closed to new applicants due to high demand.160 The Scottish Government is currently evaluating the future of the scheme.161

82.There are international examples of incentives for purchasing used vehicles. Ford told us that the UK was unique amongst its major European neighbours in only incentivising new purchases.162 In the Netherlands, grants of €2,000 are also available for purchasing or leasing a used EV. The grant is only available for cars that originally cost between €12,000 and €45,000 and that have a range of at least 120 km.163 Other submissions praised Scotland’s scheme of interest-free loans for used EVs,164 and welcomed France’s forthcoming social leasing scheme as a positive innovation.165

83.The majority of EVs entering the second-hand market will be the higher value cars and SUVs favoured by corporate fleets and early adopters. As such, even at second-hand prices they are out of reach of most consumers. The Government should review the schemes that other countries, including Scotland and the Netherlands have implemented to incentivise the purchase of second-hand EVs, evaluate their outcomes and explore whether similar schemes could be offered in England and Wales.

84.Consumer confidence in the second-hand market is also currently being undermined by uncertainty and concerns about EV battery health. We welcome industry’s work to develop a ‘battery health standard’ that would give confidence to consumers. The Government should accelerate its collaboration with industry to develop a ‘battery health standard’ that is objective and reliable.

Leasing

85.Electric car leasing is a type of car finance that serves as long term rental of an EV. Consumers sign a contract to pay a monthly fee in return for access to an EV for a fixed timeframe—normally between two and four years.166 At the end of the contract the EV is returned to the car leasing company. Leasing requires the payment of an upfront non-refundable fee, in addition to the monthly rental charge, typically equivalent to the first month’s rental.167 Leasing is available to both private and business customers. We heard that leasing can be helpful for consumers in managing the upfront cost of a vehicle.168

86.Leasing is structured around funding the car’s depreciation in value, and monthly leasing repayments are calculated around the expected used price of a vehicle—the greater the depreciation, the higher the amount to fund and therefore the higher the monthly leasing payment for consumers. If used car prices fall, monthly leasing payments will increase.169 Toby Poston noted that the low level of used EV sales is a source of concern for fleets,170 adding that there had been a fall in the value of used EVs of between 20 to 25 per cent on average.171 Data from the BVRLA shows a reduction in price of 35 per cent for used EVs between November 2022 and June 2023.172

87.Falling used car prices may in principle be welcome for consumers. However, as noted in the section on used vehicles above, EVs currently entering the used car market may still not appear attractive if consumers do not have confidence in the car’s battery health and the charging infrastructure, or if the used models available are limited to those that do not match their lifestyles. The BVRLA state that “as used [EVs] shift into the hundreds of thousands it will be far harder for supply to be slowed down if demand does not keep pace.”173 Figure 2 indicates Auto Trader’s projections of the number of EVs in thousands that may be registered in Great Britain through 2032:

Figure 2: Auto Trader projections of cars registered through 2032

Source: Written evidence from AutoTrader (ELV0094)

88.Auto Trader told us the used EV market is still maturing, and there are signs that the volatility seen in the first half of 2023 has since begun to stabilise and stimulate an increase in consumer demand. However, they also noted that most EVs are “still out of reach for the average used car buyer,” adding that it is “very likely” that there will be further periods of oversupply to the used market, with a possibility of “falling future values and structural weakness which will impact new EV affordability.”174

89.Incentives for purchasing used cars may also support the leasing market indirectly. Marc Palmer told us that incentivising used EV purchases “will bolster new [EV purchases]. It will give the manufacturers confidence and mean that monthly finance payments are within more people’s budgets.”175 Lauren Pamma, Programme Director at the Green Finance Institute, told us that incentivising the purchase of used EVs was equally as important as driving down the cost of new cars in supporting the EV transition.176

Salary sacrifice and benefit in kind schemes

Box 1: Salary sacrifice and benefit in kind

Salary sacrifice is one method of leasing an EV. Electric car salary sacrifice schemes are offered by employers. Under the scheme, a portion of an employee’s earnings before tax is automatically deducted and used to fund leasing repayments on an EV. This reduces the tax paid. The EV is leased from a third-party firm by the employer, who in turn leases it to the employee under the scheme. Servicing and insurance are typically included as part of the scheme. Benefit in kind tax, also known as company car tax, is paid by a consumer who takes a car under a salary sacrifice scheme (whilst making other savings on Income Tax and National Insurance). Drivers of battery EVs pay significantly lower benefit in kind rates at 2 per cent, compared to up to 37 per cent for the most polluting cars.

Source: Carwow, ‘Electric car salary sacrifice scheme explained’ (26 January 2023): https://www.carwow.co.uk/guides/buying/electric-car-salary-sacrifice#gref [accessed 29 January 2024] and Octopus Electric Vehicles, ‘How does Benefit in Kind affect electric cars?’ (12 December 2023): https://octopusev.com/ev-hub/how-is-benefit-in-kind-tax-changing-for-electric-cars [accessed 29 January 2024]

90.We heard the lower benefit in kind rate has been “the single most effective intervention to date” in incentivising the uptake of EVs.177 The BVRLA state that 91 per cent of new salary sacrifice cars in the first quarter of 2023 were battery EVs, while 43 per cent of all new leased cars in the same period were battery EVs.178 The Electric Vehicle Association England told us salary sacrifice “remains the one existing government policy that is having a positive impact on the uptake of EVs, and we have seen the increase in popularity of this option.” 179 We heard calls to extend this,180 for example by mandating companies with over 50 employees to offer the scheme.181

91.It must be noted that salary sacrifice schemes are not a panacea to enable affordable EVs for those on lower salaries. Though BVRLA data suggests that over 60 per cent of salary sacrifice users are basic rate taxpayers,182 we heard that some finance providers recommend that no one with an annual income below £27,000 consider this route.183

92.The EV leasing market has performed well, and salary sacrifice and benefit in kind incentives have been successful. Low benefit in kind rates should be retained, though as with all other financial incentives, the Government must plan for how they will be tapered and exited.

93.We heard some concerns about price volatility in the second-hand market and particularly the impact this may have on the leasing market. If used electric vehicle prices continue to drop, leasing companies will raise leasing charges for consumers—potentially making them less attractive than leasing ICEs despite the big fiscal incentives for electric vehicle leasing. The second-hand market remains immature and we would not recommend that the Government make any intervention now to prevent used prices dropping further. However, Government should monitor prices, and assess whether the leasing market continues to work well for consumers.

Taxation

94.Fiscal incentives will be crucial drivers of EV uptake until prices of EVs approach parity with ICEs. These must be part of a consistent and holistic approach to taxation, including road taxation. Besides the importance of a responsible approach to public finances, this is also crucial to send a consistent message to consumers. As Mr Kieran Smith, a respondent to the inquiry, told us, “consumers must be incentivised to swap over to [EVs] as they present a clear benefit to them and not because their current method has been made artificially unviable.”184 The tax system should be aligned with the Government’s overall policy objectives. Yet we heard concern that the current proposals to increase vehicle and road taxation while removing other upfront purchase incentives for EVs is “off-putting and not balanced with the broader policy aims.”185 Melanie Shufflebotham, co-founder and COO of Zapmap argued that “in the short term we need to use tax to incentivise people to make the shift.”186

95.An October 2022 report by Transport & Environment UK examined the extent to which countries across Europe used the tax system to incentivise private and corporate zero emissions vehicles. The figures below show the tax differentials between EV and petrol cars, which Transport & Environment UK found “broadly correlated” with EV uptake.187 Figure 3 shows that in the UK private owners of small EVs pay approximately €5,000 (approximately £4,300) less tax than small petrol vehicle owners over a ten-year period. Figure 4 shows that in the UK corporate owners of small EVs pay approximately €10,000 (approximately £8,600) less tax than small petrol vehicle owners over just four years:

Figure 3: Comparison of the tax incentivisation of petrol and electric vehicles across Europe (private ownership)

Source: Transport and Environment UK, The good tax guide: A comparison of car taxation in Europe (2022): https://www.transportenvironment.org/wp-content/uploads/2022/10/The-good-tax-guide_updated_07.11.22.pdf [accessed 29 January 2024]

Figure 4: Comparison of the tax incentivisation of petrol and electric vehicles across Europe (corporate ownership)

Source: Transport and Environment UK, The good tax guide: A comparison of car taxation in Europe (2022): https://www.transportenvironment.org/wp-content/uploads/2022/10/The-good-tax-guide_updated_07.11.22.pdf [accessed 29 January 2024]

96.At present, EVs in the UK are exempt from Vehicle Excise Duty (VED).188 However, this is set to change with the Government planning to introduce VED for zero emission cars, vans and motorcycles from April 2025 (though zero emission vehicles will still have preferential first year rates of VED in comparison to the most polluting vehicles).189 SMMT suggest that the exemption should be extended.190 The Government told us that the existing approach had been successful in encouraging early adoption, but that “given the increase in the number of zero emission vehicles on the roads, it is right to begin to bring EVs into the motoring tax system. This will ensure that all motorists start to pay a fairer tax contribution.”191 Toby Poston told us that “You will have a situation where literally overnight, or very quickly, someone goes from paying zero annual road tax on an electric vehicle to paying nearly £600. Again, that sends the wrong message or a very scary message to some people who are dipping their toe with a new or used electric vehicle.”192

97.The Government noted that favourable benefit in kind rates will continue to drive the uptake of new zero emission vehicles.193 However, we heard concerns that this is not enough. One former battery EV driver told us:

“Road tax is being introduced, reduced cost parking has been withdrawn, charging costs have increased, grants have been withdrawn, depreciation is very high, insurance costs more, tyres are more expensive, range is limited, charging away from home is a nightmare—I don’t see much benefit these days, hence my return to a hybrid ICE after 5 years.”194

98.New zero emission vehicles are also exempt from the Expensive Car Supplement, but this is likewise set to end in 2025. Cars with a list price above £40,000 pay a surcharge, currently set at £355, for the first five years following the first year of registration. The VED Expensive Car Supplement will only be applied to zero emission vehicles registered on or after 1 April 2025.

99.Overall, road and fuel taxation must be considered holistically, and clarity set out for consumers. We heard that current uncertainty is causing nervousness. Lauren Pamma told us “There has always been a big debate about what will happen if fuel duty disappears and how we will be charged instead. Consumers are thinking, ‘Okay, if I take this now, I understand the costs for the next year, but what if in 12 months something else comes in?’”195

100.We heard suggestions for a “bonus-malus”196 approach to taxation, whereby grants to incentivise the uptake of EVs are balanced out by a tax applied to the purchase of a petrol or diesel vehicle.197 In the Netherlands, for example, a purchase tax is applied to new ICE vehicles.198 We also heard suggestions that the Government unfreeze fuel duty to disincentivise polluting behaviour and raise revenue for EV subsidies.199

101.Stellantis also told us there should be “a review of motoring taxes to ensure the transition to EVs is not undermined.”200 This was highlighted in January 2022 by the Commons Transport Committee, whose report on road pricing found that urgent action was required to reform motoring taxation.201 However, we recognise that any plan to replace fuel tax by road pricing will diminish the relative attraction of EVs and ICEs. The OBR said that “in 2023–24, we expect fuel duties to raise £24.3 billion” and that this is equivalent to £867 per household.202 The report concluded that the Government “must ensure that any alternative road charging mechanism incentivises motorists to purchase vehicles with cleaner emissions while contributing tax revenues to support the maintenance of the road network.”203 The Urban Transport Group told us that Norway, which leads the world in EV adoption, began redesigning its tax structure with the automotive industry over 30 years ago to prepare for the transition, and that “The accumulation of these EV tax breaks, plus the considerable 25 per cent tax on fossil-fuel cars, makes EV models in Norway often more affordable than ICEs.”204

102.It is important that the Government plans carefully for the tapering and exiting of any fiscal incentives to promote EV uptake. Andreas Hedum, Senior Advisor in the Environmental Affairs Section in the Ministry of Transport in Norway told us this was “a very relevant question for Norway”, noting that “it is not easy to remove incentives when they are first introduced into politics, so it gets a lot of attention”.205 Frank Burmeister, Program Manager of Electric Transport, Ministry of Infrastructure and Water Management in the Government of the Netherlands noted that if a bonus-malus approach to taxation is successful, the revenue from excess duties on petrol will eventually decline, removing funds available to be targeted at incentivising EVs.206

103.The Government must also consider the overall equity impact of fiscal incentives. We heard in Norway that the single tax rebate for a current battery electric vehicle, such as a Tesla Model S, amounted to the equivalent of subsidising 20,000 bus tickets207. Professor Benjamin Sovacool noted that this shows “how certain incentives could benefit private automobile owners rather than others.”208

104.It is crucial that the Government considers road taxation alongside other fiscal measures taken to drive EV uptake, giving consumers a clear and consistent steer on future total motoring costs. As the UK transitions away from petrol and diesel vehicles, road taxation will need to be fundamentally redesigned, including issues like road pricing. We support the conclusions of the House of Commons Transport Committee’s January 2022 report that comprehensive reform of road taxation is needed, to start an honest conversation with the public and work towards a system that is seen as fair and enjoys public acceptance. We note the urgency of this has only increased in the intervening two years. In response to this report, the Government should urgently provide a progress update on work in this area.

Micromobility and L-category vehicles

105.We heard that private car ownership will likely remain the dominant car use model into the future. However, micromobility and L-category vehicles are likely to play a small but important role and make significant contributions to electrifying the transport network and lowering emissions, particularly in urban areas.209 In order to realise this potential, we heard that legislative and regulatory changes will be needed.

Box 2: Micromobility and L-category vehicles

Micromobility vehicles are small, lightweight vehicles intended to operate only at low speeds, below 15 miles per hour, including e-bikes, e-scooters and cargo bikes. Shared micromobility refers to services whereby these vehicles can be accessed without the need to own one, enabling flexible, affordable and environmentally friendly transportation. According to the UK Government website, L-category vehicles include light 2-wheel powered vehicles, 3-wheel mopeds, 2–3 wheel motorcycles, and a range of tricycles. Vehicles are classified into different letter categories based on power and size for regulatory and trade purposes. Motorbikes and scooters currently account for the largest part of the UK market for L-category vehicles. These vehicles, unlike micromobility vehicles, require a driving licence.

Source: Department for Transport, ‘L-category vehicles: ending sales of new non-zero emission models’, (14 July 2022): https://www.gov.uk/government/consultations/l-category-vehicles-ending-sales-of-new-non-zero-emission-models [accessed 25 January 2024]

106.These vehicles may have particular use in filling gaps in public transport provision as a “first/last mile” mode to connect to public transport options.210 We heard that L-category vehicles make more efficient use of resources than passenger cars, produce less greenhouse gas emissions, and could replace a significant proportion of EV passenger trips.211 According to research cited by the Urban Transport Group an evaluation of e-bike schemes across continental Europe found that typically around half of e-bike trips replaced those previously made by car.212 According to WMG, the energy required to move an e-scooter emits approximately 5 per cent of the carbon that even an electric car does for the same trip, and it produces a “tiny fraction” of the carbon in manufacturing.213 WSP praised shared micromobility schemes such as that in Bristol, stating that e-scooters and e-bikes have been able to satisfy a latent demand previously constrained by a lack of mass transit or urban rail provision.214

107.The EV transition must be considered as part of a broader strategy around modal shift. Marc Palmer told us:

“over time, we would like to see more of a change in the way people move around, rather than just a reliance on the car. They will still have a car, but there are other alternatives for them. However, that will take a lot longer than going towards 2030, and that target is fixed.”215

108.Stellantis, which has recently launched the Citroen Ami micromobility vehicle in the UK told us they believe these vehicles have a “valuable role”.216 Toyota also told us they were committed to developing “new sustainable, micromobility solutions.”217

109.We heard that the Government was enthusiastic about the role these vehicles might play in the future. Richard Bruce, Director of Transport Decarbonisation at the Department for Transport told us:

“you are already seeing far greater granularity in the mobility solutions available to people … You are seeing things that are not quite cars and that are not quite mopeds. That is a good thing, because there are more solutions for people. The question is: is the regulatory structure keeping pace with that change? Sometimes you are trying to regulate mobility solutions with legislation from the 19th century and that does not work. That is a constant challenge.”218

110.We heard that concerns around safety are limiting uptake of L-category vehicles. The Association of British Insurers told us that most L-category vehicles underperform in safety metrics compared to regular passenger cars, and that “many may lack safety features that are standard on other passenger cars.”219 Mark Tisshaw suggested that their uptake may remain limited due to a “lack of refinement and practicality” for the majority of drivers.220

111.Several submissions and reports from the sector highlight the need for improved regulation in this area to unlock the benefits of L-category and micromobility vehicles in line with the Government’s ambitions and ensure that they are “safe, appropriately licensed and accessible”221. Particularly important is improved regulation regarding the manufacturing of battery packs to reduce the risk of fire, alongside a range of other safety inspections to reassure industry, insurers and consumers.222 We also heard calls for standardised e-scooter regulations223: WSP told us that “The lack of appropriate legislation around light electric vehicles for personal mobility is resulting in many unrestricted and often unsafe vehicles appearing on our roads, spurred on by the difficulty in enforcing non-compliant and modified vehicles.”224 This was echoed by individual submissions: Mr David Craik noted that the introduction of electric scooters and bikes had appeared “largely unregulated and unenforced, leading to poor public perceptions.”225 WSP called for the Government to declare its position on micro-mobility vehicles, particularly on the legality of e-scooters: “whether this is through the adoption of a new vehicle classification or alternative, this would allow more people in dense urban areas to shift away from private car use”.226

112.The Government originally announced plans to develop a micromobility regulation system in the Future of Transport Bill, announced in debates on the 2022 Queen’s Speech.227 However, such a Bill has yet to be brought forward, and did not feature in the 2023 King’s Speech.228

113.L-category and micromobility vehicles (such as e-scooters) may make a small but important contribution to the EV transition, particularly in urban areas. However, uptake is being held back by insufficient safety regulations around both their manufacturing and use. In response to this report, the Government should confirm whether it has abandoned previous plans to legislate in this area, and if so why.

Car clubs

114.We also heard that there is a small but important role in the transition for car clubs and renting. Car clubs have increased in popularity in recent years: according to CoMoUK the total fleet size of car clubs across the UK is nearly 6,000 vehicles, and membership of UK car clubs now stands at over 750,000, an increase of 113 per cent compared to 2019.229 Witnesses identified room for further expansion, noting that the UK’s membership figures represent around 0.5 per cent of the population, compared to 3 per cent in Germany230—the UK’s total fleet is 33.6 million passenger cars.231 According to research commissioned by the Local Government Association, EVs account for 11 per cent of the car club fleet compared to 1 per cent of private vehicles.232

Box 3: Car clubs

Car clubs are short-term car rental services that allow members to access locally parked cars and pay by the minute, hour or day. Car clubs provide an alternative model to private car ownership for individuals and businesses, offering occasional car travel and reducing the need for private parking and the upfront costs of car purchase.

Source: Transport for London, ‘Car clubs’: https://tfl.gov.uk/modes/driving/car-clubs [accessed 25 January 2024]

115.We heard that car clubs had been successful in providing an opportunity for consumers to try an EV without committing to purchasing one. We heard that around 130,000 members have already driven an EV with car club Zipcar.233 However, in written evidence the RAC noted that dependency on the private car remains at very high levels with more than eight in ten surveyed by the RAC saying they would struggle to adjust to a lifestyle without private car ownership.234 Mark Tisshaw, Editor of AutoCar, also told us that “car clubs can play a useful role for people who occasionally require a car, but their comparatively high costs, limited availability and reduced convenience means private ownership will remain the preferred choice for most motorists.235

116.Phill Jones cited research showing that currently only 17 per cent of people would be willing to share their car.236 However, he suggested that driving behaviour change through wider industry and government incentives was possible but would depend on a range of factors.237 James Taylor told us that for car clubs to work, “you need other options, be that shared bikes, shared scooters, public transport, segregated walking and cycling places. It is all those kinds of things, and when those packages come together, that can help to change that behaviour and provide the market conditions for operators to come and set up a new service.”238 Marc Palmer echoed this, noting that while “most people still want to own their car and still want to have it for themselves and have exclusive use” a coherent strategy including L-category vehicles, car clubs and public transportation is necessary “because, over time ,we would like to see more of a change in the way people move around, rather than just a reliance on the car.” He added that alongside preparing for the EV transition in the shorter term, the Government should also “start making changes so that people will understand how they can change lifestyles over the longer term.”239

117.Witnesses welcomed the credit for car club vehicles included in the ZEV mandate, whereby a manufacturer providing vehicles to the car club market receives one and half credits, rather than one as for a standard vehicle.240 CoMoUK also welcomed that car club-specific charging infrastructure is now eligible for funding from Government schemes.241 James Taylor suggested that car club operators and users could also be given preferential access at chargepoints as part of a “package of incentives” to promote shared car use.242 However, we note that the root issue is the need to rapidly expand the charging infrastructure, and while the EV transition remains immature, creating less preferential access to private EV owners could create disincentives for consumers who have made or are looking to make the switch to EVs. Transport & Environment UK told us that ensuring there is sufficient and suitable charging infrastructure for these and all EVs is crucial.243 We discuss this further in Chapter 4.

118.Car clubs may make a limited but important contribution to the EV transition, and constitute an important part of a broader modal shift in transport use. While private car ownership will likely remain the default mode of car use for some time, for those who require occasional car use they present a more cost-effective and environmentally-friendly alternative. Car sharing will likely become increasingly significant as the Government looks to legislate for the future of autonomous vehicles. We welcome the credit for car club vehicles included in the ZEV mandate. To support car clubs further, the rollout of chargepoints must be accelerated. We discuss this further in Chapter 4.

Upfront versus lifetime costs

119.We heard that the higher upfront costs of EVs may partly be balanced out by lower running costs, and this should be highlighted to consumers. Professor Benjamin Sovacool told us: “The total cost of ownership of an EV is already cheaper over 30 years than it is for a conventional car … if we only thought about fuel savings into the future, everyone would already be adopting EVs.”244 Lauren Pamma also noted that maintenance costs for EVs are typically lower, and EV drivers do not currently have to pay vehicle excise duty or emissions standard based charges such as London’s Ultra Low Emission Zone.245 However, future changes to road taxation and the removal of exemptions for EVs may significantly affect the total cost of ownership assessment.

120.Despite recent volatility in energy prices, the Climate Change Committee’s most recent Progress Report indicates that all types of EV charging except rapid/ultra-rapid charging is cheaper than both petrol and diesel:

Figure 5: Changes in per-mile cost of driving, for a typical fossil-fuelled and electric car

Source: Climate Change Committee, 2023 Progress Report to Parliament (June 2023): https://www.theccc.org.uk/wp-content/uploads/2023/06/Progress-in-reducing-UK-emissions-2023-Report-to-Parliament-1.pdf [accessed 29 January 2024]

121.Nevertheless, we heard that following recent energy price volatility, consumer confidence in the long-term fuel savings of EVs may have been weakened.246 We also heard that upfront cost remained an easier measure of expense and value for customers to understand, and that longer-term savings are “really hard for consumers to work through.”247

122.Maintenance is a key component of lifetime costs. We heard that though EV drivers are likely to face lower maintenance costs overall248, individual repairs may be more costly.249

123.According to HEVRA, upskilling for car mechanics is progressing at a good rate. However, some submissions raised concerns that recent policy uncertainty and uneven messaging from Government have been unhelpful. Mechanics were reportedly taking advanced EV courses in light of the 2030 phase-out date; submissions raised concerns that this might now slow due to the Government pushing back the target date and perceptions of doubt being cast on the transition. This may result in greater skills gaps and ultimately more expensive services for consumers.250 However, as the ZEV mandate is unchanged and will increase the number of EVs on the road, car mechanics will have to learn how to maintain EVs long before 2030.

Safety and insurance

124.Some written submissions to our inquiry raised concerns about the fire risks of EVs, citing their higher insurance rates.251 Others, including the Association of British Insurers, told us that the fire risk does not exceed that of traditional ICE vehicles.252 The reasons cited for higher insurance rates varied in the evidence we received, but were mostly attributed to regulatory uncertainty around handling EVs and writing off their components in the event of a crash. Mike Hawes told us that “Insurance companies do not have all the data about the cost of repairs and they tend to write off EVs much more readily than they would another vehicle. They would argue that the cost of repair, because it is a more expensive vehicle, is likely to be higher, so it is a higher degree of risk and uncertainty.”253 Introduction of a cross-industry battery health testing standard as discussed in paragraph 78 could help to provide clarity around the condition of an old or damaged battery.

125.Even at current upfront prices, the lifetime costs of an EV (to the driver) are likely to be lower than ICE equivalents overall (with present road and fuel taxes). Nevertheless, there are several factors Government should address to reduce these lifetime costs further.

126.To ensure maintenance costs remain reasonable, there must be a sufficient number of skilled mechanics trained to maintain EVs. While EVs generally have lower maintenance costs, any skills shortages among mechanics may mean more expensive services for consumers. In line with the communications campaign we call for, the Government must now provide policy certainty and consistent messaging to give car maintenance workers the confidence to invest in upskilling.

127.We expect data on EV safety and the cost of repairs to improve as the EV market matures, and help lower insurance premiums. However, consumers understandably need clarity and reassurance about the safety of new technologies in order to confidently choose EVs. As we set out in Chapter 5, greater regulatory certainty over batteries is needed to support industry and waste management facilities—this should also provide added certainty for consumers and the insurance industry.

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