Private car sales down and EV sales short on government target

The car market is up 1.1% but it’s being driven by sales into the fleet sector at the expense of private (retail) sale which are languishing under 40% of the total. OEM profitability is always better supported by a stronger private market so this hurts.

Six months into the first year of the ZEV Mandate electric vehicle sales are flat in market share terms at 16.6% and theoretically well shy of the 22% mix levied on all OEMs above 1% market share. This is despite increasing availability of marques and models offering, better performance and lower pricing than ever before.

The run rate on EVs is behind the target and the potential consequences for the sector are reaching existential levels for some investors. With little or no mention of environmental policy from any of the main parties during the interminable GE campaign it is becoming clear that cleaning up vehicle emissions as part of the UK’s commitment to Net Zero is not considered a vote winner.

Where is it going wrong?

It’s complicated, nuanced and regrettably political. The overall market for new vehicles has rebounded from the COVID disruption but is not returning to pre-pandemic levels when we would normally expect registration of c2.2m. SMMT suggest we might scrape 2m units this year and similar in 2025. The cost-of-living increase, higher interest rates, inflation and the ZEV mandate are all to blame. Not enough new cars are affordable to enough private buyers in the current economic climate.

The fleet market is healthier, particularly for EVs as fleets were starved of allocation during the pandemic, change cycles were extended and therefore there is an element of “catch up” to the market. The relatively favourable tax terms on EVs for business also bias uptake of the product to fleets and many manufacturers are insisting on EV / ICE mix quotas in their commercial terms.

Private buyers enjoy no such tax incentives and whilst we are seeing more significant discounting of EVs to try and attract buyers it’s not driving the incrementality required to

1. Hit the OEM targets with more profitable sales
2. Build a critical mass of EV enthusiasts

There is no doubt that that Rishi Sunak’s policy revision from November 2023 has had a detrimental impact on demand for EVs which seems ironic given it was the current government that placed Build Back Greener as its key Net Zero strategy published in October 2021. Another irony is that whilst the Prime Minister signalled to the public that there was no rush to buy an electric vehicle, the ZEV legislation is materially the same as far as car manufacturers are concerned. The targets and cadence to 2030 are unchanged. Demand is diminished.

Mass adoption of EVs requires that sales extend below the middle class early adopters and environmentally motivated. Affordability, access to charging infrastructure and an increasingly negative media bias are all barriers to achieving this and we must hope that there will be political clarity and certainty. If government choose to intervene in markets then they must recognise that the biggest pivot in energy source since the industrial revolution will not be something they can interfere with and then abdicate from. The stakes are too high, and the transition is longer than a fixed term Parliament.

Risks

At this stage it looks unlikely that EV adoption will reach the targeted 22% threshold stipulated by the ZEV Mandate. The current run rate and some manufacturer strategies look to be more in favour of restricting supply of ICE vehicles which may lead price increases for those vehicles as the OEM alter volume/mix to sustain profitable operations.

At the end of June Stellantis re-iterated its position with regard the future viability of its two UK manufacturing facilities. The plants, employees and supplier base are at risk if the current demand levels for EVs does not drastically increase. Huge investment has been made to produce electric vehicles in these plants and others in the UK.