Driving the transition to electric vehicles

The uptake of low-carbon vehicles is motoring ahead, but incentives are still needed to overcome buyer concerns. Here, the Future Mobility Group explores what the UK can learn from the Big Five auto retail markets in Europe about encouraging transition and supporting the road to zero.

While 2020 saw a big increase in sales of battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) in the UK, there is still a long way to go before the market can move to 100% plug-in – and there are now only nine years left to achieve that.

As long ago as 2009, the UK government proposed an incentive to boost the transition to electric vehicles (EVs), with the first subsidy incentives introduced in 2011 for cars and 2012 for plug-in vans. Subsidy levels have decreased in the years since, but there are still substantial financial incentives in place to support the transition – a full list of the grants available can be found here.

For cars, the UK government announced on 18 March 2021 that it was reducing the maximum value of the grant from £3,000 to £2,500 as well as reducing the level at which the grant would apply. Previously the £3,000 was available on vehicles up to a value of £50,000. The £2,500 will only be available on vehicles up to a value of £35,000. This limits the current vehicles that are applicable considerably and only time will tell whether this has a positive or negative effect on EV transition.

How long the incentive stays in place will be driven by the take-up of the vehicles. While there is currently no date in place for the review of grant amendments, it is likely that support will decrease over time. As EV adoption rates increase, it will be difficult for governments to maintain the same level of incentives.

So, are current levels of support enough to convince UK drivers to switch to EVs, and how do they compare to the incentives offered in countries across Europe?

The answer to the first question is: possibly not. While 2020 saw sales of BEVs and PHEVs increase to an all-time high, this may have been largely due to committed EV buyers, coupled with the impact of the pandemic on the overall automotive market. It is likely that once Covid-19 passes, internal combustion engine (ICE) sales will recover to some degree. Market share numbers were up strongly from 2019, but this was clearly helped by a crash in the automotive retail market overall. The UK public is perhaps not yet ready to make the transition in droves, so would more enticing incentives encourage wider adoption?

Learnings from the European Big Five

In continental Europe, recent activity suggests that improved incentives, rather than a sliding-scale reduction, could help sustain and possibly accelerate the growth that was seen in 2020.

So what is happening on the European mainland?

In Germany, a revised offering was introduced in mid 2020 to help the automotive market stabilise in light of the impact of the pandemic. There were grants of €9,000 on BEVs and €6,750 on PHEVs. This, aligned with tax incentives on company car lease schemes, saw some exceedingly cheap offers, with one dealer group offering the Renault Zoe on a lease scheme that was essentially free. While that may have been a one-off, the new levels of grants have resulted in some very cheap lease schemes on offer, driving high volumes of traffic to German dealers.

Norway has been introducing zero-emission vehicle incentives since the early 1990s… At the end of 2020, battery electric vehicles accounted for 54% of the Norwegian car market.

The story in France is much the same. Grants for new vehicles (BEVs) with less than 20g/km of CO2 have been introduced – up to €7,000 per household – and a scrappage scheme that can offer up to €5,000 per household. Again, this has seen a sharp rise in sales.

Italy and Spain have also bolstered their support for the electric transition. Spain did not have any subsidies in place before the global pandemic, but has since introduced incentives of up to €5,000 for BEVs and €2,600 for PHEVS. Italy has increased its incentives and is now offering up to €6,000 for cars that emit less than 70g/km of CO2.

Where Norway Leads, will others follow?

If the Big Five nations of Europe are looking for a case study for 2021 and beyond, they could learn a thing or two from Norway.

The trailblazer for EV transition, Norway has been gradually introducing zero-emission vehicle incentives since the early 1990s, with a national goal that all new cars sold by 2025 should be zero-emission (electric or hydrogen). At the end of 2020, BEVs accounted for 54% of the Norwegian car market (330,000 BEVs). Compare that to the Big Five of Europe, and while there is evidence that incentives are having a positive impact, it is clear they have a long way to go to catch up with Norway.

The list of incentives introduced over the last 30 years is long, but at the core of the Norwegian strategy is that it should always be economically beneficial to choose zero- and low-emission cars over high-emission cars. Highlights have included no purchase or import taxes (in place since 1990) and exemption from 25% VAT on purchase of a BEV (in place since 2001). These elevated incentives have generally gone hand in hand with sustained infrastructure investment.

There is no doubt that incentives can play a big role in influencing buyer behaviour across Europe. However, as has been proven in Norway, it is not just incentives that drive behaviour change. Tax breaks are also key, as demonstrated by the UK’s benefit in kind (BIK) tax, which has seen a resurgence in company car salary sacrifice schemes to facilitate BEV purchases. The headline incentive does not seem to be the key determinant for take-up, but its existence is necessary – a fact that is illustrated by Spain and Italy. Consistency and certainty are also important. There is no longer such a need to go to Norwegian levels of subsidy, given increased vehicle choice and price points.

Consumers continue to have concerns over range and charging infrastructure when it comes to BEVs, and arguably many are still unclear about the total cost of ownership savings that can be made by switching from ICE to BEV. No amount of subsidy is going to alleviate those concerns for some.

The challenge of sustaining growth

Governments will potentially need to monitor the technology developments of OEMs, as well as the advances made in charge-point infrastructure and transition rates, and balance their incentives and investments accordingly. They would do well to compare developments already under way in the UK with those playing out across the North Sea.

The UK is the only one of the Big Five car retail markets in Europe to reduce its incentives for the electric transition. Some would argue the country made that reduction ahead of the pandemic and it still saw strong growth in the BEV and PHEV markets. But what is needed to sustain that growth?

Time will tell, but it is clear that knowing when to increase or decrease the levels of incentives that support electric transition will be a difficult balancing act over the next few years if we are to avoid stepping on the brakes of transition.

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