UK: EV sales dip, demand rises to cut VAT

The UK has witnessed a notable 18% surge in new car registrations, reaching 1.9 million in the past year, a substantial increase from the previous year’s 1.6 million and the highest level since 2019’s 2.3 million registrations. Despite this positive development for the automotive industry, the demand for electric vehicles (EV) has plateaued, prompting calls from the industry for a reduction in value-added tax (VAT) to stimulate EV sales.

According to annual figures released by the Society of Motor Manufacturers and Traders (SMMT), 315,000 new battery electric vehicles were sold during the year, marking an increase of 50,000 compared to the previous year. However, the percentage of EVs in relation to total registrations remained stagnant at 16.5%, slightly lower than the previous year’s 16.6%.

This lackluster growth in the electric vehicle market is concerning, given the UK government’s ambition to phase out petrol, diesel, and hybrid vehicles by 2035, although this target was amended by Chancellor Rishi Sunak in September to 2030. To bolster the transition to zero-emissions vehicles (ZEVs), the SMMT is advocating for a 50% reduction in VAT on all new ZEV purchases over the next three years.

This proposal, amounting to an average saving of £4,000 per purchase, is estimated to save consumers a total of £7.7 billion over the period and could result in an additional 250,000 ZEVs on the road by 2026.

Mike Hawes, the CEO of SMMT, emphasized the need and demand for consumer incentives to make the UK a leading European market for ZEVs, urging the government to support drivers in embracing the transition.

Fleet deliveries, primarily catering to the car leasing market, contributed significantly to the overall increase in registrations, accounting for just over 1 million of all cars sold, reflecting a 38.7% rise from the previous year.

While the sale and demand of hybrid electric vehicles also rose to 380,000, making up 20% of all new registered vehicles, superminis, such as the Ford Fiesta and Vauxhall Corsa, continued to dominate the market, comprising nearly 30% of all new vehicles.

Hawes believes that a VAT cut on new ZEVs could be a crucial step in revitalizing electric vehicle sales, especially for those consumers who may be hesitant to adopt EVs. The SMMT argues that this targeted support is essential for achieving the government’s environmental objectives and fostering broader EV adoption.

Despite the government’s previous financial incentives, which included grants of up to £1,500 for new electric vehicle purchases, the industry suggests that additional measures are needed to drive mass-market adoption and overcome consumer hesitancy.

In 2022, the UK government terminated its last financial incentive for private electric vehicle buyers by ending grants of up to £1,500 for new purchases. Mike Hawes pointed out that the removal of previous consumer support for EV uptake occurred too early. While early adopters have embraced electric vehicles, the challenge lies in reaching the broader market, particularly those who may be more hesitant to make the transition.

The proposed VAT cut on new ZEVs, according to Hawes, is a timely and targeted measure that is time-limited, appropriate, and aligns with both consumer needs and the government’s environmental goals.

The government, however, defended its commitment to promoting the shift to electric vehicles, highlighting that it has allocated over £2 billion to reduce purchase costs for drivers and invest in the necessary infrastructure. Initiatives such as local electric vehicle infrastructure funding, targeted plug-in vehicle grants, and low first-year vehicle excise duty aim to support the widespread adoption of electric vehicles.

Despite the increase in overall car registrations being largely driven by fleet deliveries, the stagnant growth in electric vehicle adoption poses a challenge to the UK’s ambitions for a sustainable automotive future. The SMMT’s call for a VAT cut on new ZEV purchases reflects the industry’s plea for decisive measures to accelerate the transition to electric vehicles, aligning with the government’s ambitious targets for a greener transportation sector.

As the automotive industry grapples with global supply chain challenges and a shortage of crucial computer chips, the positive uptick in overall car registrations provides a welcome boost. However, the industry recognizes the urgency of addressing the plateau in electric vehicle demand, emphasizing the need for collaborative efforts between the government and stakeholders to ensure a sustainable and environmentally friendly future for the UK’s automotive sector.

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