The problem with the Zero Emission Vehicle mandate

But scarcely a week goes by without an email landing in my inbox telling me how EV sales are on the up with happy consumers turning to battery power in droves. These Panglossian missives are usually from outfits with a dog in the race, but the truth is a lot more complex and dirtier. Back in November Guy Pigounakis, MG UK’s commercial director, blew the lid on what he called ‘the industry’s dirty little secret’.

He was talking about the bizarre incentives introduced by the Zero Emission Vehicle (ZEV) mandate, which requires car makers to register a certain percentage of electric vehicles each year, with fines of £15,000 for each non-compliant vehicle, or £18,000 per van. For 2024, the target was for EVs to comprise 22 per cent of new car sales, 28 per cent in 2025, rising to 100 per cent by 2030.

‘Never in my long career have I seen a piece of legislation that has so fundamentally changed the way we design, build and bring cars to market,’ said Pigounakis, ‘and [it] will continue to do so in its current guise.’

Pigounakis was speaking the day after Vauxhall announced the closure of its Luton van plant with the loss of 1100 skilled jobs, with part of the blame aimed at the cost of meeting the ZEV mandate.

The Society of Motor Manufacturers and Traders (SMMT), the UK industry body, reckons that meeting the cost of the ZEV mandate will have cost the industry about £6 billion this year, but it’s also forcing car makers to register increasing proportions of EVs, many of which haven’t actually been sold to real customers, which is artificially skewing the free market.

At the end of November, the headline figure was that EV registrations were showing a 14.2 per cent year-on-year increase, with a total EV mix of new car registrations at 18.1 per cent, itself well short of the 22 per cent required under the mandate. But closer examination reveals a rather different and far less rosy picture.

Private EV sales of 59,500 were 3.8 per cent down year-on-year, true fleet registrations of 142,174 only 1.6 per cent up; it is dealer and manufacturer registrations which are up 12.8 and 27.8 per cent respectively, with demonstrator cars up 37.7 per cent and Motability registrations of 48,750 representing a 110.4 per cent increase.

Such has been the push of EVs into Motability, the UK disabled mobility charity, the organisation has called a halt to them. ‘The rate of rejection from Motability customers has been high,’ says Pigounakis. ‘So many cars have been sold into this market that Motability has decided it has too many EVs on its fleet and manufacturers have had to draw back.’

Elsewhere car makers have been effectively leasing cars to themselves, with what are called ‘captive sales’: registrations to employees, friends and family, demonstrator cars and dealer registrations are all up by double figures.

It amounts to a lot of extra EVs, not necessarily reflected by actual genuine demand, and the potential write down of value of those cars when they eventually hit the market is causing major headaches. In short, there’s a huge write down liability which no one is talking about.

‘They won’t even admit it to themselves,’ says Pigounakis. ‘It’s a massive liability which they aren’t putting on the books.’

As we went to press the SMMT released the total market new car registration figures for 2024. The headline figures were moderately good, with a market up 2.6 per cent year-on-year with 1.953 million new car registrations. Battery electric vehicles did well, too, up 21.4 per cent year-on-year with a market share of 19.6 per cent and top sellers – Tesla’s Model Y, Audi’s Q4 e-tron, Tesla’s Model 3, the MG4 and BMW’s i4 – performing strongly.

But the devil is in the detail. Apart from the £6bn it cost the industry to achieve those BEV registration figures, they’re still under the 22 per cent required by the ZEV mandate and according to the SMMT private demand for BEV has been ‘lacklustre, with only one in 10 choosing an EV in 2024’. Fact is, ordinary folk are most reluctant to make the change and for fleet buyers, the incentives to the staff and the company, plus the discounted prices from car makers anxious not to attract fines of £15,000 for each non-compliant car, means BEVs have become a bit of a no-brainer.

While an eisteddfod of pundits and acolytes have flooded the air waves eulogising the headlines, no one wants to listen the undercurrents. Indeed when I initially reported Pigounakis’s revelations, I was taken to task by one well-known commentator for being a climate denier.

Even Jonathan Reynolds, the UK business secretary, admits that the ZEV mandate is ‘not operating today in a way that anyone expected’. At the time of writing, the Government is meeting car makers and interested parties about potential changes to the mandate. Well, it would be if the Department for Business and Trade and the Department for Transport could get their act together. One of the UK’s largest car makers wasn’t invited to the first meeting until just hours before it actually happened.

These meetings have been held under Chatham House rules, where sources of information cannot be identified, but one car maker present told us that while the talks are generally positive, ‘everyone’s got their own agenda and some of them are conflicting.’

And outside of the hallowed halls of the DfT on the Horseferry Road, the debate is taking place with megaphones. Charge UK says its members’ proposed investment of £6bn between now and 2030 is at risk if the ZEV mandate is changed, but this is under the shadow of the Luton closure, where it will be a tough new year for those affected. The motor industry employs 813,000 people in the UK, with a £93bn annual turnover, £22bn added to the UK economy and 12 per cent of all UK exports, not to mention £4bn in research and investment. How much of it is at risk is difficult to say, but some certainly.

As another car maker at the meeting told me: ‘the Government has inherited a set of targets and while it’s very good at listening, it doesn’t quite know what to do with them.’

In November, Reynolds told the SMMT annual dinner that he wanted to do ‘everything possible to make sure that EVs are built here in Britain.’ I’ll let you into a secret Jonathan, there are no mass-produced EVs built in Britain. Not one. What’s more, with announced merger talks taking place between Nissan and Honda, they might never be.

And the Government seems oblivious to the fact that Chinese car makers (such as MG) are leveraging their low cost of production and Chinese Government incentives to undercut European car makers. The UK Government has been warned by Toyota and Nissan that they might be forced to leave the UK, but it still has no plans to replicate the anti-Chinese EV tariffs in force in Europe. I can’t help thinking they’ll be like silent assassins to the Government’s fine words, packing up and disappearing without a word of explanation or apology just as Honda did from Swindon.

Perhaps in years to come, we’ll rue the day we didn’t support even the rump of car makers left in the UK just as they do in France, Germany and Italy, but somehow I doubt it. In the meantime enjoy the show, but read the small print, pay attention to the details, remember that target setting is no substitute for creating sustained and genuine demand, and take all those claims with a large bucket of salt…