Will EV Sales Hit 22% Target This Year?
By Paul Homewood
There has been some discussion about how much ZEV allowances are “worth”. As with everything, it depends on supply and demand.
Last year BEVs accounted for 16.5% of car sales:
https://www.smmt.co.uk/vehicle-data/car-registrations/
If the numbers stay the same this year, BEVs will fall 104,000 short of the 22% mandated target.
In simple terms, this will mean UK car manufacturers in overall terms will either have to pay the £15,000 fine or “borrow” from next year’s targets, something which has been described as like ‘payday loans’ and the start of a ‘nightmare’. This is after surplus allowances have all been bought up. (The situation is slightly more complex, as manufacturers can convert CO2 emissions allowances to meet their obligation – Toyota, for example, has primarily sold hybrid cars for several years and as a result has had an exceptionally low fleet CO2 average, which is something it will likely use to avoid fines).
Just as some manufacturers will have surplus allowances from beating their 22% target, others will have a deficit. In other words, demand will significantly exceed supply; as such it will be a seller’s market, and the price will reflect the fact that even when all these surplus allowances are sold, there will still be 104,000 fines to be paid. Holders of these surplus allowances can even bank them and sell in future years, when demand might be even greater. 104,000 fines tot up to a cost of £1560 million.
According to Car Dealer magazine, the coffers of electric car makers such as Tesla are likely to grow as a result.
It has been rightly pointed out that a manufacturer will make a loss on a car if it has to pay a £15000 fine; but if it fails to meet its 22% target, it actually won’t have any choice – either pay the fine or buy a surplus allowance at the demanded price.
So what can manufacturers who are likely to be below target actually do about it?
The motoring press generally expects aggressive price discounting for EVs, but how much can companies actually afford to give away? I suspect that even if they knocked off £10,000, they still would not sell many more. Any such move would wreck the second hand market for EVs, creating havoc for owners and finance companies.
Other suggestions include pre-registering lots of EVs before the year ends; but this merely stores up even greater problems next year. My suspicion is that many manufacturers will simply shut off production of ICEs towards the end of the year, in order to artificially reduce sales in 2023. Combined with price rises/ending of special offers intended to dampen demand, we may well see long waiting lists for new cars next year, rather as we did after lockdown.
Am I being unduly pessimistic? Maybe we’ll hit the 22% figure anyway. Fleet World have done a detailed analysis, and reckon EV sales might rise to 19% this year, but that still leaves an awful lot of fines to be paid. If they are right, there will be a booming market for surplus allowances for the Chinese and Tesla.
It’s interesting to read the assorted statements of carmakers, who mostly say they are confident of meeting their obligation, often on the basis of new models. None of them seem to have worked out that you cannot get a quart out of a pint pot! While one company might steal market share from another, there are only so many EVs that the public are prepared to buy.
Meanwhile the increasingly ludicrous head of SMMT, Mike Hawes, says the answer is yet more government subsidies for EVs.
No Mike, the answer is to abandon this wretched EV mandate.
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NOT A LOT OF PEOPLE KNOW THAT 
The only car ads you see in the media are for these “wonderful” EVs. Despite all the ads, most of the general public are not that stupid and know all the problems with EVs (range anxiety, cost of insurance, cost of repair, rapid depreciation, lack of charging points, cost of replacement batteries, danger of fires, etc etc). The sooner the EV market dies a natural death, the better. Yet again, we see stupid and ignorant politicians promoting things the market doesn’t want.
Still petrol Corsa ad on TV
Of Coursa!
A quick search of Cinch reveals low mileage 2022 reg EVs for under £20/ per month. Whenever government interferes with free markets it never ends well. Hopefully the consumer will decide and crash this ludicrous policy.
£200/ month!!!
And I was about to give them a call!
Hang in there, it may come to pass.
The auto industry needs to stop pathetically bending the knee to the green blob and call this policy out for what it is – completely and utterly insane.
If the stupid government refuses to axe it, the affected manufacturers should throw in the towel and threaten to close UK operations within months. No business should be demanded to operate at a loss whilst its competitors are subsidised. There are better markets globally in which to operate.
Plus very many!
They should deduct any fines from their corporation tax and say sue us then.
I have been watching MGUY Australia recently.
Simons latest is that Lithium Ion batteries now need PASSPORTS in the EU.
Very well spotted, JBW.
We look forward to the UK civil service rubber-stamping this.
It’s going to be a bloodbath.
While the pure-EV manufacturers will be quids-in, the picture for the legacy brands is very mixed, as this Autocar article explains:
https://www.autocar.co.uk/opinion/business-electric-vehicles/which-brands-are-best-shape-zev-mandate-comes-effect
Ford, Jaguar-Landrover and the Stellantis group (Vauxhall, Fiat, etc) don’t have a hope of hitting the target. JLR don’t have an EV in the range, now that they have stopped making the iPace, and the new Range Rover EV is not due until later this year. On the other hand, BMW and Mercedes are already over the 22% – due to company sales, no doubt.
The imposition of fines on the non-performers is going to be a nightmare.
How do they fine overseas manufacturers? Audi BMW Volvo Toyota etc
Mandated? Enforced against a resistant public and backed up by what sanction? Perhaps EVs at the same price as ICs might shift the stock.
Fairly typical of intellectual lightweights to think that a mandatethreat is the best route to encourage the buying a flawed product.
Quite right, left to free market norms who would buy an EV? Those drunk on the Kool Aid and with the income. IMO Teslas look naff anyway.
EVs are being pushed as being good for the environment, or at least less harmful than ICE cars. In reality, anyone who has a clue about anything knows that they are anything but.
Watching you tube videos about classic cars gives an insight into just how much ordinary cars have improved over the years. My gas guzzling SUV actually does over 40mpg, a figure that would have been deemed respectable for a small car like a Ford Escort back in the 1970s. What has also surprised me a little is that my nought to sixty time of around seven seconds is better than a V8 muscle car from back then, a car that would have an mpg figure in the mid to high teens.
Those older V8’s blocks could last forever !
The current trend of turbo / multi turbo high pressure ‘stressed out’ 4 & 3 cylinder engines will not.
‘The rumble of a V8’ under the hood so sweet 🙂
Rumble they did in 1970. Now they scream.
Gamecock drives a GT350R. Wait . . . what have we here? A GT350R on youtube! [He’s not giving it up to save women’s football.]
3:12
A modern turbo diesel isn’t particularly high revving and can be expected to do 100,000 miles and many more without a problem.
On high mileage diesels, here’s a Volvo D5 with 344 k:
https://www.pistonheads.com/news/ph-features-sheds/volvo-s80-d5-shed-of-the-week/48148
chrishobby1958
Was meaning the current batch of small displacement turbo petrol engines.
Most Diesel engines are more robust to cope with the higher compression.
Got a 2.8 CRD with 115K and would hope to see 200K with plenty of mechanical sympathy & maintenance.
Who’s going to buy all the used 3-4 year old EV’s & Hybrids that are to be returned to dealers at end of contracts ?
How many gullible individuals will they be able to persuade to buy used batteries ?
Will dealerships be bailed out next, or will they allowed to fail ?
Wont go into the conspiracy theory on this one.
Gamecock has little pity for British car manufacturers. The government has been telegraphing this draconian action for years. They have had years to get out.
The manufacturers have been thinking “surely sanity will prevail.”
They bet and lost.
Those who have been paying attention know: This is only the beginning.
“When they came for the car manufacturers, I said nothing.”
As a proud redneck, Gamecock would starve before paying a fine to make a car.
To keep the numbers simple, it’s
about £1.6bn in fines on 1.6 million non BEVs, or an average tax of around £1,000 per vehicle if the market operates efficiently. It will be up to manufacturers to decide whether to load more expensive cars with higher price increases. The market design has a lit in common with ROCs, where the government mandates more ROCs than will physically be produced, resulting in cashout payments. The difference here is that the cashout payments are not recycled, but instead snaffled by the Treasury.
At the manufacturer level the worst case of no EV sales results in a tax of £3,300 per vehicle. However, as there is no means of enforcement against foreign manufacturers, and various devices for getting round the tax such as importing nearly new second hand vehicles, I expect it will simply collapse as a mechanism.
However, consumers should clearly buy a new non BEV sinner rather than later -a perverse effect of the system.
I’m unconvinced the argument holds water. Manufacturers currently price as high as the market will bear. Its simply not possible to increase the price without sales declining. And that puts up unit cost of production. I need to think about how the numbers work, but given the quick ramp up to 50% from 22% and then 80%, the market for tradeable permits will be very short-lived. I suspect manufacturers will simply stop making ICE cars very soon and the new car market will fall to perhaps 30% of what it is now. The effect on the economies of France, Germany and the UK will be substantial.
Any tax (or subsidy) targeting a particular industry is shared initially between consumers and suppliers in a particular proportion, determined by the short-term elasticities of demand and supply. In the long-term, the tax falls entirely on the consumers. However, the industry will gradually become smaller, the exact shrinkage depending only on the long-term elasticity of demand.* The effect in the very-long-term might be for the industry to disappear almost completely.
The effect on ‘suppliers’ throughout the production chain is that they simply have to write off some or all of their capital and renege on some or all of their debts. For example, a skilled worker** in a ‘company town’ is a ‘supplier’ as much as his official employer, and may be forced into a job which pays less or almost nothing at all, and his house become an unsaleable wreck, while the town dies. The effect on consumers is that their standard of living will be damaged, greatly at first, and by a lesser indeterminate amount in the longer terms.
*The long-term elasticity of supply tends to be great. Whether the demand for a product is large or small and whatever the cost of production, some supply will be forthcoming from a supplier able to make a profit by passing on costs.
**He owns ‘human capital.’
From the point of view of a UK non EV manufacturer you have to ask whether it makes sense to buy allowances off a EV manufacturer, thus subsidising its sales. Say it negotiates to buy allowances for £10,000, reducing its effective tax to £2,200 per car. The EV manufacturer then has a £12,200 advantage in the market. Don’t buy the allowances, and the advantage is just £3,300, forcing the government to devise other subsidies – or back off.
Theres no way manufacturers would pay that much – most don’t make anywhere near that on a new car (fleet sales are way below quoted prices) and you can’t add £10,000 to prices, as EV sales show. Manufacturers can probably afford £500-1,000 for permits but given the ramp-up to much higher percentages, its a short-term solution. They will simply stop manufacturing ICEs in the UK.
Fabulous quote!
Thx, tomo.
Whenever Goverment DICTATES what the people should buy and what Iindustry should make and sell it always ends in tears. In any case, let’s assume the Goverment got its way and EVs and heat pumps were flying off the shelves – and being connected to the mains…. Just how long would it be before they would be begging owners to stop using them because the grid was in danger of collapse?
Yes Westminster and all its cohorts “Not fit for purpose” and need to be totally removed, replaced by an entity that actually works.
“Just how long would it be before they would be begging owners to stop using them because the grid was in danger of collapse.”
It has already been happening in Canada.
What about all that lost fuel duty and VAT?
It is obvious what is going to happen – and all of the signs are clear already. In effect, the legacy car makers will simply withdraw less expensive models from the market – eg Ford Fiesta and most city cars – and focus entirely on medium or large SUVs with high specifications and thus high margins. If you can’t sell more than X electric cars because no one wants them, then the issue is how to maximise your profit on the 3.5X ICE vehicles that you can sell without buying permits or paying fines. As a consequence the new car market will contract drastically and become entirely focused on large or luxury models.
Once that happens, it is daft to discount EVs – you might as well sell high spec models to reduce losses on them – and especially for small EVs for which there is no longer significant competition. The effective lease price of cars for low and medium income families will probably double, and such people will simply be priced out of the new car market. At that point all of the focus will move to used older cars and the average life of cars sold in the 2010s will probably increase to 20 or 25 years.
If cities continue to impose ULEZs a further knock-on effect will be to price most low and medium income workers out of cities, thus pushing up labour costs for all services and polarising society even further. There is not much point in having hospitals in cities if nurses, radiographers, porters, kitchen staff, etc can’t afford to travel to work in them.
It is often claimed that this is all a sinister plan, but actually it is just complete ignorance combined with incompetence. None of the people who devise or implement these policies have the slightest understanding of their unintended consequences. But once they are in place they are too stupid and stubborn to admit mistakes and change direction.
Are there ULEZ lorries that can bring food into London? How soon til these government geniuses starve?
Deliveroo 🙂
The current ULEZs – not just London but Edinburgh and elsewhere – use specific levels of Euro emission standards. I have no idea what the designers think they will do 5 or 10 years from now. Most likely they think that they can require all such vehicles to be electric. This is all luxury virtue signalling by policymakers who don’t care that the major burden of their policies falls on what the Americans would call the middle class
In a number of other countries an alternative approach is to allow commercial diesel vehicles to operate in larger cities so long as they are less than 6 years old. Hence, buses, delivery vehicles, etc are transferred to smaller cities and towns once they get to 6 years of age. Japan’s version is to export such vehicles to other parts of SE Asia.
Depends if they can get past the tractor blockades when it comes to our turn to have the government legislate to destroy the farming industry. It is only by being free of the EU that a plan for this has not already been enacted. EU members must submit plans for destroying farms already hence the widespread response.
Great comments and thoughts Gordon.
That last paragraph encapsulates the situation beautifully
Occam’s Razor usually shows that the simple answer – in this case ignorance on a massive scale – is the correct one.
I don’t think it will happen just the way you think, Mr Hughes. But your overall point is key: the market will react.
The dumbassesincharge think they can put a tax on goods and the people will just pay it, or do what they want them to.
It’s naive. The market will take decisive action. It is in Britain’s best interest that the car manufacturers stop manufacturing. Go on strike.
I saw this coming and bought a new diesel car last year. For the first time in my life I kept the old one rather than trading it in. They should see me right for many years to come between them. And I am optimistic that they will both hold their value very well (unlike EVs) because second hand diesels will be in demand, and the price of diesels generally will go up because as you point out, manufacturers will effectively be forced to sell fewer of them.
Of course the laughable thing here is everybody accuses the Torys of rowing back ICE banishment yet they never touched this scheme although can’t see getting past this year without a downwards recalibration.
I don’t think anyone in Government or Parliament cares what happens. We have the law that that we must be net zero by 2050 and that’s it. The effect this law will have on our freedoms, prosperity and security is of no consequence.
It is the same all over! No one in the US other than well-to-do men, usually in tech, often under 50, want to buy these wretched vehicles. Hertz Rental Cars has problems getting anyone to accept them as rental vehicles! Biden our ridiculous transportation secretary, the bumbling Mayor Pete, turn a deaf ear to it though.
Renting an EV is much better than buying an EV, you can feel the amazing acceleration, you can experience the difficulty with keeping them charged, you can turn them in and not have the bad experience of actually owing one and dealing with the many issues.
I posited the theory I have expressed on these pages with my friend who drives a Tesla Model 3, and he agreed with me.
Unless you own a Tesla, or have extensive driving time with them, they are unsuited for renting because you cannot just get into one and drive it away. There is a learning curve.
So you get off your flight at the airport and make it to the rental counter and get signed up for a Tesla. You walk out and get into it, then spend a half hour with the owners manual trying to figure out what all the stuff is. If you are considering buying one, it is a worthwhile exercise. If you are trying to get to a meeting, it’s a big problem.
That’s if you have internet access to find the manual online!
To be fair, it’s an issue with most modern cars; Tesla is just the most extreme case. Almost everything is controlled via a touchscreen which is a nightmare for those of us whose cars are esentially analogue with buttons, dials, etc..