Middle East conflict impacts new and used vehicle powertrain demand

The Middle East peace deal could have a profound impact on the UK’s new and used car markets, depending on how fast pump prices fall.

The soaring cost of petrol and diesel has led to record levels of interest in electric cars, helping to drive new sales and uplift the troubled residual values of used models.

Sales of new battery electric cars were up 34% year-on-year in May, and are 24% ahead for the year to date, as drivers took advantage of massive discounts offered by manufacturers.

A series of market surveys have highlighted the importance of reducing fuel costs as a powerful stimulus to BEV demand, with the prospect of more affordable motoring attracting drivers to zero emission cars.

Brand new electric cars have been cheaper to buy than their petrol equivalents for three consecutive months, according to Autotrader, as manufacturer discounting and government incentives boost BEV affordability. Moreover, three-to-five years old used EVs are emerging as one of the strongest-performing segments of the UK car market.

However, other surveys have found that cost-related concerns, including vehicle purchase prices, maintenance costs and finance options, act as barriers to BEV adoption for almost 60% of motorists.

These types of views highlight the perception gaps between drivers of BEVs and petrol and diesel cars. An impressive 85% of the former are satisfied or extremely satisfied with their BEV, whereas only 31% of fossil fuel drivers think they would feel the same behind the wheel of a battery-powered car.

Despite the rising interest in BEVs, the UK’s new car market is still off course to meet the 2026 demands of the Zero Emission Vehicle Mandate. BEV sales in the first five months of the year accounted for 23.9% of registrations, almost 10 percentage points below the mandated 33%.

Yet the UK Government’s Seventh Carbon Budget has set an even more ambitious target for electrification, calling for 95% of new car and van sales to be zero emission by 2030 (the ZEV Mandate sets the end-of-decade threshold at 80%).

The commercial vehicle market is even further behind Government targets for BEV adoption. Electric vans accounted for 9.5% of all new van registrations in the first five months of the year, well below half the 24% market share required by the ZEV Mandate in 2026. There was, however, encouraging news that new van sales, a bellwether of the economy, recorded a second successive month of growth in May.

The zero emission bus market is performing more strongly, securing a 37% market share in Q1,  and Zenobē has secured almost £1 billion in new financing to expand its electric bus funding platform across the UK and Ireland over the next three years. Diesel accounts for about 40% of a bus’s lifetime cost, compared with approximately 20% for electricity in an electric bus, so battery-powered buses protect operators from fuel price volatility.

But there is still no protection for lenders caught in the commission disclosure redress scheme. Legal challenges to the FCA’s scheme mean customers are very unlikely to receive any compensation this year, and if the challenges prove successful and the scheme is struck down, the FCA estimates that the industry would have to handle up to 19 million complaints individually.

Research by Shoosmiths has found that most motor finance customers remain satisfied with their agreements, but have nonetheless lodged complaints. The research showed customers want greater transparency of commissions, fees and T&Cs.