UK’s EV subsidy scheme needs better steering

The UK government announced a £650m subsidy fund for the purchase of new EV’s with a starting date of the 16th July. This is in addition to the £63m already announced for the expansion of charging infrastructure which included for the first time money to assist charging at home for those people that do not have a driveway.

Whilst this latter funding is to be welcomed, so that drivers can avoid having to pay the exorbitant prices at public chargers, the actual EV subsidy for new cars is a missed opportunity.

Firstly, there is the question of the amount of money available. At the top end of the subsidy (£3750) the fund will only cover 173,000 cars which is nowhere near enough to bring the total EV sales to anything near the ZEV mandate requirements. We have seen the same mistake made in other EU countries where subsidies have run out all too quickly.

Moreover, there are four other big concerns with the scheme:

• Scheme complexity and eligibility confusion: Many manufacturers have reportedly formed internal “war rooms” to interpret the sustainability criteria, causing delays in marketing eligible models.
  
• Subsidy leakage to OEM’s: Manufacturers and dealers are very likely to pull back existing incentives or discounts, effectively offsetting the government support. Therefore, the consumer will see little or no net benefit in the transaction price, because the manufacturer prices the vehicle higher or drops their own discounts
  
• Exclusion concerns: Chinese-made EVs and higher-end vehicles like Tesla, BMW or Audi are ineligible—raising accusations of protectionism and potential price distortions in the market.
  
• Neglect of used EV market: Support is limited to new cars only. Used EV buyers and the effect on residual values are not addressed, which may affect financing and overall consumer confidence.

Pricing tactics

The government have indicated that they will “monitor OEM pricing behaviour” to ensure the grant delivers actual savings to customers. However, there is no formal pricing oversight mechanism or enforcement announced, and there are no caps on manufacturer price increases, nor rules around baseline pricing. Unless such safeguards are introduced, OEMs can and likely will adjust pricing tactics over time, especially in high-demand segments or with newly qualifying models.

There is also the depreciation pressure on used EVs. Any subsidy that makes the new car cheaper, narrows the gap between new and used models. This devalues used EVs, especially 1–3 year-old cars, because buyers will often prefer a new vehicle with a full warranty, latest tech, and grant benefit over a similarly priced nearly-new model. This subsidy scheme therefore stands a very good chance of making the already steep depreciation curve on used EV’s even steeper. There is one caveat to this however. If transaction prices do not fall (see above) then the impact on used EV’s will be more muted.

China’s response

Finally, there is the Chinese reaction to consider. Stella Li, Executive VP at BYD, described the UK subsidy criteria as effectively “stupid” and a “drug” that could eventually harm UK consumers and the market. You may think that well, she would say that wouldn’t she, but we should be prepared for a challenge to the policy under WTO rules.

I cited earlier in this piece that the UK government was not looking at what happened in the EU when these types of subsidies are implemented, but in outlawing Chinese cars due to their CO2 rich manufacturing footprint, the UK government are using exactly the same tool as used by the French government, which effectively precluded the Dacia Spring from subsidy in France even though it is actually a Renault product.

We will have to see what the Chinese OEM’s decide to do about this; will they or won’t they challenge the policy? At any rate, this matter and the other questions raised in this article are just what the government doesn’t need right now as it tries to gain control of the EV agenda.