SMMT Update – UK’s EV transition must make investment viable
Securing new automotive investment is vital if the UK is to achieve its ambitions for economic growth, reindustrialisation and decarbonisation. But we must first make a stronger case for why Britain merits that investment.
Given manufacturers prefer to build close to where they sell, an eleventh consecutive month of growth in new car registrations is welcome. October’s 5.6% uplift included battery electric uptake surging by a third to account for almost a third of all registrations, with more than half a million new BEVs having now joined UK roads this year. That should be overwhelmingly positive for an industry investing enormously in new technologies, with more than 180 EV models currently available and average range now more than 300 miles on a single charge. That transition is being reflected in domestic manufacturing with UK investment totalling £14.3bn since 2020.
Manufacturers obviously need to see a return on those investments, so when the market transition comes at a heavy cost to the industry itself, the value of such investments – and future investments – is questioned. Achieving this year’s steep ZEV Mandate has necessitated billions in discounts and generous additional incentive packages on brand-new models to stimulate sales and avoid punitive compliance costs. This is because underlying demand remains far below the 33% mandated target for this year and, with only a 26.6% share year to date, the UK is notably behind Germany’s 28.2% and France’s 32.5% – major European markets without mandates but with generous state incentive support.
The latest industry outlook published this week shows the gap between actual registrations and mandate targets will only widen. EV demand is expected to reach a 32% share next year and 37.5% in 2028, getting further away from the mandated targets of 38% and 52% respectively. Such targets cannot be achieved with ongoing manufacturer support without putting at risk any future investment, harming residual values and weakening the UK’s appeal to investors.
Last week’s Budget statement did confirm that any changes arising from the mandate review would be made effective from the start of the 2027 compliance period, but the Budget itself contained very little else to drive consumer demand. Indeed, the confirmation that eVED – the EV-specific tax – will be introduced from 2028 and that VAT on public charging will remain at 20% whereas domestic charging is currently VAT exempt not only sends mixed messages to consumers but puts even more pressure on industry. We need alignment of all policies – fiscal, regulatory, industrial and trade – if ambitions are to be met.
To this end, LSE research for SMMT and ACEA published this week underlines the importance of a swift resolution to some significant trade threats. The EU’s ‘Made in Europe’ proposals and tougher rules of origin tariffs – due in 2027 – risk raising barriers and uncertainty between the UK and EU at the worst possible moment. As the report shows, the UK and EU have two highly integrated markets and supply chains, with the UK the EU’s biggest overseas market and vice versa. More than 300,000 European manufacturing jobs have already been lost since 2015, so neither side can afford to erode their markets or industrial bases.
It was a pleasure, therefore, to join Lord Anas Sarwar, UK minister of state for trade; director general for economic cecurity and trade relations at BIST, Kate Joseph; and representatives of the broader European auto industry to a round table in Brussels on Thursday to launch the report. We know the UK government is very supportive of the industry and wants to secure a quick resolution to these trade threats so the UK-EU Summit later this month represents the best opportunity to secure an outcome that will assure the future of the industry.