SMMT Update – Surging EV demand but industry faces the cost
This week offered further evidence Britain’s EV transition is moving forward as SMMT figures showed the strongest June performance for the total new car market since 2019, with all growth coming from electrified vehicles. It once again reflects the enormous investment by manufacturers, offering an ever wider range of low and zero emission models across more brands, segments and price points. Yet the headline numbers tell only part of the story.
Hybrids and plug-in hybrids together accounted for more than a quarter of registrations, while BEVs reached 30% – their highest share this year. This is great progress. But BEV uptake remains below the 33% headline mandated target for 2026 and, at 25% in the first half, must now exceed 40% for the rest of the year to hit the headline targets. Flexibilities do help but that is not a credible market trajectory.
The issue is not industry commitment but market deliverability. Manufacturers have already absorbed more than £12bn in discounts, alongside government incentives, to stimulate demand. Discounts are a regular feature of the new car market but are generally used to shift older stock, not stimulate sales from new. Such discounting cannot be the basis of a durable transition.
The shortfall between natural demand and regulatory requirement is already substantial, and the cost of bridging it already being felt. Lost margins, residual values undermined, pressure on investment and reduced capacity to compete will intensify sharply – and that is the concern for industry, which takes a longer term view of the transition, rather than just the immediate headline target for this year. Next year, manufacturers face a 38% BEV target for cars and 34% for vans, before 52% and 46% respectively in 2028. As targets increase, flexibilities become less effective and compliance costs rise. A transition driven by loss-making discounts and regulatory workarounds is not transition by demand; it is transition by distortion.
This is not about simple compliance – after all, compliance is not optional. Manufacturers must either sell more EVs, buy credits from competitors or pay penalties. There is no avoiding the law and the cost. Flexibilities such as CO2 credits, borrowing and banking are undoubtedly critical and have helped manage the regulation’s early years. But they are finite, weaken over time and do not remove cost. Nor do they create the demand needed to recover the billions invested in developing and producing these vehicles. Ultimately, manufacturers need to sell the EVs they have produced, to recover investment and make the transition commercially viable.
The impact is beyond the new car market. Investment follows markets that are viable, predictable and competitive. Manufacturers are more likely to build where they can sell successfully and given the very tight margins in vehicle manufacturing, a plant’s viability can be on a knife edge given such costs.
That point was brought into sharp focus at SMMT’s Regional Forum in Newport, where automotive leaders in Wales – a sector supporting 7,000 jobs and generating £477m for the UK economy – discussed competitiveness, trade uncertainty, national security and the opportunities arising from the defence sector.
The UK’s competitiveness is under immense pressure. SMMT’s call for an urgent review of UK regulation is not a call to weaken industry’s long-term ambition. It is a call to make ambition deliverable and without undermining the investment and manufacturing capacity needed to deliver net zero.