Why Labour's £650m electric car grant is doomed to fail

Telegraph

7 days ago

Three years ago, the Tory government closed its electric car subsidy and patted itself on the back for 'successfully kickstarting the UK's electric car revolution'.
That revolution, however, has failed to materialise. Flagging sales have caused the electric vehicle (EV) market to be propped up by fleet purchases rather than private demand.
With net zero targets at risk, Labour has pledged a £650m pot to bring back the subsidy for battery-powered purchases.
But with ever-lingering fears over the charging infrastructure, the impact on the second-hand market and the threat of legal action from manufacturers, the return of the EV grant scheme could fall flat on its face.
Telegraph Money explores the challenges ahead.
How does the new grant work?
The Electric Car Grant is backed by £650m of government funding, and is poised to run until 2028-2029. Customers will be able to buy a new EV at a cut price, as long as it is listed for less than £37,000 and meets environmental thresholds.
Under the scheme, vehicles put forward by manufacturers will be scored based on how green their production processes are.
The greenest vehicles will qualify for the full £3,750 discount, while others deemed less environmentally friendly will receive a smaller discount of up to £1,500. Others could be disqualified from being eligible.
The discount will automatically be deducted from the purchase price of eligible EVs, and the manufacturer can reclaim this amount from the Treasury.
Carmakers must also prove they are signed up to 'science-based targets' to cut their carbon emissions, in line with net zero targets.
The programme will effectively revive a system of cash handouts which were previously available to EV buyers before being axed by the Tories in 2022.
Public charging infrastructure is the greater issue
Earlier this year, the public accounts committee said 'patchy' numbers of charge points on motorways and in regional areas were putting the switch to EVs at risk.
It found that chargers 'have not been evenly spread across the country', with almost half sitting in London and the South East.
A review into the previous government grant scheme found that by 2021, the market had 'matured', and the upfront price was no longer the main barrier to vehicle uptake.
It stated: 'Consumer concerns have also shifted increasingly towards their ability to charge EVs and away from concerns around the upfront purchase price of vehicles.'
Issues over charging had become 'comparatively more important' to the general public.
A government survey from 2017 to 2019 found that an average of 40pc of respondents cited vehicle charging locations as the key disadvantage of EVs, while just 8pc identified general cost.
But fast forward to today, and the Government has signalled that costs are the greatest barrier stopping the majority of drivers from going electric.
Transport secretary, Heidi Alexander, said that with 82,000 public charge points in operation, the UK has 'built the infrastructure families need to make the switch with confidence'.
Yet, that confidence still isn't there. According to the AA, one in five drivers say they will 'never' buy an electric car.
Sheena McGuinness, of tax firm RSM, said 'more investment is urgently needed in building up the infrastructure' required to make EVs a viable alternative to petrol and diesel cars.
She said: 'The Government needs to invest in transforming the grid to genuinely deliver a green industrial revolution.
'Infrastructure of this scale requires a replacement revenue scheme to expand the charging network, upgrade grid capacity and ensure equitable access across urban and rural areas.'
This week, the Government said 17,000 public chargers have been added to the UK network in the past year.
Roads minister, Leslie Greenwood, said the government is 'helping put range anxiety firmly in the rear-view mirror.'
A Department for Transport spokesman said: 'We're delivering on our commitment to make it easier and cheaper than ever to own an EV. Public charge points in the UK increased 27pc in the last year, bringing numbers to over 82,000. That's one added every half an hour.
'We know upfront costs are a barrier for drivers, so our Electric Car Grant will help thousands of people save money whilst providing a substantial boost for the industry.'
But cost variations between peak and off-peak charging times, plus the continued VAT cost on top of the public charging price, remain a bugbear for many.
According to the AA, an ultra-rapid 150kW+ charge costs an average of 17.6p per mile for an EV, compared with 11.7p per mile for a typical petrol car.
With around 40pc of drivers unable to charge at home, there is a great reliance on the more expensive public chargers. In a bid to tackle this, the Government has this month pledged a £63m package to support at-home charging for households without driveways.
Uncertainty over how many drivers can benefit
With £650m allocated, the grant would subsidise the purchase of 173,000 electric cars if they were granted the full £3,750 discount.
That figure is roughly half the number of all EVs purchased in the UK last year, so the cash could run dry very quickly.
The Government plans to run the subsidy until the 2028-29 cut-off date, but for this to be the case, either more money needs to be ploughed into the scheme or the size of the grants lowered in price.
Uptake, however, will be slowed by the £37,000 cut-off point. While manufacturers on the cusp of being near to the threshold are poised to lower their list prices, dozens of models will remain out of reach.
According to Autotrader, the average price of a new battery electric car is £49,790.
Steve Walker, of Auto Express said: 'Around 70pc of new EVs cost more than £40,000, yet the new grant is only available for cars priced at or under £37,000, meaning most models won't qualify.'
Ginny Buckley, chief executive of Electrifying.com, an electric car advice service, said: 'The reality is that very few models will qualify for the full £3,750 discount.
'If the Government truly wants to accelerate adoption, they could take a cue from Scotland's interest-free loan scheme to buy a used electric vehicle, a far more inclusive approach.'
Manufacturers could take legal action
Uncertainty about whether certain cars will qualify for Britain's EV grant scheme has prompted complaints from car industry executives, who say it has made it harder to plan their marketing strategies.
There is also confusion as to whether certain car brands will be exempt from the discount scheme because of their country of origin.
Ministers have already warned that Chinese-made cars are likely to be blocked, while Stellantis – which owns brands including Peugeot, Citroën and Fiat – is scrambling to demonstrate its eco-credentials.
Stellantis manufactures EVs such as the Jeep Avenger, Fiat 600e and Abarth 600e at its plant in Tychy, southern Poland. But as the majority of Poland's electricity is generated by burning fuel, its dependence on the eastern European country could be penalised.
Jonathan Smart, of law firm Shoosmiths, said the Government could face legal challenges as a result.
He explained: 'Supply chain and dealership agreements often hinge on forecasted EV demand, which in turn depends on grant-backed affordability. If the Government's shifting position undermines those forecasts, the entire supply chain can be impacted.
'The commercial fallout could be significant. If the grant confusion materially disrupts business planning, manufacturers may have grounds to challenge the Government's handling of the scheme, particularly if the applications for the grant cause delays to some and not others.'
Mr Smart warned that manufacturers could miss their mandated EV sales targets and subsequently face penalties.
BYD, the Chinese firm which has become the world's largest EV manufacturer, branded the subsidy scheme 'stupid'.
In an interview with the Financial Times, its executive vice-president called out the Government's plan to keep out Chinese brands.
Stella Li said: 'The question is, is there any European government that can afford to fight against Chinese-made cars forever? No. So what's the purpose of doing all this?'
A DfT spokesman said: 'Applications from manufacturers are being processed, and eligible models will begin to be confirmed in the coming days and weeks.'
It could add to the rampant depreciation of electric cars
The knock-on impact for the whole EV market is poised to be wide-reaching.
A typical EV now retains only 49pc of its value after 24 months, according to Cox Automotive. The depreciation figure compares with an average of 70pc for diesel and petrol cars.
Such rapid depreciation means buyers of EVs have to commit to wiping thousands off the value of their car as soon as it rolls off the forecourt.
Experts fear the Government's new grant scheme will exacerbate the issue – driving down used EV prices further.
While this could be welcomed by those looking to pick up a cheaper second-hand motor in the years to come, it will do little to whet the appetite for drivers buying brand new EVs, which is Labour's ambition.
Toby Poston, chief executive of the British Vehicle Rental and Leasing Association, said: 'This generous grant will boost uptake in the retail market, but could have serious repercussions for the used market where rampant depreciation already has red warning lights flashing.
'Further stimulating new EV registrations without supporting the used market risks creating an even greater supply and demand imbalance, putting even more pressure on fast deflating second-hand values.'
He said the exacerbated depreciation 'will erode confidence and result in higher finance costs for new EVs', which will 'eliminate' much of the benefit from the original grant.