ZEV Mandate: A new deal in the pipeline?

By Guy Bird

Almost one year into the ZEV Mandate a new deal is being sought by the industry and after the announcement of the closure of the Vauxhall Luton plant in 2025 and further dire warnings from the motor industry the UK Government might even be listening

Industry and dealer disquiet at the Zero Emission Vehicle Mandate was voiced as soon as the scope of the UK legislation was presented. Since it came into force in January 2024 and throughout the year, those distressed voices have only grown louder and more numerous. The reality, as of writing in late November 2024, is that most mainstream carmakers selling in the UK – bar a few with EV-only or heavily EV-biased model ranges – are far from meeting the ZEV Mandate’s tough first-year targets, namely hitting 22% of total passenger car registrations through EV sales, or 10% for light commercial vehicles.

Unsurprisingly, no major player ever said it was willing to pay the £15,000 for each non-compliant car and £9000 for each van, or indeed seemed resigned to such a fate. Which suggests they individually and collectively believe that the new Labour Government that arrived mid-year might yet have a sympathetic ear to a recalibration of the rules, and/or their timelines.

Beyond polite but ‘pending-style’ new Government PR statements on the matter previously, nothing more definite surfaced until a 20^th November release from the Department of Transport stating that Transport Secretary Louise Haigh and Business and Trade Secretary Jonathan Reynolds had hosted a roundtable with an assortment of carmakers, industry associations and car charging big-wigs regarding the now infamous ZEV Mandate. Attendees included the SMMT, Tesla, Nissan, Ford, Volkswagen Group, Stellantis, BMW, Toyota, Charge UK, and the BVRLA.

The early official line from a UK Government spokesperson was promising: “Recognising the global challenges the industry has been facing, ministers underlined the Government’s commitment to working constructively and in close partnership with the sector as we support the transition to electric vehicles by 2030. The UK automotive sector now has the fastest growth of zero-emission vehicles of any major European market, and we’re providing more than £2.3 billion to support industry and consumers in making the switch, with 57 new public electric vehicle chargers added on average each day.”

The Government was keen to stress that it wanted to “reinstate the 2030 phase-out of cars solely powered by internal combustion engines, but also deliver the ZEV transition in a way that can support UK economic growth without stifling it.” That public acknowledgement of the very tough 2024 market conditions and the need to find tangible solutions, is something the outgoing Conservative Government – who came up with the ZEV Mandate in the first place – did not do while still in power as the legislation came into force. In the Autumn Budget the new Government declared a £2bn investment to support the UK automotive manufacturing industry in making the switch, on top of £120m support for businesses to purchase of new electric vans via the plug-in vehicle grant and a range of taxation incentives too.

This ‘long-game’ rhetoric chimes with what continental European Governments are saying about similar (but less stringent) EU legislation stipulating a CO2 emissions reduction of 15% in 2025 compared to 2021 levels. In a nutshell, the sentiment is thus: keep the final deadline the same, but adjust the waypoints on the road to get there. According to a report by Reuters, German Economy Minister Robert Habeck wants any proposed fines for German carmaker failures to meet 2025 targets dropped altogether and suggests offsetting any near-term under-achievement with mid-term over-achievement. As Habeck said: “We are sticking to the [long-term] fleet limits [but] are being pragmatic about the transition.”

Back across The English Channel, while the UK Government, carmakers and trade bodies attempt to thrash out a new compromise for the ZEV Mandate, dealers are facing the consequences of the UK’s already enacted legislation. The long-predicted, artificial throttling of supply of just the sort of cars dealers might be able to sell more easily to some sections of the non-early adopting EV public – namely conventionally-powered or hybrid models using petrol and diesel in addition to electricity – appears to be taking place. In October 2024, UK registrations were down by 6% and Ernst & Young’s UK & Ireland Automotive Leader, David Borland, was in no doubt as to why. “Battery Electric Vehicles (BEVs) were the only powertrain to record year-on-year sales growth last month, with an increase of 24.5%, while diesel and petrol saw falls of 20.5% and 14.2% respectively,” he begins. “Year-to-date, market share for BEVs is now 18.1%. Given this continues to trail the 22% ZEV Mandate target, it is unsurprising that manufacturers appear to be actively limiting their Internal Combustion Engine (ICE) sales in order to maximise the BEV share and reduce the chances of exposure to significant financial penalties.”

EY’s Borland was also under no illusion as to why EV sales in the UK are still struggling: “Expensive upfront purchase costs, a lack of charging infrastructure and expensive battery replacement are all prominent concerns deterring people from making an EV purchase according to EY’s latest UK Mobility Consumer Index. Uncertainty around financing options and residual values of EVs is also likely to prove a stumbling block to the pace of uptake.” Given this consumer market, the list of high-profile carmakers now publicly stating intentions to slow-down or stall plans to convert their ranges to all-electric (Volvo), or even making partial strategic U-turns by adding hybrid models to their line-ups (in the case of Lotus) is growing and logical.

Meanwhile, the UK light commercial vehicle market is even farther from its ZEV Mandate target for 2024 (10% EVs by total sales). “The problem with electric van sales is not so much that they are lower than expected, but that they appear to have stalled altogether around the 5% mark,” says Paul Hollick, chair of The Association of Fleet Professionals. “Fleets are effectively refusing to buy them for practical reasons and forcing manufacturers to make increasing percentages of [electric] vehicles under the ZEV Mandate doesn’t solve that core problem.

“It’s positive that the Government is reportedly in what it calls ‘listening mode’, but from reports of recent meetings, they appear to be approaching their rethink from the point of view of helping manufacturers offset limited demand, rather than finding ways to dramatically encourage fleets to purchase. We think that creates an unsustainable situation.”

Hollick believes solutions lie in a step-change in technology to improve range and payload issues which are much more everyday relevant to business vans. And while waiting for that ‘tech step-change’ he says improving infrastructure, regulation and financial incentives for EV van take-up – like company car tax breaks have done for passenger car EVs – could really help. “Nothing changes the core fact that the rapid electrification of electric car fleets was largely powered by massive benefit-in-kind tax incentives,” he says. “A similar ‘carrot’ may be necessary for electric vans to generate the kind of momentum the Government wants to see. Businesses may need to be given a genuine financial benefit to offset the operational problems they experience around electric vans.”

With promising signs from the global industry regarding next-generation batteries getting cheaper and having longer ranges – via solid-state technology and more – maybe a UK Government relaxation of the targets (and associated fines) until circa 2026-2027, alongside a more varied and sustained stimulus package for new and used EVs and vans, could provide vehicle makers, infrastructure installers and a large chunk of the currently reticent EV-averse buying public reason to be optimistic.

Guy Bird is a long time freelance contributor to Motor Trader