The impact of the ZEV Mandate on dealers – UPDATE

By Guy Bird

Now the UK Government has confirmed the detail of its Zero Emission Vehicle (ZEV) Mandate for 2024, which come into force today, Motor Trader looks into the major implications for dealers

The controversial rowing back of the UK ban on new car sales of petrol and diesel-engined vehicles from 2030 to 2035 by Rishi Sunak’s Government in late September 2023 was widely-reported in the mainstream media, but the lack of legislative movement in how to get there in the preceding years got less coverage.

In simple terms, the UK Government’s Zero Emission Vehicle (ZEV) Mandate to reduce domestic greenhouse gases from transport is still extremely ambitious in the short term, even if the overall ban has been pushed back. After a consultation this summer, the Government response was only to move the commercial vehicle ZEV mandate goalposts by a fraction (more of which later), while sticking with its original ZEV Mandate plan for passenger vehicles. Namely, it stipulates that 22% of new UK car sales from each brand must be zero-emission a term now defined as able to drive 100 miles on electric power only (the original proposal was 120 miles). If the vehicle makers fail, they face massive fines of £15,000 for every car that doesn’t qualify and £9000 for every van in 2024 (and £18,000 for every non-qualifying van in subsequent years).

Brass tacks, the initial 22% EV target – which will increase in significant leaps every year until 80% by 2030 and 100% by 2035 – is a tall order for the majority of brands selling cars in the UK based on their current sales mix. According to a recent Dataforce survey looking at sales from October 2022 to September 2023, only eight marques currently reach or surpass the 22% EV threshold. The rest face enormous fines. It calculates Ford, with only 2% EV sales would face fines of £424 million in 2024 alone and Toyota (1% EV share) £345m (see Dataforce graphs).

Clearly, no carmaker will want to swallow fines of such magnitude, but there are options in the small print of the Government response. Brands without enough EV sales in the early years of the ZEV Mandate will be able to buy ‘EV credits’ from over-performing brands like Tesla or MG for slightly less than those fines, ‘borrow’ ZEV credits from future years’ allowances, (although this will still garner interest penalties) or offset gains made by overachieving in sales of non-EVs with CO2 ratings below their brand’s CO2 baseline (a rating yet to be re-set by the UK Government since the UK left the EU). Extra credits of 0.5 extra per qualifying car will also be awarded to makers supplying EVs to car clubs or wheelchair-accessible vehicles, as the former clubs are seen as valid routes to overall emissions and congestion reduction and the latter a fair way to ensure customers with the biggest travel challenges remain mobile.

Even so, of the carmakers staring down the biggest fines that MotorTrader approached for comment, all were understandably cagey, especially as ‘Rules of Origin’ tariffs between the EU and UK are due to kick-in from January 2024 and could add an average £3400 to the price of an EU-made EV and thus affect EV makers’ sales projections. Unsurprisingly, the SMMT wants these rules pushed back until 2027 to help with the EV transition. However, a UK spokesperson from Mazda, currently with a 3% EV sales mix, did say this: “Now that we have clarity on the ZEV Mandate from the Government, we are confident our plans for the future, along with the flexibilities in the Vehicle Emission Trading Scheme legislation, will result in Mazda UK meeting all requirements to remain penalty-free for the duration of the mandate.” Mazda aims to transition to a fully-electric UK model range by 2035 but its spokesperson admitted the brand would “remain fluid on what levers we pull,” to avoid penalties. The worry for many in the industry is that the ZEV Mandate and the “levers” that might get pulled by various carmakers in response, will disrupt the market and make dealers’ lives much more complicated in the next 18 months or more.

At the recent MotorTrader Retailing Expo in Silverstone, one panelist suggested the next few months’ sales figures could be “interesting,” based on carmakers potentially holding back on EV deliveries in late 2023 and pushing them into 2024 to count towards their first-year ZEV Mandate target. Other experts fear carmakers will artificially restrict the supply of petrol and diesel cars in 2024 as well, while boosting EV supply beyond natural market demand for the same reasons (to avoid massive fines).

It’s a concern picked up on by the NFDA’s chief executive Sue Robinson, who has again called for the return of EV incentives for UK customers – removed in June 2022, but still present in 21 countries across Europe. “These ambitious registration targets will create a difficult trading environment in conjunction with the recent decision to push back the ban of petrol and diesel vehicles from 2030 to 2035,” said Robinson. “As the consumer-facing end of the industry, franchised dealers will have to continue to push for electric vehicles to meet these targets while the recent five-year delay will likely damage consumer demand for electric vehicles. To adopt a pragmatic approach to net-zero targets, NFDA strongly urges the government to introduce attractive incentives to make electric vehicles more accessible for less-affluent motorists.”

Even before the UK Government’s ICE ban pushback, EV demand had had a rocky 12 months, due to in part to some (often inaccurate or inflated) negative press around EV safety and also insufficient charging infrastructure, although the latter tally is moving fast and in the right direction – there are now almost 50,000 points in the UK, according to Zapmap (up 43% since September 2022). But, as Dataforce points out in its survey report: “High upfront costs, a doubling of electricity prices at charging stations and the cost-of-living crisis delayed the EV uptake in the retail channel. Private EV registrations were down by 10% Jan-Sep 2023.”

According to commercial director at Carwow, Sepi Arani, this sales decline is also due to the UK EV market currently experiencing what US research firm Gartner identifies as the “trough of disillusionment” stage. Its graph suggests that after the small percentage of early “innovator” and “early adopter” customers have purchased, there is usually a significant drop in demand for most emerging technologies (and well beyond automotive). On a positive note, Arani argues this dip is soon followed by so-called “early majority” customers then “late majority” buyers, which can represent about two-thirds of the total market and which make the graph’s curve rise again and then flatten before the rest of the market get on board.

Meanwhile, with the ZEV Mandate about to force the natural economic cycle, Fraser Brown, md of Motorvise, is urging dealers to act – and fast. “Manufacturers will already be setting much higher EV targets for dealerships,” says Brown. “Many dealers may think they don’t have to worry about EV sales just yet, but the reality is that Q4 orders won’t be delivered until Q1, when they come under the ZEV mandate. A third of all EVs are produced by just three manufacturers [so] the impact could be huge. Retail sales of EVs lag behind fleet, so targeting retail presents a tremendous opportunity for dealerships.” To that end, Brown says Motorvise is offering dealer training to help staff talk more confidently about EVs and also promoting general sales events that happen to also feature EVs, “to avoid totally alienating the 70% of consumers who have not considered making the switch.”

The commercial vehicle-related part of the ZEV Mandate was facing an even tougher ask, given its electrification journey started later than the passenger car market’s, but also because most of its customers’ buying decisions are based on hard-nosed business considerations rather than early-adopting desire and because current supply hasn’t been able to keep up with demand either.

The Government listened to industry concerns and has graduated its legislative trajectory, if not final deadline. So while 10% of all new UK van sales by brand must still be EVs in 2024, in 2025 the incremental increase is now 16% (rather than 19%) rising to 24% in 2026 (instead of 22% before). That concession pleased many, including the NFDA’s Robinson. “This adjustment better aligns with market demand and establishes more attainable objectives.”

Regarding regional differences, the NFDA was also pleased that the UK Government has taken a separate view on the ZEV Mandate for Northern Ireland for now. “With only 1% of UK chargers being installed in the province we welcome these regulations not applying to Northern Ireland while the Assembly at Stormont is not sitting,” said Robinson. “The decision gives the sector in Northern Ireland time to catch up with the rest of the UK.” Even so, dealers everywhere – at the coal-face of the industry – now have a lot of customer-convincing to do.

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