Joe Davis considers the wider implications as British and European OEMs slow EV production due to costs
The Advanced Propulsion Centre (APC), a non-profit body that helps fund zero-emissions vehicle technology in the UK, has reduced its forecast for UK production of electric vehicles (EVs) in 2025 from 360,000 to 280,000. EVs remain considerably more expensive than their internal combustion engine (ICE) counterparts. Inflation, a cost of living crisis and affordability are legitimate concerns for consumers and go some way to explaining the APC’s revised forecasts. So, what does this mean for the future of EVs?
Return to ICE?
Might we see a boost in the sale of ICE vehicles as the immediate consumer response? They are a cheaper alternative to cash-strapped consumers, more readily available and with an established infrastructure and familiarity that consumers value. Smart Line’s recent research suggests used car prices will fall by over 10% in 2023, making ICE vehicles an even more attractive proposition for consumers.
However, a return to ICE is not a long-term solution. Despite the challenges facing battery EVs, all cars and vans in the UK sold from 2030 must be hybrid or fully electric (with the former phased out by 2035). New ICE cars and vans will be banned. Europe won’t be far behind. Additionally, car manufacturers remain committed to EVs and an EV-only model by 2030. In the longer term, this means that consumers’ hands may be tied when it comes to purchasing a new vehicle.
Acceleration to hydrogen?
Could automakers perhaps accelerate plans for the development of hydrogen vehicles?
The International Energy Agency, in its ‘Future of Hydrogen’ report from 2019, found that hydrogen enjoyed unprecedented momentum politically and from businesses, and there is an argument that this trend will continue. However, hydrogen technology and its extraction into fuel simply isn’t an affordable, readily available alternative at present and therefore isn’t an attractive proposition to vehicle manufacturers.
Arguably, the economic and technical inhibitors to hydrogen technology are even greater than those faced by the EV conundrum. It is for this reason that IP firm Murgitroyd considers battery EVs to be the preferred zero-emissions technology and why they will continue to be so over the next 10 to 15 years.
So, how do stakeholders reverse the forecasted EV trend? Tesla has responded to concerns, amongst other financial considerations, by immediately reducing the price of its most popular models by up to 15%; potentially saving consumers up to £7,500 (US$9,275) in the UK. This marks Tesla’s recognition that, in light of growing competition, it must remain financially competitive. Consumers may be drawn by such a price reduction, but this is not without its controversy: some disgruntled consumers purchased their vehicle the day before Tesla announced its drop in prices and saw none of the benefit. Tesla’s online sales model means that under the Consumer Protection (Distance Selling) Regulations, consumers are legally entitled to return their cars within 14 days of delivery. Customers that want cheaper prices can refuse delivery or even return cars delivered up to a fortnight ago. Other manufacturers may be reluctant to drop their prices so significantly, especially in light of the financial squeezes that they themselves are feeling in their production costs.
We are simply too far down the line to reverse the ever-increasing reliance on EV
The cost of manufacturing batteries for EVs is a material contributing factor to EVs’ high cost. Indeed, BloombergNEF reported that the price of EV batteries rose for the first time in 2022 due to rising raw material and component prices, soaring inflation and an increase in demand. To ensure that consumers do not revert to ICE in the short-term, lawmakers should intervene with regulatory and financial support to further develop technologies and help build more UK gigafactories, thus lowering the cost to manufacture batteries. In theory, manufacturers would pass on this saving to consumers.
US lawmakers have incentivised such investment with the Inflation Reduction Act 2022. The UK should follow suit or risk being left behind, as is the case following the collapse of BritishVolt. Additional tax incentives on EVs would also break down some of the barriers to purchasing an EV. Company electric car schemes provide such an incentive but are not widely available and can be cumbersome. On 17 January 2023, the UK government announced its plans to maximise EV charging potential through the Electric Vehicle Smart Charging Action Plan, but more needs to be done by lawmakers to widen the scope of such incentives and encourage the purchase of EVs.
Despite the challenges facing us, and the impact these have on the sale of EVs, it is clear that EV remains the immediate future for zero-emissions vehicles. We are simply too far down the line to reverse the ever-increasing reliance on EV, and manufacturers and consumers alike know this. What is clear is that legal intervention is a powerful tool to overcoming some of these challenges. Let us hope that the powers-that-be deliver.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Joe Davis is an Associate at Browne Jacobson
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