How the Zero Emissions Vehicle mandate is skewing the UK car market
MG’s commercial director speaks frankly about the industry’s ‘dirty secret’ one year into the scheme to encourage electric car take-up
01 December 2024 10:00am GMT
Guy Pigounakis says the ZEV mandates are artificially skewing the operation of the free market Credit: Hans Wahlgren/Alamy Stock Photo
“Why is no one talking about it? Because it’s our dirty secret,” says Guy Pigounakis, MG UK’s commercial director and motor-industry veteran about the hidden state of the UK car market at the end of the ZEV mandate’s first year.
The policy requires car manufacturers to sell a certain percentage of electric vehicles (EVs) each year, with fines of £15,000 for each non-compliant vehicle sold. For 2024, the target is for EVs to comprise 22% of their new car sales, rising to 80% by 2030.
“Never in my long career, have I seen a piece of legislation that has so fundamentally changed the way we design, build and bring cars to market,” adds Pigounakis, “and [it] will continue to do so in its current guise.”
As well as the changes to the market, Pigounakis claims the ZEV mandate has also introduced bizarre incentives resulting in manufacturers registering increasing proportions of battery-electric cars, many of which haven’t actually been sold, which is artificially skewing the operation of the free market.
With more than a quarter of sales being EVs, MG will end 2024 without paying any fines Credit: Richard Parsons
“With a 27 per cent proportion of EV registrations this year, MG is not going to pay fines in 2024 and we are comfortably positioned for next year whatever the Government decides to throw at us,” said Pigounakis. “But you need to look at the challenges and the [registration] channels to see how some original equipment manufacturers [car producers] are manipulating the market.”
Minister’s commitment
Pigounakis was speaking the day after Jonathan Reynolds, the UK business secretary, under pressure from the motor industry, announced a consultation on the controversial ZEV mandate. Meeting its requirements is estimated to have cost the industry up to £2 billion this year and Reynolds’s speech to the Society of Motor Manufacturers and Traders (SMMT) was given on November 27, the same day Vauxhall announced the closure of its Luton van plant with the loss of 1,100 skilled jobs, with part of the blame aimed at the cost of meeting the stringent new EV requirements of the ZEV mandate.
Reynolds said that while the Labour government was “absolutely committed” to a 2030 cut-off date for the sale of “new cars solely powered by combustion engines”, he was “profoundly concerned” that the ZEV mandate was “not operating today in a way that anyone expected”.
But do politicians really understand what unintended consequences it is having on the market? Pigounakis thinks not and spelled out some of the lengths to which car makers are going to avoid paying the fines of £15,000 per non-compliant car.
Who is in trouble?
Separate research by The Telegraph motoring desk show a litany of seemingly successful companies which, with only a month to the end of the year, are facing massive bills for non-compliance.
Electric-only producers such as Tesla and BYD are obviously in the clear, with BMW, Mercedes-Benz, Jeep and Cupra – along with MG – having EV sales comfortably over this year’s 22 per cent threshold. In fact, some of those companies are trading their surplus in a carbon market that has been encouraged by Government.
Less comfortable are Lexus, Hyundai, Vauxhall, Honda and Audi.
Those selling large volumes of cars, many of them uncompliant with the ZEV mandate, face the largest fines. Think Toyota, Skoda, Kia, Nissan, Volkswagen, Ford, Mazda, Jaguar Land Rover, Seat and Suzuki.
Innovators also lose out
“I’m very sympathetic to companies such as Toyota and Mazda,” says Pigounakis, “which have spent millions developing alternative drivetrains, but in the ZEV mandate they count for nothing.”
Hybrid technology for example, as pioneered by Toyota over the last 30 years, will have saved hundreds of thousands of tons of CO2 from entering the atmosphere in that time, yet because of the way the ZEV mandate dispensations are calculated will garner the Japanese company only small allowances in the first two years, before they finish at the end of 2026.
Some manufacturers which have healthy demand for their petrol-engined cars will be forced to restrict supply to dealers to only two or three cars in the closing weeks of this year to avoid adding to fines, which in many cases represent many times more than the profit margin on each car.
“It’s ironic that the cleaner the engines you sold before the mandate was introduced, the worse your position is now,” says Pigounakis. “I am not without sympathy for some of our rivals.”
Pushing into Motability
But as well as levying huge fines of £15,000 per non-compliant car and £18,000 (reduced to £9,000 this year) per van and the frantic trading of credits, the ZEV mandate is also encouraging “market manipulation” according to Pigounakis, who is accusing the industry of practices such as pushing unwanted EVs into the UK Motability fleet. This is a partnership between UK Government, charities, four major banks, motor makers and insurance companies, which is basically a leasing operation aimed at bringing mobility to disabled people, funded by customers’ entitlements such as personal independence payments.
At more than 600,000 vehicles, the Motability fleet is one of Europe’s largest and typically makes-up some 10 to 15 per cent of the overall market, mainly from non-premium manufacturers. Yet year-on-year growth of EV sales into Motability are up 110 per cent as manufacturers seek to register EVs into the fleet to comply with this year’s EV requirement.
“The rate of rejection from Motability customers has been high,” says Pigounakis. “So many cars have been sold into this market, in fact, that Motability has called a halt to EV sales. It has decided that it has too many EVs on its fleet and manufacturers have had to draw back.”
Getting around the regulations
But Motability is not the only way car firms have been seeking to circumvent the regulations in a market which “has brutal discounting” says Pigounakis and is also notable for heavily tax-incentivised fleet sales with little demand from private buyers.
Manufacturers are selling cars to themselves with demonstration car registrations showing a big year-on-year increase up 14.8 per cent. Also, up 12 per cent are “captive” sales, which are sales to employees, friends and families, dealer registrations are up two per cent and what are known as OEM sales are up 11.3 per cent.
It amounts to a lot of extra EVs which aren’t necessarily reflected by actual demand, while the potential writedown of value of those cars when they eventually hit the market is causing major headaches. In short, there’s a huge writedown liability from these EVs which no one is talking about.
“They won’t even admit it to themselves,” says Pigounakis. “It’s a massive liability which they aren’t putting on the books.”
Guy Pigounakis (centre) said he had sympathy for some of MG’s rivals who were disadvantaged by the ZEV mandates
EV sales not as they seem
The effect is to skew the market and give a false impression of the popularity of EVs in the first year of the ZEV mandate. While the headline figure is that EV registrations are showing a 14.2 per cent year-on-year increase, with a total EV mix of new car registrations of 18.1 per cent (well short of the 22 per cent required under the mandate), closer examination doesn’t look quite so rosy.
Private EV sales of 59,500 are 3.8 per cent down year on year, true fleet registrations of 142,174 are only 1.6 per cent up; it is dealer and manufacturer registrations which are up 12.8 and 27.8 per cent respectively, with demonstrator cars up 37.7 per cent and Motability registrations of 48,750 are a 110.4 per cent increase.
Should the mandate be eased?
It calls for some serious debate as car makers lobby Government for an easing of the ZEV mandate.
“The transport secretary and I have heard you loud and clear,” Reynolds told the SMMT this week. “We know that you need certainty and that’s why we will fast track on the consultation giving you clarity on the direction of travel and giving you the answers you need in the coming weeks before you make decisions in January.”
Except that three days after that speech, the transport secretary Louse Haigh, a key part of those negotiations, resigned over a telephone “mistake”. Her replacement, Heidi Alexander, who acted as London mayor Sadiq Khan’s deputy mayor for transport from 2018 to 2021, will have to rush to catch up the brief. The political furore will not help speed the negotiations so crucial to those companies working out whether they pay the fines or purchase credits from companies such as Tesla, BYD or even MG.
Besides, as Reynolds said, there will be no wavering of the main target: “We are not changing the level of our ambition for the transition.”
Pigounakis also thinks there won’t be much on the table in the way of easing the ZEV mandate. He says that giving way to the motor industry would leave the Government’s tough stance on pensioner winter fuel allowances, or inheritance tax changes to the farming industry, look shaky as well.
Do the politicians care?
Do ministers truly understand or even care about the damaging effects of the ZEV mandate, which include companies closing factories, market manipulation, massive fines, subsidies to rivals in the carbon market and the fact that this is a peculiarly UK problem (even Northern Ireland, under the current EU agreement, has a different system).
“No,” says Pigounakis, “they don’t, because if you look at it, they’re getting what they want.”
“I want to do everything possible to encourage the take-up of EVs,” said Reynolds this week. “But I also want to do everything possible to make sure that EVs are built here in Britain. The future of EV cars in the UK is not and should not be a negative story.”
The trouble is, without sound and sustainable financing and investment from car producers as well as charging companies and battery factories, that EV story looks distinctly nuanced on the side of woe.
