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The UK’s automotive sector has called for VAT to be halved on sales of new electric vehicles (EVs) as the latest figures show sales have flatlined.
The Society of Motor Manufacturers and Traders (SMMT), which represents the sector, found that despite EV uptake reaching record volumes, the amount being purchased as a share of total registrations failed to grow as expected.
The Covid-19 pandemic caused sales of vehicles to fall dramatically in 2020 and 2021 as consumer demand fell and supply chain disruption left manufacturers struggling to maintain production volumes.
The market share for EVs slipped to 16.5 per cent – down 0.1 per cent from the year before – prompting the SMMT to call for the halving of VAT on EVs. It estimates that this would put more than a quarter of a million extra zero emissions vehicles (ZEVs) on the road and cut five million tonnes of CO2 by end of 2026.
The body also warned that the sector is facing significant volatility over the next few months due to the regulatory uncertainties emerging from the last-minute deal on UK-EU Rules of Origin, which avoids tariffs on EVs but has made planning difficult.
The “one-off extension”, which will last until 31 December 2026, will ease pressure on the UK’s car makers, which would have been forced to contend with a 10 per cent charge on all vehicles exported to Europe from the start of 2024.
The exemption followed a warning from the European Automobile Manufacturers’ Association that it could lead to reduced EV production across the continent by nearly half a million units – putting the EU’s goals on vehicle electrification in jeopardy.
Despite the disappointing EV results, the SMMT confirmed that 2023 was the strongest year for new car sales since the pandemic – with consecutive growth seen over the last 17 months.
Growth was driven “entirely” by fleet investment as the previous year’s supply constraints faded and helped fulfil pent-up demand, it added.
In terms of vehicle type, buyers showed a continued preference for superminis, dual purpose and lower medium cars, which accounted for 29.8, 28.6 and 28.2 per cent of the market respectively. These three segments have been the most popular since 2013.
Mike Hawes, SMMT chief executive, said: “With vehicle supply challenges fading, the new car market is building back with the best year since the pandemic.
“Energised by fleet investment, particularly in the latest EVs, the challenge for 2024 is to deliver a green recovery. Government has challenged the UK automotive sector with the world’s boldest transition timeline and is investing to ensure we are a major maker of EVs.
“It must now help all drivers buy into this future, with consumer incentives that will make the UK the leading European market for ZEVs.”
Earlier this month, new rules were introduced to encourage car makers to produce an increasing share of ZEVs as part of efforts to eventually eliminate new fossil fuel-powered vehicles by 2035.
