Electric Car Sales Will Slow by 2027 Owing to Delay of Zero Emission Mandate: OBR

A Go Ultra Low Nissan LEAF on charge on a London street in an undated file photo. Miles Willis/Stringer/Getty Images

Sales of electric vehicles (EVs) in the next three years will slow down owing to a delay of the zero emission mandate among other reasons, the Office for Budget Responsibility (OBR) has warned.

The OBR reduced its forecast for the uptake of EVs this year from 25 percent to 18 percent. The sales will slow down in 2027 from 67 percent to 38 percent, according to OBR’s November forecast.

“In previous forecasts the EV share of new car sales had repeatedly exceeded our expectations, increasing from 0.5 percent of new car sales in 2017-18 to 13.6 percent in 2021-22,” the OBR said.

To reflect this, in March 2022 the forecaster made an upward revision on the pace of EV sales. The OBR believed that by 2026–2027, the uptake would rise to almost 60 percent of new car sales.

However, instead, the market saw a slowing in sales in 2022–2023, down to 16.5 percent. This was 1 percent below the OBR’s March forecast of 17.7 percent.

Zero Emission Vehicle Mandate

The forecaster cited a number of reasons for the slowdown. Among them is the zero emission vehicle mandate, which comes into effect in January 2024.

Under the mandate’s annual targets, 22 percent of new cars sold in 2024 must be zero emission. This will rise each year up to 100 percent by 2035.

“We judge sales are unlikely to materially exceed this across the forecast horizon due to flexibilities that allow trading of allowances and borrowing against future allowances in the first three years of the mandate,” the OBR said.

In September, the government announced that the ban on the sale of new internal combustion engine (ICE) cars and vans would be pushed back by five years to 2035. Prime Minister Rishi Sunak described it as “a new approach to achieving net zero.”

The new deadline put the UK in line with other countries, including France, Germany, Sweden, and Canada.

The OBR argued that the delay may result in some consumers postponing a switch to electric cars.

Following the government’s U-turn, one of Britain’s largest car dealerships warned that the delay will disrupt the recovery of the new car market in the next few years.

“Confusing” net zero policies risk dampening the already “muted” demand in the car market, the CEO of Vertu Motors Robert Forrester said.

In September, the Society of Motor Manufacturers and Traders (SMMT) reported a slowdown in demand for EVs by retail buyers, citing reduced financial incentives and the overall uncertainty over maintaining EVs.

Costs and Charging Point Anxiety

The OBR also estimated that the steep sales growth of the past years will slow down. The forecaster added that the cost of EVs compared to ICE vehicles contributes to that slowdown.

“The generally higher upfront costs of EVs relative to ICEVs will likely still be disincentivising many consumers, especially purchasers using car finance as interest rates are significantly higher than we had anticipated in 2022,” the OBR said.

Private motorists are affected by higher electricity costs, the still-developing UK public charging infrastructure, and the removal of the plug-in car grant scheme in June 2022.

The OBR warned that cost advantages of EVs “can become negative” when charging away from home. It added that many drivers were concerned about the availability of public charging points.

“Moreover, petrol and diesel prices have declined from the spike in 2022, due to a combination of both wholesale price falls and fuel duty cuts, though are still high relative to the past,” the OBR said.

In its most recent attempt to boost the development of zero emission vehicles, Downing Street announced £4.5 billion in funding for British manufacturing last week. The SMMT called it a “vote of confidence in the UK’s critical automotive industry.”

Meanwhile, the size of government receipts from from fuel duty and vehicle excise duty is expected to drop, as the share of EVs in the car market grows.

The OBR predicted fuel duty as a share of GDP would fall to zero in cash terms, as EVs replace petrol and diesel cars, in line with the net zero transition by 2050.