Consumers should buy an EV, not a tax credit

The push for electrification poses challenges for many in the UK. Even though the adoption rate has been quite significant recently, we discuss how this path is unsustainable and the problems we all face. In this article, I share some key observations and possible solutions to EV adoption.

Having just returned from SMMT electrified in London, where automotive industry leaders were speaking about the challenges of electrification, from EV adoption to infrastructure development. The main problem being highlighted is that government mandate is far ahead of industry realities and strong considerations to rethink the plan and give companies more flexibility has been the main message. 

How is electrification going?

The UK has been showing some impressive EV adoption rates over the past couple of years, in line with the challenging zero-emission mandate. However, we seem to miss the real reason why people are adopting EV's, and that's largely not because EV's are better than ICE's, rather it's the government incentives which bait consumers in signing their next PCP/HP deal for an EV instead of ICE. 

Compare EV adoption across other European markets: 

What is common between the countries with high EV adoption rates? 

As we can see, the north west of Europe adopts EV a lot more readily compared to the south and East. Some key commonalities between those countries are:

• Higher income on average 

• More EV incentives

• Higher tax rates

The combination of those factors ultimately results in EV adoption per country. Jurisdictions with higher tax rates mean government have more of a leverage to use incentives for accomplishing national targets and government mandates. This ultimately sways the purchasing decision for the consumer quite significantly. This is much harder to do in countries with lower tax rates. 

More affluent citizens adopt EV's much more readily that less affluent, simply because EV's are 10-20% more expensive that their ICE equivalents for most models. Given this reality, and Europe's struggling cost of living crises, are more consumers going to purchase EV's?

Coming back to the UK, tax incentives have greatly boosted the willingness of consumers to buy an EV, but that is not a competitive decision. That is not a sustainable decision. That is just people buying tax credits instead of openly choosing to buy an EV. 

EV Total cost of ownership

In the UK, here are the top factors affecting cost of ownership: 

• Price: The most obvious, if a car is more expensive, it is less competitive. Basic economics. Most EV's are substantially more expensive than their ICE counterparts.

  
  

• Fuel: A volatile situation here, at the time of writing, the price of oil is spiking meaning that the cost of petrol/diesel at the pumps is jumping ever higher. However, electricity is also closely connected with the price for fossil fuels, meaning that unless sustainable and reliable sources are adopted and proven, the cost of fuel for both EV and ICE continues to rise.

  
  

• Road tax: At the moment, EV users win here.

  
  

• Insurance: Insuring an EV is 15-25% more expensive than an ICE equivalent.

  
  

• Maintenance: EV's potentially can save up to 50% of maintenance costs. 

  
  

• Lifespan: This is ultimately how long the vehicle will last. At the moment, we are unsure how long an EV will last. We can say about the powertrain that an engine is likely to outlast a battery and it's not rare for 15-20 year old vehicles driving the roads of Britain. 

In order for EV adoption to really happen, the EV has to fairly win the competition for the users preference. Simple. 

So, what needs to be done? 

We list some potential solutions: 

For Manufacturers: Innovate to make EV's better than ICE's. If an EV can be made cheaper, use less energy per mile of driving and comfortably last 20+ years, this will drive adoption significantly. 

For Government: Stimulate, not mandate. Help manufacturers with innovation grant and opportunities rather than spending funds on consumer incentives to purchase. This way, the solution will be long-term, not a mere short-term incentive. If there's help with R&D and connecting engineering firms with OEM's to create efficient vehicles cheaper, the vehicle will win in the market. 

Also, perhaps try the insurance route. If it will be much cheaper to insure an EV, it will make more sense to buy one. 

For Insurance: Adjust the premiums and make them significantly less. 

To summarise, here are the key ideas and hopefully some value from this article. 

• Make the best EV's, not the best incentives

• Focus on long-term adoption, not short-term stimuli

• Innovate in technology, not in regulation