cap hpi’s latest analysis shows the latest Government changes to the Plug-In Car Grant (PiCG) may have unintended consequences.
cap hpi, part of Solera Holdings, Inc., a leading global provider of integrated vehicle lifecycle and fleet management software-as-a-service, data, and services, reports that as a result of the second immediate cut in the grant within six months and another cut in the eligibility threshold, there may be a reduction in consumer BEV registrations and a negative impact on used car values.
cap hpi believes a number of manufacturers may amend their EV new vehicle prices below the new £32,000 point to ensure they retain the incentive. However, some models may become more expensive as they react to the announcement, which leaves almost two thirds of cars previously eligible for the grant outside of current scope.
This latest announcement by the Government on changes to the PiCG has prompted questions across the industry about the possible impact on used values for battery electric vehicles (BEVs). In connection with the previous change in March, cap hpi advised there was no used value impact expected because of the changes, as used values for most affected models were generally not close to list price or effective cost new after the grant was applied. Therefore, decreases in new car prices were unlikely to put pressure on used car values.
This time, however, the changes come on the back of record-breaking rises in used car values through 2021 and although BEVs were slower to increase than internal combustion engine equivalents, three-year-old values are now up by +17.7% year over year. When the increases in used car values are combined with the effects of the supply issues impacting the delivery of new cars, used retail values for many electric vehicles are already close to, or even above, the new car purchase price.
Dylan Setterfield, Head of Forecast Strategy at cap hpi, said: “In the short term, this is likely to accelerate a reduction in used electric vehicle values which were already expected, particularly once the new car supply situation eases and especially for those cars reduced below £32,000. However, it is important to note that it is unlikely to have an impact on the longer-term level of used BEV values.”
Manufacturers have been put in a very challenging position. Many vehicles saw list price reductions back in March, as manufacturers strived to retain the government incentive for their consumers, but the latest alteration to the scheme may provide especially onerous.
The grant is likely to end in the near future, as the Government has indicated that there will be further reductions as sales of alternative fuel vehicles continue to increase.
Some manufacturers are already struggling with increasing production costs and may face a choice between discontinuing Plug-In Car Grant eligibility altogether or introducing vehicles with specifications reduced below the threshold. If no action is taken, prices of the affected vehicles will increase by the £2,500 no longer allocated, or £69 per month on a 36-month leasing contract or PCP agreement. Without further pricing action, the cost of cars still eligible will also increase by £1,000, due to the reduction in the level of the grant.
The stated Government intention is to enable ‘as many people as possible to be able to make the switch to an electric vehicle,’; however, the available selection of models may decrease. Of the 163 current BEV vehicles which were eligible for the grant, 101 (62%) would now be ineligible under current pricing and only 30 of those are within £1,500 of the new threshold.
Setterfield continued: “The number of available models under the grant today reduces from 32 down to 19. Even for cars of ‘Supermini’ size, many models are seeing the majority of vehicles fall outside of the criteria — only one of the eight Renault Zoe derivatives comes in under £32,000. Consumers may be faced with a choice of predominantly smaller ‘City Cars’, many of which may not suit drivers’ needs.
“In addition, the latest Government action could also have the impact of increasing not just the price of cars available today, but also of new BEV models launched in the UK going forward, with the grant threshold no longer restraining new car price levels for most electric cars. The Government also needs to ensure that funds are made available to make used BEVs more accessible to consumers.”