For business and investors seeking to shape the UK’s policy and regulatory framework for electric vehicles (EVs), 2022 is set to be a busy year. EV sales were the auto sector’s standout success story last year. Even with the wider auto market down over 28% compared to pre-covid levels, more electric vehicles were sold than in the previous 5 years combined(11% of all vehicles sold).2022 is projected to be the first year that EVs outsell diesel. Successes in attracting investment and expanding UK capacity in the EV sector, including recent announcements on gigafactories, have added to the sense of momentum in the UK market.
On the face of it, rapid EV adoption is a success to trumpet in the year of the UK’s COP Presidency. It is also a rare, tangible win for an embattled Government that has described success in EV manufacturing as a key plank of its ten-point plan for a green industrial revolution. The Government sees the EV opportunity as inextricably linked to its wider ambitions on securing inward investment, achieving net zero, levelling up, and Global Britain. Notably, EVs are highlighted as a “Brexit Benefit” in the Government’s new Brexit Benefits paper.
However, significant challenges are on the horizon. There are already signs that charging infrastructure is struggling to keep up with demand. Policy choices taken now will influence manufacturers’ decisions on where to base their activities and will affect prices for consumers. A Conservative party backlash against the business and consumer costs of net zero policies creates a risk of reduced ambition, just when industry, investors and consumers require stable and strategic long-term thinking.
There is a vital 12 months ahead. The imminent EV Strategy is just the start of a new phase of government activity addressing the policy and regulatory barriers that stand in the way of the UK’s progress. Businesses will need to work closely with government to ensure the right answers are found: proactively identifying challenges and putting forward solutions that resonate with political objectives locally, nationally and globally.
The standout UK policy commitment is to ban sales of new internal combustion engine (ICE) vehicles by 2030, with small and large freight vehicles following in 2035 and 2040, respectively.
While EV sales are currently increasing at the rate needed to hit the 2030 target, it is unlikely to be plain sailing as we shift from a marginal transition to EVs to a market where EVs comprise all new sales. Prices of new vehicles remain a barrier to many, while others, who can afford the initial switch, reap the rewards of per-mile savings and lower tax. A big question for the Treasury is not if, but when it switches to direct taxation (road pricing) for drivers – reducing the price per mile benefit of EV ownership. With fuel duty revenues rapidly declining as EV uptake increases, the Transport Select Committee has now made clear that there is “no viable alternative” and HMG should begin work immediately on a system to make up the £35 billion that is at stake.
The focus will be on industry to deliver the change. A proposed Zero Emission Vehicle Mandate will put tougher targets on manufacturers to sell EVs and could lead to pressure on companies renewing their fleets between now and 2030. Unless this is combined with a well targeted and coordinated package of measures, it is likely to store up problems for business.
The rapid growth of EV sales also needs to be matched by new charging infrastructure to avoid a consumer backlash.The UK currently has well under half the number of public chargers installed in the Netherlands, despite a population over three times as large.The continued roll-out of rapid and ‘ultra-fast’ chargers needs to be coordinated to ensure availability where needed, while navigating planning and grid connection challenges. Levelling up inspired interventions to resolve current patchiness will need government backing. Forcing industry to pick up the tab for limited returns will impact competitiveness and increase costs for consumers.
EV Growth is Outpacing Charging Point Growth
Source: 2021 DFT Data Tables
Further imminent action is overdue but welcome. A long-delayed comprehensive EV charging infrastructure strategy is expected in the coming weeks. Local and regional institutions are increasingly taking action to encourage the uptake of EVs; the Mayor of London’s 2030 electric vehicle infrastructure strategy included plans to use public land for chargepoints. This year Ofgem is due to publish Electricity Distribution 2 (ED2) price control determinations that aim to unlock substantial investment in electricity networks.
But significant questions remain about capacity, funding and timelines. Coming measures must give the UK the capacity to meet expected demand, and ensure infrastructure is in the right place, or a critical moment of opportunity will be missed. Regulatory and consumer confidence barriers that slow the rollout of new tech must be addressed to unlock industry innovation and allow consumers access to technology in their homes. Thoughtful industry engagement with government to ensure that these concerns are understood and addressed will be crucial.
Manufacturers are keen to show that they can rise to the challenge of ambitious ICE phase out targets, and government is funnelling significant support to new gigafactories and manufacturers switching to EVs. But there are headwinds. Investment elsewhere in Europe has been so significant that the Government may struggle to demonstrate that the UK can hold its own as an EV and battery manufacturing destination. Extraordinarily high UK energy costs for industrial users risk fatally reducing returns for mobile capital looking at UK projects, and access to a skilled workforce has become more challenging post-Brexit.
For exporters, if more stringent rules of origin come into effect in 2026 as scheduled, British EVs will need a UK/EU originating battery pack to maintain tariff-free access to the EU. There is huge opportunity for UK battery producers, but a major risk for domestic auto producers who need to switch suppliers.
Stretched supply chains and access to critical materials such as semiconductors continue to have an impact on manufacturers. Rising demand for crucial battery materials such as lithium has sent prices soaring – potentially feeding through to increased costs for consumers in the short/medium term.
Across all these policy areas, industry must take the chance to work closely with government to realise the shared ambition of developing an innovative, competitive manufacturing sector that spreads growth and prosperity throughout the UK.
New business models and funding for hydrogen production due to be finalised this year could help kick-start hydrogen’s use across a range of heavy transport modes, such as HGVs, buses and trains. While, it seems unlikely that hydrogen will become the fuel of choice for personal transport (battery electric vehicles are clearly leading the way here), a judgement will ultimately need to be made around the sustainability of simultaneous EV charging and hydrogen refuelling infrastructure. Perhaps more pertinent to the long-term fortunes of UK vehicle manufacturing will be the extent to which hydrogen can support the decarbonisation of otherwise hard to abate industrial processes (such as paint application) and heating.
The Government is also starting to seriously consider the future of automated vehicles – an agenda that has consistently been the poor relation of electrification in government policy. The Law Commission’s Automated Vehicle project will create opportunities and challenges for manufacturers, particularly in considering where liability sits between drivers and manufacturers. As government considers how to deploy the record increase in R&D funding it has committed to, and what new priorities should be set, including for the new Advanced Research and Invention Agency, it will rely on clear, compelling arguments from technology-led businesses and investors to make the right decisions on where to place its bets on the future.
This paper was written by Flint Partners, Josh Buckland and Jon Sell. Josh leads Flint’s work on energy, sustainability and environmental issues. Prior to joining Flint, Josh was Energy Adviser to the Secretary of State for Business, Energy and Industrial Strategy. Jon leads Flint’s work advising businesses and investors on innovation, industrial and regional issues. He was previously a senior Treasury official where he led policy and spending on enterprise, corporate and venture finance, R&D and industrial policy.