Toby Poston, director of corporate affairs at the BVRLA, on managing the ZEV mandate.

Toby Poston, director of corporate affairs at the BVRLA

The new year brings a new landscape for cars and vans. Rules of engagement for decarbonisation are changing as incentives are slowly making way for alternative motivators.

The zero emission vehicle (ZEV) sales mandate will have a material impact on the flow of new vehicles coming to these shores for the next decade. It puts the onus on vehicle manufacturers to sell an increasing proportion of their new cars or vans as zero-emission models.

Some manufacturers are already ahead of the game. They will be incentivised to sell more ZEVs due to the mandate’s allowance scheme. Allowances are awarded for each registration and can be sold by manufacturers surpassing the target to those that fall short. Either by having to buy allowances from competitors or directly from government, vehicle manufacturers face financial penalties for missing ZEV mandate requirements. The targets will be taken seriously.

For new car sales in 2024, the magic number is 22%. Across many parts of the sector, we are already there. Growth of EV adoption up to now has been driven by fleet operators and company car schemes. Fair, targeted incentives have complemented corporate sustainability strategies to mean the journey to road transport decarbonisation is already well on its way.

Stability and certainty are breeding confidence, and the leasing sector is reaping these benefits when it comes to vehicle supply and BiK tax.

Our latest data, from the BVRLA Leasing Outlook Report, emphasises where leasing is enabling the biggest strides to be made. Business contract hire and salary sacrifice represent two areas of the leasing fleet that are seeing above-sector growth.

Both are dominated by EV registrations and are accelerating the fleet’s decarbonisation. In Q3 2023 alone, 47% of new BCH cars joining the fleet were for pure battery electric vehicles (BEV). Another 25% were for hybrids. The BCH lease fleet alone now accounts for 817,000 cars. It is seeing petrol and diesel vehicles swapped out for electric at a far greater rate than currently targeted by the ZEV mandate and continues to be a valuable route to market for manufacturers.

Although representing a smaller chunk of the BVRLA leasing fleet, salary sacrifice (62,000 vehicles) is going green at an even faster rate. It is a part of the market seeing rapid expansion – year-on-year growth of 68% – while enabling more drivers to switch to EVs. The fair Benefit-in-Kind taxation policy makes the vehicles affordable to individuals on lower salaries, democratising the transition without them taking the financial responsibility for the vehicle’s future value. More than three-quarters of salary sacrifice vehicles on the BVRLA leasing fleet are BEVs, with 90% being zero-emission capable.

As ever, analysis shows that some motor finance products are doing better than others, with personal contract hire (PCH) experiencing a small decline. Demand for electric cars is much weaker on PCH agreements, as prospective EV drivers enjoy fewer tax incentives. Concerns also remain around high energy costs and the impending introduction of the Vehicle Excise Duty Expensive Car Supplement for electric cars from April 2025. Electric cars were responsible for just 15% of new personal lease registrations in Q3 2023, well below the impending ZEV Mandate target.

Addressing the imbalance between business and personal customers is critical. The BVRLA will continue to work with policymakers and colleagues from across the automotive industry to try and deliver positive market momentum across all segments.

The challenges around PCH demand can be tackled and shouldn’t take away from the overall direction of travel being very encouraging. As vehicle manufacturers face the reality of where they perform against the ZEV mandate targets, the leasing sector remains an essential partner to keep road transport decarbonisation firmly on track.