Electric vehicles continue to rise despite a contracting new car market but the automotive industry says targets will be missed without urgent tax changes.

Fully electric cars took more than a fifth of new car registrations in January

Latest figures from the Society of Motor Manufacturers and Traders (SMMT) show that fully electric cars (BEVs) took more than a fifth (21.3%) of the new car market in January amid a declining sector.

Overall registrations fell 2.5%, down for the fourth month running, while fleet and private buyer demand dropped 3.7% and 0.5% respectively.

Petrol car registrations declined 15.3% and now only account for just over half (50.3%) the market. Diesel demand fell 7.7% to claim just a 6.2% share.

But hybrid electric vehicles (HEVs) recorded a 2.9% volume growth, boosting market share to 13.2% (up 12.5% in January 2024), while plug-in hybrid (PHEV) registrations were up 5.5% to deliver a 9.0% share (vs 8.4% in January 2024).

Battery electric vehicle (BEV) registrations saw the biggest growth, with volumes up by 41.6% year on year, giving the 21.3% market share (14.7% in January 2024).

But that’s still short of the 22% headline target set for last year under the ZEV mandate and even further behind the 28% requirement for 2025.

And the latest market outlook anticipates the new car market declining slightly in 2025 by 0.2% to 1.95 million units, with BEV uptake rising by 20.9% to 462,000 – a 23.7% market share, but still short of the mandated 28% target for the year.

It’s prompted a further industry call for an urgent shake-up of the Vehicle Emissions Trading Schemes (VETS) Order 2023, which encompasses the ZEV mandate, and its flexibilities – currently the subject of a government consultation – as the SMMT warns again of “significant negative consequences for the market, industry and, potentially, the consumer” unless change is effected.

The industry body reiterated that significant manufacturer investment, both in new products and more than £4.5bn worth of discounts in 2024, has helped many drivers make the EV switch, but wider action – including much-needed fiscal incentives for private buyers – is essential.

The SMMT also warned that the arrival of the vehicle excise duty ‘Expensive Car Supplement’ (ECS) to BEVs in just two months could jeopardise EV demand. It means EV models costing more than £40,000 – the majority on the market, given higher production costs – will incur a £3,110 tax bill over the first six years of ownership – compared with zero at present.

The change will impact both the new and used car markets – and the SMMT, along with Alphabet which has mounted a campaign today, is calling for tax plans to be revised to ensure the system is fair and avoids dissuading those who want to buy an EV.

Mike Hawes, SMMT chief executive, said: “Affordability remains a major barrier to uptake, hence the need for compelling measures to boost demand, and not just from manufacturers. The application, therefore, of the ‘Expensive Car Supplement’ to VED on electric vehicles is the wrong measure at the wrong time. Rather than penalising EV buyers, we should be taking every step to encourage more drivers to make the switch, helping meet government, industry and societal climate change goals.”

Hawes spotlighted that the threshold for the ECS – dubbed the ‘luxury car tax’ when launched – has remained unchanged at £40,000 since it was set eight years ago, when the overall market was 30% larger than today and BEVs barely featured.

“With more than twice as many BEVs registered this January than in the whole of 2017, raising the eligibility threshold for EVs – or exempting them from the ECS entirely – would send the message that EVs are essentials, not luxuries, and ensure vehicle taxation remains fair and appropriate for today’s market conditions.”

It’s a call echoed by Alphabet, which has said the current ECS threshold of £40,000 is not at the right level and, according to its own data, should be raised to £60,000.

Hawes finished: “The growing disparity between market demand and regulated targets further underscores the need for substantive market incentives that match ambition.”

Industry reaction

Jon Lawes, managing director at Novuna Vehicle Solutions

“The rise in EV registrations at the start of the year is a positive signal, and proposed subsidies for EV loans may encourage drivers to make the switch.

Jon Lawes, managing director at Novuna Vehicle Solutions

“However, financial incentives alone will not resolve the deeper challenges facing the EV market. Manufacturers remain in limbo over the Zero Emission Vehicle mandate, which requires a 45% increase in EV sales over the previous year.

“Moreover, escalating trade tensions, particularly the threat of tariffs from the United States, risk inflating costs and stalling momentum in EV adoption and potentially igniting a trade war that could have damaging effects on both sides.

“With so many uncertainties and trade disputes looming, the Government must set out a clear industrial and trade strategy – one that fosters long-term growth rather than relying on short-term fixes.”

Nick Williams, managing director, Lex Autolease, part of Lloyds Banking Group

“This year will be pivotal for the electric vehicle industry and the UK has an opportunity to be a world leader in decarbonising transport. Manufacturers will be buoyed by steady growth in electric vehicle registrations and the emergence of the UK as Europe’s biggest market for EV sales in 2024.

“However, more needs to be done to boost consumer confidence in EV technology and range levels, as well as the country’s ability to meet its ambitious targets. We need a concerted effort to meet the country’s ZEV mandate, with dealers, manufacturers and government pulling together to reinforce the benefits of electric vehicles, dispel myths and help divers find the right hybrid or fully electric vehicles to meet their needs.”

Philip Nothard, insight director at Cox Automotive

“The yearly decline in new car registrations reflects the current challenges the UK automotive sector faces, with economic uncertainty continuing to weigh on consumer confidence.

Philip Nothard, insight director, Cox Automotive

“While EV adoption maintains steady growth, private buyers remain cautious. This highlights the pressing need for significant support and incentives to accelerate adoption, especially as new consumer data from Cox Automotive and Regit highlights that 86% of drivers don’t think there are sufficient incentives to support EV adoption in the UK. The industry has made significant investments to drive the shift, yet many consumers still need reassurance on affordability and infrastructure before switching.

“With ambitious EV targets ahead, there is concern that upcoming tax changes could slow progress at a critical time. A balanced approach to taxation and incentives will maintain momentum and ensure the UK remains on track for a successful transition to electrified mobility.”

Jamie Hamilton, automotive partner and head of electric vehicles at Deloitte

“The Government’s reported plans to introduce subsidies for EV consumer loans could provide a much-needed boost to the private market. Making EVs more financially accessible is crucial to driving mass adoption and achieving net zero ambitions. However, this must be part of a broader strategy that provides manufacturers clarity on 2030 Zero Emission Vehicle targets and addresses the needs of all drivers, including investment in public charging infrastructure.”

John Cassidy, managing director of sales at Close Brothers Motor Finance

“January saw a slight fall in new registrations to kick off an important year for vehicle sales.

“Although electric vehicle sales are encouraging, these continue to be elevated by fleet sales, and consumer appetite for EVs needs to rise faster than its rate in 2024 if the Government wishes to realistically achieve its 2030 new internal combustion engine ban.

“Many would point to the upcoming imposition of vehicle excise duty for electric vehicle owners in April as an example of mixed signals from the Government. With a developing charging infrastructure and widespread reservations on EVs’ range, it’s imperative that incentives for EV ownership are not neglected.”