European automotive

Will the UK be ready for the 2030 ban on the manufacture of ICE vehicles?

14 July 2023

Summary

The UK Government’s decision to ban the manufacturer of ICE (internal combustion engine) vehicles by 2030 and hybrid vehicles by 2035 appears to be set in stone.

With 2030 just seven years away, representatives from the EV (electric vehicle) and charging industries gathered at the Asset Finance Connect Summer 2023 Conference to discuss what the industry must do to be ready for the ban on ICE vehicle manufacturing.

Education to dispel negative EV myths

There is a critical need for education due to the misunderstanding and bad press surrounding EVs. The UK media are doing a terrible job to support the EV sector and transition, highlighting so-called problems such as range anxiety and charging anxiety.

For example, a recent BBC Panorama programme left Andrew Leech, founder and managing director of Fleet Evolution “fuming and frustrated” over the “total distortions about electric vehicles”.

Leech noted, “It was typical sensationalist TV journalism with no preparation, no planning and no thought on how to manage a road route of that length. It seemed its only intention was to paint EVs, and particularly charging them, in a poor light.

“Anyone who regularly drives an EV will tell you that they are much more convenient than ICE models for everyday use, so why do journalists persist in using them for only a few days on trips most would only attempt once a year, with no preparation,” said Leech.

Car manufacturers and their dealers must assume responsibility for informing their customers about the conversion to EVs, including:

Plan your journey – look at your route range and charging facilities along your route. Vehicle range is irrelevant now as it is constantly being extended with improving battery technology.

Home charging – there is an ongoing debate about how many UK households have a driveway with estimates ranging from 20% to 70%, but those with driveways will allow 70%-80% of charging to happen at home. Home charging is a lot cheaper than public charging with many energy providers now offering “smart chargers” that charge your car overnight on the very cheapest tariff available Drivers able to charge at home pay just 5% VAT to power up their EV, compared with 20% for those without access to a driveway or designated private parking space who are reliant on the public network.

Cost – there are a growing number of EVs that are much more price accessible in addition to price reductions and discounts for electric cars. The initial purchase price of an EV might be more expensive than an ICE vehicle, but consumers need to focus on the overall lifetime cost of ownership, e.g. general maintenance is lower and more efficient to run if you can charge from home.

In a recent article – EVs set for major boost in 2023 – Nick Williams, managing director for transport business at Lloyds Banking Group, said: “Directly comparing an EV with its closest ICE equivalent can lead to some misleading conclusions, beginning with the price tag. Although the upfront cost of an EV might in some cases be more expensive, the total cost of ownership is likely to be less, and sometimes significantly so. As well as the obvious savings to be made on fuel, EVs have fewer moving parts and therefore need less maintenance.

“Even in the face of rising electricity prices, the cost argument for switching to an EV, when considered in the round, can be compelling.”

The Green Finance Institute actively engages with lenders about different product offerings for consumers on the EV journey and raising awareness of TCO. There is a perception that making the switch to electric is difficult, so through their financing models, lenders need to make the transition more appealing with product bundles combining EV and home charger.

Have EVs reached price parity with their ICE counterparts?

The initial cost price has always been a major factor in the EV purchase decision, with many consumers believing that an EV is beyond their budget. However, price parity between EVs and ICE vehicles doesn’t require the initial purchase price to be exactly the same.

For EVs, the total cost of ownership (TCO) — the full cost to own and operate the vehicle, accounting for purchase cost, fuel prices, maintenance — needs to become the most important deciding factor for consumers.

Some industry experts believe that TCO for EVs is already lower than its ICE counterpart with price already reaching parity if you consider subsidies in various markets and TCO, according to Deloitte in their Electric Vehicles – setting a course for 2030 report.

Other pluses for EVs also include the fact that EVs’ driving range is already comparable to that of ICE vehicles, and the number of models available is increasing.

Other industry analysts expect TCO parity between EVs and ICE vehicles as soon as 2024 to 2026 for shorter range EVs and 2027 to 2030 for longer range EVs.

Whilst there is a large depreciation gap between the cost of used BEVs and their original purchase price, the price gap of used BEVs is closing with their ICE equivalents if factors such as clean air zone charges are considered.

However, there is still uncertainty around the depreciation of EV residual values. Lauren Pamma, Programme Director at the Green Finance Institute believes that residual values are the big uncertainty surrounding EVs at present, but this is improving with data becoming increasingly available.

Charging infrastructure

In the UK, there is still work to be done on improving public charging networks so that EV drivers have access to infrastructure where it is convenient and at a fair price. Funding and investment models are needed to enable infrastructure at scale to cope with the increasing EV demand.

While charging infrastructure is currently not ready for the ban on the manufacture of ICE vehicles, by 2030 we will be ready as we still have seven years to prepare, according to Charlie Cook, CEO of RightCharge who sees solutions to the challenges.

We are constantly seeing new and improved solutions in technology, software and charging infrastructure, and as we approach the ban deadline there will be more and more investment.

In 2023 ChargeUK, a new trade body for the EV charging industry, was launched bringing together 18 of the country’s largest charge point installers, which collectively will invest more than £6 billion installing and operating new EV charging infrastructure by 2030.

Tens of thousands of new chargers are due to be installed this year, with the aim of doubling the size of the network through 2023.

ChargeUK will work collaboratively with the government and other stakeholders to help drive charge point investment and delivery, including shaping policies and regulation.

In July 2023, the UK Government published new regulations for public charge points, outlined in the Public Charge Point Regulations 2023, including a 99% reliability standard for rapid charge points.

The Public Charge Point Regulations aim to improve the charging experience for electric vehicle (EV) drivers in four key areas: payments, pricing, data and reliability:

  • Government is mandating contactless payments and payment roaming to reduce the number of apps.
  • Charge point operators will be required to be transparent about their pricing.
  • All public chargers will have to provide charge point information and data including live availability data.
  • New regulations include a 99% reliability standard for rapid charge points to build public confidence.

Charging issues also focus on the supply of power from the National Grid, with media reports raising concerns over whether there is enough power to fuel the increasing EV demand.

While National Grid are not worried about the demand from EVs, drivers need to be educated in off-peak smart charging overnight when it is most economical and uses cleaner energy.

Ben Boutcher-West, Chief Digital Officer at Connected Kerb noted that with the flexibility of electricity you can shift around charging behaviour with the use of software models: “the power supply is not a problem if technology can shift and provide those services to offer a blend of different charging options at different times.”

Battery manufacturing

The main cost of an electric vehicle is the battery, making up 55%-60% of the total cost. EV batteries are evolving with changing components and updated software and technology, all helping to reduce the cost.

However, negative media coverage about the quality and life of EV batteries has resulted in many retailers postponing their decision to purchase an EV, instead choosing to wait until there is more data about EV batteries. However, as Lauren Pamma, passionately declared, “we don’t have time, we need to make the change now!”

To meet the demand for EVs by 2030, the UK currently lags behind and needs to urgently invest in battery manufacturing and the supply chain, with only one small-scale battery plant currently up and running.

The global shift to electrification and EVs, in particular, to decarbonise the transport sector is creating a huge investment opportunity to meet the rapid increase in demand for batteries in the UK, according to the Green Finance Institute’s Guide to Investing in the EV Battery Supply Chain.

The new report discloses how the EV transition has the potential to grow the automotive battery market to GBP 12 billion in the UK as early as 2025, with growing battery supply chain capacity – upstream, midstream, downstream and end of life – presenting a significant opportunity for a wide range of investors across the financial spectrum, both those familiar with, and those new to the sector.

The UK has a window of opportunity to play a key role in the transition and grow its current battery manufacturing pipeline. Increasing investor understanding of the sector quickly is critical to seize this opportunity.

Concluding remarks

With only seven years until the 2030 ban on the manufacture of ICE vehicles, a lot still needs to be done to ensure that the UK is ready for the next step in the transition to electrification.

Investment is needed in charging infrastructure as well as UK battery manufacturing plants and supply chains as we move closer to the deadline.

Education of all parties is a necessity in the electrification transition of vehicles. Retailers need to be educated in the benefits of EVs and dispel some of the myths arising from negative media attention, for example, range and charging anxiety. Lenders too need to learn about different product offerings for EVs, while investment companies must see the potential for investing in battery and EV manufacturing in the UK.

Find out whether the UK will be ready for the 2030 ban on the manufacture of ICE vehicles by reading our review of the Asset Finance Connect Summer Conference 2023 Session

Analysis from David Betteley Asset Finance Connect's head of content

The transition to BEVs comes at a time when there are, in addition, a lot of moving parts at play in the automotive industry, such as agency, changes in regulation (new consumer duty), new mobility products such as subscription, the re-birth of old products such as rental, and the advent of the connected car. Connected cars offer the opportunity to completely change the pricing model once and for all from ownership to usership.

Whilst a connected car can be petrol, diesel or BEV, the question I think is whether the electric car revolution is the catalyst for the acceleration of the connected car and the use of the data produced by the vehicle to drive new finance products and usage-based pricing models.

There was much talk at the session about price parity between ICE and BEV and whether it will become a reality sooner rather than later. Parity has come quickly to some markets, but this has been due to the high level of subsidies for BEVs and this (as in the UK’s case) cannot continue forever. I must admit to being sceptical about some of the more bullish predictions about price parity, however, there can be no doubt that as the price per Kwh of electricity goes down, the appeal of BEVs will go up.

The winners in the ICE to BEV race will be those people that can charge from home, and whilst there is an ongoing debate about how many UK households have a driveway, the fact is that if you are a low to middle earner then you are more likely to live in accommodation that doesn’t have a driveway and will be forced to rely more (relatively speaking) on public charging which in many cases can be double the cost of home charging. In addition, if you are a low to middle income earner, you are more likely to be driving an older car that will incur high tolls to drive to work in a ULEZ.

Therefore, there is an element (as usual) of unintended consequence in that the drive to ban ICE vehicles will favour the better off! This could be offset by some kind of means tested incentive, but we will have to wait and see if the government (of whatever persuasion) wakes up to the social divide they are creating.

Continuing on the theme of charging, there is no doubt that the previous discussions about range anxiety have now been replaced by charging anxiety. The strong feeling of the panel was that charging anxiety has been over-blown by the media and that with education and a bit of route pre-planning there will be enough juice in the national grid and enough chargers (both public and private) to deliver it by the time 2030 comes around.

In conclusion, may I turn to the elephant in the room…..there always is one! This particular elephant is the loss of fuel duty and VAT on petrol and diesel and how HMRC will recover that loss. The favoured solution is road pricing, but this is unpopular with Brits who resent paying tolls. Road pricing today is a relatively simple solution to implement, supported by the “connected car” and the ability to re-price enabled by the data feed from the vehicle. This could of course impact the TCO of an electric car, but by 2030 the customer will have no alternative!

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