Supporting the uptake of ultra‑low emission vehicles

Changes to the Plug in Car Grant came into effect on 1 March 2016. GreenFleet examines what this means for prospective buyers and the future uptake of electric vehicles.

The Plug-in Car Grant (PiCG) was first launched in January 2011 to promote greater uptake of Ultra-Low Emission Vehicles (ULEVs) in the UK. Since its introduction, over 53,084 claims have been made using the grant, which gives buyers up to £5,000 off of the purchase price of a plug-in vehicle.

With the initial iteration of the PiCG scheduled to finish at the end of 2015, interested parties were concerned with what this could mean for the immediate future of plug-in hybrids (PHEVs) and electric vehicles (EVs) in the UK.

The Office for Low Emission Vehicles (OLEV) went some way to assuage these concerns in June of last year, when it confirmed that a new form of grant would be introduced using a tiered system, and the industry waited with baited breath for further details of just how drastic the changes would be.

The PiCG has been credited as having a positive impact on the increased uptake of ULEVs since its introduction, as it goes some way to reduce the large initial costs associated with PHEVs and EVs, which can act as a barrier for prospective buyers still on the fence about the new technology.

With the cost of batteries continuing to fall, it is likely that EV pricing will fall more in line with its combustion engine counterparts in the not too distant future. But as it currently stands, the relatively ’affordable’ Nissan Leaf 24kWh starts at £21,490 including ownership of the battery, or from £16,490 with an additional £70 a month battery rental, which places it outside the price range of a large portion of the British public.

For continued growth in the new registrations of plug-in cars, many believe the continuation of a sizeable grant is still an essential component.

It was confirmed in August 2015 that the first PiCG would officially finish at the end of February 2016, with OLEV announcing in December that the changes due to come into place from 1 March would be part of a long‑term extension of the PiCG guaranteed to continue until at least the end of March 2018, with the backing of £400 million worth of funding pledged to support greater uptake of ULEVs.

What’s changed?
A big change to the new PiCG is that eligible vehicles will now be split into three categories. Up until 1 March, the PiCG has been available to all vehicles emitting less than 75g/km of CO2, offering buyers a 35 per cent discount off the basic price of an eligible car, up to a maximum of £5,000.

As of 1 March, cars with CO2 emissions of less than 50g/km and a zero-emission range of at least 70 miles will fall into Category 1, cars with CO2 emissions of less than 50g/km and a zero-emission range between 10 and 69 miles will fall into Category 2. In addition, those vehicles emitting CO2 emissions of 50 to 75g/km and a zero emission range of at least 20 miles fall into Category 3.

The highest discount available has been reduced from £5,000 to £4,500 off the basic price of the vehicle, which will only be available to cars that fall into Category 1.

A smaller grant of up to £2,500 is now available for Category 2 cars, with the £2,500 grant also available for Category 3 vehicles. Another new rule which has been brought in with these changes is that any vehicles in Category 2 or 3 that cost over £60,000, including number plates, vehicles excise duty and VAT, will no longer be eligible for the grant. This means that discounts will not be available for either of the Mercedes-Benz S500 Hybrid or the Porsche Panamera S E-Hybrid.

This will also effect the BMW i8 and the Volvo XC90 T8 Twin Engine, which would fall into Category 2, but currently retail for over £60,000.

The new grant system also contains ‘trigger points’ for a further review of grant levels, which are 40,000 Category 1 vehicles and 45,000 combined sales of Category 2 and 3 vehicles. While these seem like fairly large targets, both totals will include cars sold before March 2016, meaning that the 23,000 or so Category 1 vehicles already submitted for Category 1, as well as the 28,000 or so claims for Category 2 and 3, will be counted along with any new vehicles registered under the new grant scheme.

What do the changes mean?
The government has said that these changes to grant rates are vital to ensure that funding is sustainable moving into the future, and that the new tiered system will enable ‘focused financial support to the greenest vehicles’.

A big reason for the reduction in maximum grants is that the sales of ULEVs continue to rise, or ‘rocket’, to use the words of Transport Minister Andrew Jones, with 29 different vehicles currently on the market, five times as many as when the PiCG was first launched. The grant was claimed 462 times between January and March in 2011, which steadily increased to a total of 8558 for the same period in 2015. It is simple maths to work out that as more and more buyers apply for the PiCG, the monetary cost will rise, which has led to this new tiered approach.

Some have met these changes with scepticism, warning that dropping incentives could stunt the large growth seen over the past few years at a time where the government needs to capitalise on the growing popularity of ULEVs.

Steve Gooding, director of the RAC Foundation, said: “Given that the market was almost non-existent just five years ago there has clearly been progress made in getting drivers to go ultra-low and manufacturers will be relieved government has decided to taper the grant rather than scrapping it completely.

“The question is whether the new grants will be enough to nudge our choice of vehicles towards the eco-friendliest options. One of the big success stories has been the Mitsubishi Outlander plug-in hybrid which currently attracts a £5,000 grant. But under the new rules that will fall to just £2,500. Much will depend on how manufacturers respond and whether they adapt their pricing policies.”

Top of the range
The Mitsubishi Outlander PHEV stands at the best selling plug-in in the UK, and saw a dramatic spike in sales in February 2016, with sales increasing by 41 per cent compared to the same month last year. Mitsubishi attributed this large spike to buyers pre-empting the changes to the PiCG, which have reduced the total discount available from £5,000 to £2,500.

While this isn’t necessarily cause for concern, it could forebode a large drop in sales now the changes have come into effect. Mitsubishi’s UK boss Lance Bradley believes that the reduction to the grant will lead to an ‘initial lull’, but says the Outlander PHEV is unlikely to suffer a long-term drop off, as there are still a great deal of benefits to plug-in electric vehicles, including substantial tax savings.

Bradley said: “We never expected the grant to last forever, we just asked for a phased removal, and while this change has come quicker than we hoped, we expect to maintain momentum.”

Transport Minister Andrew Jones has said that continuing the grant in a ‘sustainable’ way will ensure that ‘more than 100,000 people’ will benefit from financial support, with the government press release claiming it will ‘treble the number of ULEVs on Britain’s roads’.

Plug-in Van Grant
Commenting on the effect these changes would have, Gooding also drew attention to the ‘almost non-existent’ electric van market, which he warned could prove to be a greater concern than changes to the PiCG.

He said: “This was perhaps where the greatest hope lay with expectations that urban delivery firms and local authorities, whose vehicles did known mileages and could be easily recharged at the depot overnight, would go electric.”

These changes to the PiCG will not apply to the PiVG, which will remain unchanged. However, so far the PiVG has shown disappointing uptake, with only 1,906 claims since it was launched in 2012.

Part of this is likely due to more limited choice of vehicle when compared to the PiCG, but it highlights that work to promote low emissions alternatives among van users could prove to be a more effective use of time and money than incentives to prop up the wider ULEV passenger car market, which appears to be growing at a steady rate.

Meeting climate targets
The Committee on Climate Change has estimated that nine per cent of the new car market should be ULEVs within the next five years for the UK to meet its legal obligation to cut greenhouse emissions by 80 per cent by 2050.

This, paired with the government’s pledge to make ‘almost every car and van’ zero‑emission by 2050 as part of the COP21 climate agreement, means that the continued growth of the ULEV market will remain a vital component of Britain’s future efforts to reduce emissions and prevent climate change.

As it stands we cannot be sure what effect these changes will have on the sales of ULEVs in the UK. The sector may well continue to grow despite the reductions and, as initial costs of EVs are expected to drop, subsidies will likely give way to other barriers to adoption, such as range anxiety, charging infrastructure and resale uncertainty.

Further Information
www.gov.uk/government/organisations/office-for‑low-emission-vehicles