July 25, 2024
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Ways to boost electric vehicle adoption in compliance with ZEV requirements

With the new Labour government assuming office at No.10 this week, the automotive sector — a crucial component of the UK’s net zero commitments — is looking for increased attention and support.

In January, the zero-emission vehicle (ZEV) mandate came into effect, setting ambitious targets for the transition to electric vehicles (EVs). The mandate requires that 80% of new cars and 70% of new vans sold in Great Britain must produce zero emissions by 2030, increasing to 100% by 2035.

Despite these targets, doubts have been raised about the motor industry’s ability to meet them. The House of Lords Environment and Climate Committee urged the government to step up its efforts, while car manufacturers expressed disappointment at the lack of purchase incentives for EVs in the recent Spring Budget.

Josh Skelding

Without additional government incentives for consumers on the horizon, the motor finance industry must innovate to stimulate demand, particularly among consumers, to meet government EV sales targets.

State of the market: EVs

The high prices of EVs remain a challenge for consumers. With new EVs still carrying a 33% price premium over ICE vehicles, widespread EV adoption is a significant hurdle.

This price disparity is also a concern for manufacturers, given the zero-emission vehicle mandate’s pressure on them to ensure that electric vehicles account for at least 22% of their sales this year. Shortfalls in EV sales result in fines of £15,000 per non-compliant vehicle sold.

Despite the initial cost barrier of new EVs compared to ICE vehicles, the popularity of used EVs is rising. Q1 sales of used EVs increased by over two-thirds, with prices dropping by 16.8% year-on-year. In contrast, used petrol and diesel cars only saw a 5.7% decrease year-on-year.

While used electric vehicles are becoming more affordable, there is still work to be done to achieve sales targets. Building consumer confidence will be crucial in reaching the 22% sales target this year, and financial innovation and technology can play a vital role.

Charging infrastructure

The commercial adoption of electric vehicles faces challenges due to the upfront cost of EVs and the necessary infrastructure to support them.

Infrastructure is a significant factor, with many potential buyers experiencing “range anxiety” over the adequacy of current infrastructure in case of a charge depletion. The government’s failure to meet motorway charge point targets and the lack of off-street parking for 25-40% of households contribute to this concern. This lack of charging infrastructure hampers EV adoption, while the limited EV uptake slows infrastructure development.

Innovative financial solutions like Utilisation Linked Finance (ULF) could revolutionize the sector. ULF offers practical financing by adjusting payments for charge point installations based on their actual usage, encouraging private investment by reducing risk for installers. This approach can incentivize expansion into areas with uncertain demand, optimizing resource allocation and ensuring efficient charge point deployment.

Loan origination solutions

While new car sales saw an increase last year, subdued consumer confidence due to high interest rates and economic inflation left the overall market 17.7% below pre-pandemic levels by the end of 2023.

Leasing is becoming a popular option, with battery, plug-in, and hybrid electric vehicles accounting for over half (53%) of business lease inquiries in Q3 2022, according to Leasing.com.

One advantage of leasing an EV is the lower upfront costs compared to purchasing outright, leading to reduced monthly payments and increased accessibility. The flexibility of lending options allows policyholders to tailor the policy to their needs.

However, EV financing presents complexities compared to ICE leasing, posing challenges for lenders. Long-term data on EV depreciation patterns is lacking, underscoring the need for lenders to have robust technological infrastructure to adapt to market changes swiftly.

Investing in advanced loan origination technology can provide insights into EV depreciation trends using predictive modeling and machine learning algorithms, enhancing decision-making and risk management. Configurable loan origination tech streamlines loan processing, accelerating decision-making for customers.

As the market transitions from EV early adopters to the mass market, setting the groundwork for success through infrastructure development and accessible financial options is crucial. Collaboration with the government and industry stakeholders is essential to boost consumer confidence in EV viability and achieve the zero-emission vehicle mandate.

Josh Skelding is the Commercial Director at Fignum

FAQ

1. What are the challenges in achieving EV sales targets?

2. How can financial innovation drive demand for EVs?

3. What role does infrastructure play in EV adoption?

4. Why is loan origination technology important for EV financing?

Conclusion

The automotive sector’s transition to electric vehicles is crucial for the UK’s net zero commitments. Despite challenges such as high prices and infrastructure limitations, financial innovation and technology offer solutions to drive EV adoption. Collaboration among stakeholders and government support are vital for achieving EV sales targets and building consumer confidence in the EV market.



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