13 minute read
The EV market is running out of charge thanks to a combination of high car prices, volatile residuals and inadequate infrastructure
Short circuit
The electric car revolution has been sold on a combination of environmental feel-good and financial common sense. The cars might be a little pricier at first, but the significant savings in recharging versus refueling would more than balance the books.
The electric car revolution has been sold on a combination of environmental feelgood and financial common sense.
The cars might be a little pricier at first, but the significant savings in recharging versus refuelling would more than balance the books.
While the early adopters might have to put up with limited range, that would soon change, and cars would become the equal – better in some cases – than their internal combustion engine competitors. And hey! Air quality! It hasn’t quite worked out that way.
As we hurtle toward the 2030 cut-off point, when the sale of ICE cars in the UK must cease, the electric car sector appears to have hit choppy waters, with new car supply, used car prices and charging infrastructure all experiencing deep troubles that are not going to be fixed overnight.
Sales are still rising, but not as fast as they might. In May, Battery Electric Vehicle (BEV) sales increased almost 60% compared to 2022, but this was from a low base in a market that grew nearly 17% year-on-year.
“Despite being the second most popular powertrain technology, the market share remains relatively in line with 2022 at 15.7% this year to date,” said analyst Manu Varghese, of EY’s UK & Ireland advanced manufacturing & mobility team.
Indeed, the SMMT’s figures suggest that the market growth in May was driven by fleet orders for petrol-engined cars such as Ford Puma and Nissan Qashqai. Petrol cars accounted for 57.1% of all UK registrations, while large fleet registrations were up by 36.9%, reflecting better supply of new cars following challenges last year largely caused by microprocessor shortages.
EV sales are growing. There are now more than 750,000 electric cars on UK roads, with just under 100,000 EVs registered in the first four months of 2023. The total should surpass 1 million this year, especially as model proliferation grows. Including commercial vehicles, the SMMT says there are now 84 different EV models on sale now, compared with just 21 in 2018.
But growth is causing further problems. And the biggest elephant of the herd that is rampaging through the room remains charging infrastructure.
Despite Government bluster, the infrastructure is not growing as fast as the sale of electric cars – and it needs to. A recent report revealed a growing gap between the number of electric cars on UK roads and the number of available public chargers. In 2022, there were 36 electric cars for every public charger, compared to 31 at the close of 2021.
According to research by the RAC, the Government is unlikely to meet its target of having six or more rapid or ultra-rapid electric vehicle chargers at every motorway service area in England by the end of 2023.
“This disparity necessitates action, with a focus needed on the type of charger and location rather than just an increasing quantity,” said EY’s Manu Varghese.
SMMT chief executive Mike Hawes said the car industry was providing the vehicles, but other stakeholders must pull harder.
And the provision of infrastructure has something of the Wild West about it. Largely down to the private sector, it has large numbers of relatively small players all competing for position.
There are two primary requirements: rapid DC chargers on motorways and trunk roads; and slower AC chargers on urban streets to cater for motorists without offstreet parking and the ability to fit a home charger.
The provision is largely being left to the private sector, with a number of government funds available to assist, administered via local authorities.
This is not a sensible way to proceed, as the ensuing provision lacks joined-up thinking. Even among London boroughs, there are some that have made large numbers of chargers available while a neigbouring borough might have very few.
Then there are cities like Birmingham, which has eschewed the on-street option in favour of a series of planned large superhubs with multiple chargers. This is unlikely to succeed, largely because of inconvenience and charging cost.
And cost is the biggest problem of all. The cost of charging has soared in the energy crisis, topping out at £1 per kW at one point at some charging networks. The promise of recharging being cheaper than refuelling has not come true, unless you can charge from home and rarely travel beyond the range of the car.
Shopping around for the best energy supplier means you can charge overnight for around 10p per kW at home, though it is increasingly difficult to find these rates without restrictions.
By comparison, on our recent EV road trip feature, 47.5kW added at a Gridserve charger (at 66p/kW) cost £31.37, plus £6.37 of VAT, bringing the price to £37.64. At 10p/ kW, that would have cost £4.75 (with no VAT charged on home charging).
That £37.64 bought us 175 miles of range. For a petrol car capable of 35mpg, that would be 5 gallons of fuel. Currently, unleaded costs around £6.57 per gallon as a UK average price, so 5 gallons would cost £32.85 – nearly £5 cheaper than Mr Gridserve’s finest leccy. Gridserve is not the most expensive either – Ionity is currently charging 74p/kW and Osprey charges 79p/kW.
And remember, that £32.85 of petrol contains £11.93 of fuel duty as well as VAT. The Government is losing that money as the EV driver pays no fuel duty, and the fuel duty means the price of petrol is artificially high.
It’s not just the cost of charging that’s high. The EV itself remains a premium product in most manufacturers’ ranges. There are very limited numbers of entrylevel EVs on sale, as the main cost of manufacturing remains the battery pack. So a small hatchback’s battery pack is going to be almost as expensive as the one in a large SUV. The retail price difference on the forecourt means focusing on the large, profitable SUV is a no-brainer.
Volkswagen, for example, is only now planning a Polo-sized ID.2 model as its sixth model, having rolled out five increasingly large and more expensive models.
A glance at the price of the planned new BMW i5 compared to its petrol equivalent gives an indication of the price difference. BMW recently announced that the i5 would cost £73,200. The petrol-engined 520i, basically the same car, will cost just £49,850.
With interest rates at 5%, the highest level for decades, getting the finance for an increasingly expensive EV is becoming difficult. Nobody wants to be saddled with high monthly repayments – and then have to pay more in charging costs than they were paying for petrol.
There is obviously a market for cheaper EVs. The private hire sector has often gone for lower-cost brands as the cars are not expected to have a long life, given the high mileages typically covered. At, say, 70,000 miles a year, a seven-year old PHV might be getting close to half a million miles.
That level of mileage is uncharted territory for EVs. Battery life is still a largely untested concept, and if one assumes that the seven-year-old PHV is only fit for scrap, it’s a very different economic question to write off a £40,000 EV rather than a £20,000 petrol or diesel car.
The other area of chaos is used EVs. With demand for new EVs looking soft but supply of new EVs getting better, used EV values are taking a hit.
According to Dean Bowkett of Bowkett Consulting, used EV values could fall by 5-10% in the next few months as a result of the imbalance between used EV supply and demand.
Used car values are volatile, with some models losing more than 10% of their value in a single month. According to CAP HPI, used Tesla Model Ys lost 11.1%, or £5,500, in January 2023, while 12-month-old Jaguar I-Pace prices fell by 10.5% per cent, or £5,020 in the same period.
Unstable residual values mean it is more difficult for manufacturers and their finance arms to calculate monthly leasing and contract hire repayments, as these are based on strong, stable residuals. If the residuals are low, then the monthly prices have to go up – making an already expensive EV even harder to fund.
Against this market we have seen manufacturers, notably Tesla, making deep price cuts to some models in order to stimulate sagging sales. Tesla has twice this year slashed the price of its cheapest Model 3. In January it knocked £7,000 off the price to, bringing it down from just under £50,000 to £42,990. And in March a further £4,200 was sliced off the cost, bring the price down to £38,790 – albeit only for cars in stock rather than those ordered directly from the factory.
This is having a severe effect on Tesla residuals, and further exacerbating the fall in used car prices. CAP HPI forecasts suggest that a new Tesla Model 3 Long Range, bought in January 2023 for £57,435, will only be worth £31,850 by January 2024 (with 10,000 miles on the clock. That represents a whopping 44% 12-month depreciation. By comparison, a Kia EV6 GTLine S bought in January 2023 for £52,690 would still be worth £37,300 in January 2024 with the same 10k on the clock – a mere 29% drop in value.
The only good news from this is the likelihood that affordable used EVs with relatively low mileages – cars that would make ideal PHVs – might start to become available in greater volumes.
Against this rather chaotic market, what is being done? The SMMT has downgraded its forecast for EVs’ market share to 18.4% of the total 2023 market, from a previous estimate of 19.7%.
That doesn’t mean sales are falling – far from it. The overall market is still growing as pent-up demand is met. Sales have risen for 10 consecutive months, the longest uninterrupted period of expansion within the UK car market for eight years.
Registrations grew 16.7% in May to reach 145,204 units according to the SMMT, although registrations remain 21.0% down on pre-pandemic 2019 levels. In May 2019, 183,724 new cars were registered.
There’s plenty of anecdotal evidence of chauffeurs and private hire drivers, especially those who carry out longer runs on a regular basis, and would thus be more dependent on the fast-charging networks, opting for plug-in hybrids rather than pure EVs. These still meet TfL’s “zero emissions capable” criteria and offer the ability to travel inter-city on petrol.
Clearly PHEV is not dead yet – indeed, PHEVs have a further five years on sale beyond pure ICEs, as the Government has decreed they can be sold until 2035.
Whether that becomes the death date for the ICE is another matter. The Germans don’t believe so – after all, the internal combustion engine is a German invention, and there is a strong opposition to throwing a century of technological development in the bin.
In March, as the EU debated similar deadlines to those unilaterally imposed by the UK Government (a 2035 end to ICE sales), the Germans objected – and won a significant concession.
Following a last-ditch campaign by Germany, the 2035 ban will exempt vehicles that run exclusively on e-fuels, a new technology that combines hydrogen and carbon dioxide to produce synthetic fuels. This is not the same as biofuels – an Italian proposal to exempt biofuels was rejected.
E-fuels are burnt in a traditional engine and therefore release emissions into the atmosphere. The Germans argue their production process can be climate-neutral and offset the pollution.
But detractors say e-fuels are expensive, energy inefficient and a waste of resources. Mind you, similar accusations have been levelled at both hydrogen and lithium batteries along the way.
Current production of e-fuels is very limited and is seen as a niche, luxury market. But over the next 12 years that could change – after all, nobody is prescribing a specific technology – just setting a zero tailpipe emissions standard.
So the 2035 market might have BEVs, HEVs and E-fuel combustion engines. Even hydrogen combustion engines are not completely ruled out. In the interim, though, battery is king.
The European auto industry is gearing up substantially to make the switch, with more than 30 battery “gigafactories” under construction. As we reported last month, the UK is playing catch-up, having dawdled on the gigafactory front, backing the wrong horse with the failed Britishvolt project, and being stymied by its self-imposed Brexit misery.
This leaves the UK market vulnerable to cheaper competition from China. Already we have two major Chinese companies, SAIC (through MG) and Geely (through Volvo and LEVC), well established in the UK.
Two others have recently launched: GWM (formerly known as Great Wall Motors), has launched a low-cost hatch as the entertainingly-named Ora Funky Cat. And BYD, which makes batteries as well as cars, has started rolling out a range of vehicles here.
Others will follow. Chery, another leading China market player, is planning to launch in the UK next year under the Omoda brand.
These Chinese players have learned the hard way about entering the European market – attempts 20 years ago ended in failure, especially as cars often failed crash testing. But now, with China’s experience in electronics and battery technology having grown considerably in the past 20 years, they see a major opportunity to fill the lower echelons of the car market with affordable vehicles.
And even if they are subject to import tariffs, the significant cost advantages of building in China mean they are still able to come in below European-made rivals. Addressing this issue is likely to be one of the European auto sector’s biggest challenges of the next decade. EVs are coming, but they might not be the ones we expected.
And the likely influx of Chinese models will only serve to put even more pressure on the charging networks. These are the key to the success of EVs, and require serious investment. Unless that happens, the battery-electric car market could become seriously undercharged.
