SMMT Calls for Action as ZEV Mandate Threatens Auto Industry

The UK automotive industry is raising red flags as weak demand for EVs and unsustainable business costs threaten the sector's viability.

Despite significant investments and progress in zero-emission vehicle (ZEV) technology, market realities are falling short of expectations, prompting urgent calls for government intervention to safeguard the transition to EVs.

Compliance bill looms over the EV industry

According to new analysis from the Society of Motor Manufacturers and Traders (SMMT), meeting the UK's ZEV Mandate in its first year could cost the automotive sector an estimated US$7.5bn.

The financial burden, compounded by lacklustre consumer demand, severely threatens the industry's profitability and long-term sustainability.

Manufacturers are expected to face even steeper challenges in the years ahead. In 2024, there are projected to be 94,000 fewer electric cars registered than anticipated when the mandate was announced.

The shortfall reinforces the difficulty of achieving the 22% EV market share target, leaving manufacturers vulnerable to costly compliance penalties.

Struggling consumer demand despite increased EV offerings

Over the past year, the industry has increased its EV offerings by 30%, with more than 125 zero-emission car models and over 30 van models now available. These vehicles boast advancements in battery technology that address range anxiety and provide greater reliability.

In addition, manufacturers have subsidised sales with an estimated US$5bn in discounts to stimulate demand.

However, these efforts have yet to yield the expected results. 

Mike Hawes, CEO at SMMT, highlights the disconnect: "We need an urgent review of the automotive market and the regulation intended to drive it. Not because we want to water down any commitments, but because delivery matters more than notional targets."

Interest rates, high raw material costs and ongoing geopolitical tensions have contributed to economic uncertainty, making it harder for consumers to transition to EVs. The lack of widespread confidence in the availability of charging infrastructure further dampens enthusiasm.

Falling short of mandate targets

The ZEV Mandate originally predicted that 457,000 electric cars would be registered in 2024, accounting for 23.3% of all new car registrations. The latest outlook, however, paints a more concerning picture: registrations are expected to total only 363,000, representing an 18.7% market share.

The situation is even more dire for vans, where the projected market share has been slashed from 10% to just 5.7%, with only 20,000 units expected to be registered. The gap creates additional financial strain on manufacturers, many of which are already cutting back on production due to weak demand.

Economic and global implications

The fallout from weak EV demand could have far-reaching consequences. With mounting compliance costs, some manufacturers may withdraw from the UK market entirely. This could deter global investors from viewing the UK as an attractive destination for automotive manufacturing.

Hawes warns of the broader impact:

"The industry is hurting; profitability and viability are in jeopardy and jobs are on the line. When the world changes, so must we. Backed with incentives, workable regulation will set us up for success and green growth over the next decade."

Global Impact of ZEV Mandates

Several countries and regions worldwide have implemented Zero Emission Vehicle (ZEV) mandates, signalling a global shift towards this approach. 

US: A pioneer in ZEV mandates

The US, particularly California, has been at the forefront of the ZEV mandate. California introduced the first ZEV mandate in 1990, setting the standard for environmental regulation in the automotive sector. Since then, several other states, including New York and Massachusetts, have adopted similar programmes.

Canada: Bold targets in provinces

In Canada, the provinces of Québec and British Columbia are leading the charge with robust ZEV mandates. British Columbia, for instance, has set ambitious targets requiring ZEVs to make up 26% of passenger light-duty vehicle sales by 2025, rising to 90% by 2030, and achieving 100% by 2035. The policies reflect a commitment to phasing out internal combustion engines in favour of sustainable alternatives.

China: A model for large-scale implementation

China has implemented its New Energy Vehicle (NEV) mandate since 2019, drawing inspiration from California's ZEV program. As the world's largest automotive market, China's NEV mandate is critical in shaping global EV adoption. The policy promotes producing and selling electric and hybrid vehicles, solidifying China's position as a leader in the transition to sustainable mobility.

UK: Legal enforcement of ZEV mandates

The UK recently enacted its ZEV mandate, setting stringent targets for vehicle manufacturers. By 2030, 80% of new cars and 70% of new vans sold in the UK must be zero-emission vehicles, with this figure reaching 100% by 2035. This legislation underscores the UK's commitment to achieving net-zero emissions in the transportation sector.

European Union: Voluntary targets for ZEVs

While the European Union has not implemented a strict ZEV mandate, it has introduced voluntary target mechanisms to promote zero-emission vehicles. The targets incentivise automakers to prioritise EV production, contributing to the EU's broader climate goals of reducing greenhouse gas emissions and achieving carbon neutrality.

The path forward: Incentives and market adjustments

The SMMT is urging the government to reassess the ZEV Mandate and provide meaningful incentives to align market realities with ambitious regulatory targets.

Stimulating demand, enhancing charging infrastructure and creating a competitive business environment is critical to ensure the sector remains on track to deliver US$62.6bn in growth over the next decade.

A robust and competitive EV market would accelerate the adoption of zero-emission vehicles, a crucial milestone for decarbonising road transport. With swift and decisive action, the UK can ensure its automotive industry thrives while advancing its green ambitions.

Guillaume Cartier, Chairperson for Nissan's AMIEO region, in following other automotive leaders calling for an overhaul of the ZEV Mandate, states: "The Mandate risks undermining the business case for manufacturing cars in the UK and the viability of thousands of jobs and billions of pounds in investment."

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