UK car sales will not recover from Covid before 2030

The SMMT’s scenario for 2030, which assumes a moratorium on sales of new petrol- and diesel-engined cars from that year, predicts a market size of 2.3 million in 2030, on a par with 2019. 

It should be noted that this was drawn up before the supply-chain crisis fully took hold of the industry, its scale being exacerbated by the war in Ukraine and a series of severe Covid lockdowns across China. This has further restricted the supply of new cars and pushed prices up.

The forecast was also made before the UK government's Plug-in Car Grant (PiCG) was withdrawn and assumed the incentive would have remained until 2023. 

The SMMT said in the forecast: “However, if the incentives for BEVs are removed, new tax systems are introduced which remove the attractiveness of BEVs and undermine consumer confidence, the cost of ownership does not fall as anticipated, or the infrastructure provision is not in place, then we anticipate very significant declines in BEV volumes, compared with our central scenario, and a much slower parc transition, with negative consequences for environmental ambitions and an adverse impact on the overall market (given the end of sale dates timescale).”

Currently, all of the hurdles described by the SMMT threaten the industry.

For one, the UK government will continue to scale back support for customers making the switch to EVs over the coming years.

This began with the sudden withdrawal of the PiCG in June 2022, its value having been cut three times in the two preceding years. The government cited those reductions’ minimal impact on sales of new electric cars as the reason for pulling the grant entirely, allowing a “shift in focus” to supporting the UK's EV charging infrastructure.

This was followed by the November 2022 announcement that the tax system for electric cars will be overhauled from April 2025. EVs first registered between 1 April 2017 and 31 March 2025 will be charged the standard rate of £165 per year. The exemption from the expensive car supplement – which charges owners of cars costing more than £40,000 an additional £355 per year for five years – will also end.

Additionally, benefit-in-kind (BIK) tax on electric company cars will increase from 2% (in 2022/23) to 3%, then rise by 1% each following year up to 5% in 2027/28.

Edmund King, president of the AA, warned after the announcement that “increasing tax rates will slow the road to electrification”.

Mike Hawes, chief executive of the SMMT, said it would “penalise these new, more expensive vehicle technologies”.

Others in the industry were less alarmed by the changes. Nicholas Lyes, head of roads policy for the RAC said: “Vehicle Excise Duty rates are unlikely to be a defining reason for vehicle choice, so we don’t expect this tax change to have much of an effect on dampening the demand for electric vehicles, given the many other cost benefits of running one.”

The additional cost introduced by such changes is likely to be felt disproportionately by buyers at the lower end of the market. That lower end is critical to maintaining the overall market’s volume, the UK’s annual best-seller having been a B- or C-segment hatchback for the best part of the past 40 years.

The pandemic and the ensuing factory closures and parts shortages significantly hit such models’ affordability. One example is the Ford Fiesta, the UK’s best-selling car for 12 years on the bounce. Just before the pandemic, prices opened at £16,125 or £167 per month for an entry-level 1.1 75 Trend three-door model. Now, that has risen to £18,655 or £226pm – and the finance option is likely to become increasingly less favourable if interest rates rise as forecast.