Automotive sector sees growth every month in 2023, but ZEV Mandate poses a key challenge

David Borland, EY UK & Ireland Automotive Leader, comments on the Society of Motor Manufacturers and Traders (SMMT) new car registration figures for December 2023:

“December marked the 17th consecutive month of growth for the automotive sector, with UK new car registrations growing every month of the year in 2023. More than 141,000 new car registrations were recorded last month, up just under 10% on November’s figures, leading to a 17.9% increase for the full year. Despite this strong performance, registrations were still 17.7% below the pre-pandemic levels of 2019.

“However, a critical challenge that continued to face the sector was once again Battery Electric Vehicle (BEV) sales, which were down 34.2% compared to December 2022. This represented a second consecutive month in which BEV sales were down year-on-year. As with November’s decline, this was likely driven by Original Equipment Manufacturers (OEMs) gearing up for the Zero Emission Vehicle (ZEV) Mandate, which has now come into law in the UK, as companies looked to minimise their exposure to financial penalties in 2024. 

“This concern has been counterbalanced to a certain degree by the European Union Council’s decision to approve a delay to tariffs on Electric Vehicles (EVs) traded between the UK and the EU, minimising commercial risk to OEMs as their Electric Vehicle (EV) targets increase in line with the ZEV Mandate.

“However, the disparity between the timing of the ZEV Mandate and the delay to the Internal Combustion Engine (ICE) vehicle sales ban will continue to represent one of the most marked challenges to the UK’s EV transition going forward, as OEMs attempt to provide a more compelling proposition to consumers to make the switch. And with question marks remaining around the residual values of EVs, while the current profitability of EV sales appears stretched, the road ahead will certainly be a complex one.

“On a positive note, 2023 was a strong year for fleet, which spearheaded an impressive year of growth for the UK’s automotive sector. Sales grew by at least 25% year-on-year during every single month of last year, with overall growth of 38.7% across 2023. A critical question for OEMs is whether this is a sustainably profitable channel with private retail sales only managing to broadly flatline in 2023. A key task will be for government and industry to work together in order to increase appetite among consumers and businesses alike, particularly for EVs.

“As auto companies in the UK look to build on a significant year of growth in 2023, striking the right balance between their ICE and EV priorities will be critical. The ZEV Mandate will prompt OEMs to place an increasing focus on EVs and how they manage the complexities of product planning, but the full portfolio of powertrain technologies must continue to be considered. With Plug in Hybrid Electric Vehicles (PHEVs) having the highest growth of all powertrain types at nearly 40% for the year, it is clear that they are part of the solution to provide consumers with comfort amid any hesitancy they may have to go all electric in the near term.”