Petrol price surge is unlikely to boost electric vehicle sales, automakers claim

Rising Living Costs Impact Electric Vehicle Purchases

Automakers are skeptical that soaring petrol prices, driven by ongoing conflict in the Middle East, will lead to a surge in electric vehicle (EV) sales. The Society of Motor Manufacturers and Traders (SMMT) cautions that assuming higher fuel costs will automatically push consumers toward battery-powered cars oversimplifies the situation.

Mike Hawes, SMMT’s chief executive, explained that the broader economic fallout from the Iran conflict and oil prices exceeding $100 per barrel could outweigh any potential boost to EV demand caused by expensive petrol. He noted that rising gas prices will also increase electricity costs in the UK, making EV charging more expensive.

Hawes added that higher interest rates and inflation, both influenced by the war, are likely to erode consumer confidence. If the economy worsens, it will become even harder for the industry to sell electric vehicles.

Honda recently announced it expects its first annual net loss since the 1950s after cancelling three planned EV models for North America, despite previously pursuing an ambitious electric strategy.

Martin Sander, Volkswagen’s sales chief, pointed out that past conflicts have caused fuel prices to spike and then fall, without significantly changing how people buy cars. He believes the long-term cost of vehicle ownership will remain stable and that the current situation won’t alter the market dynamics.

Nicole Melillo Shaw, head of Volvo UK, warned that the war could actually dampen EV sales, especially since electric cars were, on average, 17% more expensive than their petrol counterparts last year.

She expressed concern that rising living expenses might discourage consumers from making new car purchases, saying, “If my cost of living is increasing, I might decide not to buy a car at all.”

Challenges Facing Electric Vehicle Mandates

The SMMT highlighted that demand for EVs is currently insufficient to meet government sales targets without substantial subsidies. They urged the Government to immediately review its zero emission vehicle (ZEV) mandate to avoid losing manufacturers from the UK market.

While the EU has relaxed its emissions targets to allow sales of CO2-emitting vehicles beyond 2035, Canada has dropped its mandate, and the US under Donald Trump has eliminated restrictions for automakers. In contrast, Britain requires carmakers to boost EV sales to one-third of all vehicles this year, ramping up to 80% by 2030, and mandating that all new cars be zero emission by 2035.

Hawes described these targets as unrealistic, stating, “I don’t know anyone in the industry who believes they can be achieved. The mandate is far ahead of what consumers are ready for.”

Financial Strain on Manufacturers

According to the SMMT, automakers have had to subsidize each EV sold in Britain by £11,000, or face a penalty of £12,000 for every petrol car exceeding the limit. Battery prices are now 30% higher than initially projected, and charging costs have risen by 120%. The Government’s pay-per-mile tax on EVs is expected to further reduce demand.

Melillo Shaw described the situation as unsustainable, emphasizing that Volvo cannot continue to absorb the costs of UK EV sales indefinitely. She called for the Government to recognize that punitive measures are counterproductive to their goals.

Volkswagen’s Sander urged policymakers to stop forcing consumers to switch to EVs, questioning whether mandates truly inspire enthusiasm for electric vehicles.

Government Response and Trade Concerns

The Department for Transport reported that manufacturers met ZEV mandate targets last year, supported by grants of up to £3,750 per vehicle. Transport minister Keir Mather told the SMMT’s annual EV conference that while he acknowledges the need for sensible carbon rules, the mandate will not be reviewed until 2027.

Hawes warned that new “made in Europe” regulations from Brussels could severely impact the UK economy, jeopardizing a trading relationship worth £79 billion. Although most UK-made goods sent to the EU will be treated as “EU equivalent,” carmakers have been excluded from this arrangement. Nissan has reportedly called the plan a threat to its Sunderland plant, which exports most of its vehicles to Europe.

Hawes stressed the importance of clarity for manufacturers, stating, “For volume producers, maintaining a strong relationship with Europe is vital. With friends like these, who needs enemies?”