Together in Electric Dreams

29 November 2021

Now that the excitement of COP26 is over we are all faced with the challenges of achieving our own personal Net Zeros. For those of us who are car drivers we must ask ourselves the question of if and when we go electric, with sales of new petrol and diesel cars to be outlawed by 2030 along with most electric hybrid alternatives.  

The SMMT recently forecast that 1.82 million new cars will be registered in the UK during 2021 after a particularly weak 2020, where only 1.63 million cars were sold as the pandemic took hold. In the first eight months of this year 34% of new sales were hybrid vehicles and only 8% pure EV’s, leaving 58% in internal combustion engine vehicles. However, our recent discussions with leading players in the auto trade suggest that there is significant pent-up demand for new cars going into 2022 as manufacturers have been forced to restrict production, with shortages in key components such as semiconductors. Added to this are some fairly onerous increases in the cost of raw materials and labour. This paucity of new cars has also had major knock-on effects in the availability and pricing of both fleet and hire vehicles. 

As a result we have seen major changes recently in the used car market. Data provider CAP HPI expect the value of the average three year old car to have risen by 20% in the second half of this year alone. This compares to a normal depreciation in value of 5% every six months. These are heady times for sellers of used cars with many of the quoted motor dealership groups now reporting record profits and , in some cases, nearly new prices exceeding those of equivalent new models. 

It is important to put the used car market into context. The SMMT estimate there are 35 million vehicles on the road in the UK with an average age of 8.6 years. This is 20x the level of new sales, highlighting the magnitude of the task the industry faces in turning drivers green. Whilst government policy may increasingly seek to penalise the drivers of old cars it feels like there are many years of transition ahead of us. The SMMT forecast that even by 2030 the vehicle parc will still comprise of more than 70% internal combustion engines, suggesting that headline grabbing new EV sales figures will make only a gradual dent on driver behaviour.

Electric vehicle owners currently face a number of significant restrictions. Lack of charging points, insufficient driving distances and uncertain battery life being three key ones. The runners and riders could change too. In the battery world Toyota is currently developing solid state technology for mass use whilst Johnston Mathey has recently announced its withdrawal from the battery business after many years of investment.  Initial EV purchase costs remain too high for the majority of motorists with potentially weak residual values and uncertain servicing costs adding to the inertia. We should therefore expect to see further new entrants into the market with Chinese-owned entities such as MG seeking to disrupt pricing. 

All of this comes whilst we are in the early stages of addressing the huge challenges of decarbonising our power sources for this brave new world. Whilst all of the issues noted above will be rapidly addressed in the next few years, to overcome them all poses a serious challenge for the car industry in aggregate. For drivers there is every incentive to procrastinate. Our hands may well have to be forced for the COP26 electric dreams to become a reality. 

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