Welcome to the latest edition of The Road to 2035 by Auto Trader
The Road to 2035 report (formerly The Road to 2030) tracks the progress of electric vehicle (EV) adoption as the UK moves closer to the ban on the sale of new petrol and diesel cars.
Using Auto Trader data and insights, the Report answers questions that are vital to understanding the EV market and how the industry and policymakers can drive mass adoption.
The latest edition of the Report focuses on: the incentives currently being offered by manufacturers and retailers to stimulate retail demand for new electric cars; the impact of those incentives coupled with an increased supply of used electric cars; and whether new entrants from China and beyond can disrupt the market and lower electric car prices.
Published 17th January 2024
Opening remarks from Ian Plummer, Commercial Director:
It's all change on The Road to 2030. Shortly after the last edition of this Report in September 2023, the Government on one hand told the public that they didn’t need to switch to a new EV quite so soon, whilst simultaneously enforcing the ZEV mandate on the industry dictating minimum levels of electric car sales volumes to 2030. Unsurprisingly, pushing the date back has only served to confuse many consumers, with the number of people now claiming they’ll never buy an EV nearly doubling in the wake of the announcement.
In reality, the introduction of the zero-emission vehicle (ZEV) mandate, requiring that at least 80% of all new car sales are electric by 2030, has negated the overall impact of the delayed date. Manufacturers and the broader industry were already firmly on the path to delivering an electric future, and with their own wheels of change very firmly in motion now we can expect rapid progress in the coming years.
The mandate does mean that manufacturers will continue to be under pressure to hit their targets so we can expect to see price competitiveness, which is very welcome given the still very costly upfront price of an EV. EVs have long remained the preserve of the wealthy; we need them to appeal to a broader audience to stand any chance of hitting the target and of course delivering a greener future.
Simultaneously, this regulatory pressure is being met with the competitive pressure and the increasing likelihood that new entrant brands will import EV price deflation into Europe and the UK. The rise of new brands coming into the UK, particularly from China, will increase the pressure on new car prices as they look to tempt potential EV buyers away from established brands and grab market share. But will these new entrants find success?
Read on to explore all this and more in this edition of The Road to 2035 Report.
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Retail demand for new EVs cools as consumer incentives surge
Sales of new electric cars slow in 2023 as private buyers show limited interest
Whilst the total number of new electric cars sold in 2023 rose by 18% to a record 315,000 vehicles, electric’s market share failed to grow for the first time since sales began in earnest in 2018. Only 16.5% of all new cars sold in the UK were electric, a slight decline from the 16.6% achieved in 2022.
It marks a deceleration in the rate of adoption experienced in recent years as retail consumers fail to switch to the new fuel type at the same rate as fleet and business drivers. Whilst private retail buyers typically account for close to one in two new car sales in the UK (based on 2016-2019 averages), they only accounted for one in five new electric car sales in 2023, and sales to individuals fell for the first time on record.
For consumers, there are still many barriers to entry: high upfront costs; concerns around charging infrastructure; and doubts about the technology. Based on the recommended retail price, a new electric car is still 36% more expensive than a petrol or diesel equivalent, and 47% of consumers believe there aren’t enough charge points [1]. Consumers were also left confused by the Government’s decision to delay the ban on new petrol and diesel sales.
The introduction of the Zero Emission Vehicle (ZEV) mandate in January 2024 – which requires 22% of a manufacturer’s new car sales to be electric – also played a role in the slowing uptake as brands below the target pushed back potential EV sales to 2024.
Auto Trader consumer research from May 2023
Supply of new electric cars outpacing demand from retail buyers
Although demand rose throughout the course of 2023, a sharp decline at the start of the year due to high electricity prices and falling fuel prices led to an overall drop in uptake amongst consumers. On Auto Trader, 12.3% of all new car enquiries sent to retailers and manufacturers by retail buyers were electric in 2023, down from 20.3% in the previous year.
The drop in used electric car prices - caused by excess supply in the market - may have also contributed to softening retail demand for new electric cars, as buyers benefited from lower upfront costs and growing choice in the second-hand market. In the final quarter of 2023, around nine in ten consumers that viewed a new electric car on Auto Trader also viewed a three-to-five year old one, proving that EV buyers are considering new and used models.
The fall in demand for new EVs has raised particular concern among franchise retailers, with 11% of franchise retailers now believing that the transition to electric is the biggest challenge facing the retail market in 2024 [1].
But whilst retail demand faltered, supply of new electric cars increased to new highs as new brands entered the market and more models were launched. In total, 26 new models were launched, and the number of new electric models available to buy (93) overtook the number of diesel models (75). On Auto Trader, 16.8% of new cars advertised by manufacturers and retailers were electric, up from 12.7% in the previous year.
Auto Trader retailer survey n=1649
Discounts on new electric cars reach record highs as brands incentivise consumers to stimulate uptake
With supply outpacing private demand, and the ZEV mandate in effect, manufacturers and retailers are pulling the price lever to stimulate uptake.
The average discount on a new electric car advertised on Auto Trader reached 10.6% at the end of 2023, up from 4.8% at the start of the year and above the 7.3% average discount on a non-electric car.
The growing prominence of manufacturer and retailer incentives meant that 70% of new electric model trims saw average advertised prices fall in the final month of the year.
Whilst a positive step in removing the upfront price barrier for consumers, such actions by manufacturers and retailers will have implications on the pricing of used EVs.
Manufacturer and retailer discounts alone though are not enough to bridge the price gap and stimulate the levels of retail demand needed to convert the next cohort of buyers. In many cases, the average advertised price of a new electric car, including the manufacturer or retailer discount, is still higher than the petrol or diesel equivalent [1].
For example, the average advertised price of a new electric Hyundai IONIQ 5 51% higher than a new petol Hyundai TUCSON.
New brands entering the UK market, such as BYD and Omoda, will likely put further pressure on established manufacturers to lower new electric car prices in the coming years as they benefit from significant cost advantages. A full deep-dive of the new entrants emerging and their impact on the UK electric car market is available at the end of this Report.
To move from the early adopters to the early majority though, retail buyers must be brought on the journey. Without access to government grants, incentives, or softer benefits seen in other countries like free parking or driving in bus lanes, there are risks that the UK decarbonises its car parc at a much slower rate, and the future new car market becomes smaller. Consumers, though, may be able to turn to the second-hand market for more affordable options as choice and availability grow.
Based on stock advertised on Auto Trader
Rising demand bolsters used EV market but prices under pressure
Record demand for used EVs proves that when affordability is addressed, EVs are a popular choice
Whilst consumers have shown limited interest in new electric cars, demand for second-hand models surged in 2023 as retail prices fell dramatically, making stock more affordable and electric cars more accessible to a larger audience.
On Auto Trader, 9.2% of all 0–5 year old used car enquiries were electric in 2023, up from 5.2% in the previous year, and total demand for used electric cars increased by 52%.
The surge in demand for used electric cars also resulted in significant sales growth, with transactions rising 117% in the year based on the stock removed from Auto Trader, and by the second half of the year, used electric cars sold faster than any other fuel type. In the final months of 2023, they sold four to five days faster than petrol and diesel cars.
The surge in demand and rapid speed of sale provides optimism for the industry that when the price barrier is overcome, electric vehicle uptake is much higher despite other barriers still existing for consumers including concerns around battery health and public charging infrastructure.
Although electric cars were the overall fastest selling fuel type, speed of sale varied massively across age cohorts. In the final months of the year, three-to-five year old electric cars sold 10 to 15 days faster than petrol and diesel cars, whereas under one-year-old electric cars sold up to 10 days slower than internal combustion engine vehicles.
The significantly slower rate at which nearly new electric cars sold is a concerning sign as supply continues to grow in 2024, potentially exerting further pressure on retail prices.
Supply of used electric cars rising, holding back a recovery in retail prices
Despite overall demand outpacing supply, and electric cars selling at a rapid rate, used electric car retail prices remained under pressure at the end of 2023. In December, they were still 23% below the previous year’s level on a like-for-like basis.
Whilst wider used car market dynamics may be preventing a recovery in retail prices of used electric cars, with lower trade prices impacting retailer confidence and causing a softening in overall used car retail prices, the anticipation of more supply hitting the industry will also be having an impact. In the last four years alone, more than 800k new electric cars were registered, and most of these cars will return to the industry in the coming years.
After rising to record highs at the start of 2023, supply of used electric cars fell throughout the course of the year as retailers acted more cautiously when sourcing electric vehicles and fleet operators sent fewer cars to auctions. In the second quarter, used electric car stock advertised on Auto Trader fell -2% compared to the previous quarter, and was flat in the third quarter of the year.
In the final quarter of 2023, though, supply increased by 2% as more nearly new and three-year-old electric cars were seen on forecourts.
The rise of short-cycle activity at the end of 2023 contributed to a higher number of nearly new cars, including pre-registered cars and demonstrator cars, whilst the sharp jump in supply of three year old cars stemmed from the return of vehicles on three year leases by fleet operators. As more leases come to an end, supply of three year old electric cars will grow rapidly in 2024.
Despite the significant overall drop in used electric car retail prices, there were large variations observed across different age cohorts. In December, the retail prices of three-to-five year old electric cars fell by -38% compared to the previous year, leading to record demand and a rapid speed of sale as consumers benefited from more affordable prices. In contrast, under-one-year old retail prices experienced a more moderate -12% decrease, resulting in a considerably slower speed of sale.
With manufacturers and retailers increasing the incentives on new electric cars to stimulate demand, there’s a growing risk that their actions in the new car market leads to the prices of nearly new electric cars coming under more pressure in 2024. This would worsen the already high levels of depreciation that exist in the market.
High levels of depreciation have moved the used electric car market forward
For consumers, the price drops have made used electric cars more affordable than ever before. At the end of 2023, around 25% of used electric car stock advertised on Auto Trader was under £20,000, compared to only 13% at the start of the year. Although an improvement, the mix of stock in affordable price bands remains a long way from the petrol and diesel market, with around 75% of internal combustion engine stock being under £20,000.
Affordability has improved to such an extent that many used electric cars are priced below their petrol or diesel equivalents. A three-year-old electric Jaguar I-PACE retailed for an average of £28k at the end of 2023, whereas the same-age diesel Jaguar F-PACE retailed for £30k.
For households with access to off-street parking, there are also large financial savings to gain from owning a used electric car as energy companies offer attractive EV charging tariffs.
Whilst used electric car buyers benefit from more affordable prices and lower running costs, new electric car owners face significant depreciation on their purchase.
Based on December data, a new £50k petrol car would be expected to lose £17k of its value after three years or 30k miles, whereas a new £50k electric car would be expected to lose £24k over the same period. It highlights how unsustainable levels of depreciation have moved the used electric car market forward in 2023, instead of lower new car prices flowing through into the second-hand market.
With over 800k new electric cars registered between 2020 and 2023, supply returning to the used car market will only increase in 2024, and if demand does not keep up, electric cars could depreciate even further, undermining both consumer and retailer confidence.
Persistently lower residual values on electric vehicles would also affect new car sales in 2024, as higher depreciation would be passed onto new electric car buyers through larger finance payments. With the new electric car market already slowing, and private buyers turning away from the fuel type, higher finance payments on new electric cars could be another headwind for consumers, unless manufacturers and retailers continue to incentivise the purchase of new electric cars.
The emergence of new entrants
The shift to electric brings new entrants and more competition – especially from China
The brand landscape is changing in the transition to electric. At the start of 2018, there were just 46 brands selling new cars in the UK. At the end of 2023, there were 57 - and more than half of these new brands only sell electric cars.
Despite more brands selling new cars in the UK, the total number of new cars registered in 2023 was still less than pre-pandemic levels. As a result, not all brands can win, and established ones face a challenge in retaining market share as new entrants strive to expand their presence.
Some of these new entrants have grown considerably in recent years. Tesla was the first and now accounts for 3% of new car sales in the UK, MG’s focus on affordable electric cars has resulted in rapid growth and a 4% share of the market, and Polestar’s positioning as an electric performance brand with Geely backing sets it up for a strong future.
Hyundai and Kia - which were once new entrants from South Korea – have also grown market share in the transition to electric by transforming their product portfolio and shifting their buyer demographic to a more affluent audience.
Many of the emerging brands aiming to challenge though are from China, which have significant experience in manufacturing cars and huge competitive advantages in the transition to electric.
China Association of Automobile Manufacturer
In 2023, Chinese brands overtook the rest to lead in their home market, and China was likely to have overtaken Japan to become the world’s largest car exporter, exporting a record 5.26 million vehicles — including passenger cars, buses and trucks, up 56% on 2022 levels according to The China Passenger Car Association.
Now, these brands are partnering with retailers in the UK to secure a foothold as it transitions to electric.
UK consumers show they’re interested, but most are yet to buy from these unknown brands
New Chinese entrants can disrupt the UK electric car market, which as mentioned earlier in the report, lacks choice in affordable price ranges and suffers from high upfront costs. The introduction of the ZEV mandate will also support new electric brands if they can scale their operations in the UK and sell their credits to brands falling short of their targets.
New Chinese entrants are already advertising cars in the UK through their retailer networks, albeit at a small scale. At the end of 2023, they accounted for less than 1% of new electric cars advertised on Auto Trader. Consumers responded though by viewing their cars 284k times in 2023 benefiting from the additional choice, and at the end of the year, they accounted for 4.8% of all new electric cars viewed.
Whilst a growing number of people viewed these new brands, far fewer committed to purchase cars from these still relatively unknown brands, accounting for only 1.3% of new electric car leads.
The lack of brand awareness was highlighted by consumer research conducted in the first half of 2023, with only 4% of consumers hearing of BYD and 3% of GWM ORA [1].
However, in response to the news about BYD selling more new electric cars than Tesla in the final quarter of 2023, many consumers became aware of the brand and began searching for it.
On Auto Trader, there was a sharp spike in the number of times people viewed BYD’s new cars, with advert views rising over 200% on the 2nd of January 2024 - the day BYD announced its sales’ data.
It proves that new brands can overcome the awareness challenge, but further marketing will be required to make it a more sustainable increase.
New brands may also benefit from lower brand loyalty in the UK than seen in other European countries. In France, Renault and Peugeot account for 16% and 14% of new car sales respectively. In Germany, Volkswagen accounts for 18% of new car sales. In the UK, the biggest brand (Volkswagen) only accounts for 9%, and the next closest brand (Ford) only accounts for 8% [2].
This weak brand loyalty among UK car owners provides a huge opportunity for new entrants with 45% of UK consumers indicating they would switch brands when they move from an ICE vehicle to an electric vehicle [3].
At the same time as new brands competing to attract buyers, established brands are failing to maintain recognition as they transition their ranges to electric. Most consumers are familiar with the brands that produce the Golf, Focus and A3, but less are familiar with the brands that produce the ID.3, IONIQ 5, and Ariya. As a result, the electric car landscape is always changing, as new products launch to market.
Auto Trader consumer research - May 2023; n=4,000
SMMT data
3. McKinsey
More competition on price will accelerate private demand for new electric cars
Over time, new entrants will likely capture market share in the UK, rising from 8% in 2023 (including MG, Tesla, BYD etc.) to one in six new car sales by 2030.
For this to happen though, the new Chinese entrants will have to be more aggressive on price. Since their entry into the UK market, they’ve launched models with a ‘brand premium’ compared to the prices available in China. The BYD Dolphin has a starting recommended retail price of £25,000 in the UK, but in China, it starts at just £13k.
Although new entrants are yet to bring the cheapest prices to the UK market, established manufacturers have already lost market share in the transition to electric.
Ford, SKODA & Peugeot, which are all top ten brands in the internal combustion engine market, are not top ten brands in the electric car space. At the same time, Tesla, MG, Hyundai and Kia have attracted buyers in the transition.
With increased competition and private demand for new electric cars stalling, manufacturers have been pulling the price lever to stimulate retail demand with bigger incentives on new electric cars - as mentioned earlier in the Report.
There’s also evidence to suggest that established brands can pull the price lever further, with some selling their electric cars in China for a much lower price than in the UK.
More competition on price between brands looking to retain or grow market share will only have a positive impact on the adoption of electric cars, potentially accelerating private demand as the biggest barrier is overcome. Consumers stand to benefit from greater choice especially in affordable price ranges, but it remains to be seen whether they embrace these brands and their aspirations of significant sales volumes.
For retailers, the arrival of new entrants presents a huge opportunity as they can help to build recognition with buyers, as well as enable distribution, and manage after-sales channels. Whilst retailers shouldn’t miss the chance to bet on new brands, not all new entrants will succeed.
The impact of new entrants on consumers, retailers, and established manufacturers will unfold in the coming years, potentially shaping the industry landscape and the pace of transition toward electric vehicles in the years to come.
Consumers
New entrants bring more (affordable) choice for more buyers
Greater choice of brands and models to suit different needs as consumers face a shift to electric
Manufacturers
Market stimulation will be key through discounting and incentives
Price competition between manufacturers will accelerate adoption of electric cars
There will be winners and losers
Retailers
Most new entrants rely on a retailer-centric model to build credibility, enable distribution, and manage aftersales
Unique opportunity to bet on new brands; some will fail but so too may legacy brands
The steps we need to take to accelerate adoption
Within this report, we’ve highlighted some of the strengths of the EV market with strong used EV demand and the increasing number of makes and models now available helping to drive the adoption of EVs across the UK.
But, this report has also highlighted the challenges we as an industry face when it comes to engaging the early majority of buyers and achieving mass adoption on the road to 2035, with prohibitively high upfront costs on new cars and confusing messages from government holding many consumers back from starting their EV journey.
We believe there are four critical steps that industry and government must take in order to engage this early majority:
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Fairer charging costs
47% of consumers believe there aren’t enough charge points
The cost of private and public charging needs to be aligned to attract those without the option of a home charger i.e. no off-street parking. VAT needs to be equalised across public and private charging.
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More financial incentives to make EVs affordable for all
56% of consumers state that EVs are too expensive
Removal of VAT on the purchase of new and used electric vehicles.
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Softer incentives to help UK drivers switch
Taking inspiration from other countries, like Norway and France. Examples include parking perks and free charging in certain locations.
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Confidence in the battery
61% of consumers need to know that the battery will last before considering an EV
Standardised testing, akin to WLTP regulation, needs to be implemented to give consumers confidence in battery health.
Concluding remarks from Erin Baker, Editorial Director:
The EV market is in a more nuanced, promising, conflicted and ultimately exciting place than ever before. New EV sales are up... but this has been driven by fleet demand with consumer demand slumping. It’s a better story for used EVs which have seen consumer demand soar, but this demand has been stimulated by significant price cuts which, in the long-term, aren’t sustainable.
While new Chinese entrants are capturing some initial interest, they are struggling to convert this engagement into sales, with incumbent players still dominating the EV leads landscape in the UK. The promise of more affordable options from these new entrants may stimulate much-needed new EV demand among consumers, but right now models from these new entrants, like many current mainstream brands, carry a premium price tag.
Growth in the electric market is reaching a critical point and if these dynamics continue, we may not be able to hit the 2030 ZEV targets, let alone reach mass adoption by 2035.
We therefore need to redouble efforts to engage the early majority.
As we’ve highlighted, there are steps that industry and government must take to drive adoption among this early majority including:
- Fairer charging costs
- More incentives to make EVs affordable for all
- Creative ways to incentivise UK drivers to make the switch
Only by taking these steps and listening to the consumer will we achieve the ultimate goal of mass adoption by 2035.