By Dylan Setterfield, head of forecast strategy at Cap HPI
The challenges are significant as the UK fleet industry braces for the next phase of the zero emission vehicle (ZEV) mandate, which will continue to intensify this year and beyond.
The ZEV mandate (or more correctly VETS – the Vehicle Emissions Trading Scheme) demands that manufacturers sell a rising proportion of ZEVs, reaching 52% by 2028.
While this aligns with national net zero targets, it raises critical concerns for fleets, retailers, and manufacturers alike.
Under the UK Government’s ZEV regulations, automakers are increasingly worried that they may be fined heftily for failing to meet EV objectives.
In 2024, sales of BEV cars in the UK increased to over 380,000, accounting for 19.6% of new car sales and making the UK the largest market for electric cars in Europe.
This is more than in 2023, but it is still below the 22% target set by the UK Government for last year (and well under the 28% that must be met in 2025).
Manufacturers who sell more non-ZEV units than their allotted amount or who don’t satisfy compliance standards risk fines of £15,000 for each non-ZEV unit sold above their allotted amount.
However, the Department for Transport (DfT) does not expect anyone to pay fines for 2024.
Instead, OEMs are expected to take advantage of the various ‘flexibilities’ built into the legislation, and the majority of manufacturing groups are at or above the 22% limit once the credits for CO2 improvements relative to the 2021 baseline are factored in.
The others will need to buy credits from manufacturers with high levels of electric registrations or otherwise take the gamble of borrowing against improved future performance.
This year, it gets tougher. The 19.6% market share represented a nominal increase of 19% over the 16.5% share of BEVs in 2023.
Moving now from a target level of 22% to 28% implies a year-over-year increase of 27% (in a flat new car market). By 2028, the 52% target for electric cars will be a whopping 37% improvement over the 38% level mandated in 2027.
Fleet uptake of electric vehicles (EVs) has been strong, driven by tax benefits and corporate social responsibility goals. However, the burden cannot fall solely on the fleet sector, which has already demonstrated its commitment to net zero.
Attracting private buyers remains challenging due to the higher up-front costs of EVs, limited (but improving) charging infrastructure, and range anxiety.
There are also a considerable number of myths which persist around BEVs. Despite the perceptions of many, they are several times less likely to catch fire, the batteries will often outlast the cars and used electric cars are already cheaper in general than their petrol or diesel equivalents.
Manufacturers face increasing pressure to align their strategies. A robust used EV strategy is critical as increasing numbers of fleet EVs return to the market.
The British Vehicle Rental and Leasing Association (BVRLA) highlights the need for clear pathways to support second and third-life EV ownership.
Effective resale channels and education for prospective buyers are essential, or the market risks an oversupply of used EVs and diminished residual values.
Manufacturers and stakeholders must collaborate to improve transparency in used EV performance and battery health data. Building trust in used EVs will encourage uptake and prevent stagnation in the fleet replacement cycle.
The financial impact of the ZEV mandate extends beyond manufacturers to fleets and consumers.
Fines for non-compliance with ZEV quotas are under discussion, and smaller penalties or exceptions for certain manufacturers are likely to be proposed under the current ‘fast track consultation’.
Navigating the additional costs of transitioning to ZEVs, along with inflationary pressures and economic uncertainty, requires careful planning for fleets.
Total Cost of Ownership (TCO) calculations remain critical, factoring in Government incentives, fuel savings, and potential maintenance reductions to offset higher insurance costs.
Clarity on fiscal policies and grants is essential for effective long-term decision-making.
Charging infrastructure needs to catch up to EV adoption rates, creating a bottleneck for widespread uptake. This is particularly problematic for fleets operating in rural or underserved areas.
The Government’s commitment to charging accessibility must translate into actionable progress, with targets for rapid charger installations and grid upgrades.
For mainstream adoption to become a reality, VAT must also be harmonised between domestic and public charging as soon as possible.
Private sector involvement will also play a crucial role. Fleet operators and manufacturers must advocate for partnerships with energy providers to deploy workplace and depot charging.
The ambitious targets of the ZEV mandate require a coordinated effort.
Now is the time for OEMs, fleets, and policymakers to address immediate and long-term goals.
Fleets have a unique opportunity to foster greater retail adoption by demonstrating the viability of EVs in diverse operational contexts.
Similarly, manufacturers must prioritise education and support for end-users, particularly in retail.
Simplifying the EV transition with clear messaging on charging, costs, and environmental benefits can bridge the gap in consumer confidence.
The focus should be on why electric vehicles are a good choice for the buyer overall, rather than the priority being the relative merits of an individual model.
The fleet industry is at the forefront of the UK’s EV transition. While the ZEV mandate presents undeniable challenges, it also offers an opportunity to drive innovation, sustainability, and economic growth.
By focusing on gradual progression and building a resilient EV ecosystem, the sector can meet its obligations while delivering value to businesses and drivers alike.
The ramp-up from 2027 demands bold action from all sides, but especially from the government. It is not merely about hitting targets but about laying the groundwork for a sustainable, electrified future that benefits all stakeholders.
The time for strategic thinking and collaboration is now.
Read six things fleets should know about the new 2030 ICE ban consultation.
