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EVs: Bumpy ride to electric avenue?

Date: 08 June 2012

2012 is a landmark year for corporate electric car sales. Jack Carfrae investigates the highs - and the lows - of the plug-in market for business car users

Alternative fuels are no longer a new concept for business car drivers. It's a given that petrol and diesel will remain the obvious choices for the foreseeable future, but we're increasingly becoming spoiled for choice.

LPG and biofuels are widely available enough so that, with a bit of a strategy, you could conceivably run a fleet on them, and while hydrogen is a way off the mainstream yet, it's looking inevitable in the long run.

The big thing for 2012, though, is electric and plug-in vehicles. This year represents a watershed, as vehicle manufacturers have now reached the stage of serious mass marketing of EVs in the UK to the point where you can now visit a dealership and order a fleet of them.

What's holding EVs back, however, is the fact that the market and the technology are still very much in their infancy, so the industry is cagey in its expectations. Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders, says: "It's still in the very early stages. This year is an important year for the market because there is a significant amount of new product going on sale. The more products there are, the more attractive they become, obviously, but it's still a relatively small market."

Andy Heiron, head of electric vehicle programme at Renault UK, agrees that it's still early days, but claims that the case for EVs has been strengthened by the recent allocation of Government funding for electric vans to supplement the existing subsidy for cars: "[The market] is still finding its feet. The announcement of the Plug-in Van Grant has seen, for us at least, a big upturn in enquiries, exemplified by the CV show where the Kangoo Z.E. had the highest share of the leads that we took at the show."

So far, electric vehicles have had it easy on the taxation front, as those creating zero emissions are not subject to benefit-in-kind contributions - something that isn't going to change for the next three years. However, following an announcement in this year's Budget, they'll be footing benefit-in-kind just as much as the next company car come the 2015-2016 tax year.

There's a school of thought that says the Government will all but kill off the incentive for EVs by bringing in the tax, especially bearing in mind the high P11D price that is usually par for the course for these vehicles. That increased expense is something that fleets need to consider now if the car is to be run for three years or more.

Mo Desai, automotive tax specialist at PWC UK, says: "The level for a full electric car is currently at zero, but from 2015-2016 the five-year exemption is going to go, so anything below 95g/km is 13% minimum, then 15% the year after that.

"Someone today with a zero-emissions vehicle will currently have a rate of zero, but in five years they'll be taxed at 15%. That's quite a stark change. In 2010, the current taxation level for EVs was set for five years to encourage take-up. With companies that are now taking out a four-year lease, they'll be taxed at 13% during year four. People need to start factoring that in."

For manufacturers of electric vehicles, the impending corporate taxation is a serious blow and looks likely to curtail business sales when it comes into play, despite the Government's heavy investment in the EV market so far, which is sufficient enough for manufacturers to protest. According to Heiron: "[We] still believe the introduction of BIK in 2015-16 is sending the wrong signal to the market and so we will continue to lobby for a reversal of the decision.

"Longer term, if the Government continues, and possibly increases the levels of BIK then it jeopardises the very market that it has already invested £30 million in, through Plugged in Places [the Government's electric car charging structure programme], and committed £230 million in plug-in grants to support."

Popular diesel

Whether electric vehicles remain commercially viable following the Government's mid-decade tax hike remains to be seen. It hinges on how they stack up from a cost perspective but also depends on how much they will cost in comparison to conventionally powered cars, which have their own barriers to overcome.

Diesels in particular have the stumbling block of Euro6 emissions regulations. These come into force in September 2014 and scrutinise NOx and particulate emissions, for which diesel engines are far more polluting, rendering them more expensive to produce while potentially lowering the purchase cost gap between what is currently the UK market's most popular fuel and EVs.

The introduction of BIK for electric and plug-in vehicles in 2015 may seem a steep and somewhat threatening measure, but fleets should remember that they can still bank on large subsidies until then. The £300 million EV grant still exists and is guaranteed to do so for at least the life of this parliament, and according to those in the know, there's still more than enough to go around.

"There's plenty left in the pot," says Everitt. "The general economy's not easy and we're expecting a flat market in 2012, so any vehicle sale is hard won, and with new technology there are a range of barriers to overcome. [But] there are more than enough resources available. That's why there's a strong case for continuing the initiatives in the medium term."

PWC's Desai calculates that the Government's EV grant has only been eaten into by a fraction, and most of that has been from business customers: "The funding exists for the life of this parliament.

It's £300 million and I believe that something like 1400-odd cars have been registered under the scheme, so you're only talking about around £7 million having been used up. We've only used about 15% of the allocation and the vast majority of those claims have been by companies."

Whether it's a case of cost, range issues or the unnerving idea of taking on new technology, a lot of fleets are approaching EVs with caution. As Heiron says, most corporate users want to experience proof before they take the plunge: "Understandably, there seems to be a longer 'gestation period' for these enquiries, with fleet managers asking for long-term demonstrators before committing to volume orders."

At the more positive end of the spectrum, there is without doubt a huge public image advantage to companies that run such vehicles as part of their fleet, and for business car users that fit the EV profile, they've been well received, as

Everitt points out: "There are a lot of fleets for which some ultra-low-carbon vehicles are a good fit, especially because they highlight corporate responsibility and a 'forward looking-ness' of the business."

It's difficult to predict how much of a part electric and plug-in vehicles will eventually play in the business car market, as it's still unchartered waters. The SMMT has chosen not to predict how the EV market will pan out simply because there's little to go on at this point. According to Everitt, it's the end of the decade and into the next that EVs need to make their mark if the market is to keep up to speed on the emissions front: "What's important is where we will be in terms of the market in 2020-2025. We need a substantial proportion by 2020 to meet EU emissions targets and that needs to be increasing towards 2025 and 2030. We're encouraging the Government to take a long-term approach."