UK Government mulling EV loan subsidies to boost sales

Ministers are drafting plans to subsidise electric vehicle (EV) purchases by guaranteeing loans in a bid to accelerate sales that remain below official targets, according to the Financial Times.

The government is understood to have entered talks with car finance providers to expand access to low-interest or interest-free loans, aiming to make EVs more affordable especially since a sharp decline in used EV prices over the past two years has led to higher monthly repayments.

One proposal under discussion involves the state underwriting loans to help lower monthly repayments, bringing EV costs more in line with petrol or diesel vehicles.

EV sales remain below targets and are largely concentrated in the company car sector which benefits from tax incentives with more than 80 per cent of new UK vehicles acquired via financing or lease agreements, according to the Finance & Leasing Association.

The idea of government-backed loans comes as Brussels pledged to support Europe’s embattled car industry, considering pan-EU subsidies to drive EV demand.

Car makers have long urged ministers to introduce demand-side incentives alongside an accelerated rollout of charging infrastructure in view of the mandated percentage of the electric sale mix which is set to rise from 28 per cent in 2024 to 80 per cent by 2030. 

EVs accounted for 19.6 per cent of new UK car sales, short of the 22 per cent target under the ZEV Mandate, according to the Society of Motor Manufacturers and Traders.

According to the Financial Times, the government is consulting the industry on possible adjustments to the scheme to ease compliance pressure although the targets will likely remain the same.

The move to guarantee loans for EVs which has been welcomed by the car industry, suggests an implicit acknowledgment that the 2022 removal of consumer subsidies may have been a factor in the lacklustre adoption.

The previous plug-in car grant, initially providing £5,000 per vehicle, was phased out by the Conservative government. Direct cash incentives for EV purchases are however thought unlikely due to budget constraints.

Adrian Dally, motor finance director at the FLA, acknowledged that zero-interest loans alone would not fully bridge the cost gap between EVs and petrol vehicles. However, he noted that a government-backed loan guarantee would be "extremely helpful."