Vertu Motors (AIM:VTU)’s update on Monday gave a stark view of how new government-mandated targets on electric vehicle sales were hitting the market.
“Volatility and negative impacts” from government targets left new car volumes 5.8% lower over the first half of the year, the retailer said in the update, as manufacturers faced requirements to make up a proportion of their sales with electric models.
Introduced this year, this zero-emission vehicle mandate means carmakers will have to ensure 22% of their sales are electrics in 2024, before climbing gradually to 100% by 2035.
Given lacklustre demand for electric models across the UK but also globally, Vertu said the market was left facing lower margins to shift the petrol and diesel alternatives.
While bad news for the market, Vertu highlighted the efforts of sellers to buoy electric sales, with failure to hit the targets set to result in fines, could well spell good news for buyers.
“New vehicle supply in the UK remains strong, particularly for battery electric vehicles, as manufacturers aim to meet government targets,” Vertu said.
“This supply, coupled with weakening retail demand, has led to significant discounting and attractive financing offers, especially for electric models.”
High costs have repeatedly been blamed for holding back demand for electrics, with AJ Bell’s Russ Mould noting on Monday this had been worsened by “pressured household budgets” most recently.
Whether improving deals can therefore recharge electric sales remains to be seen, after manufacturers have so far appeared behind the curve in the first year under the new mandate.
Industry data in July had plotted electric vehicle sales to account for 18.5% of volumes this year, according to The Society of Motor Manufacturers and Traders, below the 22% target.
Such a miss would then threaten future targets, which are set to increase to 28%, 33% and 38% annually over the coming years, before hitting 80% in 2030, then 100% in 2035.
Warnings have repeatedly emerged that further subsidies will be needed to support buyers in order to ensure the targets are hit, rather than just the threat of fines for carmakers.
Vertu boss Robert Forrester said these threats had already left manufacturers struggling to artificially ensure they were hitting the electric sales figure, including by cutting supply of other models.
“In some franchises, there’s a restriction on supply of petrol cars and hybrid cars, which is actually where the demand is,” he said after Vertu’s results.
“It’s almost as if we can’t supply the cars that people want, but we’ve got plenty of the cars that maybe they don’t want.
“[Manufacturers] are trying to avoid the fines. So they’re constraining the ability for us to supply petrol cars in order to try and keep to the government targets.”
Progressive Equity Research analysts added on Monday that ongoing uncertainty would be “sure to tempt more small, and not so small, franchise owners to exit” if not addressed.
Though Vertu’s focus on the likes of used cars should stand it in good stead, analysts added, the lack of short-term resolutions risks hitting the new market further.