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Accelerating the take-up of electric vehicles

A temporary government-backed guarantee for used electric vehicles would help make them more affordable for a wider range of people

By Iryna Kocharova

People are waking up to the fact that electric vehicles are fun to drive, cheaper to run and better for the planet. But if we are to have any chance of achieving our climate targets, they need to be one more thing: affordable.

The transport sector contributes 23 per cent of all emissions generated in the UK. That’s more than any other sector. Cars make up more than half of that total. The government has already announced that all new conventional petrol and diesel cars and vans will be banned from sale in 2030, to be replaced by zero-emission vehicles by 2035. This is welcome, but to achieve that, and our other climate targets, we will need to accelerate the roll-out of electric vehicles – and fast.

At present, used petrol and diesel cars are still cheaper to buy and finance than their electric equivalents. We know people want to switch; the problem – especially at a time when the cost of living is biting hard and prices are rising at the pumps – is how.

As a major provider of car financing and leasing, Lloyds Banking Group has a role to play in getting people out of petrol and diesel vehicles. We’ve made a start – in 2020, one in ten of the electric vehicles on the road were financed or leased by us – but, as with the rest of the sector, we can’t do it on our own.

We believe a healthy second-hand market could go a long way to making the electric dream a reality. But for that to happen, politicians must also act.

Research (conducted by Opinium for Lloyds Banking Group) showed that although four in ten (38 per cent) of car owners said they would consider buying a second-hand electric vehicle in the future, affordability was a barrier for half of those who said they wouldn’t go electric right now.

The higher cost of second-hand electric vehicles is slowing mass adoption.

“Uncertainty” is a big factor behind these high prices. One of the issues is that finance companies have to “predict” the future value of a vehicle, and this predicted value determines the monthly finance repayments that is the main cost of buying it. But because the second-hand market in electric vehicles is still in its infancy (only 40,000 second-hand electric vehicles changed hands in 2021, compared with 7.25 million petrol and diesel vehicles), and the uncertainty over factors like the lifespan of car batteries, the price has to be set more cautiously than for traditional petrol or diesel-powered vehicles, making them far more expensive to buy.

This problem will be compounded by the rapid growth of the market over the next 12 to 18 months, as electric vehicles that had been on lease go on sale. A lack of support for the second-hand market in this period could cause a sharp market shock and disruption. Sudden price drops in used electric vehicles would significantly dent consumer confidence in both used and new electric models, slowing the transition to electric vehicles in both the first-use and second-hand market.

One solution to this problem could be the introduction of a temporary government-backed guarantee scheme for used electric vehicles to help make them more affordable for a wider range of people.

Under such a scheme, the government would guarantee a proportion of the future value of electric vehicles, taking on a small proportion of the risk that would otherwise fall onto the customer, and also giving motor finance providers confidence to lean into the risk further – enabling finance. This would reduce the cost of cars and increase the uptake of electric vehicles by allowing finance providers to be less cautious when assessing the future value of a vehicle and offer much lower monthly finance repayments.

To be clear, this is not a loan or a handout. If the market and technologies develop to plan, it would end up costing the government nothing. Like the government mortgage guarantee scheme, it paves the way for lenders to set future values at the highest amount possible ensuring lower monthly payments for customers

But it would cut the monthly cost of finance agreements for small electric cars, making them cheaper than the equivalent petrol vehicle. For the first time, families on lower incomes would be better off going green. We estimate that such a scheme could cut the cost of owning an electric vehicle by up to 10 per cent. As a result of these changes, a second-hand electric Vauxhall Corsa will be cheaper than the petrol equivalent for the first time.

A scheme that encourages the adoption of electric cars can kick-start the roll-out of new infrastructure, which will be needed in the coming years. We’ll need 390,000 public charging points to service the 20 million battery electric vehicles we’ll need on the road in the UK by 2035. This will be a huge opportunity for investment in infrastructure and manufacturing, as well as boosting high-skilled jobs in the regions.

However, if affordability doesn’t improve, the move to decarbonise transport will slow. Making them a realistic option for more people, however, will also help improve air quality, particularly in urban areas where petrol and diesel emissions threaten the health of children and the vulnerable, allowing easier roll-out of initiatives like clean air zones.

That’s why we believe this policy presents a golden opportunity to accelerate the take-up of electric vehicles, speed up the transition to net zero and, crucially, help consumers make the right car choice for their pocket – and their planet.

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