UK Electric Vehicle Subsidy Has Good Intentions But Is Short on Detail

The UK government subsidies to boost low-carbon transport will not be a significant cost for the Treasury, but at the same time they will not improve the UK's carbon footprint in the first few years of its roll out. The announcement comes as an exciting boost to the UK automotive industry and those European automakers who may wonder whether Electric Vehicles have the necessary political support to be a success. The crucial question however is: will there be enough supply for the demand? Will we have another case of the Tata Nano, where orders for the vehicle have drastically exceeded the 40,000 which will be produced in 2009? What is also interesting is the absence of details in the plan announced and also there being no assessment of the feasibility of supporting a sizeable volume of Electric Vehicles once they are on the road.

The Supply Issue

There will be a huge supply issue with Electric Vehicles until 2012. It is expected that with the exception of some niche manufacturers like G-Wiz, Tesla, and a few others, only Mitsubishi will have a market ready model available in 2011. Most OEMs like Nissan, BMW and Renault are expected to enter the market only in 2012 and therefore the total volume sales in the UK will be restricted to less than 20,000 units in 2011. If this is the case, the government will be spending less than 100mn pounds Sterling in 2011, assuming the full subsidy of 5,000 pounds Sterling is taken by all consumers. The market will really only pick up in 2013, with real growth coming in 2015, when global sales are forecasted to be around 1.2mn units. Most OEMs, including BMW, are currently in testing phase of their vehicles and at least 3 years away from mass roll out.

The Devil in the Detail

The government scheme also seems to lack clarity on how it will work. Frost & Sullivan expects that 3 in 4 Electric Vehicles sold worldwide in 2015 will be sold using new business models, something similar to how we buy our mobile phones in the UK. Due to the high cost of the battery, Electric Vehicles are expected to be sold with different packages where customers will pay only 20% or 40% of the cost of the battery pack. The remaining cost of the battery and the energy usage will be recovered through a monthly bill. A battery pack for a typical 25KW City Car should cost around euro 1000 per KWh equating to 22,000 pounds Sterling. It is expected that these new business model schemes will invite new players into the market. Utilities will play a major role and also carve themselves a niche position in the market with high profits as seen with the oil companies like Shell and BP. The key decision the government has to make is whether it will fund the capital cost of buying the Electric Car or if it will provide incentives to cover the life cycle of the vehicle.

The government will also need to subsidise the development of Electric Vehicle infrastructure. Currently, about 300 public charging points exist in the UK and these are predominantly in London. For instance, Electromotive joined forces with Renault-Nissan to accelerate the global installation of charging networks in cities, and has been in partnership with EDF Energy since 2007 to build 250 "juice points" in London. To make the Electric Vehicle dream a reality, the UK government needs to ensure the availability of at least 4 charging points per Electric Vehicle in the 1st year, thereafter reducing to 2.5 charging point per EV by the 5th year. It is also required to have fast charging infrastructure in place, possibly including battery swapping stations at a ratio of 1 per 100 Electric Vehicles sold during the 1st year followed by 1 per 1000 Electric Vehicles post 5th year sales. This density of charging station networks will be able to meet the majority of Electric Vehicles owners' charging needs especially when battery technology is improved so Electric Vehicles can travel further on a single charge.

A Step in the Right Direction

A key opportunity for the UK government with Electric Vehicles is to take a lead in the development of battery technology. Incentives could be provided to local manufacturers to encourage them to create and keep jobs in Western Europe instead of moving them to the Far East as this is currently the case. The UK government should also influence the standardisation of batteries and Electric Vehicles infrastructure. As an illustration, today no standard exists for the nominal voltage of the battery, which has led to different manufacturers using different specifications. The battery manufacturers have to make different packs for different customers, thereby wasting a lot of effort and money. Standardisation will have a major effect in significantly bringing down the price of the batteries. Another effort the government should take up is legislating safety and crash norms for Electric Vehicles. A few consumers and OEs have been ambiguous regarding the safety of Electric Vehicles and a common standard from the government agency will provide clear definition.

Frost & Sullivan believes that the future of motoring is Electric and the UK is carving itself a globally competitive position in being the leader in the development and roll out of this technology. The government incentive is important and much needed to boost the adoption as well as make UK the hub of electric evolution.

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