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Government subsidies threaten EV market viability - report

Subsidies for new electric vehicle purchases are damaging second hand values and pose a threat to the viability of the future EV market, according to CAP.

In an independent pan-European study of the impact of EV purchase subsidies by CAP Consulting,

A cautious market view of EVs means they already typically depreciate around twice as heavily as a conventional car, such as the Volkswagen Golf or Ford Focus. But CAP’s new report – published at this week’s Frankfurt Motor Show – demonstrates that used values are forced down even further by government subsidies.

CAP Consulting analysed the used market performance of the Nissan Leaf in the UK, Germany, France and Italy to compare values in countries with and without a purchase incentive subsidy.

It found a direct correlation between stronger used values in Germany and Italy – where there are no plug-in car grants – and weaker values in the UK and France, where new car purchases are subsidised by government. CAP Consulting also identified that France, as the country with the highest subsidy, also sees the lowest used values for the Leaf.

The report concludes that the removal of subsidies will widen the gap between new and used values so far as to threaten the economic viability of choosing a new EV in the future.

Government subsidies for new plug-in car purchases therefore create cheaper used electric vehicles, according to report author Mark Norman.

He said: “Our analysis of used market values across markets with and without a subsidy clearly shows that grants are ineffective as a means of reducing ownership costs and, worse still, their inevitable eventual removal will cost new EV owners thousands in additional depreciation.

“This is because the used value is now established in each market and when the subsidy is removed in the UK and France, the additional cost of a new vehicle will never be retained by a higher residual value.

“As it stands, 12 month depreciation levels in the UK already amount to almost half the subsidised new price for a Nissan Leaf.

"Without the original £5,000 subsidy, total 12 months depreciation over the first year would amount to over £17,000. With average depreciation for a comparable specification diesel Volkswagen Golf or Ford Focus currently standing at around £7,000, this would make the economic argument for buying the Leaf all but impossible to make even with the potential fuel cost savings.”

The report argues that government investment to encourage take-up of ultra-low emission vehicles would be better directed in future toward supporting provision of ‘in-life benefits’.

These include incentives such as ‘green badge’ parking schemes, permission to use bus and multi-occupancy lanes and exemption from many city centre driving restrictions. It cites the example of Norway, where Europe’s largest penetration of electric vehicles has been achieved partly through such incentives.

UK EV subsidies:

A direct purchase subsidy of 25% of the cost of a vehicle up to a maximum of £5,000 is available for electric vehicles which run completely on either mains rechargeable batteries, plug-in hybrid electric vehicles (PHEVs) or hydrogen fuel cell vehicles and other forthcoming ultra-low emission (sub-75 g/km CO2) technologies.

Funding for the programme is confirmed until the end of the current parliament (April 2015).

In addition to the direct subsidy, all sub-100g/km CO2 vehicles are exempt from the
VED. Cars and vans emitting 75g/km or less of CO2 and meeting the Euro 5 emission standard qualify for a 100% discount from the London congestion charge, a saving of £10 a day.

Company car drivers using a battery electric vehicle currently pay no tax on private use.

However this changes in 2015 when such vehicles will incur a charge of 13% of the
original pre-subsidy list price.

This will result in an annual tax charge of approximately £1,500 for a higher rate tax payer who uses a company funded Nissan Leaf Acenta for private use, for example.

The report is entitled 'Impact of government subsidies for electric vehicles on used market values'.

It is available to download from the CAP website or here.

The report was compiled by CAP Consulting in collaboration with leading European vehicle pricing experts L’argus (France), bf forecasts (Germany), Quattroruote Professional (Italy) and Autotelex (Netherlands).

CAP Consulting is the consulting arm of CAP Automotive.

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