The government’s decision to slash the plug-in car grant is unlikely to have a lasting effect on used EV values despite short-term changes being expected.
Valuation experts at Cap HPI believe that a number of manufacturers may amend their EV new vehicle prices below the new £32,000 point to ensure they retain the incentive.
However, some models may become more expensive as they react to the announcement, which leaves almost two-thirds of cars previously eligible for the grant outside the current scope.
The government announced last week that it was cutting the £2,500 grant – which saved buyers 35 per cent on the price of an electric car – by £1,000 to £1,500 on cars costing less than £32,000.
In connection with the previous change in March, Cap HPI advised there was no used value impact expected because of the changes, as used values for most affected models were generally not close to list price or effective cost new after the grant was applied. Therefore, decreases in new car prices were unlikely to put pressure on used car values.
This time, however, the changes come on the back of record-breaking rises in used car values through 2021, and although BEVs were slower to increase than internal combustion engine equivalents, three-year-old values are now up by 17.7 per cent year over year.
When the increases in used car values are combined with the effects of the supply issues impacting the delivery of new cars, used retail values for many electric vehicles are already close to, or even above, the new car purchase price.
Dylan Setterfield, head of forecast strategy at Cap HPI, said: ‘In the short term, this is likely to accelerate a reduction in used electric vehicle values which were already expected, particularly once the new car supply situation eases and especially for those cars reduced below £32,000.
‘However, it is important to note that it is unlikely to have an impact on the longer-term level of used BEV values.’
According to Cap HPI, some manufacturers are already struggling with increasing production costs and may face a choice between discontinuing plug-in car grant eligibility altogether or introducing vehicles with specifications reduced below the threshold.
If no action is taken, prices of the affected vehicles will increase by the £2,500 no longer allocated, or £69 per month on a 36-month leasing contract or PCP agreement.
Without further pricing action, the cost of cars still eligible will also increase by £1,000, due to the reduction in the level of the grant.
The government says it wants to ‘enable as many people as possible to be able to make the switch to an electric vehicle’. However, the available selection of models may decrease.
Of the 163 current BEV vehicles which were eligible for the grant, 101 (62 per cent) would now be ineligible under current pricing and only 30 of those are within £1,500 of the new threshold.
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Setterfield added: ‘The number of available models under the grant today reduces from 32 down to 19.
‘Even for cars of supermini size, many models are seeing the majority of vehicles fall outside of the criteria — only one of the eight Renault Zoe derivatives comes in under £32,000.
‘Consumers may be faced with a choice of predominantly smaller city cars, many of which may not suit drivers’ needs.
‘In addition, the latest government action could also have the impact of increasing not just the price of cars available today, but also of new BEV models launched in the UK, with the grant threshold no longer restraining new car price levels for most electric cars.
‘The government also needs to ensure that funds are made available to make used BEVs more accessible to consumers.’