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The UK’s national forecaster cut expectations for electric car sales in half as it warned that higher interest rates and falling fuel prices would slow the country’s switch to battery models.
The Office for Budget Responsibility cut its forecast for electric vehicle sales to 38 per cent of new car sales in 2027, compared with its estimate of 67 per cent in March.
The OBR said EV sales had “repeatedly exceeded our expectations” but that “steep sales growth of the past years, boosted by [usually high-income] early adopters, is expected to slow”.
Its new forecasts for 2027 are in line with the UK government’s zero-emission sales quota that comes into force in January. Under the targets, 22 per cent of new car sales next year must be zero-emission, rising each year to 37 per cent in 2027 and 52 per cent in 2028.
The car industry has warned that the growth of interest in EVs is slowing, as early adopters give way to mass market buyers who remain more cautious about the new technology.
Edmund King, president of the AA, the motoring group, said on Wednesday that consumers still required “incentives” to help them “take part in the zero-emission transition when they are ready to do so”.
Ian Plummer, commercial director of Auto Trader, said: “We know that consumers need more incentives to make the switch, they need more affordable cars, more charging points and confidence in running costs, which includes related taxes.”
EVs remain more expensive than traditional cars, and the pace at which the gap is closing has slowed, the OBR said in its fiscal outlook that is released alongside the government’s Autumn Statement.
While the gap narrowed by 15 percentage points in the two years to March 2022, it has fallen just 6 percentage points since.
The OBR said: “The generally higher upfront costs of EVs relative to [internal combustion engine vehicles] will likely still be disincentivising many consumers, especially purchasers using car finance as interest rates are significantly higher than we had anticipated in 2022.”
It also warned that cost advantages of EVs “can become negative” when charging away from home and that “the availability of public charging points seems to be a concern for many drivers”.
Petrol and diesel prices have also “declined from the spike in 2022, due to a combination of both wholesale price falls and fuel duty cuts, though are still high relative to the past”.
The OBR’s new expectations indicated that the industry would miss next year’s target of 22 per cent.
The agency cut its expectations for 2024 sales from 25 per cent to just 18 per cent, which is a similar sales level to this year. The new sales mandate allows carmakers to miss targets in the early years of the scheme if they exceed them in future years.