Indicata analysis says £650m EV grant will have limited market impact

New white paper warns of significant residual value risks for rental industry and short-cycle fleet operators
Vehicles under 12 months will experience downward pressure on residual values
Vehicles aged three years or more will see minimal impact due to weaker correlation between new and used vehicle pricing

AUTOMOTIVE data intelligence company Indicata has released a comprehensive analysis of the UK Government’s Electric Car Grant programme, revealing that while the £650 million initiative provides meaningful individual support, its overall market transformation potential is severely constrained by budget limitations.

The white paper examines the programme’s structure and projects its impact on EV sales and residual values through to 2029.

Indicata’s analysis reveals that the programme will support only approximately 5.8% to 14.4% of annual EV sales, depending on the tier of support accessed. With the ZEV Mandate requiring 33% of the 2m vehicle market to be EVs (approximately 660,000 electric vehicles annually), the grant’s reach appears modest against the scale of market transformation required.

"The reality is that this programme, while well-intentioned, will function more as targeted support for specific market segments rather than a broad market transformation tool that many were expecting."

Andy Shields, Indicata global business unit director Tweet

Andy continued: “When we look at the Italian precedent, where similar support levels failed to materially impact EV registration rates, we have to question whether this £650 million investment will deliver the market change the government is seeking.”

The Italian Government supported EVs in Italy with an annual budget of €240m (£208m) with support up to €5,000 per unit (£4,350). This is an equivalent level of support, yet Italian EV registrations remained around 4.2%.

Residual impact will differ by age of car

The analysis identifies significant differences in how the grant will affect vehicle residual values based on age segments. Young vehicles under 12 months will experience notable downward pressure on residual values, with approximately 90% of new vehicle price changes flowing through to the used market.

Conversely, vehicles aged three years or more will see minimal impact due to weaker correlation between new and used vehicle pricing.

“The rental industry and short-cycle fleet operators face particular exposure to these dynamics,” Shields explained. “Those purchasing non-subsidised vehicles risk significant losses if those models subsequently gain subsidy eligibility, as the market will adjust residual values downward to reflect the reduced new vehicle transaction prices.”

Market may be reshaped

The Electric Car Grant’s tiered structure offers £3,750 for vehicles demonstrating the lowest carbon emission scores from manufacturing processes, while providing £1,500 for vehicles meeting basic environmental criteria. This approach requires manufacturers to hold verified Science Based Targets and undergo complex dual assessment processes.

“The programme will essentially brand electric cars as ‘Environmental’ versus ‘Non-environmental’ despite all being zero emissions,” said Andy. “Consumer behaviour will likely shift toward subsidised models, creating competitive dynamics that may reshape market positioning regardless of the limited financial scale.”

Indicata’s analysis warns that while long-cycle fleets face minimal downside and may benefit from reduced transaction prices, short-cycle operators must carefully navigate timing risks. The report recommends that fleet operators prioritise subsidised vehicle purchases while avoiding non-subsidised vehicles with potential future subsidy eligibility.

For manufacturers, the environmental requirements create strategic imperatives extending beyond traditional vehicle development, with assembly and battery production locations directly affecting subsidy eligibility through carbon intensity ratings.

Drawing parallels with the Tesla price reduction programme of Q1 2023, the analysis suggests that significant pricing interventions by major market players create market-wide effects rather than model-specific impacts, potentially extending the grant programme’s influence beyond directly subsidised vehicles.

“This is more about government optics than material market effect. The ZEV Mandate, with all its negative side effects for the industry, will continue to be the driving force in the market,” Shields observed.

"For OEMs, dealers, and fleets, there's still no light at the end of the tunnel – just a politician with a dim candle trying to shine a light on their environmental credibility."

Andy Shields, Indicata global business unit director Tweet

Future outlook and policy recommendations

The white paper concludes that while the programme provides a template for policy intervention, its limited scale relative to the total EV market constrains its potential for broad market transformation. The analysis suggests the programme’s most significant long-term impact may be accelerating manufacturer commitment to sustainable practices rather than driving volume growth.

“As the UK moves toward its net-zero commitments, this Electric Car Grant programme provides a framework for future policy intervention. However, the ZEV Mandate targets, despite recent adjustments, combined with this new grant, are likely to become even more unsustainable for the UK automotive industry. The government will have to respond again,” Shields concluded.

The full white paper “UK Electric Car Grant Program: New Car Market Impact and BEV Residual Value Analysis” is available to download here