PHEV fallout

Plug-in hybrids’ fate after grant cut

History has shown that if you rip out incentives for electric vehicles, then the market dramatically shrinks – so why did the UK Government cut the car grant for plug-in hybrids last month when it claims to want us all to be driving electrified cars in the not-so-distant future?

The Government argues the purchase grants it introduced in 2011 have lowered the price of around 100,000 plug-in hybrids since and that the market is now “established”. It’s keeping grants for pure electric cars, albeit at a reduced level.

Whether the demand is established or not is tricky to define. Yes, the UK is the largest market for plugin hybrid cars in Europe, according to JATO Dynamics, beating even Germany and Norway. In the UK, they also outsell electric cars at the rate of three to one. But at 33,584 sold to the end of September, plug-in hybrids such as the Mitsubishi Outlander PHEV, BMW 330e and Volkswagen Golf GTE still only account for 1.8% of the UK market.

JATO reckons that’s not established enough and believes sales will plummet. “The only advantage PHEVS have is their incentive,” said global analyst Felipe Munoz.

Just look at the Netherlands. Our neighbour was the leading market in Europe for plug-in hybrids in 2015 thanks to generous tax incentives for company car drivers. But when the government analysed data from fuel cards, they got a surprise: drivers just weren’t plugging them in. To them, the incentives made the extra fuel drunk just running them as a regular car more than worth it. The incentives quickly shrank and the market collapsed. The Netherlands didn’t even make the top 10 European markets for plug-in hybrids this year.

The Dutch experience was behind our government’s decision, one senior industry figure believes. “We’ve known for some time that some ministers were heavily influenced by the Netherlands report on PHEVS,” they said. Despite lobbying from the car makers to say that, unlike the Dutch, UK drivers were in fact plugging in their cars and thus cutting CO2, the Government removed the £2500 purchase grant. The industry is not happy, understandably. Mitsubishi, maker of the UK’S bestselling plug-in hybrid, the Outlander PHEV (below), called the decision “extremely disappointing” and premature. The car makers’ lobby group said it was “totally at odds” with the Government’s aim to become a world leader in the take-up of ultra-low-emission vehicles. The Society of Motor Manufacturers and Traders cited the Danish precedent, where a government decision to drop incentives in 2017 eviscerated the market for EVS.

The grant loss came at a time when plug-in hybrid sales were already on the verge of being poleaxed by the switch to the new WLTP emissions testing regime. This came into force in September and was much tougher on plug-in hybrids, meaning cars recorded worse emissions figures and therefore attracted fewer incentives. The response from some manufacturers was simply to remove the car from sale – the VW Passat GTE has only just returned but the Golf GTE isn’t expected back until July 2019. Also dropped were the BMW 330e and several Mercedes.

Not everyone believes the government got it wrong. “We have to move away from paying people or offering grants to any form of plug-in vehicles. It’s not a long-term solution and plug-in hybrids are the right place to start,” said Greg Archer, director of clean vehicles at pressure group Transport & Environment. Then there’s the delicate issue of the Government being cash-strapped.

Incentives also distort the second-hand market, which doesn’t see the same tax breaks and buyers therefore aren’t so keen to pay a premium, which harms resale value.

Given all this, do plug-in hybrids still have a future? Potentially. Company car buyers still pay less tax thanks to the low levels of CO2, and anyone who manages to eke out their commute using electric power alone will avoid fuel duty. Then there’s the need for car firms to sell as many electrified vehicles as possible to reduce their average CO2 targets by 2021 in Europe or face big fines (although whether the UK will count towards those averages once it leaves the EU has yet to be determined).

There’s also the possibility that, with increased battery sizes, future models will travel more than 70 electric-only miles (as the hybrid-electric London taxi manages) and therefore qualify for the EV purchase grant.

But as an already expensive car gets more expensive, the future’s not looking good for PHEVS. As Munoz says: “Their biggest attraction is gone.”