Microeconomics: IB Economics

A remarkable policy failure seems likely to allow the government to reclaim £950m of proposed spending after it was revealed that a scheme to fund the rollout of the electric car charging network across Britain's motorways has failed to make a single grant in 5 years of existence.  

I love the Public Accounts Committee, and once again it's discovered that the rollout of policy is leaving something to be desired, with the electric car charging network being both "patchy" and discriminating against disabled motorists, suggesting that a variety of inequalities are being baked into the system.

Contrary to popular belief, many think that going green and buying an electric car is more expensive than driving a petrol engine vehicle. In the first place, the electric car charging network isn't terribly well developed and expensive, unless you've got off-road parking and the ability to install a charging point on your drive, meaning that there's a 'two tier' market for charging.  

The fact that there's such a lack of basic infrastructure highlights the absence of coherent policy regarding electric vehicles since 2010.

Grimly humorous BBC article on a significant failure of execution with BT admitting that it's going to scrap a proposed scheme to create EV charging points from 60,000 green cabinets having succeeded in converting the grand total of 1 of them thus far, and even that's closing. 

It's symptomatic of the ongoing struggles to rollout a charging network in the UK, although the government claim that the past 12 months has seen 20,000 new charging points added to the network, although the target of having 300,000 charging points by 2030 seems optimistic.   

The number of new cars sold in 2024 was 1.95m, with nearly 20% of them electric cars. That said, the official target was for electric cars sales to represent 22% of the total, with a target of 28% for the coming year, although the government is considering relaxing this, in the face of criticism from environmental groups. 

It seems that the electric vehicle market is on the point of a significant change - with BYD almost on the point of overtaking Tesla in terms of total global sales. 

Sales of electric cars now account for 25% of al new cars sold, although car manufacturers are reporting that they will fail to reach the target of 22% of their car sales being electric cars for 2024. 

However, the Society of Manufacturers and Traders (SMMT) report that the only way that manufacturers are able to boost sales is by offering substantial discounts - to the extent that it's cost them £4bn. 

And that's the issue - unless manufacturers are able to lower prices, there's going to be a ceiling on the number of electric cars sold.  

And this Observer article looks at similar territory: this time advocating cheaper loans to encourage people to purchase electric vehicles. However, there appears to be widespread agreement that their needs to be action taken to speed up the take-up of electric cars.

It seems as though there's some wiggle room in the car market, with the government apparently looking to loosen the rules on the ban of the sale of new petrol and diesel cars from 2030 by permitting hybrid vehicles to be sold until 2035 as a compromise in response to the demands of the sector. 

Is the government on the point of altering electric car sales targets as demand for electric vehicles appears to be lower than was initially forecast? Certainly there's a suggestion that this might be the case, with car manufacturers looking to encourage this because they are being fined for failing to hit their targets. 

Currently, the target is that "EVs must make up 22% of a firm's car sales and 10% of their van sales this year. For every car sale that pushes it outside of that mandate, they must pay a £15,000 fine." 

So are the targets effective? Or would other measures prove to be more effective in encouraging quicker adoption of electric cars? It also highlights an instance of Goodhart's law: that when a measure becomes a target it ceases to be a good measure.

This article highlights the fact that car manufacturers are struggling to meet their sales targets for electric vehicles, and, as a result, are going to be fined for every EV they fail to sell.

As the article notes: "According to the mandate, EVs must make up 22% of a firm's car sales and 10% of their van sales this year." Given the sector are falling short of this, and that the target is going to ratchet up year on year, is this another example of Goodhart's Law which states that "When a measure becomes a target, it ceases to be a good measure"? 

However, at the moment, the current government are showing no sign of wanting to relent and alter the targets. 

Phillip Inman argues in favour of a 5p increase in fuel duty in the forthcoming Budget, arguing that apart from it's environmental benefits, it shouldn't prove too difficult a 'sell' at a time when inflation is falling. 

It strikes me that this is inevitable: the way in which we tax motoring is bound to change in favour of being charged per mile. Vehicle taxes are a complex issue, not least for electric cars but you would imagine that it's appropriate to tax all cars per mile, not least as a way of filling a perceived £5bn black hole in tax revenues. 

The inevitable outcry that this will cause is easy to dismiss on the grounds of economic efficiency. 

The Society of Motor Manufacturers and Traders (SMMT) are concerned that the lack of coherent policy to incentivise the purchase of electric cars is likely to result in job losses in the sector and result in de-industrialisation. It's a bleak outlook: the CEO, Mike Hawes said: “The consequences of this regulatory framework and an inability to meet it, [means] you’re beginning to see [it] play out in terms of flattening of sales, production down, plants closed or consolidated, jobs lost. This should be a driver of growth, not a driver of de-industrialisation.”

It seems as though the market for EVs is picking up with used electric car sales notably higher than the previous year, and prices of electric cars falling, something that had previously deterred a number of would-be electric car owners. 

It seems as though the government are preparing to relent on electric car sales targets for UK car manufacturers using the flexibility of the existing system to allow all bar one manufacturer off the hook. In this case, this seems to be a sensible decision in the circumstances.

Electric cars represent around 20% of all new car sales, In Norway, however, they represent 88.9% of all new car sales last year, so why has Norway been so quick to transition to environmentally-friendly forms of transport?

The government has supported the transition, from the 1990s onwards by taxing internal combustion engine cars and offering incentives to people buying EVs, and building a sophisticated infrastructure to support them. Indeed, according to the article, "per 100,000 people, Norway has 447 chargers while the UK has just 89".

And the Norwegians claim that others could match them if only they could consistently tailor coherent policy to economic circumstance. 

Although the call for clarity in the electric vehicle sector looks admirable, closer scrutiny of the article might get you thinking. Why would a motoring body called Electric Vehicles UK be advocating for such a strong stance on hybrid vehicles at a time when many are warning against too dramatic an intervention in the market, and the enforcement of stringent targets for electric car sales?

Turkeys? Christmas? 

Not much in the way of economic theory here, just an insight into how disingenuous the head of Tesla is, and the nature of policymaking. It seems that Tesla have been lobbying the government to maintain its position on electric car sales targets, and even suggesting that those people buying petrol or diesel cars should be paying a surcharge hypothecated to encourage the purchase of electric cars. 

And here's the Business Secretary writing about how important it is to support electric vehicle manufacturers and alter demand and supply conditions in the market to encourage greater take-up of electric cars. 

This BBC article looks at how the government might encourage the take up of electric cars. It starts with the obvious - subsidies - but goes on to consider the wider context of the electric car network and the policy environment. Worth a read!

In the furore over the closure of the Vauxhall plant in Luton, the broad picture for electric car manufacturers has come under close scrutiny and the latest Society of Motor Manufacturers and Traders (SMMT) has shown that UK output for October is down 15% on last year.

At the same time electric car sales are higher than they were a year ago, albeit with manufacturers claiming that the fact they account for one in every five new cars being registered stems from unsustainable discounts offered to help achieve electric car sales targets. 

Is the market for electric cars facing a crunch point? Certainly manufacturers think so: they're struggling to hit the targets for electric car sales and this will result in them being fined. As the article states: "electric cars must make up 22% of sales of new vehicles this year, rising to 28% in 2025".

Of course, the end game is selling "80% battery electric cars by 2030, before a complete ban on new petrol and diesel engines in 2035." and, ironically, a number of manufacturers were in favour of the introduction of the move in the first place.

So what's changed? 

The annual round of lobbying ahead of the Budget is well under way and in this case car manufacturers are calling for a subsidy to accelerate the take-up of electric, hybrid and low-emission vehicles. 

We're just about to start looking at this, and you should easily be able to see how a subsidy will increase supply, lower price and make such vehicles more affordable. However, whilst such a decision has an obvious opportunity cost, it's harder to spot the welfare loss associated with a subsidy.

Just an interesting statistic: Norway has become the first nation where electric cars outnumber petrol cars. It is a remarkable statistic in comparison with our own uptake of the environmentally cleaner vehicles.