The Government’s new electric vehicle (EV) grant could negatively affect used values of nearly-new cars, posing a particular risk for drivers on short PCP and car leasing schemes. That’s the warning from data specialist Indicata, which says the £3,750 grant could push down residual values of electric cars less than a year old.
Indicata’s analysis suggests the new EV support scheme, aimed at boosting uptake of cars priced under £37,000, will have a disproportionate impact on used prices of younger electric car. The firm estimates that around 90% of any new price cuts could flow through into the used market, eroding values for short-hold fleets that sell after a few months.
There’s nervousness from the trade. A valuation expert warned that the current volatility in used EV prices, especially for cars under two years old, is likely to continue. They said that their primary concern is that carmakers might merely replace the current new car discounts with the grant, and that would effectively mean the consumer doesn’t benefit from any cost reduction.
They also flagged the lack of any grant support for younger used EVs, despite their increasing affordability on the secondhand market. By contrast, EVs aged three years or more are expected to be largely unaffected, with less of a link between new car pricing and used values in that segment.
Andy Shields, Indicata’s global business unit director, said: ‘The rental industry and short-cycle fleet operators face particular exposure. 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.’
The £650 million scheme offers two grant levels depending on sustainability credentials. Cars that meet the highest environmental standards can receive £3,750 off, while those in the second tier get £1,500. To qualify, cars must have an RRP under £37,000 and be made by manufacturers with approved science-based targets (SBTs) and low embodied carbon scores.
Around one third of battery electric vehicles (EVs) on the market are expected to qualify, according to the Society of Motor Manufacturers and Traders (SMMT). Vehicles made in China and South Korea are likely to miss out, based on factory emissions standards.
Several companies have responded with their own money-off deals, including Hyundai, MG, Leapmotor, Skywell and Volvo, creating further uncertainty over future used values. Currently, the entire line-up of discounted electric cars with grant-inspired deals are listed here.
Indicata also likened the current situation to Tesla’s price cuts in early 2023, which triggered market-wide effects well beyond the directly discounted models. The firm’s report concludes that the EV grant will support just 5.8% to 14.4% of annual BEV sales, a modest proportion given the Government’s wider Zero Emission Vehicle (ZEV) mandate.
Drawing on the Italian experience, where a similar support package had little effect on EV sales, it questions whether the scheme will deliver a meaningful shift. Shields said: ‘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.’
What this means for you
If you’re buying a used electric car that’s less than a year old, you may soon find it costs less, which is good news for private buyers. However, it also means that the car may continue to depreciate quickly as prices are dragged down by new-car incentives.
There’s also a risk for drivers coming to the end of a PCP deal. If your car’s predicted residual value was calculated before the grant was announced, it could now be worth less than expected — pushing some owners into negative equity. That could make it more expensive to change cars or start a new deal.
Short-term leasing or subscription deals on EVs might also come under pressure, with fewer models qualifying for the full £3,750 grant. This could cause monthly prices to rise or availability to fall.
Editor’s view: the market will decide – let’s hope buyers win out
We’ve already seen some manufacturers react to the Government’s announcement with their own EV discounts – including Volvo, Leapmotor, MG and Alfa Romeo – and that tells you the market’s moving quickly. The challenge now is staying on top of those deals and knowing which cars offer the best value.
For me, the real story is the two-tier market this creates. Suddenly you’ve got ‘green’ and ‘less green’ zero-emissions cars, all depending on where they were made and what the factory’s sustainability credentials are. That feels confusing for consumers, and is likely to be counterintuitive.
And then there’s potentially the PCP issue. If you’re locked into a deal that assumed stronger residuals, you could be in for a surprise when the handback time comes. As ever, we’ll be watching this closely and helping you make sense of what’s a very fluid situation.
Keith Adams – Editor, Parkers
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