Financing wide-scale EV adoption in the UK
This month’s COP26 conference will focus on the holy grail of net zero. Andy Page of Sofico UK, a provider of software for automotive finance and leasing companies, argues that innovative financing will play an important role in the fight against climate change.
Not since TV detective Jim Taggart last uttered the words “There’s been a murder!” will Glasgow see police action on the scale expected this November. However, the world’s media will not be focused on the Strathclyde constabulary but on the 197 members of the Conference of Parties meeting for the 26th time (COP26).
The 2021 United Nations Climate Change Conference has extra special meaning as not only does the UK hold this year’s presidency, but it is also a five-year anniversary event when the signatories, under the ‘ratchet mechanism’ have to commit to enhanced ambitions over limiting climate change.
The signatories to the Paris Agreement of 2015 set a goal of limiting global warming to well below 2 degrees Celsius compared to pre-industrial levels in order to avoid potentially catastrophic climate impacts. To do this the signatories agreed that a major and immediate transformation, unprecedented in history, was needed.
Andy Page, sales and marketing lead, Sofico UK
To certain sectors of the public there appears to be a growing disconnect between what is required to address climate change and what many governments are enacting in policy. This has been seen in the UK through action taken by groups such as Extinction Rebellion and Insulate Britain. As the impacts of climate change appear to become ever more apparent, governments that are seen to be lagging are increasingly coming under pressure to implement ever more stringent policies and more rapidly in future.
However certain governments policies are starting to diverge with a clear direction being set in certain parts of the world. Countries that have committed, or intend, to reduce their carbon emissions to net zero by 2050 now account for some two-fifths of global gross domestic product. So, this trend toward policies of decarbonisation is now also likely to be unavoidable.
COPS & hovers
These policies comprise a complete spectrum of measures ranging from tax measures encouraging greener behaviours to swapping state-owned combustion powered vehicles for electrically powered ones. One of the more futuristic of these swaps must be by Dubai’s police force, who started testing the world’s first electrically powered hover bike in 2018. Although, there’s been no news on when they’ll start using what looks rather like a flying blender for actual policing – last year one of their test pilots was lucky to escape unscathed after a rather spectacular crash – the idea of moving to battery-powered vehicles of some kind seems to be a step in the right direction. Introducing hover bikes may just be a flight of fancy but what can governments actually do and where will the money come from?
The electric switch
The rollout of ever tougher emissions regulations has already been laid out. The UK government has announced plans to ban the sale of all new internal combustion engine (ICE) powered cars and vans by 2035. In reality this means turning 2020’s 150,000 UK EV car sales into (potentially) 2.4 million within 14 years. The UK has already dug deep to support the emerging EV market with £1.7bn of purchase grants worth up to £5,000 off the cost of each car already paid out and with a commitment to £500m for the rapid motorway charging network and £200m for expansion of the public charging network.
But UK Chancellor Rishi Sunak has this year announced a reduction in the maximum grant for EV cars down to £2,500 along with the price cap for eligible cars reduced to £35,000, citing the reduction would help sustain the programme and to a certain degree aim it more at consumers less able to pay for premium brands.
Currently, EV cars are vehicle excise duty exempt and the UK exchequer needs to balance any growth in EV sales against the potential loss of the annual £6.5bn tax income they currently receive from car tax, £28bn in fuel duty and £5.9bn from VAT and congestion charges all from ICE powered vehicles.
Future fiscal landscape
Global growth post pandemic is expected to be 5.5 per cent in 2021 and 4 per cent in 2022 and with strong inflation reported across the world a tightening of fiscal policy must surely be on the agenda. So large-scale state support is probably unlikely noting the above future fiscal landscape and also following the financial cost of Covid. Notably the cost of the economic business protection measures such as the UK’s furlough and Business Interruption Loan Schemes. In the year to April 2021, the government borrowed £229bn, the highest figure since financial year records began in 1946.
With this in mind, there is a train of thought that the drive to decarbonise cannot come from state support alone but will have to come from the dynamic growth of businesses and consumers thinking globally but acting (and buying) locally.
There is no doubt that events such as the recent UK fuel shortages will turn more consumers toward EV adoption and the ever-growing charging network will increasingly soothe range anxiety as a large-scale prohibitor.
In 2020, 1.63m new cars were registered (notedly the lowest since 1992), and reportedly up to 90 per cent of these were financed to some degree.
On this basis, it is clear that finance companies have a key role to play here in the drive to whole-scale EV adoption as their provision of affordable funding is key. However, it is not just simply affordability that will be needed but also, increasingly, flexibility.
Finance companies' abilities to meet the increasing demand for flexible mobility choices will be paramount to their survival as new entrant disruptors grow in providing offers such as car sharing and subscription services.
Digitalisation will play a key role in finance companies being innovative, flexible and agile enough for them to support the move to carbon free mobility.
In digitalising, finance companies will also have to carefully balance the end users new demand for access to their assets and services at a time that suits them, with their equal need for a level of ‘human experience’ at key touchpoints and the purchase premium of automating back-office processes.
Technology is no panacea as it needs to be centred around and work hand-in-hand with the human experience.
There is no doubt that finance companies have had an x-ray of their strengths and weaknesses provided by the Covid experience and how they respond now will define their future success.
When considering digital transformation, finance companies of course need to start with functionality but just as important is how customisable and adaptable any platform will be to deliver flexibility and agility. Also, how scalable is the solution being considered to facilitate dynamic growth and cope with any extreme unexpected events. Lastly, how extendable is the architecture to allow innovation and adoption of best-in-class integrations.
Keep in mind the old world of traditional ownership is becoming the new order of smart usership. Any new platform should also make sharing and subscription a reality as well as offering customers the ability to self-manage their mobility efficiently and flexibly. Also, it should allow users access to the right form of transport when they need it and maximise fleet utilisation through shared use.
So, in summary, it is not just the COPS with their hovers that will win our battle with freeing ourselves from carbon-based mobility but also the world’s brave and innovative finance sector answering the call to digital.