Electric vehicles: driving future growth

Greater uptake of electric vehicles (EVs) will be important for decarbonising Britain’s transport sector, since it will mean a reduction in the use of petrol and diesel cars. Air quality will also be improved as harmful emissions such as particulate matter and nitrogen dioxide are reduced.

In addition to these environmental and health factors, there has been a number of recent studies about the economic impact of EVs on the UK. One of the aims of Bright Blue’s Green conservatism project is to advocate green policies that enhance Britain’s prosperity. This blog will examine the potential for EVs to contribute to jobs and growth in the UK economy.

Current performance

The electric car industry is currently enjoying phenomenal growth in the UK. There are two main types of EV: a plug-in hybrid, which has both an electric motor and an internal combustion engine, and a pure EV, which just has an electric motor. According to the Society of Motor Manufacturers and Traders (SMMT), 2015 saw a 50% increase in sales for pure EVs compared to the previous year. Tesla’s new model of electric vehicle received 276,000 pre-orders in three days of launching. Last week, Nissan Europe reported record sales of EVs in 2015, an increase of 45% in the previous year. They ascribe much of this increase to businesses looking to decarbonise their vehicle fleets.

There is still a long way to go before EVs properly penetrate the automotive market, however. Large percentage gains mask the fact that EV sales are starting from a very low base. Even among new car sales, EVs make up just over 1%. They are also still very dependent upon government subsidy to compensate buyers for the greater upfront cost. In December 2015, the Government committed to spending £600 million on the plug-in car grant system over the next five years. Under the revised scheme, buyers of pure EVs receive a subsidy of £4,500, while new owners of plug-in hybrid vehicles get £2,500. The Department for Transport’s target is for 100,000 drivers to benefit from this support.

Future success

In its report on the fifth carbon budget, the Committee on Climate Change has said that EVs need to constitute 9% of new vehicle sales in the UK by 2020 and around 60% by 2030, if the most cost-effective path to carbonisation is to be achieved. This is very ambitious growth, and will require significant reductions in the upfront cost. There is evidence that this will be achievable. The CCC’s finding that EVs will become cost-effective in the mid-2020s is supported by Bloomberg New Energy Finance's recent analysis of this market. They studied particularly the costs of batteries, which are one of the main factors driving the price of EVs. Lithium-ion batteries have fallen in cost by 65% since 2010, with costs expected to fall further to around a third of their current level by 2030. Their report found that 2025 was the year the cost of EV ownership fell below that of conventional vehicles.

Green jobs

This boom in EV sales with have a major impact in the UK, both in the automotive industry and the wider economy. A study published this month by Loughborough University found that the electric vehicle industry in the UK could support 320,000 jobs and generate £51 billion of economic activity by 2030. This is contingent on further government investment in electric vehicle infrastructure and training of skilled mechanics. Cambridge Econometrics has also tried to quantify the direct economic benefits of EVs. In a report from 2013, they forecast that there would be 7,000 to 19,000 net additional jobs by 2030 under a low-carbon transport transition. This is because the UK petroleum industry is not very job-intensive. Moreover, as the UK is now a net importer of oil, the switch to powering vehicles with British-produced electricity will accrue more revenue for UK energy companies.

Because of the importance of the price of oil to the wider economy, the increased uptake of EVs in the UK will have an impact beyond the automotive sector. Last week's report by Cambridge Econometrics found that policies to tackle climate change, including the transition away from combustion engine vehicles, will reduce demand for oil across the EU and therefore lower the price compared to what it otherwise would have been. They find that this lower price will increase real incomes and enable more consumer spending on UK-produced goods and services. This model of course is predicated upon a number of assumptions, but it provides confidence that the transition will be broadly economically positive.

The UK automotive industry has enjoyed a renaissance in recent years. If this important sector, and the jobs that depend on it, is to thrive in the low-carbon economy, the UK must ensure it become a world leader in electric vehicles.

Sam Hall is a Researcher at Bright Blue