Electric shock

The Zero Emissions Mandate, known as ZEM to its friends, is in the news at the moment and, on the subject of friends, is fast losing them.

What is the Mandate?

It’s a policy tool that requires car manufacturers to sell a certain percentage of electric vehicles each year, increasing on a sliding scale to 100% by 2035. It began this year with a target of 22% of all cars sold being electric. If car manufacturers miss their target, they will be fined £15,000 for each petrol/diesel car sold.

Back in the day when the policy was unveiled Ford argued that the government should force manufacturers to sell even more electric vehicles - they were worried that the policy would not send a strong enough message to customers, manufacturers and investors to drive (pardon the pun) the necessary change. They have now changed their tune, saying the targets are unachievable and are cutting 800 jobs in the UK. At the time ZEM was developed manufacturers found they could sell all the electric cars they could make so were pretty bullish about the target, but with the sudden downturn in sales opinions have changed and manufacturers have been forced into steep discounts that they argue they can’t sustain.

The Japanese manufacturer Nissan, which runs the UK’s largest car factory in Sunderland, said the mandate was threatening “the viability of thousands of jobs and billions of pounds in investment”, although many believe it to be unlikely that the company would really abandon the plant. Stellantis, the owner of the Vauxhaul, Peugeot and Citroën brands, has announced that it will close its plant in Luton partly because of the mandate.

So, what should the government do? In light of a change in circumstances, either show flexibility or hold firm? This is a challenge many negotiators face. If they hold firm it may lead to an escalation of competitive behaviour, more manufacturers may make good on their threat to close plants, losing jobs and damaging the economy - and if they don’t? Well, if they don’t the chief exec of charge UK says they risk losing £6bn of investment in infrastructure that is predicated on ZEM and, of course, the primary objective of reducing carbon emissions is compromised. Not an easy choice.

In this situation the first question to ask yourself is whether what they are saying is true; often there is much more nuance than the bold headline. The headline target is 22% of electric car sales, but in reality, manufacturers can earn “credits” that lower it such as lowering the average emissions of their new petrol cars, and “borrowing” excess electric cars made in later years. Alternatively, they can buy credits from other brands: granted, a non appealing option. The consensus is that makes the real target for 2024 18.1% - in line with actual sales so far this year so you might argue that the hold firm approach is appropriate. Alternatively, if we look to Europe who have similar but less stretching targets, 15% by 2025, you may come to the conclusion that the target may need to be recalibrated.

My view is that whilst in situations like this it can be tempting to hold the car manufacturers’ feet to the fire - particularly for politicians who want to appear strong and decisive. The better option is to look at it as an opportunity to find new value, so, be firm about your objective but flexible about how you achieve it. Some suggestions coming from car makers are not without merit, such as allowing them to comply if they overachieve targets in later years (a tactic known as Frontload/Backload) or by giving extra credits to electric cars made in Britain, even better credits for car manufacturers who invest in the UK– a policy that could be attractive given the governments stated must get objective of driving growth. As I understand it Johnathan Reynolds, the business secretary, is fast-tracking a consultation on the mandate and has accepted that the current plan is not working as intended. Watch this space, I suspect a more cooperative than competitive approach will be taken - but what do I know?