Written evidence from Mobility Operations Ltd (ELV0061) 

Response to the House of Lords Environment and Climate Change Select Committee Inquiry on EVs

About us

Motability Operations is the commercial organisation that delivers the Motability scheme to over 700,000 disabled people, making it the largest fleet operator in the UK. Our customers exchange their higher rate mobility allowance to lease a vehicle for three to five years. The lease includes of insurance, servicing, replacement tyres and breakdown cover as part of the complete worry-free package.

Motability Operations purchase and lease around 13% of all new cars registered in the UK annually and are the largest supplier of used cars to trade, selling around 220,000 cars per year through dedicated ecommerce and physical auction channels. More than 34,000 Motability scheme customers are already driving BEVs and over 83,000 driving hybrids. This makes us one of the largest EV operators in the UK, owning around 5% of all EVs nationally. Any profit Motability Operations makes is reinvested to keep prices affordable, create the most positive impact for our customers or is donated to the Motability Foundation. 

This submission is separate from but aligned to that of the Motability Foundation, who monitor our performance and the scheme’s strategic direction.

Question responses

1. What are the main obstacles to the achievement of the Government’s 2030 and 2035 phase-out dates? Are the phase-out dates realistic and achievable? If not, what steps should the Government take to make the phase-out dates achievable?

Motability Operations’ EV fleet has more than tripled in the past 12 months and we are confident this will continue to increase over the coming years. 48.3% of scheme customers say they are committed to their next vehicle being electric[1].

We are bringing EVs into new demographic segments that so far have not yet seen much market penetration. Unlike many other EV fleets, which are largely driven by white collar employees benefiting from generous company car tax incentives, our EV customer profile is different. Compared to the national average, our EV customers are younger, more likely to be women, and are more likely to live in villages and rural areas. 79% of them are not in employment, while 56% of them have a yearly household income of less than £30,000.  In the mainland UK our EV hotspots are in middle and lower income areas like Telford, Merseyside and Bridgend.  We think this gives us a unique insight into the electrification of wider society.

However, there remain several challenges in achieving the current phase out dates as set by Government. For disabled people and their families, making the switch to an EV can pose additional challenges. These include but are not limited to supply issues and the comparatively higher cost of electric vehicles, inaccessibility of public charging, the comparatively smaller size of vehicles and the lack of suitable electric Wheelchair Accessible Vehicles (eWAVs).

For many of our customers, the cost and amount of choice of new EVs remains a significant barrier to adoption. Auto Trader research shows that there are nine times as many new ICE vehicles (98 models) available for under £30,000 compared to BEVs (11 models)[2]. New electric cars are generally 37% more expensive than like-for-like ICE equivalents.

42% of our customers are living on annual household incomes of less than £20,000 before tax. Disabled people are almost twice as likely to be unemployed and nearly half of everyone in poverty in the UK is either disabled or living with a disabled person. Research from the Resolution Foundation highlights a 44% income gap for disabled individuals vs. the wider population. This makes the additional cost of an EV very daunting for them. Motability Operations has so far provided around £91.4m of additional support for customers wanting to lease an EV, but 63% of customers surveyed found the cost of an EV too high even with the support the scheme provided[3].  There is therefore a significant risk of disabled motorists being left behind in the electric transition if adequate incentives to supply affordable vehicles to this group are not provided.

The availability and accessibility of public charge points also presents a barrier to EV adoption for many. National Grid research estimates that c.40% of UK drivers will not have access to off-street parking and will therefore be reliant on public charging to run an EV[4]. For our customers, this figure is around 45%, or 280,000 people. 57% of our customers surveyed gave the lack of public charge points in their area as a reason for not making the switch[5]. Our colleagues at the Motability Foundation have conducted extensive research to understand the barriers disabled people face when using EV charge points and will focus on this in their own submission to the inquiry.

Finally, there is another important group who risk being disadvantaged in the EV transition. While most of the vehicles in our fleet are unmodified or have relatively minor adaptations, more than 33,000 of our customers lease Wheelchair Accessible Vehicles, or WAVs, from us. Typically, when converting a vehicle into a WAV, our converter partners generally need to lower the floor within the vehicle to allow for the installation of a ramp and sufficient headroom for the wheelchair user. However, as the small and medium electric base vehicles currently on the market have the battery positioned under the chassis, in most cases it is impossible to convert into a WAV. Our conversations with aftermarket battery manufacturers show widespread scepticism about the commercial feasibility of producing a battery that can accommodate a lowered floor, in addition to various engineering concerns.

We are trying to solve this issue and are working closely with our partners in the Wheelchair Accessible Vehicle Converters Association, the automotive industry, existing converters and new entrants to deliver a commercially viable eWAV offering. Motability Operations has also invested in a partnership with the design and engineering firm CALLUM to explore the design challenges inherent in converting e-WAVs, including investigating work on battery conversions and the feasibility of the creation of a modular battery pack that enables use of the traditional floor conversion method. We know the transition to electric vehicles will be more complex for our customers with the most extensive mobility requirements, and it is absolutely vital that our WAV customers have an electric solution or e-WAV that meets their needs post-2030. While the availability of “e-WAVs” is clearly preferable, it is absolutely critical that WAVs remain available to Motability scheme customers into the future, regardless of their powertrain.

9. What are the main consumer barriers to acquiring an EV, either through purchasing, leasing, or other routes?

Our customers face many challenges when they are looking to make the switch to an EV including supply issues and the comparatively higher cost of electric vehicles, inaccessibility of public charging, the comparatively smaller size of vehicles and the lack of suitable electric Wheelchair Accessible Vehicles (eWAVs).

To better understand the barriers our customers face in the transition to electric, we surveyed them for their views on this topic, and have summarised this in Figure 1.

Elsewhere, falling resale values could impact new leasing affordability. A supply and demand imbalance in the used market could lead to distress selling from vendors which could impact prices and their appetite to restock used EVs. This would likely impact future residual value forecasts which are used as a key input to a car finance cost calculation, in turn potentially driving up new car leasing/PCP monthly payments and thereby damaging consumer appetite for new EVs. Introducing certain used incentives as has been done in other European markets could help to mitigate this risk.

13. What is your assessment of the current second-hand EV market? How is the second-hand EV market projected to develop between now and the phase out dates?

Motability Operations is the largest supplier of used cars to trade in the UK, selling around 220,000 cars per year. The second-hand EV market has been extremely challenging in the past year, with vehicles losing c.-34% of their value since the start of 2023 for a variety of factors;

• EVs are the one segment of the market experiencing significant increase in supply, largely driven by years of registration growth in the fleet sector;

• Turbulence in the energy markets has led to a substantial increase in energy costs, which have eroded some of the TCO benefit EVs held, although there are signs of stabilisation.
• The Public charging network remains fragmented and regionally imbalanced, with additional issues around charging costs and customer experience;
• Used electric vehicles have appeared expensive at a time when consumers are favouring more affordable vehicles; and
• A lack of incentives for second hand vehicles as seen in other non-UK markets.

There are now early signs pointing towards the stabilisation of used EV values, as some models now appear good value vs. their ICE equivalents. However, the ZEV mandate sets a clear direction for future EV growth in the new car market and this will lead to a lagged but very significant increase in used car supply. Used EV demand must remain in balance with this to avoid further value reduction.

The supply of used EV’s in early 2023 increased faster than consumer demand which forced used EV values down and distorted the relationship of value vs ICE product. The pace of value decline caught many participants unprepared and many dealers disposed of used EV inventory at a significant loss. This created uncertainty and fear across networks and resulted in dealer groups applying purchase restrictions on EV product until values settle. This in turn created consumer confusion as dealers and C2B brands such as WBAC, Motorway, and ABYC refused to offer valuations on used EV.

The market has settled in the current term and dealers are returning a stronger margin on used EV vs used ICE (50% increase VRM) although at a significantly lower sales cadence. Changes in battery generations continue to cause caution and low range examples carry little to no consumer interest. Battery health remains an unknown metric; in the medium term there will be the need for a recognised battery health indicator. It is possible that in future such an indicator could have a greater effect on an EV’s value than age or mileage. Dealers are not currently asking for such a metric, but some suggest consumers are showing more interest in longevity.

17. Are consumers charged higher rates of insurance for an EV when compared to an internal combustion engine (ICE) vehicle, and if so, are these higher rates justified? Can the Government do anything to mitigate this?

The wider motor insurance market remains cautious about EV insurance risk.  In the early days of EV growth in the UK motor parc, this concern was related to fears about factors including EVs’ more rapid acceleration, the risk that pedestrians and other road users wouldn’t hear a nearby EV, and concerns about battery damage making cars unrepairable or dangerous to work upon.  These concerns are exaggerated and are dissipating as EV uptake increases. 

There is sometimes however a lingering impression that the insurance market sees EVs as a negative or a challenge. It is worth noting that Thatcham have tended to assign EV models to higher risk groups than their ICE equivalents.  For example, an EV Peugeot 2008 starts at ABI group 26 out of 50, whereas the ICE equivalent is in group 19.  This may affect wider market insurance costs for EVs. Government may have a role in promoting consensus around factors that distort EV insurance, encouraging insurance and wider industry bodies to address this via enhanced data and information sharing. 

20. How prepared are car dealerships, service networks, repairs and maintenance organisations, breakdown services and aftermarket suppliers to meet the growing EV uptake?

Organisations in this sector face a range of issues from EVs, some more obvious than others. The logistics infrastructure supporting vehicle movement and transfer will need to upscale quickly to facilitate increased movements of EVs, as an EV with no charge is immovable and becomes problematic. As a result, logistics vehicles will need to be redesigned to carry EV charging products. The weight of used EVs are also significantly more than ICEs, meaning some carriers cannot carry full loads due to weight restrictions. Stock availability for tyres is a challenge- in 2020 7,500 varieties of tyre stock were required, whereas today 11,000 varieties are needed and by 2025 it will be around 15,000. Wear rates are lower than originally expected.

The process of aftersales work is very different for EVs than for ICEs – technicians need training more akin to an electrician rather than a mechanic. Research from the Social Market Foundation indicates that the UK is insufficiently prepared for the number of EV technicians it will require, predicting there will not be enough qualified mechanics to maintain all of Britain’s EVs by 2027[6]. This research tallies with our experience; dealer groups such as Arnold Clark report a drain of technicians lost into the engineering industry. There is already a shortage of highly skilled technicians across the UK network and even more so for EVs, and this will become even more of a problem for dealer groups/dealerships as the market grows.

We have also received feedback from a number of our retailer partners about a rise in the number of vehicle recalls related to software updates. Many EVs can perform over the air software updates but there is still a large number that require a dealership visit similar to safety related recalls. These do not appear to have reduced with the transition to EV models.

EVs will have a huge impact on car dealerships and other automotive repairers and aftermarket parts retailers. Aftersales profits can represent as much as 45% of a dealership’s overall profitability and the introduction of EVs is already seeing a dip in these profits as there are fewer moving parts on an EV. This financial impact will likely slowly increase over time as more ICE vehicles are replaced with BEVs.  It is worth noting that there is an expectation that tyres will need replacing more frequently on EV’s due to the increased weight of an electric vehicle.  Low rolling resistance tyres are recommended by several OEMs.

We see varying levels of preparation across the dealer network.  At one end of the spectrum, groups like Arnold Clark have opened two Innovation Centres, one in Glasgow and the other in Stafford, enabling consumers to test drive EVs and also to educate them around home charging, public charging, and charging networks. The same group have also invested £23m into their charging infrastructure, will install accessible chargers at their dealerships throughout the UK and plan to introduce a charge booking option through their customer app. At the other end are independent dealerships who have done little or nothing to prepare for mass adoption of EVs and they simply aim to hit the minimum standard required of them from OEM partners.

The wider dealer network can also be very adaptive and quick to implement change but do require certainty in the messaging that they receive from OEM partners regarding future direction. Many dealers will only pivot into the segment or fuel type only when they see profit or consumer need.