Are Electric Vehicle Costs Falling Fast Enough For UK Drivers to Make the Switch?
Our NerdWallet research examines the affordability of electric vehicles ahead of the 2030 ban on new fossil fuel cars. It shows the financial gap that drivers face to switch and reveals that a new electric vehicle hatchback model may not be affordable for the average UK motorist until 2026.
With the UK government’s ban on the sale of new petrol and diesel-engined cars taking place in 2030, NerdWallet wanted to investigate whether middle-income households in the UK would be in a position to adopt electric cars in the next few years.
Our study found that without improved affordability, there is not yet enough financial incentive to switch to electric vehicles (EV) for the UK’s most common type of motorist - hatchback drivers. With EV prices needing to drop to become as affordable as a fossil-fuelled equivalent, there is a risk that many will choose to stick with fossil-fuelled cars for their next purchase – reducing the chance of a smooth transition into the next decade and the normalisation of purchasing a fully electric car.
For the average driver:
one of the example EV hatchbacks is affordable on a 3-year finance agreement.
a 5-year finance agreement, half of the fossil-fuel hatchbacks are affordable but only 4 of 24 EV models are.
a 7-year finance agreement, just over one third (9 out of 24) of the EV models listed are affordable, compared to 83% (20 of 24) of fossil-fuel hatchbacks.
Making electric vehicles affordable
To help ensure the transition from fossil fuels is smooth, it is vital that the average driver has the option of affordable electric vehicles when looking to purchase a car. In our previous research, ‘How Do Costs of The UK's Most Popular Cars Stack Up Against Leading Electric Vehicles?’ we found that manufacturers have been catering to premium segments, with new EVs appearing in price ranges not accessible to most people, such as SUV and luxury Saloon models. For the majority of the population, this strategy does nothing to make EVs affordable as smaller cars are where the focus is needed.
In March 2021, the government reduced the size of the plug-in car grant when you buy a new EV, from £3,000 to £2,500, and cut the vehicle eligibility from cars costing up to £50,000 to £35,000. Despite frustrations at the parameters changing ahead of the 2030 deadline, the industry has already started to respond.
Nissan announced in April that all grades of Nissan Leaf would be getting price cuts to remain eligible for the plug-in car grant. “While this is welcome news for the consumer, our findings show it’s a small step and is still not enough to increase the number of affordable options available for hatchback drivers,” says Nerdwallet Director of Operations, John Ellmore.
To identify the EV options available to a typical driver, we focused on popular hatchbacks, from brand new to 5-years old, comparing two that run on petrol (Ford Fiesta and Fiat 500) and two electric models (Renault Zoe and Nissan Leaf).
Using our findings from the 2020 ‘What is the cost of owning a car in the UK’, affordability was calculated based on the average monthly payments made on car finance plans (£194.80 per month) and assuming a 0% finance deal:
Total car finance payments (based on £194.80 per month average spend)
- Over 3 years (36 months): £7,013
- Over 5 years (60 months): £11,688
- Over 7 years (84 months): £16,363
High and low prices for each model were then calculated to account for variations in spec, along with 5 years of annual depreciation. This resulted in 24 price points each for both the fossil fuel and electric hatchbacks. The tables below show how many of these models are affordable in each finance bracket. Cars marked green are affordable, yellow is borderline affordable.
What we discovered
On 3-year (36 months) finance
Just four fossil-fuelled cars could be considered affordable on 3-year finance. All of which would have to be at least 4-5 years old.
The Nissan Leaf’s revised pricing made it the only EV option that is affordable at this budget – however, it will require around five years of depreciation to reach this price point, meaning it will be 2026 before the benefit of the price drop can be felt.
As a result, for those looking to purchase an affordable used hatchback in the 3-year finance bracket, there remains little option but to continue with a fossil-fuelled car or agree a larger finance deal.
On 5-year (60 months) finance
Half of the 24 fossil fuel cars potentially become affordable on an average 5-year finance plan. Three at the higher end of this group would be just 1-2 years old.
By comparison, just three EV cars are affordable. All of these would need to be at least five years old at the time of purchase.
When buying a used car, wear and tear, reliability and the potential need for additional maintenance are key considerations. For many people, this may mean that they would prefer to purchase a used fossil fuel car that is two years old rather than pay the same price for an EV that has an additional three years on the clock – prioritising reliability and value for money over the need to switch.
On 7-year (84 months) finance
On the longest average finance plan studied, 20 of the 24 fossil-fuelled cars can be considered affordable, including two from brand new.
Even with the reduction in cost for the Nissan Leaf, only nine of 24 EV cars are affordable, with just one that is less than four years old.
In this bracket, low-spec fossil-fuelled models could be purchased brand new. While Nissan’s revised pricing would make a 3-year-old model affordable, the other EV options remain 4 or 5 years old. Unless the consumer is very keen to make the switch, there is little incentive to opt for a 5-year old EV hatchback over a brand new car.
While the price drop of the Nissan Leaf is likely to be the start of a trend as manufacturers try to meet the new thresholds for the plug-in car grant, these reductions are, so far, insufficient.
As long as EV hatchbacks are significantly more expensive than fossil-fuelled equivalents, this price difference will remain one of the largest barriers for the average UK driver to make the switch to electric vehicles.
“These findings suggest a worrying trend for the average UK motorist who is currently being priced out of purchasing an electric vehicle by a lack of options on the market,” says NerdWallet Director of Operations, John Ellmore.
“At current rates, a new EV hatchback model launched in 2021 would not be affordable for the average motorist until 2026 - by which time many drivers may have committed to years of finance payments on a fossil fuel model instead - further stalling the transition towards a green future.”
Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more