We need to stop sleeping on the ZEV mandate.

Mmmm, government regulation. I can see your eyelids drooping already. It sounds like the least exciting conversation topic since I tried to explain to my friends and colleagues why the Rover K-Series engine was superior to contemporary offerings in many ways, despite a reputation for head gasket failure.

But on the contrary; if your livelihood depends on the success of auto brands here in the UK, then this topic should be causing you to be very wide awake indeed. The sort of wide awake which happens at 3am, accompanied by a jolt and a cold sweat.

A quick recap on what this thing is. Starting in 2024, anyone selling over 2500 vehicles annually in the UK must ensure that at least 22% of their sales are zero-emission. For every petrol, diesel or hybrid vehicle they sell which is above the allowed 78%, they are fined ￡15,000.

Fifteen THOUSAND pounds.

That’s more than twice the margin that a very profitable manufacturer would make on a ￡60k car. Awake yet? Thought so.

To put this into some context, imagine a brand like Ford missed the target by just two percentage points. They would hypothetically owe a fine of ￡43m.

Forty three MILLION. For one year.

Here’s the problem – very few brands are missing the target by two percentage points. In many cases, they are set to miss it by a lot more. A LOT more.

This week, the SMMT published year-to-date sales figures for the UK. Whilst sales of EVs have increased by 30,000 compared to this time last year, they still only form 17.2% of the overall market . ?And don’t forget, that number includes all-electric brands like Tesla and Polestar. It is reasonable to extrapolate that the average mixed-fuel auto brand in the UK is currently only sending 15% of its cars out of the gate powered by electricity.

By the letter of the law, a miss of this magnitude would be catastrophic. This would be 136,500 too few EVs sold in FY2024. It would mean fines totalling ￡2bn. It would kill the industry stone dead, and we would all have to buy bicycles. Well, I wouldn’t, because I’ve already got too many bicycles, but you know what I mean.

So, presumably wanting to avoid the rather inconvenient bankruptcy of every carmaker in the land, the government has granted three allowances.

Firstly, a non-compliant automaker can buy credits from "over achiever" brands – step up the aforementioned Tesla and Polestar. Brands can also trade allowances within an umbrella group, so (for example) Stellantis could use a high percentage of Peugeot EV sales to prop up Vauxhall.

Secondly, automakers can gain credits by reducing their average sale CO2 against a baseline set in 2021. These targets are private and individual to each automaker, so it’s somewhat opaque as to how heavily these will be utilised.

Thirdly, automakers can borrow credits from future years, or carry forward any unused credits from previous years.

Making judicious use of these allowances, along with some massive tactical discounting, should see automakers through 2024. Phew. Crisis averted then? No. Of course not.

For a start, the final two allowances only last for three years. And for a chaser, next year, the target is no longer 22%, but 28%. By 2027 it’ll be 38%. An automaker who has made heavy use of the third incentive, in effect setting up their own internal Ponzi scheme, may find themselves needing to sell at least 50%+ electric vehicles in 2027. And the market is simply not growing fast enough to support this objective.

Their only options would be to a) significantly reduce the number of non-EVs they sell, tanking revenue and killing the dealer network; or b), MASSIVELY discount their EV sales, tanking profit and residuals and probably killing the UK business.

Unsurprisingly, the industry has become increasingly vocal and frantic in its protests. Mike Hawes from the SMMT has been quoted as saying that the cost is going to be “astronomical and unsustainable”. The boss of Stellantis, Maria Grazia Devino, threatened to pull the plug on its entire UK operation, calling the mandate “stupid” in front of a live audience (including your author) at the SMMT annual conference.

The suggestion seems to be more government subsidies for new EV sales (potentially in the form of halving VAT) – but you may have noticed that the government has rather a lot on its plate right now. You couldn’t blame the chancellor for being more focused on keeping the prison system from collapse than thinking too deeply about a policy which, by the author’s reckoning, would cost over ￡1bn to implement. The Daily Mail headline almost writes itself, doesn’t it? “Pensioners fuel subsidies used to pay for discounts on ￡50k luxury cars!!!”

If I were Managing Director of an automotive brand in the UK, this would cause me to wake up in a cold sweat every single night. So what on earth can they do?

Well look - I don’t have a magic potion to make everyone in the UK want an EV. But I do believe that auto brands could be more creative in encouraging their customers to switch. Financial incentives are a blunt instrument – but what about hyper-personalised marketing? What about making bundled charging tariffs really accessible rather than nerdy and complex? What about building a recommendation engine which subtly nudges site users towards EV? What about lobbying the government to include Approved Used sales (where an EV is traded for an ICE vehicle) in the figures?

I am working with clients across the industry right now who are looking at some of these things – but they’re doing it in a fragmented way. It seems to me that it should be the unified single mission of every brand to explore every avenue, to commit every scrap of investment, towards transforming their customer experience to an EV sales machine.

This can't be a sideshow. It should be the only game in town. Every other investment should wait.

If this doesn’t happen (and I see no indication that it will) then frankly, I predict that there will be many, many more sleepless nights to come. The mandate monster's belly is rumbling.