This article first appeared in the June digital edition of Fleet News.

The appetite for electrification is increasing among fleets, with leasing companies reporting record levels of demand from company car drivers.

The move away from internal combustion engine (ICE) vehicles has been driven, in part, by new benefit-in-kind (BIK) tax rates. 

Company car drivers will pay no tax on a pure electric vehicle (EV) this tax year, while drivers of plug-in hybrid vehicles (PHEVs) are also enjoying much more favourable rates.

A recent Survation study commissioned by London First of more than 500 UK companies found that almost a third (30%) of fleets are already using EVs, while 46% have active plans to make the transition and a further 16% have begun to discuss it.

For those who have not yet made the switch, 50% think they will have transitioned within five years and a third (35%) think it will be within two years, well ahead of a ban on the sale of new petrol, diesel, or hybrid cars in 2035.

Jon Lawes, managing director of Hitachi Capital Vehicle Solutions, told Fleet News: “Many customers are looking to either partially or fully electrify their fleet. This is being driven by the desirability of longer-range models coming to market and the enhanced tax position over other drivetrains.”

Looking at the distribution of fuel type on vehicles over the past six months, Lawes says the share of PHEVs and battery electric vehicles (BEVs) has more than doubled, with diesels showing a marked decline. 

Its renewals in Q1 of this year found further evidence of the move to hybrids or pure EVs. It showed that only 44% of diesel drivers have chosen to replace their car with another diesel.

The shift appears to be to hybrids, says Lawes, with just 2% of customers making the full leap from diesel to electric, while three quarters (74%) of petrol hybrid drivers replaced their vehicle with another hybrid and a further 22% made the switch to a BEV.

Alan Bastey, customer relationship director and EV specialist at Zenith, says it has also seen a “clear growth in demand” for EVs in comparison with petrol or diesel.

Zenith’s total order bank currently sits at 22% BEV and it’s tracking at 30% BEV orders for June.

The Tesla product is appealing to many fleet drivers with the Model 3, accounting for 41% of all BEV orders taken so far, the company said.

Bastey continued: “The long-term financial incentives are now enabling employees to look past some of the perceived barriers of adoption, the majority finding the switch easy and their biggest fear of finding a charging solution, not realised.”

At Arval UK EVs have now become the most popular new vehicle ordered by some of its larger customers.

Consultant David Watts said: “To put that into context, as the Government’s promises became commitments in 2020, during the first quarter of the year we took more EV orders than we’d taken for the whole of 2019.”

An Arval Mobility Observatory report, which gains insight from 5,600 businesses across Europe, shows that more than half (53%) of UK businesses are already running BEVs or plan to do so in the next three years, contrasting with 41% answering the same question in 2019.

When it comes to plug-in hybrids, the figures were 63% now against 46% last year – the largest increase seen for any type of EV – and 64% compared to 53% for hybrids.

Shaun Sadlier, head of Arval Mobility Observatory in the UK, said: “These results show just how much additional impetus now exists behind the adoption of electric vehicles, plug-in hybrids and hybrids among UK fleets at this moment compared to just 12 months ago." 

CUTTING EMISSIONS

There is a growing recognition from the fleet industry of the need to cut transport emissions to help the Government achieve net zero emissions by 2050. 

Dr Mike Brown, director, strategic partnerships at The University of Salford, hopes the UK Government will follow both the French and German governments’ lead.

Germany is doubling incentives offered to buyers of battery-powered cars as part of a €130 billion (£115bn) economic recovery package and France is making EVs and plug-in hybrids the basis for €8bn (£7bn) incentive programme.

Brown said: “We went a whole two months without burning coal to produce electricity and levels of pollutants such as nitrogen dioxide, from vehicle exhausts, and fine particles known as PM2.5 have fallen significantly.”

He continued: “The UK needs to de-carbonise road transport as quickly as possible to stand any chance of hitting its climate change targets. 

“To quote Mark Carney, former Governor of the Bank of England, ‘we can’t self-isolate from climate change’ and with 20% of greenhouse gas emissions in the UK coming from road transport, we need to rip off the petrol/diesel sticking plaster and move to electric.”

Network Rail has set ambitious targets for its fleet operations to help it achieve net zero. It is aiming for one in four cars (25%) to be classed as ultra-low emission vehicles (ULEVs) by 2022 and 100% by 2030. By 2035, it wants a 100% of its fleet – including vans and trucks – to be ULEVs.

Meanwhile, Tusker, Rentokil Initial, OVO, Tarmac and Drover have committed to switching their fleets to electric by 2030.

They have joined a growing list of leasing companies and fleets by signing up to The Climate Group’s global electric vehicle initiative EV100.

Lauren Pamma, electrification propositions lead at Lloyds Banking Group, is charged with helping to drive EV take-up at Lex Autolease and Black Horse.

She believes lockdown’s short-term benefit to the climate and clean air will further “galvanise” policymakers.

“People have realised the benefits of clean air from suddenly having no cars on the road,” she said.

PLUG-IN AVAILABILITY

Matthew Walters, head of consultancy and customer data services at LeasePlan UK, explained: “Supply is paramount to a UK-wide transition from internal combustion vehicles to EVs. Therefore, we need to ensure we are at the forefront of manufacturers’ thinking when it comes to supply, not just now but post-Brexit.”

Furthermore, he says the introduction of clean air zones (CAZs) across the UK and Government initiatives incentivising EV uptake only make sense if fleets have access to lowest emitting vehicles. 

Members of the Association of Fleet Professionals (AFP) have also voiced their concerns about the availability of EVs, particularly electric vans, according to chairman Paul Hollick.

“There’s been a scarcity of (electric) vans this year,” he explained. “Even though there are more models and derivatives coming through, there just isn’t the availability.”

Hollick is also concerned Brexit may exacerbate the situation, because tariffs could be imposed on imports.

Short-term, however, Pamma expects stock to be available, which has been held back since pre-lockdown, but says it will be a question of how quickly factories will be able to produce vehicles.

The speed of economic recovery could also influence how many vehicles are allocated to the UK market. If it’s predicted to be slower than European counterparts, Pamma thinks the UK could miss out.

DECARBONISATION PLAN

Bob Moran, head of environment strategy at the Department for Transport (DfT), argues that if long-term change is to be delivered, a plan that spells out who is going to do what, by when, and how, is required.

The DfT has produced a plethora of plans and strategies across all sectors of transport, but most recently, in March, it took the first step towards producing its Transport Decarbonisation Plan (TDP) by looking at the challenges the UK faces. 

The plan of action, which will set out in detail what Government, business and society will need to do to deliver the significant reduction in emissions needed across all modes of transport, will be published later this year.

A new Net Zero Transport Board to help guide the decarbonisation of UK transport met for the first time this week. 

Moran told delegates at a recent Westminster, Energy, Environment and Transport Forum policy conference that the UK faced a “big challenge” to achieve the level of reductions in emissions required.

Based on current projections, including an increase in walking and cycling, and greater electric vehicle use, the gap is “absolutely huge”, he said.

“It’s nowhere near enough and, frankly, way off track.”

Moran says EVs will play their part, but they cannot be expected to “save us” and the Government’s plan of action will probably need to go beyond simple ‘nudges’ and use some “reasonably sized sticks”.

But tax experts David Chandler and Harvey Perkins from Gunnercooke Consulting say new tax tables, coupled with increases in CO2 emissions from the Worldwide harmonised Light vehicle Test Procedure (WLTP), are already costing company car drivers and operators dear.

In fact, Chandler told delegates on a recent webinar that ICE company cars could follow ‘free’ fuel in terms of the tax burden being so great, it makes no financial sense.

“If the tax rates are increased above a certain level, tax revenues can fall, because higher tax rates discourage people from taking that choice,” he said.

“We believe that’s what’s happening now with company cars as we’ve seen in the past 10 years with the effect of the private fuel charge.”

Perkins says this has been compounded by WLTP, with CO2 emissions increasing compared with previous NEDC values, pushing many cars towards the top of the benefit-in-kind tax table.

“At the top of the range now, the difference in the percentage charge of a car with ridiculously high CO2 emissions and a car with only average CO2 emissions is pretty much gone,” he said.

“There’s a gulf between sub-51g/km cars and everything else – if you’re over 75g/km it’s pretty awful. It’s clear the future is electric.”

Perkins believes the Government's tax system is not in sync with the reality of current availability, read more from him by clicking here.