AFV: the carrot or the stick?

Robert Donaldson

27 Nov 2018, Blog Post

The carrot or the stick?

The "carrot or stick approach” is an idiom that refers to a policy of offering a combination of reward and punishment to induce good behaviour. It is named in reference to a cart driver dangling a carrot in front of a mule and holding a stick behind it.

Pressure is growing from all areas to improve air quality in the UK, especially in cities. This can be done through a “stick” approach. For example, higher taxation; Benefit in Kind (BIK) increases, higher vehicle excise duty, increased fuel duty, Low Emission Zones and targeted congestion charges in cities. Or the “carrot” approach may be employed by offering grants on alternative fuelled vehicles (AFVs), cheaper recharging costs (Tesla), easier access to recharging points and other incentives.

The chart below (data courtesy of SMMT) shows the continual increase of newly registered alternative fuelled cars in the UK.

We can see that market share has doubled in the last four years with just under 150,000 new car registrations expected by the end of 2018.

But who are buying these models?

The chart below shows the market share divided between private and fleet & business buyers. The bars represent the whole new car market and the lines represent the split for AFVs

 

We can see there is a consistent underperformance from the retail sector for AFVs when compared to the overall market.

There are three main reasons for this

  • Lack of education regarding the benefits of AFVs, in the general public.
  • Larger tax incentives in the business/fleet sector, especially through BIK rates to choose AFVs.
  • High list prices for AFVs compared to petrol or diesel equivalents.

With increases in CO2 emissions since the introduction of WLTP testing, we are likely to see more drivers in the fleet and business sector switch to AFVs to offset increases in BIK tax. However, incentives are being cut with the government reducing the Plug-in Car Grant for zero emission cars by a third and completely removing the grant for plug-in hybrids.  This is likely to influence private retail customers more than fleet and business due to affordability.

So it appears currently, the approach adopted is to use the stick rather than the carrot, which could well create a larger divide between retail and fleet buying habits in the coming years.

About the author

Robert Donaldson

Robert DonaldsonUK Car Editor

Born in Acton, London, Robert worked for a number of blue chip organisations including Compaq, British Airways and 3M. Of interest, Robert also owned a repair garage with his brother in the 90s with whom he restored older cars, before joining Glass’s in 2006.