The electric vehicle market represents one of the most significant commercial opportunities of the decade, and the United Kingdom sits at an interesting crossroads within it. Electrifying the car fleet is not only a way to reduce the greenhouse gases produced by one of the country's largest emitting sectors; it is also an invitation for global manufacturers to establish a foothold in a wealthy, well-regulated European market. Tesla did much to globalise the technology, but China has arguably become the single most important driver of the worldwide shift, and globalisation has carried the industry into markets that combustion-era carmakers never reached at this pace.
Around twenty major cities worldwide have announced plans to ban petrol-based cars, and legacy manufacturers such as GM, Ford, Volkswagen and Mitsubishi have all moved to expand internationally in response. Adoption of the plug-in electric vehicle has risen sharply, governments are actively supporting the transition because of concerns about CO2, and the market is expanding quickly.
This article examines the UK electric car market specifically - how political, economic, legal, social and environmental factors shape it - and asks what a new international entrant, in this case a Chinese electric vehicle manufacturer referred to here as CEC, should weigh before committing to it. Britain set itself an early ambition: at the 2008 G8 summit the then Prime Minister spoke of a "green car revolution," and the country has since set out the goal of every new van and car being a zero-emission vehicle. Translating that ambition into a stable commercial environment, however, has proved difficult.
Section 01Industry analysis
Electric cars are booming across Europe, but the UK has in several respects been struggling to keep pace, with some major manufacturers favouring other locations. According to figures from the European Automobile Manufacturers' Association, UK electric car sales have lagged behind comparable markets, and there are several structural reasons for this.
One is incentives. The British government cut the grant for fully electric cars in 2019 - from around £4,500 to £3,500 - which contributed to higher effective prices for buyers. Another is the economics of manufacturing. Dyson, a British company best known for its vacuum cleaners, chose to build its first electric car in Singapore rather than the UK because the conditions were more favourable there. A pattern has emerged in which prestige performance-EV makers such as McLaren and Aston Martin assemble cars in the UK but do not always find full-scale production cost-efficient. The underlying issue is competitive: other countries simply offer more to attract investment.
There are, however, clear success stories. Nissan is the standout example. The Nissan Leaf became one of the most popular electric cars in the country, and the model has sold strongly, demonstrating that there is real scope for growth in the UK market for a manufacturer that gets the proposition right. By late 2019, roughly one in every ten new cars sold in the UK was electric, with the electric share climbing from around 6.9% to 9.9% - a meaningful jump driven largely by growing consumer confidence as more manufacturers entered the space. As the British government gradually clarifies its policies, further growth into the early 2020s looks likely.
Section 02PESTEL analysis
Political. Governments can stimulate demand through tax rebates and subsidies for buyers, and through grants or loans to manufacturers, which in turn encourages carmakers to expand their electric ranges. In the UK, however, the political environment has been dominated by Brexit, which has crowded out other agendas and made it harder to form clear, stable trade and industrial policy. Vehicle manufacturing is itself a major political factor because of the economic activity it generates. Public procurement has been modest - a 2017 budget commitment to buy around 1,250 cars annually looks small next to the far larger ambitions of developing markets such as India. Brexit also raises the prospect of customs and regulatory divergence, creating potential trade barriers, while subsidies to manufacturers have been trimmed. For a new entrant like CEC, this political instability would make the UK a difficult market to penetrate.
Economic. Current signals on EVs are mixed, and there is a case for aligning fiscal policy more closely with the zero-emissions target - through favourable Vehicle Excise Duty rates and reformed company-car taxation, for example. Electric cars are already cheap to own and run, but on a purely economic basis they are not yet an unambiguously better choice than petrol or diesel for every buyer. The trajectory is nonetheless positive: in 2018 sales of new electric cars in the UK rose by around 21%, while diesel sales fell sharply.
Social. At a time when large corporations are often viewed with suspicion, a credible sense of corporate social responsibility has become a genuine differentiator. As affluence has risen, consumers have shown a greater willingness to pay for products seen as socially responsible - and the car industry is a clear example, with environmentally friendly approaches to both production and use gaining ground. This shift has helped lift UK electric vehicle sales.
Technological. Conventional cars are significant contributors to carbon emissions, and advances in technology have allowed manufacturers to build electric alternatives that are increasingly cheaper and cleaner. The expectation is that, over time, fossil-fuel vehicles will be displaced by electric ones, which produce near-zero tailpipe emissions and improve air quality in urban areas.
Environmental. Transport is now the largest single source of CO2 in the UK, accounting for more than a quarter of emissions, with road transport making up the bulk of that. Government strategy has been criticised for lacking measures strong enough to meet the carbon budgets set out to the early 2030s. Bringing forward the planned ban on new fossil-fuelled vehicles would close a substantial part of that gap.
Legal. From July 2019, new electric and hybrid vehicles in Britain were legally required to be fitted with an external sound generator. Because EVs are very quiet at low speeds, they can be hard for cyclists and pedestrians to hear; the artificial sound requirement is a safety measure addressing that risk.
Section 03Porter's five forces
Threat of new entrants. The threat is moderate. The central challenge in electric vehicles is the trade-off between performance and cost. Most major automakers - GM, Ford, Toyota, BMW and others - can build affordable electric cars, but often at the expense of range and performance, while genuinely high-performing EVs remain technically demanding and expensive to produce. Any new entrant faces the same set of problems that even Tesla has struggled with, and unless it brings genuinely innovative solutions it will run into them too. Established players also benefit from economies of scale that newcomers lack in their early years, and large capital requirements are a further barrier. CEC would need to weigh all of these before entering.
Bargaining power of buyers. This is high. Switching costs between electric models are effectively zero - a buyer can move from one manufacturer's car to another's with little friction - which strengthens their hand considerably. Price sensitivity is acute, and as the range of EVs from both established and new manufacturers widens, customers may well judge a newcomer's prices to be too high and exercise their bargaining power accordingly. The availability of substitutes and the degree of differentiation between manufacturers reinforce this. The car market is extremely price-sensitive.
Rivalry among existing firms. Competition is intense and intensifying. GM, BMW, Volkswagen, Porsche, Jaguar, Nissan and Mercedes-Benz have all committed substantial sums to mass-market EVs, and many new models are arriving within short windows. Competition also extends into adjacent energy-storage and solar markets, where the same leading players compete globally. For CEC, this crowded and fast-moving field would be one of the larger problems to overcome on entering the UK.
Section 04Market strategy
Recent years have seen a global boom in the EV market, and for a newcomer entering so competitive a space, a clear reading of strengths, weaknesses, opportunities and threats is essential.
The market's strength is its novelty: it is still young, and almost every manufacturer is trying to establish a position. Flagship brands such as Tesla have dominated globally - yet Tesla's UK performance has been comparatively disappointing, while Nissan has done better precisely because it offered more affordable options. The lesson for CEC is that success in the UK depends on combining a sense of quality and aspiration with genuine value for money.
There are real opportunities. Government subsidies create an incentive to locate manufacturing in the UK, and rising fossil-fuel costs make EVs more attractive on running costs and environmental grounds. But there are drawbacks too: longer recharging times and expensive battery replacement weigh on the ownership case, and in a price-sensitive market the vehicle has to be affordable and accessible. Buyers also need confidence that sufficient charging points exist before they will benefit from perks such as reduced parking and road-toll charges. Meanwhile, the wider market is responding to China's electric vehicle surge much as expected, with global players adding electric models and shifting research and development towards China.
Section 05Conclusion and recommendations
Globalisation has played a major role in the growth of the electric vehicle market. After analysing the UK market and the factors shaping it, the clear conclusion is that it remains unstable and uncertain for electric vehicles. As a major producer in the Chinese market, CEC would not find it especially difficult to penetrate Europe more broadly - but the UK specifically still has areas where the industry needs to mature. Nissan is currently the main domestic-market competitor to contend with, political instability from Brexit is a significant barrier, and the population actively considering an EV purchase is still relatively small. It will likely take several more years for the UK market to develop fully, and key issues - manufacturing incentives, charging infrastructure and ease of trade - remain unresolved.
On balance, I would not recommend that CEC enter the UK market as a full operation at this stage, given the number of unresolved problems. A more sensible option, if CEC wishes to establish a presence, would be to set up an assembly line in the UK: this would be more cost-effective, would improve its standing on incentives and trade, and could be wound down relatively easily if the market did not respond, since it would not represent a heavy fixed investment.
Finally, the UK government remains enthusiastic about electric vehicles but needs to be far clearer and more consistent in its policy so that private and fleet buyers can make efficient purchasing decisions. There is also a strong case for steering buyers away from the most polluting and inefficient vehicles - large SUVs and 4x4s continue to grow in sales while burdening both consumers and the climate - through a taxation policy that rises with fuel consumption, of the kind already used in the Netherlands and Norway.
Section 06References
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