The announcement today by the UK government that it will offer initial incentives of up to £5,000 ($7,800) for consumers buying ultra-low carbon vehicles for around 15 months beginning in 2011 could work to bring forward the introduction and production of such vehicles and their components in the UK and Europe, including electric vehicles, plug-in hybrids and hydrogen fuel cell cars. Nissan, whose electric, lithium-ion powered Leaf will be among the first mass-market vehicle in this category, and one of the few eligible cars on the market during the entire initial period, anticipates demand to be high enough that it will face global constraints in exporting vehicles from Japan in the first two years.
Today’s announcement came after some doubt had been expressed over whether or not the current government would cancel the consumer subsidies for electric vehicles initially planned under Labour, following massive budget cuts already announced and a comprehensive spending review set for October. The Conservative-Liberal Democrat coalition government announced that it had approved a grant of £43m for eligible consumers during the period of January 2011 to March 2012, with a spending review in January 2012 to decide the levels to be set for subsequent years. The previous Labour administration had planned to subsidise the electric vehicle market with £250m over five years, although a spokesperson for the Department of Transport (DfT) told Automotive Logistics News that the money put aside for the initial period to March 2012 is exactly the same that Labour had allocated, and that Labour had also planned a spending review in January 2012.
“We can’t predict exactly where we will be in 2012, but the intention here is to kickstart what this administration feels is a very important industry in terms of developing low carbon transportation,” the spokesperson said. “But the government view is that it does require initial subsidy.”
The timing of the initial tranche of funding comes just as major carmakers are scrambling to get electric and plug-in hybrids to market, which should be good news for the wider UK supply chain sector. Currently, the UK is slated to produce the Nissan Leaf in Sunderland, and last month began production of the Toyota Auris in Derby. “The plug-in scheme will help to stimulate demand for ultra-low carbon vehicles and the production of vehicles and components,” a spokesperson for the Society of Motor Manufacturers and Traders’ (SMMT) told Automotive Logistics News.
In the wider market, Toyota is currently trialling a plug-in version of the hybrid in the UK, which it plans to launch in some markets in 2012, although there as yet nothing decided for Europe, according to Chris O’Keefe, senior manager for external affairs for Toyota Motors Europe London. Similarly, General Motors has done trials for the Opel/Vauxhall Ampera (the European version of the Chevrolet Volt), but the commercial launch in the UK will not be until the first quarter of 2012. Peugeot and Citroen, Renault, Audi and Smart all have planned launches between 2011 and 2012.
Tesla currently has its high end sportscar, the Roadster, available, with plans for a lower cost saloon in 2012, while Nissan’s Leaf and the Mitsubishi i Miev are likely to be the first on the market in 2011, according to the Society of Motor Manufacturers and Traders’ (SMMT).
Carmakers generally welcomed the announcement, and there was some indication that the subsidies may send a strong signal to the market to move forward or further support plans for bringing cars to the UK market or for the production of low-carbon vehicles and components. “Clearly it is an important signal for the UK to have done that, and while Toyota hasn’t specifically made an announcement timing for launching the Prius plug-in for Europe, we’re pleased to see this signal to the market and the customer in particularly,” said Toyota’s O’Keefe.
John Kingston, a spokesperson for Honda, also welcomes the announcement, while stating the industry would benefit from more long-term certainty, regarding the review period for the subsidies. “In an ideal world you want to see long-term certainty,” he said.
Honda, which builds cars in Swindon, has yet to decided when it will launch its hybrid plug-ins or electric vehicles for Europe, although it will launch them in the US and Japan in 2012. While he said that these subsidies did not directly influence Honda to bring the car to market sooner, he did indicate that Honda would be monitoring the local market carefully to make a decision.
Nissan, which recently had confirmation that the government would continue its finance package for its investment in a lithium-ion battery plant and Leaf production in Sunderland, appears to benefit most from the guaranteed subsidy period, as the Leaf goes on sale at the same time the subsidies begin. However, as Sunderland production will not begin until 2013, Nissan told Automotive Logistics News that anticipate demand to outstrip supply and for a waiting list to develop for the first two years.
According to Gabbi Whitfield, communication director at Nissan UK, supply is expected to be constrained as the car will initially be supplied only by Nissan’s Oppamma plant in Japan, which has a capacity for 50,000 units of the model, and will be supplying Japan, the US and Europe. In 2011, Nissan will begin producing the model at its Tennessee plant in the US, and finally in 2013 in Sunderland.
Whitfield says that orders from Japan and America have already reached around 15,000-20,000, and that UK orders can soon begin following the confirmation of the subsidised price. She also indicated that the entire 50,000-vehicle capacity could probably be met by fleet sales alone, but that Nissan was keen to have a 50-50 split between retail and fleet customers. She said Nissan anticipated order in the first full year in the UK to be up to around 2,000 units. “For the first few years, Nissan Global will certainly be constrained by supply,” she said. 
Both Nissan and Toyota said they fully expected that the programme would continue beyond the initial review period, but for Nissan it would become less important as production and supply chain costs came down following increased production. “We have been telling the government that subsidies to support electric vehicles are temporary and short term, but will be important for about 2-3 years,” Whitfield said. “After this time Nissan believes that through economies of scale and global production, we can bring down the unit cost, which means the incentives will be less important and can even be on a sliding scale.”
When pressed as to whether the government would absolutely continue to fund the programme beyond the initial period, the DfT spokesperson responded with a tentative yes, but said the level of spending would be determined by the costs of the vehicle and the levels of demand. “We will have to see what the situation is like at this point. But don’t take to mean there isn’t a firm commitment, as there absolutely is. We will provide funding that is deemed necessary,” she said.