Running out of charge?

Volvo has joined a growing list of car manufacturers to scale back their electric vehicle (EV) plans. Toyota has cut its 2026 EV output target by one third and Stellantis is suspending production of its e-Fiat500.

New registrations of EVs across the EU dropped by 11% in July due to a combination of factors. These include the fact that EVs are still relatively expensive, consumer incentives have been withdrawn, and questions remain about charging infrastructure. The EU, Canada, and US have also imposed tariffs on cheaper Chinese EVs. The UK has not imposed tariffs so far, perhaps mindful of luxury car exports to China and given EV market penetration ambitions?

In the UK, car manufacturers must comply with the Zero Emission Vehicle (ZEV) mandate, which requires 22% of new cars sold in the UK to be electric in 2024, rising annually to 80% by 2030. This was designed to provide certainty for manufacturers of EVs, but it came with a sting in the tail, with a £15,000 fine for each car sold above their non-green quota. This has created an unusual market situation. The head of Vertu Motors, one of the UK’s biggest car dealerships, suggested that some car manufacturers have resorted to withholding supplies of petrol cars and hybrids in a bid to artificially push their share of EV sales higher. He said, ‘It’s almost as if we can’t supply the cars that people want, but we’ve got plenty of cars that maybe they don’t want.’

Fleet buyers such as car leasing and rental firms remain the main drivers, accounting for 80% of EV sales. However, they are facing a challenge from the rapid depreciation in the value of EVs. Two years ago, the average EV would be expected to depreciate by 40% over a three-year period, but this has now increased to 65%. The fall in residual values, together with higher-for-longer interest rates, has pushed up the costs of car finance deals.

The Society of Motor Manufacturers and Traders (SMMT) points out that when the last government introduced the ZEV mandate, it scrapped the main incentive for consumers – the plug-in grant. The SMMT is lobbying Chancellor Rachel Reeves to introduce tax breaks or subsidies to boost private EV purchases. While EVs are perceived as ‘expensive’ and charging infrastructure concerns remain, consumers are unlikely to play ball without some form of government aid, but can Labour afford it?

What have we been watching?

US inflation and central banks were the focus last week, together with the televised US presidential debate –‘they’re eating the dogs, they’re eating the cats!’ Donald Trump survived another assassination attempt over the weekend.

US inflation numbers would appear to have settled the 0.25% or 0.5% interest rate cut debate for the Federal Reserve (Fed) in favour of 0.25%, but this is by no means a certainty with media speculation of a 0.5% cut. Markets expect four cuts of 0.25% each in US rates by the end of 2024. The fact that the Fed is unlikely to make an ‘emergency’ 0.5% rate cut seemed to provide a degree of comfort to markets that have been rattled in recent weeks about the health of the US economy. Equities had a good week, with NASDAQ rallying almost 6%, while gold hit a record high.

The situation in the Middle East continued to deteriorate. Israel is alleged to have undertaken airstrikes against military sites in Syria, including some possible chemical weapons facilities. Meanwhile, Iran is reported to have sent hundreds of ballistic missiles to Russia, which marks a serious escalation in Tehran’s support for Moscow’s invasion of Ukraine. The UK and US discussed allowing Ukraine to use long-range Storm Shadow missiles to hit military targets in Russia. Putin warned such a move would represent NATO’s direct participation in the Ukraine war.

The friction between the US and China continues. The House of Representatives passed the Bio-Secure Act, which aims to limit China’s access to America’s medical and genetic data by preventing US taxpayer funds from flowing to Chinese biotech companies.

Read our latest UK investment insights from Alpha PM

 

In the UK, the Treasury has refused to provide key details of the £22bn ‘black hole’ that Chancellor Rachel Reeves claims to have discovered, with officials insisting that they need more time to ensure the figures are accurate. This disclosure will fuel doubts about the transparency of the Labour government ahead of the October Budget. Meanwhile, the UK economy stalled for the second consecutive month with GDP unchanged, which was weaker than expected. The service sector edged a bit higher, but this was countered by weakness in construction and car production. The latest data is unlikely to change the thinking of the Bank of England, which is expected to keep UK interest rates on hold at 5% later this week.

 

The European Central Bank (ECB) delivered the widely anticipated 0.25% interest rate cut, lowering its deposit rate from 3.75% to 3.5%, but avoided any potential commitment on the timing and size of future cuts.

 

US companies are reported to be raising record amounts of debt ahead of the presidential election in a bid to avoid possible market volatility. Borrowers don’t want to be left with the prospect of needing to re-finance at the end of 2024 or early into 2025 in case there is a contested election or protracted legal battle. The US presidential TV debate saw Donald Trump rattled by Kamala Harris. Despite Taylor Swift publicly backing Kamala Harris following the debate, the election outcome still looks a very close call and is likely to be decided by a handful of swing states. US CPI inflation fell from 2.9% to 2.5% in August. Annualised core inflation – excluding food and fuel – was in line with expectations, but housing accommodation inflation remains sticky.

Read our latest Chinese investment insights from Alpha PM

 

Chinese economic data continues to be weak, as reflected in the latest inflation data for August. Inflation came in slightly lower than expected at 0.6%, but producer prices fell by 1.8%, which was worse than expected. Chinese imports were weaker than expected in August, but export growth was stronger than expected at 8.7%. The latest data has once again raised concerns that China is exporting deflation. Chinese retail sales and industrial production growth also slowed in August. In another sign of the challenges China is facing, the retirement age is to increase for the first time since 1978 amid a shortage of workers as the population ages.

Read our latest investment insights from Alpha PM

 

Brent oil remained close to recent lows of $71 despite Tropical Storm Francine hitting the Gulf of Mexico, as this was countered by continued weak Chinese economic data. The International Energy Agency has warned of a possible oil oversupply in 2025.

Finally, as Labour signals possible delays to some UK defence projects as it seeks to address the ‘black hole,’ even greater jiggery-pokery from Germany. The German government is reportedly considering counting motorway repairs as defence spending to hit its NATO 2% of GDP target. Berlin is arguing that bridge repairs should be included as its roads are used to transport tanks and other military vehicles! In 2025, Germany is planning to cut its military aid package to Ukraine, so it will have to find other areas of expenditure to hit its NATO target. Putin must be feeling smug!

 

Read Last Week’s Alpha Bites – A Taxing Question

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