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Labour's Electric Car Grant will be a drain on taxpayers and cause 'rampant EV depreciation', experts warn

While discounts of £3,750 will make shiny new battery cars more appealing, the scheme threatens to further compound a crash in used EV values, industry insiders say.

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posted on 22 hours ago — updated on 1 second ago

By ROB HULL

Labour has taken the drastic step to reintroduce electric car grants this week, offering subsidies on EV prices as ministers desperately try to reinvigorate public demand for new models to meet Net Zero goals.

But while taxpayer-funded discounts of almost £4,000 should make shiny new battery cars a little more appealing to drivers, it threatens to further compound 'rampant EV depreciation', industry insiders have warned.

Transport Secretary Heidi Alexander on Monday unveiled Labour's £650million Electric Car Grant (ECG), coming three years after the previous Tory regime scrapped its own plug-in car grant.

The Department for Transport confirms only fully electric models below £37,000 - and that are sustainably produced - are eligible for subsidies from £1,500 to £3,750, with funding in place until 2028-29.

But as the dust settles on the reaction to the announcement - which has largely been positive, especially from car makers who smell a spike in sales without taking a hit on profits - some industry experts claim it will only prove to be a major drain on public spending that will cause used EV prices to plummet.

Motor industry insiders and EV experts have warned that Labour's introduction of Electric Car Grants of up to £3,750 towards the price of new battery cars could have a catastrophic impact on depreciation

According to recent cap hpi data shared exclusively with This is Money, the average electric car in 2025 is losing 43 per cent of its original value after just one year.

In monetary terms, this translates to an average financial loss of £25,900 on the recommended retail price when new.

As such, residual values for battery cars are already far worse than other fuel types; in comparison, petrol and diesel cars typically lose around 31 per cent of their initial price over the same period.

And for some electric models, depreciation can be catastrophic.

The exclusive analysis revealed that a DS3 E-Tense typically depreciates at a rate of 66.7 per cent in the first 12 months, shedding almost £26,000 of its original £39,000 price.

Cap hpi told us the biggest trigger of widescale EV depreciation in the last two years has been the level of discounting on new electric cars in showrooms.

With manufacturers under intense pressure to meet the Government's Zero Emission Vehicle (ZEV) mandate - the annually-increasing EV sales targets set out for the next decade - they have been slashing prices of battery models to make them more attractive to buyers.

The Society of Motor Manufacturers and Trader (SMMT) claims car makers swallowed £4billion in losses associated to EV discounting alone.

And the introduction of the Electric Car Grant will further compound this issue, a number of experts have told us.

As such, buyers of new EVs taking advantage of Labour's grant will later be hit by a financial hammer-blow when they realise the value of their motors have crashed after a matter of months.

According to recent cap hpi data shared exclusively with This is Money, the average electric car in 2025 is losing 43% of its original value after just one year

Philip Nothard, insight director at analysts Cox Automotive told us: 'Heavy discounts on new EVs have already dampened demand for nearly new models available in the used car market.

'While driving down the cost of new vehicles will undoubtedly increase the EV adoption in the new market, these incentives fail to recognise the impact they will have on the used market.'

Nothard says the grant now threatens to increase depreciation of electric cars up to two years old.

'The used market is a crucial source of profitability for the automotive sector, so the strength and consistency of the industry is crucial to the success of the government's net zero ambitions,' he said.

'To ensure this, the government needs to consider more support for the used EV sector to put the brakes on the rapid pace of depreciation.'

British Vehicle Rental and Leasing Association (BVRLA) chief executive Toby Poston also warned that further stimulating new EV registrations without supporting the used market 'risks creating an even greater supply-and-demand imbalance, putting even more pressure on fast deflating second-hand values'.

His concerns follow major warning flags raised about plunging second-hand EV values creating a 'car leasing crisis', which has businesses in the sector on the verge of collapse having already lost 'hundreds of millions of pounds' when customer contracts end and companies are left with low-value EVs to move on.

Poston told This is Money that the grants 'overlook potentially serious repercussions for the used market'.

He went on: 'Rampant depreciation already has red warning lights flashing.

'The resulting losses from the ECG will erode confidence and result in higher finance costs for new EVs, eliminating much of the benefit from the original grant.'

Industry analysts have blamed huge depreciation of electric cars on the fact that manufacturers have in recent months been dramatically discounting showroom prices

Ginny Buckley, a TV presenter and massive EV ambassador in her role as chief executive at website Electrifying.com, said the grants will cause a sudden drop in EV prices that will ultimately ripple into the used market.

'Depreciation [in the second-hand market] has already played havoc with consumer confidence,' she explained to us.

'In our November 2024 survey of over 11,000 UK drivers, nearly four in ten said concerns about the resale value of EVs were holding them back from making the switch to electric.

'While the return of the government grant is a welcome kickstart for the new car market, I'd have liked to see a more balanced approach that also supports used buyers.

'A subsidised used car loan, similar to the scheme already available in Scotland, could help more people go electric and build long-term trust in the market.'

James Buxton, chief commercial officer at used EV platform car360, says the grants will be an unnecessary drain on taxpayer funds.

Speaking to This is Money, he said: 'In reality, manufacturers are going to reduce their incentives and discounts, replacing it instead with government subsidies: a winner for the automotive lobby.

'This means very little in way of meaningful reductions in transactional prices for consumers, and a huge waste of public money.

'Used EV's represent fantastic value for money, and I don't see them depreciating much further than their current levels.

'However, the uncertainty and confusion the ECG announcement has caused will almost certainly lead to another period of volatility, just when we when we were seeing some real traction in the used car market.'

Stuart Masson, editorial direction at consumer-facing website The Car Expert, also questioned whether the subsidy will genuinely lower prices.

'History suggests otherwise,' he told us.

'As seen with past EV grants, solar panel incentives and even stamp duty cuts, manufacturers and dealers often adjust prices upwards when grants are available – reducing or even eliminating the benefit for consumers.

'This, therefore, risks becoming just another subsidy absorbed into the industry's bottom line.'

The Electric Car Grant (ECG) is the Government's new big hope to drive sales of EVs in the run-up to the end of the decade as it continues to steer towards outlawing the availability of new petrol and diesel cars from 2030.

It arrives three years after the previous Tory administration prematurely scrapped its Plug-in Car Grant (PiCG).

Transport Secretary Heidi Alexander confirmed the ECG's availability on Monday night, saying: 'The EV grant will not only allow people to keep more of their hard-earned money - it'll help our automotive sector seize one of the biggest opportunities of the 21st century.'

Only cars up to £37,000 qualify for the grant, which rules out premium models, including every Tesla on sale. No Audi, BMW or Mercedes EV will be eligible either.

Some 50 existing models are technically eligible for the grants solely based on their starting price. We've listed these below.

Manufacturers must apply to be eligible for the scheme with their sub-£37,000 cars on a 'first come, first served' basis.

This means that motorists will not need to fill in any additional paperwork to receive the grant, with all administration handled by the car maker, dealership, and the Government.

But because manufacturers must apply for the scheme, it may take weeks for discounted EVs to begin appearing in showrooms, experts say.

Manufacturers will need to apply for eligibility to the Electric Car Grant for its EV models priced below the £37,000 threshold. The Renault 5 EV (pictured) is one model that's likely to qualify

Nissan's all-new Leaf EV (pictured) is also likely to qualify for the ECG, which will be welcome news to the Sunderland factory where it is being produced

The new scheme uses a two-tier system based on 'sustainability criteria' to determine the size of the subsidy provided.

Only the greenest models - considered 'band one' - receiving the full £3,750 amount. Band two cars with a lower eco rating will be eligible for a reduced amount as low as £1,500.

Bands are determined by each maker's Science-Based Target (SBT) - an industry-wide scheme, with manufacturers needing to meet carbon scores below a specific criterion to achieve the highest green standard. Volkswagen and Renault Group have both confirmed they are signed up with the SBT scheme.

Transport Secretary Heidi Alexander said the grant will allow people to 'keep more of their hard-earned money' when buying EVs

ECG bands - which could later expand beyond two tiers - will be determined by how much CO2 is emitted in an EV's production, assessing the energy used during assembly as well as battery manufacturing.

An overall SBT score is weighted 70 per cent for the CO2 produced during battery manufacturing and 30 per cent for vehicle assembly emissions.

Threshold levels to achieve the full £3,750 discount or the lower banded £1,500 have yet to be made public. However, vehicles that don't meet a minimum level will not receive a grant at all.

This could be bad news for Chinese EV makers, which currently offer some of the most competitive prices but could fall foul of the emissions-based rules.

Speaking on the BBC's Today programme on Wednesday (16 July), Transport Minister Lilian Greenwood said she did not expect any cars that are produced in China to be eligible.

'The grant is restricted to those manufacturers that reach minimum environmental standards,' she said.

'And, frankly, if you generate a lot of the electricity that powers your factory through coal power stations, then you are not going to be able to access this grant.'

According to The Telegraph, the Chinese embassy has hit hack and the scheme's stringent requirements.

It has called on the UK to follow World Trade Organisation (WTO) rules and create a 'non-discriminatory environment for investment'.

WTO rules stipulate that members must not give favourable treatment to one country over another when it comes to trading goods and services.

An embassy spokesperson added: 'The Chinese side is closely following the situation and will resolutely safeguard the legitimate rights and interests of Chinese companies.'

China's - and the world's - biggest EV maker, BYD, has informed the DfT of its intention to apply for eligibility for the Electric Car Grant and said it looks forward to being 'part of it'.