Despite new car registrations seeing 6.6% growth in the UK in March, policy pressures linked to the government’s Zero-Emission Vehicle (ZEV) mandate are constraining both private and commercial vehicle markets, Shore Capital has said.
As the investment group noted, the increase in March compares to a 12% increase in new car registrations in the same month the previous year. Electric vehicles were behind much of the recent growth – battery electric vehicles (BEVs) reported 24% growth, plug-in hybrid electric vehicles (PHEVs) rose 47%, and hybrid electric vehicles (HEVs) gained 7%.
Short of targets
However, despite the strong performance of BEVs, the overall electric vehicle market represents just 22.6% of the market, well below the 2026 target of 33%, “showing just how unattainable the current target levels are,” commented analysts David Hughes and Darren Shirley.
March saw a 3.4% decline in large commercial vehicle registrations – the lowest March performance since 2023 – reflecting both lower business confidence and a ‘drag’ from the commercial ZEV mandate, which has set a target of 24% of vehicles in 2026, up from 16% in 2025.
Elsewhere, private vehicle sales rose by 10%, outperforming fleet sales (3.5%), with a shift towards higher-margin private vehicles supporting retailer margins and profitability.
“This margin question is particularly pertinent of late as, in the near term, ZEV compliance pressure is likely to keep OEMs leaning on incentives and discounting to stimulate BEV volumes, and so put negative pressure on retailer margins,” the analysts said.
Market composition
The composition of the UK vehicle market is also shifting, Shore Capital noted, with Chinese brands, such as BYD and Chery’s Omoda/Jaecoo gaining share rapidly, with these fast-growing brands potentially creating new value for dealers.
Looking at the broader macroeconomic environment, the analysts noted that the main risk they see is that “higher fuel and energy prices could further erode consumer confidence and raise the cost of living, potentially softening discretionary big-ticket purchases. That said, to the extent higher petrol/diesel prices change the ownership cost equation, they may also provide a modest tailwind to EV mix (and potentially PHEV mix) at the margin, particularly where monthly running-cost savings are more visible to consumers.
“With a high level of uncertainty surrounding how long the Iran conflict will persist and what the ongoing impact will be on energy prices is it as yet unclear how the market will shake out. For now our caution on bigger-ticket purchases is increased.”
The UK government’s Zero-Emission Vehicle (ZEV) mandate requires automakers to sell an increasing percentage of EVs annually, targeting 100% new zero-emission sales by 2035 in the UK. Read more here.
