The Start of an EV Price War?

With the much-anticipated ZEV Mandate being enshrined in UK law for 2024 we are on the cusp of some interesting times in the new car market. As a quick reminder OEMs now have to comply with targets for the proportion of their sales that are zero emission vehicles. There are some nuances and mitigations but basically if a manufacturer doesn’t sell 22% of their volume as EVs then they can be liable for a fine of £15,000 per unit.

The Vehicle Emissions Trading Scheme (VETS) runs alongside the compliance requirement of the ZEV mandate and allows the trading of EV credits between manufacturers. These credits can in turn be used to avoid fines if they fall short of their 22% target. In practice this allows Tesla to sell credits to Ford presumably for up to £14,999. Tesla sold c48,000 units in the UK last year. If they repeated this in 2024, they would earn 48,000 * 78% ZEV credits. That’s 37,440 credits or a potential revenue of £500m.

Early indications are that credits are being sold for significantly less than the £14,999 but there still exists a significant opportunity for EV only OEMs to gain a commercial advantage. How they use this advantage will be interesting and could potentially have a significant impact on EV pricing.

Which brings me back to the UK market. In 2023 c16% of the new passenger car market was EV – quite a bit short of the 22% aspiration. Retail (private buyer) demand was flat, and any growth came from the tax incentivised fleet and business sector. Demand is slow and needs stimulating, and the obvious tactic is to reduce pricing to more affordable levels.

This brings me to observe the tactics of GWM Ora. GWM is a relatively new entrant to the UK market. They first appeared in 2022 but in truth did little to drive volumes leaving most of the dealers they appointed disillusioned. The car (Funky Cat) was not marketed, pricing was ahead of the expected level and not advantageous over the competition from the likes of Stellantis (Corsa E, E-208). At c£31k the car was simply not attractive enough to build any sales momentum and no-one outside the industry knew who GWM Ora were.

Fast forward to 2024 and the car has been renamed the Ora 03 and pricing – at least in the fleet and leasing sector is incredibly aggressive.

The list price of the car is still c£32k but this is now translating into a lease monthly payment significantly below £200. When you include the advance rental customers can have a 2-year lease cost of c£5200. (8000 miles, 24 months) source Leaseloco.com

The price on Autotrader, of a 1-year-old Ora Funky Cat is around £20,000 so a two-year-old estimate might be closer to £15,000. Thats a depreciation of £17,000 from the RRP or a two-year residual value drop of 53%. Today’s leasing offers effectively forecast this depreciation at c£5,200 or £12,000 less than the market is indicating. So, what on earth is going on?

1. This could be a destocking exercise where International Motors (the importer of GWM products) have been charged to move on excess unsold, previous model year stock at any cost. RHD vehicles have a limited market and certainly don’t warrant shipping to other RHD markets where EV demand is equally weak.
2. It could be a demand stimulus to build some share, create awareness and get some cars on the road at the expense of profitability

So, either GWM is prepared to lose a fortune on these units or perhaps they are mortgaging the potential of the ZEV credits it can generate in 2024 by selling to other OEMS. If this is the case, then it potentially signposts the way too much more competitive pricing for consumers who are EV curious.

GWM’s actions look like “fire sale” tactics but they could be an indication of things to come if demand for EVs remains behind supply and EV only manufacturers manage to sell excess credits. From an OEM perspective it’s probably best to buy credits now vs wait until you see how things go through the year as waiting only strengthens the position of the likes of MG, Tesla, Polestar who will generate substantial credits.

The knock-on impact of such discounting can be catastrophic for the future value of your brand particularly if you have bought a car outright or on HP. ORA is not underwriting those RVs to the extent of these lease offers and in two years' time when those cars are remarketed it will have an impact on any owners who don’t have the option to hand back. That's a problem potentially for the GWM Ora dealer network who simply don’t look competitive on PCP pricing which requires more in deposit vs the total cost of the lease example.

We can expect more commercial actions like this throughout 2024 as the EV battleground develops. Ultimately it should mean more customers can move to an EV which has to be a good thing but hopefully OEMs and dealers will consider what happens to those customers in two- or three-years' time when the time comes to change.