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The government is reportedly preparing to revise its controversial “Tesla Tax” on new electric vehicles (EVs) in an effort to stimulate lagging sales. Details emerged from a leaked letter penned by a Labour minister, obtained by MailOnline and This is Money.
Revising the Expensive Car Supplement
Roads Minister Lilian Greenwood indicates in the letter that the current £40,000 price threshold—above which buyers face increased taxation—is poised to be adjusted in the upcoming Budget. The goal is to streamline the purchasing process for electric cars.
Background on the ‘Tesla Tax’
The contentious “Expensive Car Supplement” (ECS) has been applied to new petrol and diesel vehicles exceeding £40,000 since 2017.
- As part of a broader tax initiative impacting motorists, this ECS was extended to new EVs sold after April 1, aiming for a ‘fairer’ tax structure.
- Critics argue that this measure has hindered sales, potentially jeopardizing manufacturers’ ability to meet mandatory green car sales targets and avoid substantial penalties.
Industry figures have heavily criticized the ECS and the government’s EV strategies, with some labeling them as unrealistic and disorganized.
The ECS is levied on top of the standard Vehicle Excise Duty (VED) beginning in the second year of a car’s registration. Any vehicle with a retail price above £40,000 is subject to this charge.
The £40,000 threshold has remained unchanged for eight years, despite considerable inflation in new vehicle costs. Auto Express estimates indicate that, without changes, nearly 70% of new electric cars sold in Britain in 2025 would be affected by this tax.
The ECS is applied for five years, adding £425 annually to the standard VED rate of £195, resulting in a total yearly payment of £620, or £3,100 over the five-year period.
With EVs now also subject to the £195 standard rate as of April 1, the financial burden of owning these environmentally-friendly vehicles is set to increase significantly.
However, Lilian Greenwood suggests that this threshold could be raised specifically for electric cars in the near future.
Responding to concerns raised by Ben Maguire, Lib Dem MP for North Cornwall, Greenwood stated: ‘As announced at Autumn Budget 2024, the Government recognises the disproportionate impact of the current VED Expensive Car Supplement threshold for those purchasing zero emission cars from 1 April 2025.’
‘We will consider raising the threshold for zero emission cars only at a future fiscal event to make it easier to buy electric cars.’
Leading automotive retailers see the suggested modifications as a positive step towards bolstering consumer confidence in EV purchases. However, they advocate for more substantial measures to galvanize the somewhat slow-moving electric car market.
Current government policies, some argue, could lead to a ‘rationing’ of petrol car availability to artificially inflate EV registration numbers, aligning with the government’s current ‘unrealistic’ sales objectives.
Robert Forrester, CEO of Vertu, a major UK car dealer group, acknowledged that the proposed changes are ‘a start’ but don’t fully address the underlying issues.
He affirms that while the transition to electric vehicles is crucial, the mandated targets and associated penalties risk undermining the entire initiative.
Forrester points out that ‘Retail customers were failing to buy EVs in the numbers needed to make a difference,’ attributing this to a confluence of factors, including:
- Cost
- Limited incentives
- A deficient public charging infrastructure
He further notes the financial disincentives faced by urban residents reliant on public charging facilities.
Concerns over Electric Vehicle Sales Targets
Forrester contends that the government must revise its Zero Emission Vehicle (ZEV) mandate, which dictates increasingly stringent benchmarks for the proportion of electric cars sold each year.
The ZEV mandate required that 22% of new car sales in the previous year consist of EVs, a target reportedly met by most major manufacturers.
However, this mandate escalates to 28% this year, 33% in 2026, eventually reaching 80% in 2030, and 100% by 2035.
Mr. Forrester describes the mandate, even with recent amendments, as ‘an absolute fiasco.’
He predicts, ‘The targets will never be met. There’s no chance of hitting 28 per cent this year… These targets are never going to be hit.’
According to Forrester, only 10% of cars sold to retail customers are EVs, compared to 30% for company fleets.
He warns that the present strategy could damage both the government’s environmental goals and the UK car market.
Following a review, the Government recently softened some aspects of its electric car policy.
While the 2030 ban on pure petrol and diesel cars remains, self-charging hybrid and plug-in hybrid vehicles will be permitted until 2035.
Additionally, manufacturers have been granted some ‘flexibility’ regarding the controversial ZEV Mandate objectives, with penalties for non-compliance reduced from £15,000 to £12,000.
Vertu succinctly concludes that ‘The appetite for electric cars is not yet sufficient to deliver the government’s targets.’
In the preceding year, of the 1.9 million new cars delivered, 382,000 were electric.
To achieve this year’s targets while maintaining a consistent total volume of registrations, a minimum of 532,000 EVs must be sold.
‘If last year’s mix was repeated this year, the shortfall of 150,000 EVs would result in fines of £1.8billion,’ highlighted the Vertu CEO.
The Society of Manufacturers and Traders (SMMT) has disclosed that the practice of car companies selling EVs at a loss, merely to avoid fines, has cost the industry over £4.2 billion.
In the leaked correspondence, Greenwood asserts: ‘We are confident that our decisions [to retain the ZEV mandate] will protect jobs and give certainty for future investment… There is no reduction in the government’s ambition to decarbonise cars and vans.’
EV Owners Beat Car Tax Rule Changes
New figures from the DVLA indicate that EV owners in the UK collectively circumvented an estimated £37.7 million in potential Vehicle Excise Duty (VED) payments by renewing their tax before the new regulations took effect on April 1, 2025.
By renewing their car tax before the end of March, existing electric car owners were able to postpone the £195 standard VED rate for an additional year.
Data confirms that thousands of EV owners took advantage of this opportunity.
In response to a Freedom of Information request submitted by Cinch, an online car sales platform, the DVLA reported that 244,598 electric cars across the UK had their tax renewed in March.
This represents a 1,467% increase compared to the 15,614 renewals recorded in the same month the previous year.
Sam Sheehan, motoring editor at Cinch, remarked: ‘Such a big increase in renewals shows just how many EV drivers might have got themselves another year of tax-free motoring, and who wouldn’t want to save £195 if they had the chance?’