This is Kamala Shelling and you're listening to Switched on, the podcast brought to you by Bloomberg and EF.

Today we're bringing you something different, a bite sized podcast about a recent event that we think illustrates a broader trend in the energy transition this year.

It's based on an analyst reaction, a type of note that BNF publishes on our website and on the terminal in the hours after an event takes place.

So what are we talking about on this episode The UK's latest budget, which had a lot to say about electric vehicles.

Today, I'm joined in the studio by BNF's Madeline Braley and Shanantan Kalachlvan to talk about what the budget says, how it could change the economics of EV ownership, and what all this means for the UK's broader transition to electric mobility.

Shanantan is from BNF's EV team.

Madeline focuses on EV charging and together we discussed their analyst reaction, UK makes evs cheaper to buy but more expensive to run.

BNF clients can find this and other analyst reactions by heading to BNF go on the Bloomberg Terminal or at BNF.

If you'd like to learn more about how BNF approaches strategy research on the energy transition, including developments in commodity markets, trends across different sectors, and the cross cutting technologies shaping the future.

You can find more information on BNF dot com and if you'd like to speak with a member of our team about becoming a client, email US at Sales dot bn EF at Bloomberg dot net.

So let's dive in and see what this all means for the future of UK evs.

Maddie, welcome to switched On, Thanks for having me, and Shan, it's so nice to have you here.

Thank you for having me.

So we're here today to talk about an announcement in the recent UK budget update that really impacts electric vehicles.

So Shan as our representative from the EV team.

What happened as.

Part of this autumn budget in November.

There were two main aspects with regards to electric vehicles, the first being the trippling of the UK subsidy for the purchase grants of the electric vehicles, and the second is the pay per Mile scheme, which is a new scheme that electric vehicle drivers would have to pay on annual basis to basically recoup some of that fuel tax revenue that the government anticipates to lose in the coming years.

So an upfront subsidy makes sense to me.

But how does a pay per mile scheme work?

So the desels haven't been reported just yet, but as of now, so far we know that drivers would be reporting their annual mileage in a system and be charged their paper mask scheme on back of that.

So they actually have to report their mileage to the government.

Yes, I mean the structure already exists through the mot facilities where after three years each driver would have to go and test their vehicles to say whether their roads safety anyway.

And as part of this an additional aspect would be going forward, EV drivers would have to report their mileage as well.

So why did the UK feel the need to impose this new fee on electric vehicles?

I think the UK has looked at the way EV adoption has been going over the past few years and how they've forecast the adoption to go over the next five to ten years, and as part of their ZEB mandate, the zeromission Electric Vehicle mandate, they anticipate eighty percent of vehicles to be battery electric vehicles in twenty thirty new vehicle salesize.

So what are we at now right now?

Last year we were at twenty percent battery electric vehicles.

So far this year we've reached twenty three percent.

That is high adoption, and eventually that will obviously turn over into the fleet of vehicles.

And so the fuel duty revenue that they would have achieved through internal commotion injury vehicles is just not going to be there in the coming years, and so this is an inevitable part of EV adoption as they tried to recoup that.

And the reason the UKs look to do this so soon is because such a large portion of the price at the pump is that fuel duty revenue, and so this is them looking to essentially recoup that back.

But you mentioned that the new budget also has a large part of money, I believe one point nine billion pounds for upfront purchase subsidies for evs.

So how quickly will this new fee off set that additional money they're spending.

So that one point nine billion is essentially in a subsidy for purchase grants over until twenty thirty and within the first year you would see one point five billion roughly of revenue from this paper masking according to our calculations, and so as this carries on very quickly, you will see that initial pop be recouped back in terms of tax revenue.

And Madeline, as our representative from our EV charging team, what does this mean for the cost of charging an EV in the UK?

So I think it's worth noting that this paper mile scheme is structured slightly differently to how we think about conventional fuel tax that's applied to petrol, that's applied within the price that you pay at the pump, and so this is slightly different in that it's a separate tax that's going to be applied based on how far you've driven in the year.

What it means for the cost of B B charging really depends on where you charge.

The UK already sees a really widespread in charging prices, ranging from very cheap off peaks, smart charging tariffs that people can benefit from if they have access to a home charger.

They already make driving an EV considerably cheaper than a petrol car, and but that ranges right through to them public charging, which is particularly expensive in the UK.

We actually did some analysis in June looking at the cost to public charging across Europe, the US and China.

And when we think about fast chargers, which are those highway chargers that delive you that twenty to thirty minute charge, the UK comes out on top when it comes to price.

So price sensitivity really differs amongst EV drivers depending on whether they do or do not have access to a home charger.

So what kind of prices are we talking about on a perkilabateter basis.

When we're thinking about these smart off peak tariffs, they equate to just about two pence per mile for someone with a home charger.

If we're thinking about someone just charging on a regular home electricity tariff so they haven't gone out of their way to take out a special EV price, that's about nine pence per mile.

If we compare that to petrol, petrol's about twelve point five pence per mile at the moment, and then public charging is much more costly, so that fast public charging is about twenty three pence per mile in the UK at the moment.

That is a massive difference.

Why is it so much more expensive for the public charging.

There's a number of factors at play, and this is particularly important for those fast public charging networks.

So these are the networks that drivers really want to see and have confidence in before they make the switch to electric to make sure they can charge on the go when they're doing those one off long journeys.

So thinking about highway chargers, there's been a change in how grid fees are structured in the UK, and so public charging networks are actually facing extremely high grid fees, much higher than what they were paying two years ago.

But because we haven't seen enough utilization growth in the UK, because the UK fleet is still relatively small, and actually the majority of those drivers are doing the majority of their charging at home, operators are having to push those increases in grid fees onto drivers.

So that's one of the major factors that's resulted in the increase in public charging costs in the UK.

There's also a disparity when we think about the VAT applied to home electricity versus public charging.

VAT is applied twenty percent on public charges compared to just five percent for those charging at home.

So I think when most of us think of evs, we're thinking about individuals that own electric vehicles, but there are a lot of people that have been pushed toward buying evs.

There are taxi operators, there are corporate fleets.

How is this going to affect those particular populations.

I think that's an interesting question because because of the way this is applied, it's slightly different to how the fuel duty is applied with regards to normal ice vehicles internal combustion engine vehicles.

You would pay the duty at the pump, as Madia is mentioned.

However, now it's reported on an annual basis and it then gets levied onto maybe the keeper, maybe the owner.

The details are somewhat unclear and the reason why I bring this up right now is for the UK is eighty percent of evs are owned by companies, are registered in a company name, and so in that market, who does the tax get levied onto is a relatively interesting question because the keeper might not necessarily be the final driver, and so that is an aspect they have to consider.

Another impact is for high mileage drivers.

So I'm thinking about shared mobility drivers such as taxi drivers, and they drive on average three to four times the mileage annual mileage of a usual personal driver, and they obviously will be levied on a higher tax rate as well.

It's probably worth noting that drivers relyant on that public charning network are going to fill this much more than drivers that are charging at home.

So we don't know what home or public charging costs will look like in twenty twenty eight when this is supposed to come into force.

But if it came into force today, even if you add that additional three pence per mile to your average home charging cost, you're still netting a saving over a petrol If you're into that realm of public charging where you're already maybe paying an eighty percent premium, adding that additional three pence per mile pushes you further into that negative zone where you're paying a real premium for going electroc.

So, Madeline, I live here in London in a flat in the middle of the city.

I don't have a garage that I could put an EV in, so if I were to buy an EV, I would have to use public charging.

How is this new rule going to affect drivers like me?

The government acknowledged this kind of challenge around the cost of public charging.

They've said they're going to open a consultation into maybe what can be done to tackle the cost of public charging, And there's certainly various factors that operators have been levying for.

Another thing that they're tackling is trying to increase the number of people that can access these home tariffs.

So maybe you don't have off street parking yourself, but you have the ability to park outside your home.

The allocated funding for things like digging trenches in pavements that allow you to run a cable from your home to your vehicle, So they're really trying to widen the pool of vehicles drivers in the UK that can charge at home.

Of course, that's not going to be possible for everyone.

If you're living in somewhere like a flat, you're still going to be reliant on the public charging network.

They've also announced additional funding for workplace in slow public charging, So the government is trying to tackle this on a number of fronts with the budget.

So even though on the one hand they are imposing a new tax on EV drivers, that looks like they really are trying to keep the wind in EV adoption sales.

And that brings me to my final question, which is over the course of the last year, we've seen a lot of rollbacks for EV incentives.

The US has rolled back its EV tax credits this year.

Literally on my way to work this morning, it was announced that the EU is going to be rewriting at zero emission vehicle mandate.

So where does this new rule from the UK fit into that broader trend.

I would say that it might seem negative in terms of the PAPERMAK scheme adding costs to the EV driver, but it's obviously founded by the subsidies that is going to boost the EV adoption in the UK in the coming years, but more so the fact that we're slowly transitioning from boosting initial EV adoption to living with electric vehicles as a part of society.

And I think this tax is going to be on the spotlight from a lot of countries as they look to build EV's more as a sustainable part of the society.

And so I do think this is a good part of EV adoption in the next steps as we transition to long term EV use as a personal word of transport.

So other markets that are worried about lots of fuel revenues or lots of tax revenues from fuel could be looking into the UK as an example.

I think it's a vote of confidence really in the UK's EV transition it's an acknowledgment from the government that the fuel duty lass is real and they need to find a way to epsidize it.

I think the UK being a first mover on this maybe is a challenge for public perception and we still don't have all the details of how this is going to be applied, which will be really important for its success.

Well, Madeline and Shan, thank you so much for coming on to talk to us today.

Thank you for having me, Thanks.

For having me.

Today's episode of Switched On was produced by Cam Gray with production assistance from Kamala Shelling.

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