The UK auto’s industry’s trade body, the Society of Motor Manufacturers and Traders (SMMT), is calling for an immediate review of the UK Government’s ZEV Mandate. It says the review is required to align regulation with market reality.
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The SMMT has also warned that urgent action is needed for a sector under pressure from mounting costs, global protectionism and rising risk of disinvestment.
Speaking at the SMMT International Automotive Summit in London, Chief Executive Mike Hawes said urgent decisions are needed to make the transition to zero emission vehicles achievable, keep EU-UK trade open and make the UK more competitive as a place to invest, build, sell, export and grow.
SMMT’s latest State of the Automotive Nation report sets out a ‘blueprint’ for the next Prime Minister (Andy Burnham, who will take over from Kier Starmer within the next few weeks). It argues that one of the UK’s most strategically important high-value sectors can return to growth, but only if government moves quickly to remove the barriers holding it back.
The report welcomes recent progress, including £4 billion of DRIVE35 funding; action on industrial electricity costs through the British Industrial Competitiveness Scheme (BICS); trade deals with the US, India and the GCC; EV grants; and regulation to support self-driving vehicles. But it warns that these gains will be undermined unless three major issues are addressed:
- reform of the ZEV Mandate;
- securing fair UK-EU trade:
- cutting the underlying energy and business costs that shape investment decisions.
The most immediate concern, according to the SMMT, is the ZEV Mandate. Manufacturers are committed to net zero and have invested billions of pounds in new zero emission technology and models, but the regulation is running ahead of natural market demand. This, the SMMT maintains, is forcing companies to subsidise the market at unsustainable levels, undermining residual values and weakening the UK as both a market and a manufacturing base.
The pressure will increase sharply from January 2027, when annual targets rise to 38% BEV (battery electric vehicle) sales for cars and 34% for vans, before climbing again to 52% and 46% respectively in 2028. Current market shares are 23.9% for cars and 9.5% for vans. SMMT estimates that carmakers alone have already spent more than £12 billion on discounts to stimulate demand – money that could otherwise have supported new models, jobs and investment.
The UK’s ZEV Mandate was first set out under Boris Johnson in 2020 and took effect in 2024, when manufacturers had to ensure that at least 22% of car sales were electric.
That figure rose to 28% last year (BEV car market share was 23.4% in 2025) and had been due to reach 33% in 2026. The requirement was designed to climb year-by-year until hitting 80% in 2030, the same year that sales of new petrol and diesel cars were scheduled to end.
A review of the ZEV Mandate is reported to be coming this year.
‘Made in Europe’ proposals and trade worries
A second threat is approaching fast, as the UK risks being effectively shut out of its biggest market – the EU. ‘Made in Europe’ proposals put forward by the European Commission would effectively make UK automotive products uncompetitive in the majority of the European market unless the EU accedes to UK calls for our products to be recognised as “assembled in the EU” for these purposes. Four in five (83.3%) UK automotive business leaders say their UK operations would be hit if the proposals go ahead unchanged, and both the UK and EU stand to lose out given the interconnected nature of the sector, with the UK the EU’s biggest automotive export market and vice versa.
In addition, from January 2027, tougher rules of origin under the EU-UK Trade and Cooperation Agreement will trigger a 10% tariff on some 70% of battery electric and plug-in hybrid models traded across the English Channel. Without a joint solution, the SMMT estimates the sector faces a tariff bill of around £1.4 billion in 2027 alone, putting some £16.4 billion of UK-EU battery electric and plug-in hybrid vehicle trade at risk by making many of these crucial models less competitive and less affordable.7
According to an SMM survey, more than nine in 10 businesses (93.5%) say employment costs have worsened over the past year, while 84.8% report higher input costs. While BICS will help, seven in ten automotive bosses say cutting energy costs would have the most positive impact on their business. UK energy costs are still the highest in Europe and, even with BICS, would remain some 60% above the EU average. SMMT is, therefore, calling for further action to make the UK a more competitive place to manufacture.
Mike Hawes, SMMT Chief Executive, said: “UK Automotive can drive growth, innovation and net zero, but only if the right decisions are taken now. The Industrial Strategy sets out a plan, but delivery is now what matters. We need open trade with Europe, competitive conditions at home, and a realistic route to grow zero emission vehicle uptake. Reforming the ZEV Mandate is not about weakening ambition; it is about making the transition achievable, protecting investment and ensuring the UK remains a place where automotive businesses can build, sell, export and grow. The window for action is closing, which means we cannot wait for lengthy discussions.”
Getting industrial strategy, trade policy and the EV transition right would support government’s ambition for a UK sector building 1.3 million vehicles a year. It would also help maintain and grow Britain’s automotive trade, already worth more than £110 billion in imports and exports annually – while creating a domestic market of 2.2 million vehicles in which zero emission models are the natural choice for most drivers.
