The UK’s automotive industry is warning that it cannot continue to offer significant discounts on electric vehicle purchases to meet regulatory demands for zero-tailpipe-emission cars. The Society of Motor Manufacturers and Traders (SMMT) reports that the industry is “hemorrhaging billions” of British pounds in discounts, which is not sustainable.
New-vehicle registrations in the UK rose by 11.7% in July, with 156,571 units sold, compared to 140,154 in the same month in 2025. The increase was driven by a 44.5% hike in electric vehicle (EV) registrations, which rebounded from a subdued July 2025.
The growth in EV registrations was driven by model choice, thanks to tariff-free imports from China, heavy automaker discounting, and government incentives. However, Mike Hawes, chief executive of the SMMT, warned that the discounts are not sustainable and are distorting demand to avoid even steeper penalties.
“July’s record EV performance is a great achievement, reflecting industry’s huge investment in zero-emission mobility,” Hawes said in a statement. “But that progress cannot be sustained if manufacturers continue hemorrhaging billions in EV discounts, distorting demand to avoid even steeper penalties.”
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The SMMT’s latest industry outlook expects 2.18 million new-car registrations for the full-year 2026, with battery electric vehicles (BEVs) accounting for 27.4% of all sales. This is still significantly short of the 33% target mandated by current government regulations.
Vehicle demand grew across all sectors, with private buyer uptake rising 12.6%, fleet deliveries up 9.5%, and the lower-volume business segment up 61.3%. Growth was aided by electrified vehicle uptake, with plug-in hybrids up 33.6% and hybrids up 11.6%.
In the middle term, the SMMT expects EV share to rise to 32.1% in 2027, against a mandated target of 38%. While mandate flexibilities are helping bridge some of the gap between natural demand and ambition, they do not come without cost, and their value will diminish as targets accelerate.
The shortfall continues to be addressed by significant discounting, marketing, and other fiscal support from industry and government — costs which are causing manufacturers to pause or even divert investment, weakening residual values, damaging profitability, and costing jobs.
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Ian Smith, automotive partner at EY, said that the UK’s auto industry still has challenges to face over competitiveness, despite the positive July data. “Despite these green shoots, original equipment manufacturers continue to face a challenging trading environment, with regulatory targets and stiff competition from Chinese OEMs,” Smith said.
As EV adoption continues to grow, sustainable demand will increasingly depend on the broader ownership ecosystem, rather than the vehicle alone, including charging solutions, financing, connectivity, and lifecycle support. The further increase in retail sales seen in July is welcome news, but the challenges still facing the sector should not be underestimated, especially with economic growth prospects remaining subdued.
“A sustainable transition will not happen merely by compelling supply when underlying demand is not keeping pace despite year-on-year growth,” said Hawes. “We need urgent reform of the regulation, else Britain risks undermining its competitiveness and the jobs and livelihoods that depend on this industry.”
It is a complex issue.
