The EV market | Automotive market report

Electric vehicles (EVs) have had an excellent quarter on paper; adoption is up across Europe and the UK; however, this growth is driven by sheer volumes as opposed to a share of the market, with oversupply continuing to increase pressure on residual value performance and stock mix.

The UK had one of its best quarters on record for electric vehicle adoption. This year to-date, EVs accounted for 22.4% of new car sales, up from 20.7% in 2025, while the share of PHEV vehicles increased by 46.5%, up to 12.8% of the market. March alone was the best month on record, up 24.2% year-on-year. At the time of reporting, full-quarter statistics have yet to be reported by the ACEA, but results between January and February showed an increase in electric vehicle sales, which accounted for 18.8% of the market, compared to 15.2% across the same period in 2025.

Driven by renewed EV subsidies and an expanding mix of affordable Chinese EVs entering the market, the numbers look good. The lion’s share of consumer interest continues to be drawn by lower-risk electrification via PHEVs and HEVs, rather than full electric.

However, as always, the reality beneath the statistics is much more complex. With pressure increasing as a result of the Iran War, on top of already higher-than-average material costs (the SMMT reported that battery costs were more than 30% higher than expected and industrial energy prices around 80% above 2021 levels), prices are set to increase. Meanwhile, manufacturers and retailers are also increasing discounts and short-cycle tactics to push volumes. Combined, these dynamics, in addition to enduring caution from consumers, may disproportionally weaken residual values.

Regulatory landscape

The European Union’s revised plans surrounding the 2035 internal-combustion ban, reducing the ban to a 90% electric sales target has shifted the regulatory conversation significantly. Analysis from Transport and Environment calculates that up to 25% fewer EVs would be sold in 2035 than under the current target, due to the credit scheme offered on green steel and small electric vehicles, in addition to the use of alternative fuels.

Despite softening regulatory guidelines, European countries have introduced new incentives to support EV uptake. Germany and France have both introduced programmes in 2026 to target increasing adoption in lower-income households, with France offering an additional premium for vehicles manufactured in Europe. Italy’s existing programme is set to run until the mid-year point, offering support for those scrapping an old Euro 5 vehicle.

With regulatory shifts in Europe, pressure on the UK government to complete a similar review of the Zero Emission Vehicle (ZEV) mandate is mounting, with rumours circulating that a review is already underway between manufacturers and civil servants. It is expected that the government will revise the mandate, either allowing hybrids to factor into targets or possibly even retaining some level of petrol or diesel sales post 2035.

Short-term considerations

While EV incentives are driving action, with adoption rates growing across Europe and the UK, the demand is volatile. We continue to see short-cycle and tactical pricing moves to bring sales closer to regulatory quotas. Meanwhile, those manufacturers who continue to focus their efforts on expanding their EV lines will divert more and more manufacturing capacity away from petrol. In the short term, this could create an imbalance in the UK’s stock mix.

Long-term implications

The increasing availability of lower cost EVs, particularly from Chinese manufacturers, will intensify competition across mass-market segments. While this will support wider adoption, it is likely to further compress margins and place additional pressure on residual values, increasing the need for disciplined volume and pricing strategies.

Regulatory developments may extend the life of internal combustion and hybrid powertrains, but at the expense of greater compliance complexity. A more fragmented policy environment will challenge manufacturers and retailers to remain agile in product planning and market execution.

As the EV market matures, clearer segmentation by use case, customer type, and price point will emerge. Competitive advantage will depend less on incentives and more on pricing discipline, improved consumer education, and differentiated, charging led propositions that address total cost of ownership and real-world usability.

What should the industry be keeping a close eye on this year?

“The biggest question we’re looking to answer this year is whether the EV market can become self-sustaining without heavy incentive support or whether the market will settle into a prolonged transitional phase, dominated by hybrids and PHEVs.”