ZEV Mandate Analysis: Automakers Losing More Money on Combustion Vehicles

A recent analysis by Transport & Environment (T&E) finds that under the UK’s Zero Emission Vehicle (ZEV) mandate, car manufacturers are incurring significantly higher financial losses on internal combustion engine (ICE) vehicles compared to electric vehicles. The mandate requires an increasing percentage of new car sales to be zero-emission, and companies that fail to meet targets face penalties. T&E’s research indicates that the cost of compliance, such as buying credits or paying fines, adds to the already shrinking profitability of petrol and diesel cars.

The ZEV mandate, which came into force in the UK in 2024, sets a trajectory for zero-emission sales: 22% in 2025, rising to 80% by 2030 and 100% by 2035. Manufacturers that exceed their sales targets can trade credits with those falling short, creating a market mechanism. According to T&E, the penalties for non-compliance are substantial, making ICE sales increasingly costly. For instance, if a carmaker misses the target by a few percentage points, the fines can run into millions of pounds, effectively wiping out the profit margins on those vehicles.

This financial pressure comes amid a broader slowdown in EV demand growth in some markets, but T&E argues that the mandate is working as intended by pushing manufacturers to accelerate their electric transitions. The analysis suggests that instead of lobbying to weaken the rules, automakers should focus on bringing more affordable EV models to market. The UK’s approach differs from the EU’s, which has a similar but separate regulatory framework; both aim to phase out new petrol and diesel cars by 2035.

Industry reactions have been mixed. Some manufacturers have called for delays or adjustments to the mandate, citing challenges such as high production costs and insufficient charging infrastructure. However, T&E’s findings indicate that the cost of inaction is rising, and companies that lag in EV adoption may face even steeper financial consequences. As the deadline for the 2035 ban approaches, the pressure on carmakers to innovate and invest in electric technology will only intensify.