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The market for electric cars has been dealt a blow by a sudden announcement from the Department for Transport that the £3,000 Plug-In Car Grant (or PICG for short) for all electric cars under £50,000 has been reduced to £2,500 and will only apply to cars costing less than £35,000. The fact this applies with immediate effect as of today (18 March) has come as a shock to the industry and an unwelcome surprise to both dealers and buyers in the process of agreeing sales.

The last time the rate was changed in March 2020 the new threshold was applied to all orders made up to midnight the previous day, so if you were intending to rush and buy a £40,490 Tesla Model 3 today in the hope of still bagging the £3,000 PICG you are probably out of luck.

The Department for Transport defends the new policy, saying it will “target less expensive models and reflect a greater range of affordable vehicles available” while pointing out the choice of electric cars available below the new £35,000 threshold has increased by 50 per cent since 2019.

“The increasing choice of new vehicles, growing demand from customers and rapidly rising number of chargepoints mean that, while the level of funding remains as high as ever, given soaring demand, we are refocusing our vehicle grants on the more affordable zero emission vehicles – where most consumers will be looking and where taxpayers’ money will make more of a difference,” said Transport Minister Rachel Maclean.

While most would accept the previous £50,000 cap was reasonable, and it’s not a great look for the government to subsidise buyers of luxury performance EVs like the Porsche Taycan and Tesla Model S, the new lower limit will have a bigger impact, especially on the new range of electric family SUVs entering the market. By way of example, the £40,800 on-the-road price for 1st Edition models of the new Volkswagen ID.4 will now increase by £3,000, the pricelist smallprint having made the point that “the £3,000 grant has already been deducted from the recommended ‘On the road’ price shown and therefore the recommended ‘On the road’ price will increase in the event that grant funding is withdrawn.”

Sticking with VW as an example, the entry level version of the ID.3 in the ‘Life’ trim level will still qualify for the grant but upgrading from 145 horsepower Pro to 204 horsepower Pro Performance would seemingly tip you over the threshold and cost you an extra £3,000. Expect a lot of frantic number crunching by manufacturers and dealers in the coming days and weeks as price lists, model ranges and offers are recalculated.

It’s worth pointing out that – as it stands – additional incentives for buying an EV such as zero VED and reduced Benefit In Kind for remain in place, the latter a much more important saving for those running premium electric vehicles as a company car than the PICG. Proportionally, however, this change hits buyers of mid-sized, family friendly electric hatchbacks and crossovers hardest and could suddenly make the switch to electric considerably less attractive for this core section of the market.

For buyers of smaller EVs like the Renault Zoe, Nissan Leaf and trendy new arrivals in the market like the Mini Electric, Honda E and Mazda MX-30 the grant remains a welcome helping hand, but skews its benefits to empty nesters, urbanites and those who can afford a smaller EV as a second car for shorter journeys.

We will bring you more news and comment on the implications of these new rules as it happens.