Vertu Motors has cautioned the new car market is coming under pressure as carmakers scramble to meet Government zero-emission targets by cutting prices.

The car dealership group said demand for battery electric vehicles (BEVs) is trailing behind supply, leading to widespread price cuts.

The company said it generated revenues of £2.5 billion over the six months to the end of August, about 3% higher than the same period last year.

This was driven by used cars and aftersales, which includes vehicle servicing, while the volume of new car sales declined by about 6%.

Nevertheless, this marked a softer decline than the wider UK market which saw an 11.2% drop in the volume of new car sales over the period.

Vertu said the market was experiencing volatility partly as a result of the UK’s environment targets.

It said manufacturers were being pushed to increase the supply of BEVs because of the Government’s zero-emission vehicle mandate.

This requires 22% of all new car sales to be BEVs in 2024, with the target rising to 80% by 2030 and 100% in 2035.

“The UK new car market (and van market, in due course) is likely to come under continued pressure if the current regulations are not amended,” Vertu said.

“As manufacturers cannot sustain price cuts indefinitely, Government incentives like tax breaks or subsidies will likely be needed to boost BEV private sales or changes to the mandate will be required to take the pressure off the sector and to make the transition to BEV vehicles more achievable and sustainable.”

Spending on cars rising faster than for public transport
The Government’s zero-emission vehicle mandate is creating volatility in the new car market, Vertu said (Yui Mok/PA)

Demand for electric vehicles remains weak in the face of higher prices and a lack of charging infrastructure across the country, the group added.

Meanwhile, Vertu reported a decline in its adjusted pre-tax profit to £23.5 million for the half-year, from £31.5 million a year ago.

This was driven by higher costs for the group due to inflation and increasing its workforce, it said.

Nevertheless, the firm said it was expecting profitability to improve over the second half of the year due to a stronger used car market.

Robert Forrester, Vertu’s chief executive, said: “I am pleased with the group’s first half performance against a fast-shifting market backdrop.

“The retail new car market declined as the Government’s regulation to transition to battery electric vehicles introduced market volatility and negative effects in terms of affordability.”