The UK government is preparing to scrap or raise the so-called ‘Tesla Tax’ on new electric vehicles (EVs) in a bid to jumpstart sales, which have been struggling lately.
This news came from a leaked letter by Roads Minister Lilian Greenwood, which MailOnline and This is Money got hold of.
It seems the government wants to make it easier and cheaper for people to switch to electric cars ahead of the next Budget announcement.
What Is the ‘Tesla Tax’ and Why Is It Controversial?
The ‘Tesla Tax’ is officially called the Expensive Car Supplement (ECS).
It’s an extra tax charged on new cars costing more than £40,000 — and it’s been around since 2017.
Originally, it applied only to petrol and diesel cars. But in a twist, from April 2025, the ECS was extended to electric cars as well.
This move was supposed to make the tax system fairer, but it has backfired in some ways.
Because electric cars often cost more than petrol or diesel vehicles, many EV buyers now find themselves slapped with this extra charge.
This has made buying an electric car more expensive, putting a big dent in sales.
Experts and industry insiders have called the whole approach ‘bananas’ and described government EV plans as a ‘fiasco.’
The ECS adds hundreds of pounds every year on top of the standard car tax, meaning over five years some buyers could pay over £3,000 more.
Why The £40,000 Threshold Feels Outdated
The £40,000 price point hasn’t changed since 2017 — even though car prices, especially for EVs, have risen sharply.
Recent estimates suggest that seven out of ten electric cars sold in Britain this year will be hit by the ECS because they cost more than that limit.
This makes the tax feel outdated and unfair, especially when it’s meant to encourage greener choices.
A Major U-Turn on the Way, Says Roads Minister
Lilian Greenwood’s letter confirms the government is rethinking this policy.
She told a Liberal Democrat MP that the government recognizes how unfair the tax has become for zero-emission cars and is considering raising the threshold or removing the ECS for EVs altogether at a future Budget.
This would be a significant shift, aimed at making electric cars more affordable and appealing.
Car Makers Already Responding by Dropping Prices
Some manufacturers like Vauxhall and Abarth have already tried to dodge this tax by lowering prices on their electric models so they sit just under the £40,000 threshold.
While this might attract more buyers, it means these companies are losing thousands of pounds per car sold — a costly move that shows just how tricky the current tax policy has made things.
Industry Experts Say This Is Just a First Step
Leading car dealers have welcomed the news as a step in the right direction, but they warn it’s far from enough.
Robert Forrester, CEO of Vertu, one of the UK’s biggest car dealer groups, pointed out that while increasing electric car use is the right goal, the government’s sales targets and penalties for missing them are unrealistic and could cause real damage.
The Bigger Problem: Unrealistic EV Sales Targets
The government has set ambitious targets for how many new cars sold must be electric, rising to 28% this year and up to 100% by 2035.
But Forrester and others say these numbers are not achievable with current market conditions.
They note that many buyers are put off by high costs, a patchy and expensive charging infrastructure, and a lack of incentives.
Forrester explained that only about 10% of retail customers currently buy electric cars, compared to 30% of company fleets.
This means hitting the targets will be extremely difficult, and if the government tries to force it by limiting petrol car availability, it could backfire.
Car Makers Already Losing Billions on EV Sales
The Society of Motor Manufacturers and Traders has revealed that some car makers are selling electric vehicles at a loss — cutting prices heavily to avoid fines for missing government targets.
These losses are already costing the industry over £4 billion.
Government Sticks to Green Ambitions But Faces Challenges
Despite all this, the government insists it won’t lower its ambitions for a greener future.
Lilian Greenwood said decisions to keep the zero-emission vehicle mandate in place are meant to protect jobs and encourage investment in things like charging infrastructure.
But the challenges of balancing realistic market conditions with ambitious climate goals remain.
EV Owners Beat the April 2025 Car Tax Increase by Renewing Early
Interestingly, thousands of EV owners managed to avoid the new car tax charges starting April 1, 2025, by renewing their Vehicle Excise Duty (VED) early.
According to DVLA figures, over 244,000 electric car owners renewed their tax in March alone, saving themselves around £195 each for the year.
Sam Sheehan, motoring editor at Cinch, said this surge shows how many EV drivers wanted to keep their motoring tax-free for as long as possible, which is understandable.
What’s Next for Electric Cars in the UK?
The government recently relaxed some rules on electric cars, allowing hybrid vehicles to stay on the roads until 2035 and giving manufacturers a bit more wiggle room with their sales targets and fines.
But the appetite for EVs among the general public isn’t quite there yet, say dealers, and more needs to be done.
With car prices rising, charging infrastructure still patchy and expensive, and government policies in flux, the road to a fully electric UK car market is looking complicated.
But raising or scrapping the ‘Tesla Tax’ could be the first move that makes a real difference for buyers.