How Europe Became the World’s Largest Electric Vehicle Market – And Why It May Not Last

But Europe’s surge is highly dependent on government incentives dispensed during the pandemic, and analysts warn that momentum could be reversed if and when that support is withdrawn. Most government electric vehicle subsidies are limited in scope and expire by the end of this year.

“The market is extremely sensitive to government and corporate rebates,” said Arndt Ellinghorst, automotive analyst at Bernstein Research. “Once subsidies are removed, electric car sales will collapse by 30-40% for at least one or two quarters.”

Without the subsidies, electric vehicles are still significantly more expensive than equivalent combustion engine vehicles. This is not likely to change until later this decade, analysts say, as battery prices drop due to new technology, greater scale and competition.

The European approach started with more sticks than carrots. The European Union in particular has steadily tightened emission requirements, prompting the industry to roll out more electric cars and hybrids, otherwise they will face hefty fines.

When the pandemic struck, governments seeking to absorb the economic shock began to direct aid to industries at the forefront of the fight against climate change. Much of this aid went towards encouraging consumers to buy electric cars, which increased demand.

The moves changed perceptions among industry leaders that there was no market to justify the massive investments required to build electric cars.

“We have an incentive to build these cars … It helps make the electric car very attractive to consumers,” said Hakan Samuelsson, CEO of Volvo Cars, the Swedish automaker owned by China’s Zhejiang Geely Holding Group. “But these incentives and tax benefits are not sustainable in the long run.”

Car manufacturers started seriously rolling out new models last year. Volkswagen AG, Europe’s largest car manufacturer, unveiled its ID.3 and ID.4 models. Premium car manufacturers such as BMW AG, Mercedes and Audi launched high-end EVs. This year Mercedes is launching the EQS, an electric and highly automated successor to the flagship S-Class.

Last year, around 65 new EV models were launched in Europe – twice as many as in China – and another 99 will be launched this year. That compares to 15 launches in North America last year and a planned 64 this year.

Manufacturers say the incentives and an explosion in the number of new EV models came together at the right time, boosting both supply and demand.

“You have to have the right product on offer … We saw that in Europe last year,” says Britta Seeger, board member at Daimler AG, responsible for worldwide sales. “The offer is better, and subsidies support sales.”

The availability of electric vehicles with well-known brand names also drives sales. Hallgeir Langeland, a 65-year-old Norwegian environmentalist and former politician, hasn’t owned a car for 25 years, but when Ford Motor Co. rolled out a fully electric version of his Mustang last year, he didn’t think twice.

“I had to have it,” he said, remembering the Mustang he used to ride in his youth. Now he can’t wait for it to arrive in March. “It’s cherry red.”

The purchase was made easier by subsidies that have made Norway the world’s largest per capita EV market, sparking an ironic Super Bowl ad from General Motors Co. starring Will Ferrell, who called on American consumers to buy EVs and crush Norway.

Christian Burg, who runs a company that builds energy-efficient houses in Germany, drove a BMW X3 SUV with a diesel engine for years. When the government increased subsidies for electric cars last summer, he applied for a subsidy for small businesses and switched to the new iX3 plug-in hybrid version of the car.

“We have received 3,750 euros [equivalent to $4,500] in cash incentives, ”he said.

Sales of plug-in electric vehicles in Europe were up 137% last year to 1.4 million vehicles, outperforming China, which grew 12% to 1.3 million, and the US, where sales, according to ev- volumes increased by 4% to 328,000. com, a research group.

The state of the European market is reminiscent of the electric vehicle trajectory in China years ago. Beijing was determined to bypass Western markets, gave hefty subsidies for purchases, and required manufacturers to ensure that a certain percentage of the new cars produced each year were electric.

The effort helped spawn hundreds of startups and increased the share of electric cars to more than 8% of new car sales by mid-2019. Then in June 2019, Beijing lowered incentives and sales plummeted, with the share of electric vehicles toward the end. of the year fell below 5%. When the pandemic struck, China’s electric car sales slumped further, raising doubts about Beijing’s ability to achieve its target of representing 20% ​​of new car sales by 2025.

Beijing reinstated EV subsidies early last year, but cut them back again in January in a renewed effort to wean consumers off it.

In Europe, national governments are rethinking plans to phase out the current EV subsidy regime by the end of the year. Analysts suggest that governments in high-car producing countries, such as Germany and France, could extend aid beyond this year.

While most market leaders welcome government efforts to jump-start new technology markets such as electric vehicles, car manufacturers fear that subsidies will only have a short-term effect and will not create a self-sufficient market without wider structural changes.

Instead, they urge governments to focus more on developing infrastructure such as charging stations, providing support for building battery plants, and taxing carbon dioxide emissions.

Write to William Boston at [email protected]