European consumers are buying electric cars at a faster rate than ever, encouraged by government subsidies and the availability, for the first time, of models manufactured by their favorite brands.
The boom is so strong that Europe overtook China as the world’s largest electric vehicle market last year. Its share in sales of new electric cars almost doubled to 43%, while China and the United States lost market share.
But Europe’s rise depends heavily on government incentives distributed during the pandemic, and analysts warn that the momentum can be reversed if and when that support is withdrawn. Most government subsidies for EVs are limited in scope and are expected to expire later this year.
“The market is extremely sensitive to government and corporate discounts,” said Arndt Ellinghorst, an automotive analyst at Bernstein Research. “Once the subsidies are withdrawn, EV sales will drop by 30-40% for at least a quarter or two.”
Without subsidies, EVs are still considerably more expensive than equivalent combustion engine vehicles. This is unlikely to change until the end of this decade, analysts say, as battery prices drop due to new technologies, greater scale and competition.
Europe’s approach started with more sticks than carrots. The European Union, in particular, has increasingly stringent emission requirements, leading the industry to launch more electric and hybrid cars, or face heavy fines.
When the pandemic hit the country, governments seeking to cushion the economic shock began to direct aid to industries at the forefront of the battle against climate change. A large part of this aid went to incentives for consumers to buy EVs, creating an increase in demand.
The changes changed the perception among industry leaders that there was no market to justify the huge investments needed to build electric cars.
“We have an incentive to build these cars … It helps make EV very attractive to the consumer,” said Hakan Samuelsson, chief executive of Volvo Cars, a Swedish manufacturer owned by Chinese group Zhejiang Geely Holding. “But in the long run, these tax incentives and incentives are not sustainable.”
Car manufacturers began rolling out new models in earnest last year. Volkswagen AG, Europe’s largest car manufacturer, unveiled its ID.3 and ID.4 models. Premium car makers such as BMW AG, Mercedes and Audi have launched state-of-the-art EVs. This year, Mercedes is due to launch the EQS, which will be an electric and highly automated successor to the flagship of the S-Class.
About 65 new EV models launched in Europe last year – twice as much as in China – and another 99 are scheduled to hit the market this year. This compares to 15 launches in North America last year and 64 planned this year.
Manufacturers say that incentives and an explosion in the number of new EV models came together at the right time, energizing supply and demand.
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“You have to have the right product on offer … This is what we saw last year in Europe,” said Britta Seeger, board member at Daimler AG responsible for global sales. “The offer is better and the subsidies are supporting sales.”
The availability of EVs with familiar brand names is also driving sales. Hallgeir Langeland, a 65-year-old Norwegian environmentalist and former politician, hasn’t had a car for 25 years, but when Ford Motor Co. launched a fully electric version of its Mustang last year, he didn’t think twice.
“I needed this,” he said, recalling the Mustang he drove in his youth. Now he can’t wait for it to arrive in March. “It’s cherry red.”
The purchase was facilitated by subsidies that made Norway the largest EV market per capita in the world, leading to an ironic General Motors Co. Super Bowl ad starring Will Ferrell, which asked American consumers to buy EVs and crush Norway .
Christian Burg, who runs an energy-efficient home building company in Germany, has driven a BMW X3 diesel SUV for years. When the government increased subsidies for electric cars last summer, it applied for a small business subsidy and switched to the new iX3 plug-in hybrid version of the car.
“We received 3,750 euros [equivalent to $4,500] in cash incentives, ”he said.
Sales of plug-in electric vehicles in Europe increased 137% to 1.4 million vehicles last year, overtaking China, which registered an increase of 12% to 1.3 million, and the USA, where sales increased 4 % to 328,000, according to ev-volumes. com, a research group.
The state of the European market is reminiscent of the trajectory of electric vehicles in China years ago. Determined to outperform Western markets, Beijing provided substantial subsidies for purchases and demanded that manufacturers ensure that a certain percentage of new cars produced each year were electric.
The effort helped generate hundreds of startups and boosted EVs to more than 8% of new car sales in mid-2019. Then Beijing cut incentives in June 2019 and sales plummeted, with EVs participating. falling below 5% at the end of the year. When the pandemic hit, China’s EV sales fell further, raising doubts about Beijing’s ability to meet its goal of making them account for 20% of new car sales by 2025.
A Volkswagen ID.4 production line in Zwickau, Germany.
Photograph:
Matthias Rietschel / Reuters
Beijing reinstated subsidies for electric vehicles at the beginning of last year, but cut them again in January, in a renewed effort to keep consumers away from them.
In Europe, national governments are reconsidering plans to eliminate the current EV subsidy regime at the end of the year. Analysts suggest that governments in countries that produce many automobiles, such as Germany and France, could extend aid beyond this year.
While most industry leaders welcome the government’s efforts to boost new technology markets, such as electric vehicles, automakers fear that subsidies will only have a short-term impact and, without broader structural changes, will not create a market self-sustainable.
Instead, they urge governments to focus more on infrastructure development, such as charging stations, support for building battery plants and taxing carbon dioxide emissions.
Write to William Boston at [email protected]
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