May 18, 2024

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Cheap, Mass Market EVs Required To Reignite Europe Sales Growth

6 min read

European electric vehicle sales growth has plateaued while the industry gears up to embrace the all-electric new car world.

That’s the conclusion of analysts and experts. But for the European EV market to move from its current roughly 2 million sales a year to around 9 million in 2030 will take a massive change of product from manufacturers. The key word is “cheap”, not some vague claim to be “affordable”.

Failure to reach these sales by 2030, and the government-mandated EV-only world of 2035, could mean eye-watering fines for offenders. If Europe can’t produce cheap EVs, that could place its manufacturers in mortal danger because China’s can.

EV sales from about 2020 were spurred on by well-to-do early adopters, then corporate “buyers” and employee schemes to use tax and salary schemes to go electric. But the likes of GM and Ford in the U.S. and Mercedes and Volkswagen in Europe have been pulling back as sales growth faltered. Even Tesla sales are under pressure as it slashes prices.

To correct this stall, EVs need to provide a compelling reason to buy for regular European private buyers on average earnings to create the next step, a mass-market.

That’s the core of the problem and currently no vehicle exists in Europe that can claim to be the mobile phone of the EV world. That vehicle will present an unanswerable must-have case to buy, and the trouble is for European manufacturers, these already exist in China with vehicles like the BYD Seagull, Wuling Bingo and Leapmotor TO3.

Despite this potential gaping hole in the market, analysts are sticking to their forecasts for 2030, which based on government mandates, are more than four times current EV sales. The mandates should mean about 80% of new car sales in Europe and the U.K. would be EVs by 2030. 100% is the law for 2035. Currently, most forecasts are huge, but not that huge.

Investment researcher Jefferies has snipped 1.6 percentage points off its market share forecast for Europe this year, now 21%, according to the Financial Times. Its long-term forecast remains unchanged at a formidable 8.9 million EVs in 2030 for a market share of 65%. Investment bank UBS recently cut its forecast for 2030 to 8.3 million compared with its previous estimate of 9.6 million. Schmidt Automotive Research says EV sales in Western Europe will reach 8.4 million or 60% of the overall market by 2030.

“Has the EV revolution hit a speed bump?” Jefferies asked in a report.

Jefferies said EV sales in the U.S. and Europe have slowed in what was exponential growth because of incentive removal, and factors like inadequate range and high prices. Germany, Europe’s biggest market, withdrew sizeable tax breaks for new EVs late last year. Jefferies points, hopefully, to the introduction of lower-priced EVs and more plug-in hybrid electric vehicles later this year.

As EV sales growth has slowed, the impact has perhaps been exaggerated by pictures of huge stocks of Chinese EVs standing at parking lots near European ports. Europe’s big manufacturers are getting nervous about the impact of the EU’s carbon dioxide emissions laws and are lobbying for change, led by BMW, Volkswagen, Mercedes and Renault. They are worried about the EU’s 25% CO2 emissions tightening next year compared with 2021. The EU has promised a review of the whole timetable for 2035 in 2026, and manufacturers are hoping for some rule dilution.

“The legal requirement to cease all new ICE sales from 2035 remains in place, and the broader mandate to transition to EVs is still widely supported by policymakers,” Jefferies said.

Policymakers not necessarily manufacturers, and these rule-makers might have a change of heart after the European Parliamentary elections in early June, where the issue of “Net Zero by 2050” is becoming contentious.

EU politicians are in a quandary. Many have staked their reputations on achieving Net Zero, but the targets look impossible if they rely on European EV production. This has concentrated on high-value, high- profit SUVs and sedans. Some say this is a mistake. Building EVs which seek to match the all-round abilities of ICE vehicles is impossible with current technology. Manufacturers are producing cars with bigger batteries which defeat much of the CO2 objectives and raise prices. These vehicles are really over-priced town cars.

VW and Renault have said they may cooperate to produce seriously affordable little EVs, but they aren’t likely to appear much before 2027. VW is also establishing ties with SAIC and Xpeng of China seeking help. Renault CEO Luca de Meo has urged the EU to create an emergency “Marshall plan” to boost Europe’s EV competitiveness. Multi-brand giant Stellantis has already agreed a venture with Leapmotor of China to make little EVs in Poland from imported parts. That could start before the end of June.

China has a huge array of cheap EVs already in production which would be snapped up by European buyers if imported here. That would protect CO2 targets but might deliver a mortal blow to European manufacturers.

“The major theme in both the U.S. and Europe is a fear of Chinese (manufacturers) globalizing. The key outstanding question is how long will it take China to become major participants in the U.S. and Europe. Europe is looking to slow down China, while the U.S. is looking to block China,” Jefferies said,

The EU has opened an investigation into possible illegal Chinese subsidies and higher tariffs could start in June. The current tariff is 10% but speculation suggests this could be raised to 25%. This might slow Chinese EV penetration, but it might also spur retaliation which would be bad news for VW, Mercedes and BMW which make a huge proportion of their profits in China.

If Europeans fail to meet CO2 targets they face massive fines. HSBC Global Research estimates that if CO2 emissions stay at current levels in 2025, the EU auto industry faces a potential €19 billion ($20.4 billion) in fines.

“Could stalling adoption prompt a delay in the 2025 targets,” asked HSBC Research in a report.

“Industry experts who attended our Future Transport (conference) and carmakers CEOs we have spoken to don’t think that is a possibility. Most see 2025 targets as achievable but appear to be seeking a rethink of the 2035 ICE ban at its 2026 review,” HSBC Research said.

HSBC Research reckons surging PHEV sales might help take the pressure off slowing EV ones. The investment bank said Volvo and BMW are comfortably positioned to meet CO2 targets, but VW and Renault are struggling. It quoted VW CEO Oliver Blume saying the 2025 targets were “too ambitious”.

The Financial Times’ Lex column said falling sticker prices might persuade more motorists to buy EVs, but the industry consensus seems to assume prices of €20,000 ($21,500) would do the trick. That seems seriously to miss the mark. Prices closer to €10,000 ($10,700) are required to attract average wage earners.

China, at least 5 years ahead of Europeans and up to 30% more efficient, has cheap little vehicles in abundance. They have small batteries and less range, but will provide perhaps 95% of regular motorists’ requirements. They assume you take the train for long journeys or hire a diesel.

So far, they’ve not announced plans to export them to Europe.

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