Gloomy future for EVs in the EU?

Ovidiu Tierean is a senior advisor at PKF Malta

The transition to electric vehicles (EVs) is more difficult to achieve than European decision-makers anticipated when they proposed abandoning combustion engines in 2023. A year later, automakers are forced to cut production in a segment choked by Asian competition. The EU simply does not have the necessary infrastructure to compete with Asia in the electric vehicle segment. Contrary to expectations, Europeans have the resources to support production, but lack the capacity to develop a sustainable model for it.

The law passed last year at the end of March, regarding the ban on the manufacture of combustion-powered cars from 2035, was not met with much enthusiasm among consumers in the EU. At the beginning of this year, Germany, the largest car market in the EU, decided to stop subsidising the purchase of new electric cars. The impact of the decision was felt immediately: EV sales fell 37% in July and 12% year-to-date. The situation is similar in other countries within the union, which have given up state aid.

Norway, on the other side, is a success story when it comes to EVs. Nine out of 10 newly-registered cars in 2024 are pure electric. Last year, the centre-left government removed a tax exemption on EVs costing more than $46,700, making models such as the Tesla X and Audi e-tron more expensive. Still, the remaining tax exemptions on EVs cost the state 43bn crowns in 2023, up from 39.4bn crowns in 2022.

In Malta, at the end of Q1 there were 2.8% pure electric cars (battery electric cars or BEVs) and 5.7% EVs (BEVs plus plug-ins and hybrids). Newly-registered EVs in Q1 stood at 3.8%, less than their market share, a sign that the market was slowing down even before the tariffs on Chinese EVs, a subject we are going to touch below. It’s a small difference as around 20% of electricity generation comes from renewables (direct solar panels plus interconnector electricity produced from renewables). Grant subsidies for the purchase of EVs should continue.

This year EU wide sales of EVs are anticipated to continue slowing as car manufacturers struggle to move the EV transition beyond the early adopters to the mass market. Declining sales have led major manufacturers to adapt to demand. Investment plans in electric vehicles development will follow the number of sales in the market. Decreasing subsidies, high production costs, mandatory legislation and poor infrastructure make electric cars unattractive to the median EU consumer. From the initiation of the proposal to electrify the car fleet in the EU in 2021 and until the adoption of the zero-emission law in 2023, billions of euros have been pumped into the development of a segment that cannot produce sales that will generate enough return-on-investment to be attractive in the long run.

It seems officials in Brussels have set an arbitrary deadline and now they must race against the clock. Imposing tariffs on EV manufacturers in China, with the aim of protecting the EU market, does not help in the current context and further isolates the car-manufacturing industry. The effect of tariffs on EV imports from China has been deeply felt by the major manufacturers.

The European Commission imposed tariffs on Chinese carmakers in early July. Upon entering the EU, tariffs are as follows: 17.4% for BYD cars, 19.9% ​​for Geely cars and 37.6% for SAIC cars. The latest data collected from 16 member states show that the number of registrations of new EVs imported from China fell by 45% in July compared to the previous month, when the new provisional tariffs were not adopted. The tariffs are putting pressure on Chinese automakers to sell their remaining June inventories as quickly as possible. The losses will be significant, but can be offset by gains in other markets. In fact, Europe is only China’s third largest trading destination, after Asia and the US. Chinese brands own 11% of EV market share in the EU.

More and more manufacturers in the European car field have considered stopping the production of electric models, because they are not profitable in the long term. Others have closed the doors of EV battery factories and laid off workers. Uncertainties about industry jobs grow as electric vehicles prove unprofitable. For the electric car to be affordable for buyers, production costs must be low for manufacturers, which is currently not feasible because EU has not invested enough in ​​research and development of components, although it has allocated huge budgets in this direction.

Stubbornness and reluctance to learn from success models keeps the EU car manufacturers in the shadow of the competition from Asia and the US, and the dream of zero-emission road transport is becoming increasingly difficult to achieve. At the same time, the EU might not be able to make the transition from combustion to electricity in the proposed time horizon in the absence of coordination at the continental level between the major producers in the field and the authorities of the member states.