European electric vehicles are stuck in a vicious circle
Latest update time：2024-09-14
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"Automakers such as Renault are unable to achieve their 2025 emissions targets. The consensus is that the growth rate of electric vehicle sales has slowed, but there are more reasons than just this."
Source | 36Kr Auto
Author: Zhai Fangxue
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Zhai Fangxue
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Zhang Bowen
With less than four months left until 2025, European car companies are panicking because they will face huge fines of hundreds of billions.
Renault Group CEO Luca de Meo said in an interview on September 7 that as electric vehicle sales slow, European automakers may be fined up to 15 billion euros (about 117.9 billion yuan) if they fail to meet the European Union's ambitious climate goals.
The "ambitious climate targets" he mentioned refer to the EU's requirement that automakers should sell cars with average emissions of 93.6 grams per kilometer or less by 2025. If automakers fail to meet this statutory target set in 2017, they may have to pay a fine of 95 euros (about 747 yuan) per gram of carbon dioxide per car.
Renault is just one of the companies facing fines. Most automakers have failed to meet the standards set by the EU, so much so that De Meo's use of the word "ambitious" to describe the EU's goals seems a bit sarcastic.
Data from analytics firm Dataforce shows that among the major European auto groups, only Geely and Tesla have reached their 2025 targets. Tesla has no pressure to achieve its targets because it only sells zero-emission pure electric vehicles, while Geely benefits from its brand Volvo, which has high sales of pure electric vehicles.
Automakers with high sales of hybrid models are closer to the 2025 target, such as Toyota and Hyundai. Ford and Volkswagen Group are the most far from the target. According to a rough estimate from the bar chart provided by Dataforce, Ford's average emissions exceeded the target by about 1/3.
From Dataforce
The more they exceed the standards, the greater the fine. These car companies that fail to meet the standards have long conveyed one message on various occasions - they hope the EU will "show mercy".
Volkswagen Group CEO Oliver Blume said earlier this year that the European Union should adjust its CO2 targets due to slowing sales of zero-emission electric vehicles. BMW Group CEO Oliver Zipse has also called for a review of the targets.
"We are moving at half the speed we need to go to get to the point where we don't have to pay fines," Renault's de Meo said in an interview on French radio.
Why is Europe's electrification slower than expected?
What is the reason for the "slowing sales of pure electric vehicles" that has been mentioned repeatedly? In fact, the root cause is simple: European consumers can no longer afford electric vehicles.
Since Europe began to vigorously promote new energy vehicles, car purchase subsidies from various governments have become the main driving force to stimulate the market.
For example, in France, buyers who buy cars with carbon dioxide emissions of 20 grams per kilometer or less can receive a reward of up to 7,000 euros (about 55,034 yuan); in Germany, buyers who buy pure electric cars priced no more than 40,000 euros (about 310,000 yuan) can receive a subsidy of 9,000 euros (about 70,000 yuan); in the UK, buyers who buy plug-in cars can receive a subsidy of up to 35% of the cost price of the electric car.
A study evaluating the total cost of ownership (TCO) of electric and fuel vehicles found that for all market segments, the TCO of electric vehicles is higher than that of fuel vehicles if no cash subsidies are provided.
Only when driving more than 10,000 kilometers per year can the economic performance of electric vehicles be comparable to that of hybrid cars; when cash subsidies are implemented (including a 5,000 euro subsidy and a 400 euro annual saving in parking and access fees), electric vehicles will outperform hybrid cars and some fuel cars in terms of economic performance.
Research shows that despite lower operating and fuel costs, EVs have higher capital expenditure costs than gas-powered vehicles. This fact is significant because consumers respond more strongly to spending money than saving it.
This also leads to a problem: once consumers realize that the price of buying electric cars has increased, their willingness to buy will waver, and the sales towers built by European governments with car purchase subsidies will be shaky.
From AI Mapping
At least six European countries will phase out direct purchase incentives this year, including big markets like Germany, Norway, Sweden, the UK, Italy and Switzerland.
The German government ended the "environmental bonus" in December 2023. A survey by ZDK showed that the sudden end of the bonus affected the sales of about 60,000 electric vehicles. In July this year, German electric vehicle registrations plummeted by 36.8%, while fuel vehicle sales rose by 0.1%.
Looking at the EU as a whole, the latest data released by the European Automobile Manufacturers Association (ACEA) showed that the number of electric vehicle registrations in the EU fell by 10.8% in July. A total of 102,705 electric vehicles were sold in July, and the market share fell from 13.5% in the same period last year to 12.1%.
With the subsidies gone, cost-effective Chinese electric vehicles are squeezed out by the high tariffs that are increasing day by day. At present, Europe has not launched enough high-quality and low-cost electric models, so consumers have to give up electric vehicles.
According to a study by JATO Dynamics, an automotive industry analysis agency, the average price of an electric car in Europe will be about 524,000 yuan in the first half of 2023, which is almost twice the price of a fuel car. Since 2015, the average price of an electric car in Europe has risen from 49,000 euros to 56,000 euros, while the average price of an electric car in China has fallen from 67,000 euros to 32,000 euros, which is lower than the price of a fuel car.
Industry insiders have publicly stated that according to statistics, the average price of electric vehicles exported by China to the EU in 2022 was around 30,000 euros, while Tesla's cheapest Model 3 reached 45,000 euros. On average, the price of Chinese electric vehicles in the EU is 20% lower than that of European-made ones.
An article in Transport & Environment points out that European automakers are too focused on larger and higher-end models, resulting in high prices for pure electric vehicles in Europe. In China, there are 75 pure electric models priced below 20,000 euros, but only one in Europe. Even in the compact car sector, the average price in Europe is high: 34,000 euros (A), 37,200 euros (B), and 48,200 euros (C). These high prices mean that pure electric vehicles are not competitive for cost-conscious European consumers.
This formed the first vicious circle: due to the lack of local low-priced models and resistance to Chinese electric vehicles, consumers could not afford electric vehicles after the subsidies were cancelled, resulting in lower sales; and car companies that could not make money were unable to invest more funds in the research and development of low-priced electric vehicles.
In addition to price increases, the lack of charging facilities has also made consumers wait and see. Although Europe's charging network is being built, it cannot keep up with the growth rate of electric vehicle ownership.
According to the European Automobile Manufacturers Association (ACEA), sales of pure electric vehicles increased more than 18 times between 2017 and 2023, outstripping the growth of charging networks by six times.
The industry body predicts that 8.8 million charging points will be needed by 2030. To achieve this target, 1.2 million chargers must be installed each year. This target is almost 10 times the current growth rate, which will see 153,000 new public charging points set up in 2023 alone.
The construction of public charging facilities requires joint efforts from the government and enterprises, but the tricky thing is that many automakers are now adjusting their expectations for electric vehicle sales. For example, Volvo canceled its goal of full electrification by 2030, and Toyota announced that it would reduce its electric vehicle production plan by one-third in 2026.
These changes indicate that automakers will reduce their investment in pure electric vehicles, including the construction of charging facilities. This also forms a second vicious circle - the fewer charging piles there are, the less consumers dare to buy them; the fewer sales, the less companies invest in charging facilities.
"Europe's electrification slowdown is not that serious"
The previous analysis is based on the same view of many car company executives: "European electric vehicle growth is slowing down." Indeed, compared with the rapid growth in previous years, the sales of electric vehicles in Europe have slowed down this year, but this is not serious.
First, let’s look at the global growth rate of electric vehicles. Although the speed is slowing, this is in contrast to the rapid growth in plug-in car sales and share in 2021 and 2022. Global electric vehicle sales are still growing, increasing by 22% in the first half of 2024, far exceeding the overall automotive market growth rate of 3.7%.
Looking at Europe, although the growth is somewhat inferior to that in 2020 and 2021 (sales increased by 136% and 68% year-on-year respectively), electric vehicle sales in the first half of this year still increased by 1% year-on-year.
From EV VOLUMES
From the above analysis, it is not difficult to see that the so-called "slowdown in the growth of electric vehicles" does exist? Yes, but it is not that serious, and it will not be the fundamental reason why European automakers cannot achieve their 2025 emission targets.
If European car companies can increase their research and development and promotion of low-priced electric models, I believe the growth rate of electric vehicles in Europe will soon be boosted again.
Slow market growth, weak infrastructure, etc. are all objective factors that car companies attribute to their inability to achieve their goals. In fact, the EU's 2025 emission target was proposed in 2017, and the policy direction was already clear earlier. The average development cycle of a car takes about 7 years, so even if car manufacturers wait until the regulations are introduced in 2017 to take action, they still have enough time to bring new models to market.
An April 2024 analysis by Transport & Environment showed that the targets are still achievable, but automakers are not yet making much of an effort.
Furthermore, these automakers have been fined for the same reason, and they have not deployed the electrification process in advance for this emission target.
European automakers including Volkswagen and Jaguar Land Rover had to pay $552 million (about 3.93 billion yuan) in fines for failing to meet carbon dioxide emissions targets in 2020, the first year of new regulations, a report showed.
According to European Automotive News, Volkswagen has paid more than 100 million euros (about 786 million yuan) in fines for failing to meet its 2020 emissions target of 0.75 grams per kilometer; Jaguar Land Rover said it has paid about 35 million pounds (about 326 million yuan) in fines for failing to meet its emissions target of about 3 grams per kilometer.
Automakers facing fines are not desperate. They can adopt a strategy of cooperating with other brands to reduce or avoid fines. Most companies tend to cooperate with companies with high sales of electric vehicles, such as Jaguar Land Rover and Honda with Tesla, and Volkswagen with SAIC. It is reported that since 2009, Tesla has received nearly $9 billion (about 64.1 billion yuan) in revenue from automakers that need help meeting emission standards.
In response to the automakers' calls for "flexible adjustment of emission targets", the European Automobile Manufacturers Association said that the 2025 target should remain unchanged, and said that "due to the vehicle development and production cycle, any changes to this will not leave enough time to adapt."
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