Subsidies and other methods have helped spur consumer demand, but China's experience shows that this can change quickly.
Electric BMW iX3 at the company's showroom in Munich
Electric vehicles are sold at record speed in Europe, and today the market has taken China away as the largest electric vehicle market on the planet. Consumers are encouraged by subsidies from governments and dozens of new vehicles, including hybrid ones.
The share of new electric vehicle sales in Europe almost doubled last year to 43%. At the same time, the shares of China and the United States decreased.
However, this European surge in sales is heavily dependent on government incentives, the distribution of which was stepped up during the pandemic. Analysts warn that this trend could be reversed after subsidies cease to be issued. Most of the European subsidies are limited in scope and will only last until the end of this year.
“This market is extremely sensitive to discounts from government and manufacturers,” said Arndt Ellinghorst, an auto market analyst at Bernstein Research. "Once the subsidies disappear, EV sales will plunge 30-40% for at least one or two quarters."
Global sales of electric vehicles by largest market
After all, without subsidies, electric cars are still significantly more expensive than equivalent cars with an internal combustion engine (ICE). According to analysts, this situation will not change until the end of this decade, when the cost of batteries begins to fall due to the emergence of new technologies, increased production and competition.
The European approach to stimulation started out more like a stick than a carrot. The European Union has regularly tightened its emissions regulations so that the industry will start issuing more electric vehicles and hybrids on pain of severe fines.
When the world was hit by the pandemic, governments, in an attempt to cushion the economic shock, began throwing money at industries at the forefront of the fight against climate change. Much of the aid was allocated in the form of incentive payments to buyers of electric vehicles, which caused a surge in demand for them.
All these gestures have changed the opinion of industry leaders that there is not a large enough market that can recoup the huge investment required to produce electric vehicles.
“We have an incentive to build these machines. It makes electric vehicles very attractive to consumers, ”said Hakan Samuelson, director of Volvo Cars, a Swedish automaker owned by China's Zhejiang Geely Holding Group. "However, in the long term, these incentives and tax breaks will not be sustained."
Carmakers have taken a hard look at launching new models last year. Europe's largest manufacturer Volkswagen AG unveils ID.3 and ID.4 models... Premium car makers BMW AG, Mercedes and Audi have launched luxury electric vehicles. Mercedes is set to launch the EQS this year, an electric successor to the flagship S-Class with enhanced automation.
Last year, production of about 65 new electric vehicles was launched in Europe - this is twice as many as in China - and 99 more are planned to be released this year. .
Manufacturers say that the incentives and the explosive growth in the number of new models of electric vehicles successfully came together and heated both demand and supply.
“We need to offer products that are right for the moment… This is what we saw in Europe last year,” said Britta Seeger, Daimler AG Board Member in charge of global sales. "The offer has gotten better and the subsidies keep the sales going."
Availability of electric vehicles from familiar brands also positively influences sales. Hallgeir Langeland, a 65-year-old environmental activist and former politician from Norway, has not bought a car for 25 years. But when last year Ford Motor Co. released an all-electric version of its Mustang, he didn't hesitate.
“I really had to buy it,” he says, recalling the Mustang he drove as a young man. Now he can't wait for his new car to arrive, scheduled for March. "It will be cherry blossom."
Subsidies made this purchase easier - making Norway the world's largest per capita market for electric vehicles. At the last US Super Bowl, General Motors Co. even shot an ad on the topic, in which Will Ferrell urges American consumers to buy electric cars and overtake Norway.
Christian Burgh, an entrepreneur building energy-efficient homes in Germany, has driven the BMW X3 diesel SUV for many years. But when the government increased subsidies for electric cars last summer, he applied as a small business and moved to the new iX3 hybrid.
“We received a subsidy of € 3,750,” he said.
Electric vehicle sales in Europe last year grew by 137%, reaching 1.4 million vehicles, overtaking China, where growth was 12%, and the number of cars - 1.3 million, as well as the United States, where growth of 4% was recorded. and the number of cars was 328,000 (data from the site ev-volumes.com).
The state of the European market today resembles the Chinese trajectory for the development of electric vehicles, only a few years earlier. Beijing set out to overtake Western markets and began to issue significant subsidies for the purchase of electric vehicles, and also required automakers to make a certain percentage of their cars electric.
This helped launch hundreds of startups and raised the share of electric vehicles to 8% of all new cars sold by mid-2019. Then in June 2019, Beijing slashed subsidies sharply, and sales sagged - by the end of the year, the share of electric vehicles fell to 5%. After the onset of the pandemic, Chinese sales continued to fall, questioning the feasibility of China's goal of reaching a 20% share of electric vehicles among new cars by 2025.
A Volkswagen ID.4 on an assembly line in Zwickau, Germany
Beijing returned subsidies for electric vehicles last year, but canceled them again last month in an attempt to wean users off the discounts.
European governments are reviewing their plans to phase out subsidies for electric vehicles at the end of the year. Analysts suggest that the governments of countries that produce a significant number of cars (in particular, Germany and France), to extend the subsidies.
And while most industry leaders welcome government efforts to give momentum to new technology markets such as EV, automakers worry that the effects of subsidies will be too short, and without broader structural changes, a sustainable market will not emerge.
They urge governments to focus on building infrastructure such as charging stations, supporting the construction of battery factories, and taxing carbon dioxide emissions.