Booming Electric Car Sales In Europe May Soon Face A Reality Check

Sales of battery electric cars in Europe are accelerating, based mainly on well-heeled early adopter enthusiasm and government handouts, but for the electric car revolution to succeed automakers need to inspire genuine demand from the mass market based on price and utility. Currently that looks like an impossible dream.

Failure to produce electric vehicles for average wage earners will also doom the automotive industry to a much-reduced future of slashed volume, closed factories and mass redundancies. The political fall-out will be serious too, as middle-income voters find they are unable to afford the freedom traditionally offered by car ownership. The “gilets jaunes” movement in France, when a sudden huge hike in the price of diesel prompted violent and extended protests, will be at the forefront of politicians’ thinking if this story line persists.

The electric car market is gathering momentum. According to Schmidt Automotive, battery electric vehicle (BEV) sales will reach a market share of 60% in Western Europe by 2030, or 8.4 million vehicles. BEV sales more than doubled in 2020 to just under 750,000 and jumped again this year with sales of 1,143,000 or 10.3% of the market.

This massive rise in projected sales logically assumes a huge proportion will have to be seriously affordable, mass market friendly and not powered by gasoline or diesel. This begs huge questions. The little electric city car the Citroen Ami shows the way but isn’t yet ready for prime time, with not enough range, speed or quality. Where are these sub €10,000 after tax  ($11,335) vehicles going to come from, and if they are produced, where are the required battery raw-materials? What happens to the price of some of their crucial ingredients if demand suddenly jumps? Prices will accelerate, bruising the hope that BEVs will inexorably become ever cheaper.

If these vehicles aren’t built in Europe, they will presumably come from China. If they don’t come from China that means only the relatively wealthy will be able to afford electric vehicles, and under this scenario, the European industry faces decimation. Either way, government subsidy is inevitable, but currently that is targeted towards the relatively wealthy, who also benefit from the subsidized charging network. Many average wage earners will be unable to instal their own home chargers because apartments and terraced housing make it impossible.

The action by the European Union (EU) to mandate electric over internal combustion engine (ICE) vehicles will also likely reduce supply to the second-hand market to further damage the less-well off’s access to private transport. Given the current political climate in Europe (Britain has already decreed no more new ICE vehicles after 2030) higher taxes on fuel, or measures like physical bans on ICE vehicle entry to cities will make sure a stake is put through the heart of this option, unless political reality intervenes. One of the main selling points for BEVs is the cheapness of the fuel compared with the fossil variety when you plug into your home electricity. But as Europeans attempt to transition to carbon-neutral power, the price of electricity is jumping, so this advantage might soon dissipate.

This BEV for ICE scenario is directly attributable to EU regulations which insist sedan and SUV makers raise average fuel efficiency by curbing CO2 emissions to the equivalent of about 57 miles per U.S. gallon in 2020/2021, up from 41.9 mpg in 2015, tightening again by 15% in 2025, and hitting 92 mpg by 2030. The rules from 2025 can probably be met by a combination of plug-in hybrids and electric cars but will require almost 100% battery-only by 2030. The EU is expected to tighten the rules again after 2025.

The EU’s design of these rules is being blamed for the fact European manufacturers are concentrating on high-priced BEVs. It is an accepted fact that these rules need to change to allow the industry to produce cheap electric city cars, and action is awaited.

 French auto consultancy Inovev, in a report, has looked at the consequences of this sudden move from ICE to BEV and speculates on the impact of a 35% BEV share in Europe (compared with Schmidt Automotive’s 60% forecast for Western Europe, which includes the big 5 markets of Germany, France, Britain, Italy and Spain) and wonders just how big the market will be then.

“Will it be the equivalent to 2019 before the Covid crisis, or compared with 2020/2021? Or even much lower,” Inovev said.

Inovev speculates that manufacturers will seek to almost remove small vehicles while pushing bigger ones and suggests some uncomfortable implications.

“There’s a risk of a continuous increase of vehicle prices to reach a level that will no longer be accepted (by consumers), with the consequence of a sharp drop in the market for new vehicles. Some users may turn away from the car, others may prefer to keep their vehicle longer,” Inovev said.

“A hole will form in the range of European carmakers, with no one producing small vehicles. This may turn out to be an incentive for the development of non-European carmakers in Europe, in particular Chinese carmakers,” according to Inovev.

This move by the EU to mandate a BEV win rather than letting market forces decide which technology wins long-term, has led to rare public interventions from Stellantis CEO Carlos Tavares.

“What has been decided is to impose on the automotive industry, electrification that brings 50% additional costs against a conventional vehicle. There is no way we can transfer 50% of additional costs to the final consumer because most parts of the middle class will not be able to pay,” Tavares told Reuters early in December.

Stellantis was formed by a merger of Groupe PSA and Fiat Chrysler Automobiles earlier in 2021 and comprises brands including Peugeot, Citroen, Opel, Vauxhall, Fiat, Chrysler, and Alfa Romeo.

“Over the next 5 years we have to digest 10% productivity a year in an industry which is used to delivering 2 to 3% productivity improvement. The future will tell us who is going to be able to digest this, and who will fail. We are putting the industry on the limits,” Tavares said.  

Earlier this year Tavares said this.  

“I can’t imagine a democratic society where there is no freedom of mobility because it’s only for wealthy people and all the others will use public transport,” Tavares said in a speech.

Tavares complained that the regulations on CO2 emissions had been political and were not designed by the industry. He said it would have been better to have approached the problem with a less radical approach and gradually replaced ICE vehicles with electric ones.

“I think we could have been more efficient with multiple technologies, not one single technology,” said Tavares at a Financial Times conferenced.

No other automotive mover and shaker has gone on the record with such hard-hitting comments, although it seems likely that behind closed doors with politicians similar comments were commonplace. If the European mass market manufacturers are going to survive and thrive, the EU must act to stimulate small electric car production. If it doesn’t, cynics will say there’s an underlying political agenda to kill the car in favor of mass transit. No doubt the Gilets Jaunes movement is paying close attention.