Europe’s shaky EV mandate will force tough choices

Europe wants to force its citizens to buy only electric vehicles. The problem is that EVs are too expensive to generate the kind of mass market sales needed, as sales of new internal combustion engines are phased out between now and 2035.

The question is where will all those sales come from?

The European Union and the British government find themselves between a rock and a hard place. Local car manufacturers do not have the capacity to achieve these goals, but the Chinese do. If utopian climate-saving carbon reduction targets for 2035 are to be met with the help of cheaper Chinese electric vehicles, it could deal an existential blow to European carmakers. Saving European industry by diluting CO2 requirements would mean losing political face. An added complication is June’s European Parliament elections. Some center-right politicians are running on “save our ICE cars” platforms.

There is another troubling complication. The EU is looking into charges that China illegally subsidized EV sales in Europe, and a decision on raising import duties is expected soon. But curbing Chinese electric vehicle imports could push China into action against Germany’s big interests there.

Reuters put the problem this way when describing a similar dilemma in the US

“The Biden administration’s plan to impose heavy new tariffs on Chinese electric vehicles and batteries would provide temporary protection for U.S. auto jobs (but) potentially at the expense of the White House’s efforts to combat climate change by accelerating the adoption of of electric vehicles in the US”.

Current sales of electric vehicles in Europe have stalled at just over 2 million a year as early and corporate purchases peaked. Schmidt Automotive Research said that in the first third of 2024 the market share of Western European electric vehicles remained at 14.4% compared to the same period last year, according to its provisional data. Other leading market forecasters still expect sales to explode to close to 9 million in Europe by 2030, a growth rate that is not fast enough to meet the EU and UK target of close to 80% market share .

In Britain, carmakers’ EV sales should account for 22% of total sales this year, rising to 25% in 2025, 33% in 2026, 38% in 2027, 52% in 2028, 66% in 2029, 80% in 2030 and 100% in 2035. In the EU, a roughly similar program to the ban on ICE vehicles is defined by the carbon dioxide emissions of the fleet.

Stellantis chief executive Carlos Tavares recently criticized Britain’s EV quotas. EVs currently hold about 15-1/2% of the market there compared to the government mandate of 22%. Companies face a £15,000 ($19,000) fine for each ICE sale above the limit. Tavares said last month that Stellantis’ local brands such as Citroen, Vauxhall and Peugeot would not sell ICE cars and would lose money. This reaction is likely to be repeated across Europe.

BMW CEO Oliver Zipse has called for changes to the ban on the sale of new ICE vehicles in 2035 and wants to use taxes to incentivize CO2 emissions cuts.

UBS cut its forecast for European EV sales to 8.3 million in 2030 compared to its previous estimate of 9.6 million. Investment researcher Jefferies has predicted that sales of electric vehicles in Europe will grow to 8.9 million in 2030 for a market share of 65% compared to 16% now. Schmidt Automotive Research it says EV sales in Western Europe will reach 8.4 million or 60% of the total market by 2030, compared to just 2 million in 2023 (16.9%).

The EU adopted this decision of zero new ICE cars by 2035 a year ago and must have known that Chinese carmakers had a huge lead in building world-class electric vehicles. It is not clear how politicians expected EV market share to grow from 22% to 80% in seven years. Cynics say the plan ignores the theory of unintended consequences and will hurt the local auto industry, shift big benefits to China and have no impact on the climate. With the election looming, accusations that the plan threatens to make private transportation affordable only for the wealthy could have negative political consequences.

British car analyst Charles Tennant said the plan would indeed cause a stir in the industry.

“Already the government’s target of 22% EV sales in the UK and EU is under threat, amid a global slowdown in EV sales, as customers appear to be turning their backs on electric technology in favor of their favorite internal combustion engine cars – although hybrid vehicle Sales retain some momentum – and this puts the target of 80% UK/EU EV sales by 2030 under serious threat,” Tennant said in an email exchange.

“In the UK, just 15.2% of new car registrations in March were EVs, down from 16.2% last year, and even that was mostly fleet sales (up 30%) as more people take advantage of lower tax breaks enjoyed by EV company cars . In terms of growth, electric vehicles grew by a paltry 4% in the UK in March, while hybrids grew by 20% in a market that grew by 10.4%. “Manufacturers are now starting to feel that pain as Tesla and the Chinese companies have reported big sales declines in Q1 and legacy manufacturers are reining in lofty ambitions to be all-electric between 2030 and 2035,” Tennant said.

Ford Motor, which once wanted to lead Europe in banning ICE power by 2030, is now hedging its bets. Others who jumped on the anti-ICE bandwagon may face similar embarrassment.

Matt Schmidt of Schmidt Automotive Research says the path to zero emissions in 2035 will begin soon with extended hybridization and improved plug-in hybrids with an EV-only range of more than 60 miles. The industry in the EU is currently pausing EV efforts ahead of the next increase in fleet emissions targets next year. There will also be changes to company car taxation which penalize ICE cars. Major cities will increasingly ban ICE access while insisting that taxi services be electrified.

“That should be enough to get them over the finish line,” Schmidt said.

Ben Nelmes, CEO of New AutoMotive, an independent transport research organization tasked with supporting the transition to electric vehicles, acknowledges the scale of the challenge, but said it is possible if the EU gets behind its plan.

“Any outlook for 2030 would be extremely uncertain, and these projections seem very far-fetched, but if the EU sticks to its guns, then they are extremely feasible. 2030 is a long way off and car manufacturers, despite the problems of recent months, can be very agile,” Nelmes said in an interview.

The June election could undermine the EU plan. Some centre-right groups want to reverse a ban on the sale of all new ICE vehicles by 2035. Could this derail the plan?

“I don’t think he would do that. There is an increase in parties that are not in favor of 2035 (CO2 rules) and the EU may have to make compromises, but political negotiations are difficult to predict. The election could be very important for the EV transition in Europe,” said Nelmes.

Nelmes did not expect the EU to raise import tariffs on Chinese electric vehicles, which now stand at 10%. German investment in China made it unlikely due to fear of retaliation, while rising tariffs would punish European consumers who wanted to adopt the electric transition. Nelmes expected more cooperation between European and Chinese manufacturers.

China’s BYD has already announced plans to build cars in Hungary. Multi-brand giant Stellantis has agreed to sell electric vehicles made by Leapmotor of China, in which it owns a 20% stake, and may assemble some under license.

Tennant agrees that more deals with Chinese companies are possible, but the EU has a big decision to make on the tariff issue.

“We can expect to see cooperation. Stellantis has already formed a joint venture with Chinese automaker Leapmotor to sell compact city cars priced below 20,000 euros ($21,700 after taxes). This leaves the EU in a quandary where if it follows its lead with the US and imposes punitive tariffs on Chinese EV imports to protect legacy manufacturers, then it will simply add another hurdle to their goal of mass-market private customer EV use . Everything is becoming a perfect storm,” Tennant said.