Europe’s unstable EV mandate forces difficult choices

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

The question is, where will all these sales come from?

The European Union and the UK government are in a difficult position. Local carmakers do not have the capacity to meet these targets, but China can. If ideal climate change carbon reduction targets for 2035 are met with the help of cheap Chinese EVs, it could deal an existential blow to European carmakers. Relaxing CO2 requirements to save European industry would mean losing political face. Further complicating things are the European Parliament elections in June. Some centre-right politicians are running on a platform of “save ICE cars”.

There is another troubling complication. The EU is considering suspicions that China is illegally subsidizing EV sales to Europe, and a decision on raising import duties is expected to be made soon. However, curbing China’s EV imports could prompt China to take retaliatory action against Germany’s large interests.

Reuters, when describing a similar dilemma in the United States, phrased the problem this way:

“The Biden administration’s plan to impose heavy new tariffs on Chinese electric vehicles and batteries will temporarily protect U.S. auto jobs, (but) by accelerating U.S. EV penetration. It could cost the White House efforts to combat climate change.”

Current EV sales in Europe have stagnated at just over 2 million units per year as early adopters and corporate purchases have plateaued. According to preliminary data from Schmidt Automotive Research, Western Europe’s EV market share has stagnated at 14.4% year-on-year in the first third of 2024. Other leading market forecasters still predict that sales in Europe will explode, reaching nearly 9 million units by 2030, but this growth rate will outpace the EU and UK’s market share of 80%. It is not fast enough to achieve the goal of near %.

In the UK, car manufacturers’ EV sales should account for 22% of overall sales this year, 25% in 2025, 33% in 2026, 38% in 2027 and 52% in 2028. It will rise to 66% in 2029 and 80% in 2030. 100% in 2035. In the EU, a nearly similar program to outlaw ICE vehicles is defined by a vehicle’s carbon footprint.

Stellantis CEO Carlos Tavares recently criticized the UK’s EV quota. Currently, EVs account for about 15-1/2% of the market, and the government mandate is 22%. Companies will be fined 15,000 pounds ($19,000) if their ICE sales exceed the quota. Mr Tavares said last month that Stellantis’ local brands such as Citroën, Vauxhall and Peugeot would not sell ICE cars and would be in the red. This reaction is likely to be repeated across Europe.

BMW CEO Oliver Zipse wants to change the ban on new ICE cars in 2035 and use taxes to encourage lower CO2 emissions.

UBS has lowered its forecast for European EV sales in 2030 to 8.3 million from its previous forecast of 9.6 million. Investment researcher Jefferies predicts that EV sales in Europe will rise to 8.9 million in 2030, with a market share of 65% compared to 16% currently. According to Schmidt Automotive Research, EV sales in Western Europe will be just under 2 million units (16.9%) in 2023, but are expected to reach 8.4 million units, or 60% of the total market, by 2030.

When the EU adopted a decision a year ago to reduce the number of new ICE vehicles to zero by 2035, it must have been aware that Chinese automakers had a significant lead in producing world-class EVs. . It’s not clear how politicians expected EV market share to grow from 22% to 80% in seven years. Cynics argue that the plan ignores the theory of unintended consequences, hurting the local auto industry, shifting large profits to China, and having no impact on the climate. As elections approach, the plan has been criticized for making personal transport available only to the wealthy, which could have negative political implications.

UK-based automotive analyst Charles Tennant said the plan would certainly cause disruption to the industry.

“The government’s target of 22% EV sales in the UK and EU is already under threat amid a global slowdown in EV sales. Customers prefer their beloved internal combustion engine cars, albeit hybrids. “We seem to be turning our backs on electric technology.”Sales are maintaining some momentum, which puts the UK/EU EV sales target of 80% by 2030 under serious threat. Tennant said in an email exchange.

“In the UK, only 15.2% of new cars registered in March were EVs, down from 16.2% last year, but this is still mainly driven by fleet sales as more people take advantage of the tax breaks offered by EV company cars. (up 30%).” In terms of growth, EVs increased by just 4% in the UK in March, while hybrids surged by 20% in a market that grew by 10.4%. Manufacturers are currently feeling the pain, as Tesla and the Chinese company report sharp declines in sales in the first quarter, and traditional manufacturers are curbing their lofty ambitions to go fully electric between 2030 and 2035. “We’re starting to feel that,” Tennant said.

Ford Motor Co., which once led Europe in its bid to ban ICE electricity by 2030, is now hedging its bets. Others in the anti-ICE movement may face similar embarrassments.

Matt Schmidt of Schmidt Automotive Research says work toward zero emissions in 2035 will soon begin with enhanced hybridization and improved plug-in hybrids with more than 60 miles of EV-only range. It says that it will be. The EU industry is currently pausing its EV efforts ahead of the next increase in vehicle emissions targets next year. Changes will also be made to the company car tax, which penalizes ICE cars. Large cities will increasingly ban access to ICE while insisting on electrification of taxi services.

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

Ben Nelmes, CEO of New Automotive, an independent transport research organization with a mission to support the transition to electric vehicles, acknowledges the scale of the challenge, but says that if the EU backs the plan, He said it was possible.

“The outlook to 2030 is very uncertain and although these predictions seem very realistic, they are well within reach if the EU sticks to its course. 2030 is quite It’s a long way off, and automakers can be very nimble despite the problems they’ve had in recent months,” Nelmes said in an interview.

June elections could undermine the EU’s plans. Some centre-right groups want to lift the ban on the sale of all new ICE vehicles by 2035, but could this derail their plans?

“I don’t think that will happen. There are an increasing number of political parties that do not support the 2035 (CO2 regulation), and the EU may be forced to compromise, but political negotiations are difficult to predict. “It could have a very big impact on the economy,” Nelmes said.

Nelmes did not expect the EU to raise import duties on Chinese-made EVs, which currently stand at 10%. Due to Germany’s investments in China, higher tariffs would penalize European consumers who wanted to switch to EVs, but feared retaliation, making it unlikely. Mr. Nelmes looked forward to further cooperation between European and Chinese manufacturers.

China’s BYD has already announced plans to produce cars in Hungary. Multi-brand giant Stellantis has agreed to sell EVs made by China’s Leap Motor, in which it holds a 20% stake, and may assemble some of them under license.

Tennant agrees that more business with Chinese companies is likely, but that the EU has big decisions to make on tariffs.

“We can expect collaborations. Stellantis has already formed a joint venture with Chinese automaker Leap Motor to sell compact city cars for under 20,000 euros ($21,700 after tax). The EU is in a quandary, as even if it follows the US and imposes punitive tariffs on Chinese EV imports to protect legacy manufacturers, it will further undermine its goal of widespread adoption of EVs by private mass market customers. It’s going to be exciting. It’s all becoming a perfect storm,” Tennant said.