The shift to electric vehicles (EVs) was supposed to be swift, but is proving complex. EVs are an element in the climate transition, but the industry also reflects geopolitical rivalries. Economic headwinds, reduced subsidies, affordability concerns and questions about charging networks are all slow Contact online >>
The shift to electric vehicles (EVs) was supposed to be swift, but is proving complex. EVs are an element in the climate transition, but the industry also reflects geopolitical rivalries. Economic headwinds, reduced subsidies, affordability concerns and questions about charging networks are all slowing adoption. China has emerged as a leading producer while established carmakers in Europe and North America are struggling to adapt production and face policy confusion.
Widespread EV adoption should play a part in meeting international climate commitments. Personal transport accounts for about 7% of global greenhouse gas emissions, and EVs are as much as three times more efficient than conventional petrol and diesel engines. Tesla Inc.’s innovations, and China’s production ambition mean that EVs now represent almost 12% of new car sales worldwide. Many countries have set a target of half of all car sales by 2030.
Foreign sales by Chinese EV companies grew 15% in the first ten months of 2024 compared with the same period a year earlier. Leading Chinese manufacturer BYD Co. aims to capture 10% of the European EV market by 2030, and plans to sell half of its output internationally.
These ambitions have triggered trade tensions as legacy Western brands respond. The sector is also of strategic importance to the West. In the European Union, the auto industry represents around 7% of gross domestic product (GDP), 10% of manufacturing jobs, and more than 30% of research and innovation spending. Given this huge role in the EU economy and China’s subsidies to its domestic manufacturers, the bloc has applied import tariffs on Chinese-made cars as high as 35% since 30 October 2024, in addition to an existing 10% duty.
Former European Central Bank President Mario Draghi’s recent report on EU competitiveness suggested a possible solution: requiring foreign companies that want to produce in Europe to enter joint ventures with local companies. Historically, this was one of China’s requirements for foreign firms in its market. But this could prove difficult to implement amid a lack of European political leadership.
Still, we see reasons to be more optimistic about demand for EVs in 2025. Resilient economic growth and falling interest rates should help sales, along with more affordable vehicles, including a broader choice costing around EUR 30,000. The EU is adopting a stricter carbon dioxide emissions policy, which should encourage carmakers to increase their share of EV sales to avoid penalties. While there are calls to delay this policy, estimates point to European EV adoption rates reaching around 20% in the coming years, from 12% currently.
Many legacy automakers will soon launch new, cheaper, more efficient EV models with longer ranges. Mercedes, BMW and Hyundai platforms should all reach the market in 2025, with Stellantis and Toyota following in 2026. This may start to shift the balance of sales between emerging and existing players. We expect EV sales to rise 20% in 2025, from just under 15% this year. The market for non-electric vehicles should be broadly flat next year. An acceleration in charging capacities would be a welcome development that could support more positive momentum in EV sales.
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