Source: Transport & Environment

1. A decade after their initial adoption, the EU’s 2020/21 CO2 standards are finally starting to drive investment in electric vehicles in Europe. While not definitive, production forecasts available today show that carmakers are planning to produce over 4 million plug-in cars in 2025, of which around 60% are expected to be battery electric vehicles (BEV) and the rest plug-in hybrids (PHEVs);

2. The planned numbers actually exceed the minimum EV volumes needed to comply with the future 2025 CO2 standards, which T&E estimates to be 2.3 million EVs in 2025. This suggests that the European industry is eager to seize market share in the rapidly growing market for electric cars and to benefit as plug-in technology reaches cost parity with conventional cars by 2025. This ambition presents a great opportunity to accelerate the transition;

3. Car manufacturers are putting their money and production effort into the clean technology of their choice, and it is electrification. Planned production of fuel cell vehicles in 2025 is negligible (9,000 units planned for 2025 vs 4 million EVs), and natural gas vehicles will remain a niche too, decreasing to 200k vehicles planned for 2025

4. Most of the EV manufacturing in Europe is expected to be located in Germany, France, Spain and Italy (also the UK), but parts of the future manufacturing are also expected to be located in central and eastern EU counties, notably Slovakia, Czech Republic and Hungary which rely on conventional car manufacturing today.

5. Whilst for the next few years Europe will have to import a part of the batteries required, in the medium-term Europe’s battery production capacity will likely be sufficient to support the vehicle production in Europe. A dozen of the currently planned lithium-ion battery cell production factories will take a couple of years to come online, but there is likely to be enough battery supply by early/mid 2020s. If production schedules are met, from 2023 these factories will account for a total of at least 131 GWh of annual battery production capacity, which is estimated to be around 15% more than the demand from electric cars and vans. Accounting for stationary storage (less than 10% of the total) and electric heavy-duty vehicles, the supply and demand of Li-ion batteries appears to be balanced and there should be no shortage of batteries in the medium-term future in the EU. The current shortage of battery supply is the consequence of late investments as manufacturers failed to anticipate the shift to EVs and to secure the supply on time. As a result, up to 2023 OEMs may have to rely on battery cell imports from Asia.

Recommended Policies

The EU and national member states need to set ambitious and supportive measures to accompany the car industry transformation and ensure it is fast, fair and benefits all Europeans.

First, to give a strong long-term signal to the industry and ensure the huge investments in EV production are not in vain, the European Commission should propose an EU-wide phase-out of internal combustion engine (ICE) light vehicles by 2035 at the latest. This is not only necessary to comply with the Paris agreement and zero emission economy by 2050 (as the last ICE should be sold in early 2030s according to the EU Commission modelling), it is also an important industrial signal to give direction of travel and clarity for manufacturing and supply chain industries longer-term. After all, engineering choices in the next few years will determine production well into the 2030s.

Second, member states need to continue to reform vehicle taxation in a way that accelerates the transition and reduces CO2 emissions, so that taxes:

- Ensure that more EVs are sold than required by the EU CO2 regulation, in other words, that the potential for over-compliance is realised;

- Focus on high-mileage market segments such as corporate fleets and taxis to displace the maximum of fossil-driven kilometers. This can be done through employee-side measures (higher Benefit-in-Kind tax for ICE vehicles, lower for EV) and measures to reduce total cost of ownership (TCO) for employers via VAT/tax deductibility;

- Focus on the quality of EVs, e.g. their range, resource circularity and real-world CO2 reduction (including maximum CO2 requirements in the case of plug-in hybrids);

- Are socially equitable and promote affordable EVs to help consumers with lower purchase power. Incentives should not pay for luxury but for necessity, e.g. by price caps (that could depend on range);

- Are fiscally sustainable by balancing incentives for zero emission vehicles with increased taxes on polluting cars, preferably at the point of purchase to increase effectiveness and avoid adverse social impacts;

- Are phased down as battery prices decrease and the market matures; one way of doing this is to link incentives to market success.

Third, charging infrastructure needs to be effectively deployed in line with the growing EV uptake at all levels. While there is enough infrastructure for the early adopters today, much more needs to be done as electric cars go mainstream. Providing easy home and workplace charging is a top priority. So is a ubiquitous, interoperable and convenient coverage of public charging infrastructure along highways and suburban/urban roads, with a focus on areas not served by the market i.e. with lower utilization rates. Given the choice of EU carmakers to invest in electric cars, the review of the 2014 Alternative Fuels Infrastructure Directive should follow the market and prioritise electric charging infrastructure for cars. It should also adopt the EU-wide “right to plug”, as well as channeling the EU Connecting Europe Facility and EU regional funds to provide seamless coverage.

Fourth, the EU needs to put in place a comprehensive Green Industrial Agenda, by setting and implementing coherent policies aimed at emobility leadership in all fields: transport, industry, research, innovation, etc. This needs to support the EU carmakers to transform the way they make cars and keep jobs in Europe. Notably, the EU should set an ambitious battery manufacturing framework – including environmental and social requirements and financial support – that would encourage the development of a sustainable and closed-loop battery production and recycling industry in Europe.

The uptake in EV production has the potential to replace the declining diesel manufacturing, notably in less wealthy regions heavily reliant on traditional manufacturing today. Earlier work shows that the additional spending from reduced oil imports – most of it spent in the service sector - more than offsets any job losses in the automotive industry. Still, some regions could be hit hard by the increasing automation in the automotive sector, of which electrification is one element. These should be able to benefit from a dieseltransition fund to help retrain, upskill and adjust workforce. The German trade union IG Metall has recently introduced an initiative whereby its employees would reduce working hours, but continue to receive the same salary and spend part of their time training and acquiring new skills. Industry, EU and national governments can all part-fund initiatives of this kind to prepare workers for the future. Together, these measures are not only necessary to guarantee an effective, fast and socially just entry of electric vehicles into the mainstream market, but they will also ensure the EU car industry once and for all commits to electrification and delivers on its promises. A successful transition to  emobility is also imperative to Europe’s economic and industrial future.

Passenger plug-in market share of total new car sales (2019)

European Economic Area

  1. Norway: 55.9%
  2. Iceland: 25%
  3. Netherlands: 13.9%
  4. Sweden: 11.3%
  5. Finland: 6.9%
  6. Portugal: 5.7%
  7. Switzerland: 5.5%
  8. Denmark: 4.2%
  9. Austria: 3.5%
  10. Belgium: 3.2%
  11. UK: 3.15%
  12. Ireland: 3.13%
  13. Germany: 3.1%
  14. France: 2.6%

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