Europe’s car market wasn’t supposed to be like this. Electric vehicle sales were expected to be booming, plug-in hybrids would be the compromise choice and combustion engines were heading for the knacker’s yard.
On the surface, the Western European market for all sedans and SUVs in 2024 has slowed down a bit but still appears to be healthy. Industry forecaster GlobalData said it expects sales to grow 4.5% this year to 11.98 million, much slower than last year’s 13.9% increase.
But the industry is in turmoil as the unexpected slowdown in EV sales growth raises questions about the huge amount of capital invested in developing them. European Union carbon dioxide regulations look incoherent as internal combustion engine sales unexpectedly rally. The likelihood of tariffs on more affordable Chinese EV imports also raises problems for the EU’s determination to force its citizens to buy EVs.
Car buyers haven’t read the script. This has been set out in great detail by the EU and British governments, to progressively ban new ICE power by 2035. But as EV sales growth has stalled, plug-in hybrids are showing surprising life, while ICE vehicles are back in demand. Ford Europe, once eager to lead the world in banning ICE power by 2030, is now hedging its bets. Others who jumped on the anti-ICE bandwagon may face similar embarrassment.
JATO Dynamics data shows sales of EVs in Europe in March fell 11% to 196,045, led by the Tesla Model Y at 26,847, down 42%. PHEV sales rose 2% to 100,695, led by the Volvo XC60. In the first quarter, overall sales rose 4.8% to 3.4 million, compared with the same period last year.
Meanwhile, leading manufacturers are asking the EU to ease the ICE rules. BMW CEO Oliver Zipse has called for changes in the 2035 ban on the sale of new ICE vehicles and wants to use taxes to incentivize cuts in CO2 carbon emissions.
News Tuesday from Washington that the U.S. government will impose a 100% tariff on Chinese EVs is likely to make Europe’s problems worse. The likes of BYD, SAIC, Geely and Great Wall Motors are now more likely to seek sales in Europe.
In an interview with the Frankfurter Allgemeine newspaper, BMW’s Zipse called the 2035 ICE ban “naïve” while warning the EU about the negative impact of China tariffs on the German auto industry. The German industry has very profitable businesses in China and might suffer from retaliation.
Ford’s move to extend the life of ICE vehicles is a growing concern for investors, according to investment bank UBS. European manufacturers have not invested in the next generation of ICE models because of the phase-out.
“We think those (manufacturers) with the most aggressive EV transitions – Volvo, Volkswagen, Renault, Porsche – are under the most pressure to invest more in next-gen ICE vehicles. We think BMW and Mercedes are more flexible and capital-efficient in prolonging the life of their ICE range and Stellantis should be the (manufacturer) with the highest strategic flexibility thanks to its consistent multi-energy approach,” UBS said in a report.
Investment bank Morgan Stanley said the EU auto sector has a high degree of exposure to key trade debates, like the question of increased tariffs on Chinese EVs.
Current speculation points to an increase to between 25 and 30% from the current level of 10%.
Morgan Stanley said any EU tariff action was likely to prompt a response from China, which supplies Europe with critical materials for greening the economy. Tariffs could also jeopardize Europe’s EV targets. Renault and Stellantis were less at risk because of a lack of exposure to China. Porsche would be worried because of its high Chinese revenue exposure, according to Morgan Stanley.
Meanwhile, there are no signs of panic at GlobalData, which had these serene comments to make on Europe’s prospects.
“While the outlook for 2024 remains broadly in line with the previous update to this report, we have slightly trimmed the forecast due to two consecutive months of disappointing results.”
“While the macroeconomic outlook appears subdued across the region, fading supply issues and assumed vehicle price easing this year should support the market. Added to which, we should see the beginning of monetary loosening as inflation pressures ease.”
“That said, geopolitical risks still have the potential to undermine the forecast,” Globaldata said in a report.
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