Why is the market for electric vehicles proving difficult for European automakers?

In the global electric vehicle industry, European automakers are having difficulty, with leading names like Stellantis, Mercedes, and Volkswagen falling behind rivals. Growth is being impeded by high prices and a dearth of new models, with BMW being an uncommon exception among European brands.

Sales of electric vehicles reached 853,000 worldwide in July 2024, up just 6% year over year. This lackluster performance underscores the lower-than-anticipated demand for battery-powered models and casts doubt on the industry's capacity to maintain its current growth speed.

Even more concerning is how poorly European automakers are performing; the most recent Bank of America EV Tracker study shows that major market share losses are being experienced by a number of important brands, including Stellantis, Volkswagen, and Mercedes-Benz.

Conversely, due mostly to China's robust demand, plug-in hybrid electric car sales increased by 58% year over year.

Plug-in hybrids are becoming more popular; this trend may be a response to buyers' worries about fully electric vehicles' limited range and the higher total cost of ownership of battery-electric models, especially in Europe.

European automakers find it difficult to stay up with the global EV industry.

According to research from Bank of America, European automakers are finding it difficult to stay up with the competition, especially in the battery electric vehicle market.

Stellantis' market share fell sharply to 2.7% in July from 4.0% a year earlier and 3.6% in the second quarter of 2023.

In the second quarter of 2023, the market share of Volkswagen Group decreased to 6.6% from 7.5%, while Mercedes-Benz, which has historically led the luxury class, saw its market share decline to just 1.9% from 2.5% the previous year.

"Electric vehicle sales in Germany suffer currently from a very high comparison base from a year ago, when purchase subsidies for company cars expired in September 2023," analysts at Bank of America stated.

The market for electric vehicles is still expanding globally, but the slowdown of European automakers and the popularity of plug-in hybrids suggest that the switch to entirely electric vehicles may take longer than anticipated.

BMW bucks the trend

Despite the wider difficulties that European automakers are facing, BMW has defied the trend, posting a notable increase in its market share for battery-electric vehicles.

BMW's market share increased to 4.6% in July 2024 from 3.7% in the second quarter of 2023 as a result of a 40% year-over-year increase in sales of electric vehicles.

"The i4 and iX1 keep selling very well and the recently launched i5 is contributing meaningfully to the annual growth rate," said experts.

In contrast to other rivals, BMW seems to be reaping the benefits of choosing battery electric cars over plug-in hybrids.

Overtaking Tesla, BYD switches to plug-in hybrid

Chinese automaker BYD overtook Tesla by increasing its market share from 14.7% in the second quarter of 2023 to 17.2% in July 2024, securing its place as the world's top manufacturer of electric vehicles.

Nonetheless, BYD's global plug-in hybrid sales increased by an astounding 62% year over year, despite a 7% decline in battery electric vehicle sales in China.

In the second quarter of 2023, Tesla's market share for battery electric vehicles worldwide dropped to 14.0% from 19.4%. Sales of Tesla electric vehicles fell by 5% in July in Europe, where the downturn was particularly noticeable.

A portion of this decline is ascribed to increased Model 3 costs brought on by import taxes on Chinese-made automobiles.

Europe's uptake of battery electric vehicles is hampered by higher costs.

According to Bank of America, one of the main causes of the slow growth of battery electric vehicles in Europe is their higher total cost of ownership when compared to cars with internal combustion engines.

Although battery-electric vehicles often have lower operating expenses, their high initial costs and large depreciation have prevented a wider adoption of these vehicles.

Even after deducting subsidies and rebates, the cost of battery electric vehicles in Germany, a major market indication for the rest of Europe, is still roughly 20% more than that of their internal combustion engine counterparts.

Analysts have observed that because of the high upfront costs and uncertainties surrounding residual values, European consumers are reluctant to convert to battery electric vehicles.

"Regardless of regulation, battery electric vehicle prices need to come down in order to trigger a sales boom," analysts from Bank of America stated.

Prospects: Revisions made to the European electric vehicle sales prediction

Bank of America has downgraded its sales projection for battery electric vehicles in Europe, seeing a 2% annual fall in 2024.

The future of the automotive industry is expected to be significantly impacted by the European Union's aggressive emissions standards, which include outlawing the sale of any new internal combustion engine vehicles by 2035.

The increased total cost of ownership associated with battery electric vehicles continues to be a major barrier to their widespread acceptance in Europe, even if regulatory pressures, notably those pertaining to carbon dioxide emissions, will continue to push automakers towards electrification. (*)