Europe cushions a global plunge in EV sales
Growth in the electric-vehicle market has slowed
EV sales rose 65 percent from 2017 to 2018. But in 2019, the number of units sold increased only to 2.3 million, from 2.1 million, for year-on-year growth of just 9 percent. Equally sobering, EV sales declined by 25 percent during the first quarter of 2020. The days of rapid expansion have ceased or at least paused temporarily. Overall, Europe has seen the strongest growth in EVs.
Although these developments are disappointing, they largely reflect the decline of the overall light-vehicle market, which fell by 5 percent in 2019 and by an additional 29 percent in first-quarter 2020. Despite the overall drop in sales, global EV market penetration increased by 0.3 percentage points from 2018 to 2019, for a total share of 2.5 percent. With additional growth in the first quarter of 2020, EV penetration is now at 2.8 percent.
EV market trends vary by region
Key EV markets suggest shifting regional dynamics, with China and the United States losing ground to Europe. EV sales remained constant in China in 2019, at around 1.2 million units sold. In the United States, EV sales dropped by 12 percent in 2019, with only 320,000 units sold. Meanwhile, sales in Europe rose by 44 percent, to reach 590,000 units. These trends continued in first-quarter 2020 as EV sales decreased from the previous quarter by 57 percent in China and by 33 percent in the United States. In contrast, Europe’s EV market increased by 25 percent.
The relatively slow 2019 growth of China’s EV market reflects both an overall decline in the light-vehicle market and significant cuts in EV subsidies. The central government, for example, eliminated purchase subsidies for vehicles that achieve electric ranges (e-ranges) of less than 200 kilometers and reduced subsidies by 67 percent for battery electric vehicles (BEVs) with e-ranges above 400 kilometers. These cutbacks reflect the government’s strategy of scaling back monetary incentives for new-energy vehicles (NEVs) and transitioning to nonmonetary forms of support. Since 2019, OEMs have received credits for each NEV produced. The credits take into consideration factors such as the type of vehicle, as well as its maximum speed, energy consumption, weight, and range. Regulators base credit targets for each OEM on its total production of passenger cars. If a manufacturer does not reach the target, it must purchase credits from competitors that have a surplus or pay financial penalties.
In first-quarter 2020, China was heavily affected by the COVID-19 pandemic. EV sales dropped by 57 percent from the fourth quarter of 2019 as consumer demand declined sharply. Several EV manufacturers were also forced to halt production. In response, the central government extended through 2022 (though at reduced rates) monetary incentives that were about to expire. The government also prolonged the purchase-tax exemptions of NEVs through 2022. These measures, together with the government’s recent decision to invest billions of renminbi in the charging infrastructure as part of an economic-stimulus program, could help EV sales rebound in 2020.
The United States
EV sales rose by 80 percent in the United States in 2018, driven by the market launch of the standard version of the Tesla Model 3. The increase slowed in 2019 because of several developments. With Tesla’s overseas deliveries increasing and the gradual phaseout of the federal tax credit in January and July 2019, the brand’s US sales for that year declined 7 percent, or 12,400 units. Meanwhile, the Chevrolet Volt was phased out, and its sales fell by 14,000 units. Sales of the Honda Clarity also decreased by 8,000 units.
Some international OEMs did successfully launch new models in the United States in 2019, including Audi (the e-tron) and Hyundai. Sales of VW’s e-Golf also increased. These three brands accounted for more than 24,500 units of EV sales, but their strong performance could not offset the decline of other models. US sales of EVs decreased further in first-quarter 2020, by 33 percent from the previous quarter.
The federal government’s recent moves to loosen regulations could further decelerate the EV market in the United States. In March 2020, for instance, the government revised fuel-economy standards, to a 2026 target of 40 miles per gallon (mpg), from 54 mpg. Today’s low oil prices are also contributing to the EV slowdown, since they significantly lower the total cost of ownership for vehicles powered by internal-combustion engines (as compared with EVs). These changes are creating great uncertainty, and the US EV market’s development could depend largely on the number of states adopting California’s Zero-Emission Vehicle Program and on the vicissitudes of oil prices.
Unlike other key EV markets, Europe has seen significant EV growth. In 2019, sales increased by 44 percent, the highest rate since 2016. The European Union’s new emissions standard 95 grams of carbon dioxide per kilometer for passenger cars could also boost EV sales because it stipulates that 95 percent of the fleet must meet this standard in 2020 and 100 percent in 2021. BEV sales picked up speed substantially, with a 70 percent growth rate propelled by three models: the Tesla Model 3, Hyundai Kona, and Audi e-tron.
EV sales increased by double-digit percentages in 2019 in almost every European country. Sales in some smaller markets, such as Estonia, Iceland, and Slovakia, declined in absolute terms. EV sales in Germany and the Netherlands contributed nearly half 44 percent of overall EV-market growth in Europe; in both countries, units sold increased by about 40,000 units. Those numbers translate into a 2018 growth rate of 55 percent for Germany and 144 percent for the Netherlands. In both countries, these strong EV sales resulted from increased demand for new models, the availability of existing models with larger battery sizes, and changed government incentives.
In the first quarter of 2020, European EV sales rose as the overall EV penetration rate increased to 7.5 percent. With the exception of Hong Kong, all of the top ten markets for EV penetration were in Europe. The strong regulatory tailwinds and high purchase incentives in several European countries could dampen the impact of the COVID-19 pandemic and further boost the EV market. That said, EV sales will probably face tougher impediments in second-quarter 2020, when the pandemic’s impact on Europe’s countries and economies should peak. So far, no European OEM has changed its plans to roll out EV models, and several countries are discussing additional purchase incentives as part of their economic-stimulus programs.
The supply chain is localizing
With announced launches of new EV models spiking, both automakers and suppliers are increasing their global footprints in target markets by localizing the production of vehicles and components. For example, Tesla began construction of its Shanghai plant in January 2019 and delivered the first locally produced EV that December. The company plans to build its next production plant in Germany by 2021. Similarly, Volkswagen and Toyota have announced plans to set up EV plants in China.
In a similar development, battery-cell manufacturers are increasing their production capacities in target markets. The total lithium-ion–battery market for EV passenger cars grew by 17 percent, to 117 gigawatt-hours in 2019, enough to power 2.4 million standard BEVs. Most of the new capacity will be established in Central Europe, with companies preparing to meet demand throughout the region. Company announcements suggest that the global market should expand to about 1,000 gigawatt-hours by 2025. The Chinese battery maker CATL had the largest market share in 2019, at 28 percent, while its absolute capacity grew by 39 percent. CATL has recently continued its global expansion, signing new contracts with several international OEMs and setting up a factory in Germany.