Just as road transportation accounts for about 15% of greenhouse gas emissions, so transitioning to cleaner vehicles is a linchpin in national efforts to meet climate-change mitigation targets.
But the sales momentum for electric vehicles (EVs) is slowing globally.
For many years, governments offered generous subsidies to encourage drivers to switch to electric vehicles.
But this year, the EV transition is having a wobble.
Governments are scaling back financial incentives for EV buyers, sales growth is stalling and the auto industry is having second thoughts about some of the investment plans that were predicated on a rapid shift to electric.
According to BloombergNEF, sales of all-electric vehicles plus plug-in hybrids that can also be powered by gasoline or diesel more than doubled in 2021 and grew 62% in 2022. But growth slowed to 31% last year.
China was the main driver, accounting for 59% of global sales, excluding commercial vehicles.
Most notably, in Europe and the US, the shift to EVs effectively went into reverse. The market share of battery cars in Europe shrank to 14% in August from just over 15% a year earlier.
In Germany, the continent’s biggest market, EV sales plunged by 69%.
On average, all-electric vehicles are 30% and 27% pricier in Europe and the US, respectively. There are cheaper EVs out there, namely in China.
Several manufacturers, including GM, Ford, Mercedes-Benz, Volvo and Toyota, have now softened their EV ambitions.
Together, the legacy carmakers — those with a long history of making combustion-engine vehicles — are targeting 23.7mn EV sales in 2030, more than 3mn units fewer than they had forecast last year, according to BNEF.
Even Tesla, the pure-play EV maker that did much to make EVs a hit with drivers, has stopped referring to its goal of delivering 20mn units a year by 2030.
There are some silver linings, though
Some governments alarmed by the recent downturn in EV demand are weighing whether to restore their financial incentives for buyers.
The auto industry operates on long product cycles. High-volume automakers develop new platforms that underpin vehicles over what is usually a six- to 10-year period.
The platforms take years to develop, cost billions of dollars and ideally are versatile, allowing automakers to use different body structures catering to a wider variety of consumer preferences.
And all the work carmakers have done reconfiguring their factories to make EVs means they are getting closer to offering a wider selection of more affordable models to entice wavering buyers.
In Europe, seven new electric models costing less than €25,000 ($27,810) could hit the market this year and next, including a new Renault 5 and Stellantis’ Citroen e-C3, according to the Transport & Environment lobby group.
In that optimistic scenario, EVs could grab as much as 24% of the European market next year, according to T&E, which advocates for clean transport and energy.
That would be a big leap from the 12.5% market share for EVs in EU countries over the first seven months of 2024, as measured by the European Automobile Manufacturers’ Association.
BNEF projects that global passenger EV sales will grow, though at a slower pace, rising from 13.9mn in 2023 to over 30mn by 2027. The annual growth rate will average 21%, down from 61% between 2020 and 2023.
By 2027, EVs will comprise 33% of global new passenger vehicle sales, with China and Europe leading at 60% and 41%, respectively.
Overall, the global EV fleet will expand to over 132mn by 2027, up from 41mn in 2023, according to a BNEF report in June.
The long-term market outlook for electric vehicles is positive despite near-term challenges.