Is Europe falling behind in EV investments?

The global automotive industry is undergoing a rapid transformation, driven by the shift towards battery electric vehicles (BEVs). From 2019 to 2023, BEV sales skyrocketed from 1.6 million to 9.6 million vehicles, representing around 15% of the global car market. This growth has been propelled by stringent global regulations aimed at reducing carbon emissions and fostering sustainable transportation. A recent briefing examines the investment announcements made by 19 major global carmakers between 2021 and 2023, shedding light on regional investment dynamics and raising concerns about Europe’s position in the EV race.
This image is a map of Europe highlighting the investments in electric vehicles (EVs), battery, and charging infrastructure announced by carmakers between 2021 and 2023.
Source: Transport & Environment

Investment Explosion: A Six-Fold Increase

Between 2021 and 2023, the carmakers studied announced a staggering €265 billion in investments in EVs, battery cells, and charging infrastructure. This amount is nearly equivalent to Romania’s annual GDP, highlighting the massive financial commitment towards electrification. The annual investment announcements soared from €27 billion in 2021 to €150 billion in 2023, indicating a nearly six-fold increase. European carmakers led the charge with 34% of these announcements, followed by Chinese (20%) and South Korean (18%) manufacturers.

North America: The Leading Investment Destination

Despite European carmakers making the largest investment announcements, North America has emerged as the preferred destination for these funds. North America secured 37% of the total investments, outpacing Europe’s 26%. This trend is largely attributed to the 2022 U.S. Inflation Reduction Act (IRA), which offers generous subsidies for local manufacturing, making the region highly attractive to foreign investors. The act provides a $7,500 tax credit for EVs, conditional on local manufacturing, and significant incentives for battery production, including a $35/kWh battery cell capacity credit.

The U.S. has successfully attracted investments not only from domestic companies like Ford, General Motors, and Tesla but also from European, Japanese, and South Korean carmakers. In contrast, Europe struggles to attract non-European investments, with 80% of its EV investments coming from domestic companies.

The European Investment Landscape

Within Europe, investments are heavily concentrated in a few countries. The UK, Germany, and Spain together accounted for 71% of the announced investments. The UK benefited predominantly from substantial investments by Jaguar Land Rover, which accounted for 84% of the total EV investments in the country. In Germany, major investors included Tesla (€4.5 billion), Volkswagen (€3.1 billion), and Ford (€2.7 billion). Volkswagen was the sole investor in Spain, with a significant €10 billion investment.

Italy, despite being a major manufacturing hub, attracted only €1.3 billion in EV investments. This modest figure is concerning given Italy’s significant role in Europe’s automotive industry, where it employs 110,000 workers and contributes 5.2% of the GDP. Recent delays in planned projects further exacerbate the issue, highlighting the need for a more robust industrial strategy.

Slowing Growth in European Investments

Although European carmakers have led in total EV investments between 2021 and 2023, the growth rate of these investments is slowing. After a substantial increase in 2022, with €29 billion announced, the figure rose by only €4 billion in 2023. This slowdown is partly due to the absence of more stringent CO2 standards beyond 2025, reducing the immediate regulatory pressure for further investments.

Additionally, several European carmakers have recently announced delays in their EV targets and investments. Mercedes-Benz has postponed its goal of 50% electrified vehicle sales from 2025 to 2030 and has halted the development of its large EV platform. Volkswagen has delayed the construction of a fourth battery plant in Europe and postponed the launch of the affordable ID.2 BEV. Jaguar Land Rover has also announced delays in the launch of two EV models.

The Competitive Challenge

This slowdown is concerning for the competitiveness of the European automotive industry. European carmakers are already investing less per vehicle compared to their U.S. counterparts (€3,840 vs. €4,970 per car sold). Delaying and reducing investments in EVs could risk European carmakers falling behind as global markets transition to zero-emission vehicles.

The rapid development of EV technology, especially batteries, necessitates immediate and substantial investment to build technical expertise, re-train staff, and develop new technologies. European carmakers need to scale up development and production now to ensure they have a competitive offering of EVs across all market segments. Delaying investments and relying mainly on premium BEVs and plug-in hybrids could be a shortsighted strategy, as Chinese carmakers are increasingly entering the European mass market with affordable, high-quality BEVs.

Policy Recommendations for Europe

To attract and secure the necessary EV investments, Europe needs a strong policy framework. Key recommendations include:

  1. Maintaining Ambitious CO2 Standards: The EU must uphold the 2035 zero-emission target to provide regulatory certainty for carmakers. Weakening these standards could divert investments to other regions, particularly North America.
  2. Implementing an EU Investment Package: A €1 trillion social and green investment plan, including a Green Industry Fund, should be established to attract public and private investments in EV manufacturing and the EV battery value chain. This package should include grants, loans, and guarantees to scale up EV production and support the battery value chain.
  3. Supporting Local Manufacturing: ‘Made in EU’ provisions should be introduced to encourage sustainable and localised production. This includes prioritising local bids in public procurement and subsidy rules, rewarding sustainable manufacturing practices, and ensuring local labour engagement and upskilling.
  4. Fostering Competition and Innovation: European carmakers need to focus on producing small, affordable BEVs to compete with Chinese manufacturers. Increasing the supply of compact, affordable EV models is essential to meeting consumer demand and maintaining market share.

 

Conclusion

The next decade is crucial for the European automotive industry as it navigates the transition to electric vehicles. While Europe has made significant strides in EV investments, the pace is slowing, and the region risks falling behind North America. To maintain its leadership in the global automotive market and secure jobs, Europe must adopt a robust industrial strategy, support local manufacturing, and ensure regulatory certainty. By doing so, Europe can attract the necessary investments to drive the EV transition and remain competitive in the evolving global market.

Source: Transport & Environment

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