The European EV market: Stuck between two growth phases

Stagnation phase: 2022–2024

Over the past few years, the European EV market has slowed down, with growth plateauing from 2022 to 2024. The share of battery electric vehicles (BEVs) slightly dropped from 13,8% in early 2023 to 13,3% in the first half of 2024. This slowdown is largely a result of how the current CO2 emissions targets are structured, with long gaps between them. Manufacturers often wait until the last possible moment to meet emissions targets, focusing instead on their most profitable vehicles—usually high-margin internal combustion engine (ICE) models.

For example, Volkswagen has followed a “value over volume” strategy, prioritising expensive, higher-margin models rather than ramping up production of more affordable electric cars. This short-term approach is typical of the stagnation period, where carmakers focus on immediate profits from ICE vehicles, knowing that stricter emissions regulations are coming in the near future.

What to expect: Growth from 2025 onward

This period of stagnation, however, is expected to end soon. Starting in 2025, the EU will implement tougher CO2 emissions standards, and carmakers will have no choice but to significantly increase the share of electric vehicles in their fleets. T&E predicts that electric car sales could rise to as much as 24% of the European market in 2025, compared to just 14% in early 2024.

A key factor driving this growth will be the introduction of more affordable EV models. Manufacturers like Renault, Stellantis, and Hyundai are set to launch electric cars priced under €25.000, a critical move to appeal to a broader range of consumers. Surveys have consistently shown that while many people are interested in electric cars, the high upfront cost remains a major barrier. By bringing more affordable models to market, carmakers hope to boost adoption.

In T&E’s central compliance scenario, 60% of the CO2 reductions required by 2025 will likely come from an increase in BEV sales. However, manufacturers will also rely on other strategies to meet their targets. Hybrid electric vehicles (HEVs) are expected to contribute 20% of the reductions, while plug-in hybrids (PHEVs) and regulatory flexibilities will account for 8% and 12%, respectively.

The push for a simpler eco-score system

As Europe pushes towards its goal of climate neutrality by 2050, environmental organisations are calling for a more straightforward way to assess the environmental impact of vehicles. One proposal, supported by groups like T&E and the European Consumer Organization (BEUC), is the introduction of an EU-wide “eco-score” for cars. This score would replace the current, complex system of life-cycle CO2 emissions analysis, which can be difficult to interpret and apply across different vehicle models.

The eco-score would focus on two main factors: the vehicle’s energy efficiency, measured in kWh per kilometer, and the carbon footprint of key components like batteries, steel, and aluminum. This system would provide a clearer, more consistent way for both consumers and policymakers to evaluate the environmental impact of a car.

Implementing an eco-score would have several advantages:

1. Speed and simplicity: It would be easier and faster to roll out than the current life-cycle emissions analysis, offering a timely framework as the industry undergoes its next phase of transformation.
2. Single market cohesion: A harmonised eco-score would ensure that vehicles are evaluated consistently across all EU member states, preventing the development of conflicting national standards.
3. Consumer transparency: This system would give consumers clear, reliable information about the environmental impact of their vehicle choices, helping to drive demand for more sustainable options.
4. Integration with fiscal policy: The eco-score could be integrated into national tax systems, aligning incentives like subsidies and registration fees with environmental performance.
5. Industrial competitiveness: The eco-score could reward manufacturers who invest in clean production processes, potentially boosting local industries and innovation within Europe.

Automakers’ strategies: A critical moment

As the 2025 deadline approaches, automakers are adopting different strategies to meet their CO2 targets. Some, like Volvo, are already on track to comply, but others—namely Volkswagen and Ford—are further behind. These companies may need to partner with industry leaders, forming what are known as compliance pools. For instance, Volkswagen could join forces with Tesla, reducing the pressure to meet the 2025 target entirely through its own sales.

T&E expects that, by 2025, BEV sales will significantly increase as carmakers adjust their offerings to meet the new regulations. However, automakers will still rely on various compliance strategies, including increasing hybrid sales and using regulatory flexibilities like eco-innovation credits. While hybrids and plug-in hybrids are seen as short-term solutions, they will play an important role in helping manufacturers meet the 2025 targets.

The path forward: A crucial phase for Europe’s automotive industry

As the EV market transitions from stagnation to growth, the next few years will be critical for Europe’s automotive industry. The 2025 CO2 regulations will force manufacturers to prioritise electric vehicles, but long-term success will depend on a combination of smart industrial policies, supportive regulations, and consumer adoption.

The proposed eco-score system could help simplify the transition, providing both a clear framework for manufacturers and valuable guidance for consumers. However, the road ahead won’t be easy. Automakers need to focus on scaling up production of affordable, mass-market EVs, while policymakers must ensure that charging infrastructure and subsidies are in place to support this shift.

Ultimately, Europe’s ability to compete in the global electric vehicle market will depend on how effectively the industry can navigate this pivotal moment. If carmakers can successfully transition to cleaner technologies and meet the 2025 targets, the EV market could finally move out of stagnation and into a new era of sustainable growth.

Source: Transport & Environment