What happens once the government stabilisers are detached?

Like learning to ride a bike, the European electric car industry has been supported by various stabilisers over the years. These have provided confidence through generous consumer purchase subsidies on the one side and tax incentives on the other, while an additional regulatory stick in the form of CO2 fleet average targets keeps OEMs on their toes. Those stabilisers are then removed once enough confidence has been instilled and the market can ride unaided. That moment appears to be arriving in some Northern European markets with various governments keen to reach for the toolbox and remove the aids, confident that enough momentum has been achieved.

The UK, which is very likely to turn to a California-style ZEV mandate from 2024, cut its last remaining car purchase subsidies for BEVs in June, limited to just 1,500GBP (€,1700) during the last few months. Europe’s poster child market, Norway, is also planning to reintroduce VAT (25%) for BEVs for the amount of the vehicle priced over 500,000NOK (€48,000) before tax. In addition, the Nordic market will ban the sale of new models which emit CO2 by 2025. It currently lies with an industry-topping BEV mix of 79 %.

Treasury departments, looking to patch up leaky financial holes, having financed Covid recovery funds, green deals and increased military spending, EVs are likely an attractive target for finance ministers. Germany, Western Europe’s largest BEV passenger car market in terms of new registrations, accounting for more than every fourth pure electric model registered in Western Europe, could well be next on that list. So far it has aided 1.27 million low-emission vehicles onto the road up to June 2022 according to BAFA data.

Source: Schmidt Automotive Research

Meanwhile, the EU is well on its way to seeing a ban of traditional ICE vehicles from 2035 onwards. The European Commission, European Parliament and all 27 European members (Environment Council) agreed to pull in a similar direction. It will be left to trialogue discussions between all three over the next months, before this is put this into legislation. A slight possibility remains for ‘other’ technologies however, with a window up to 2026 being left ajar by the Commission when a mid-term review of different technologies would take place. By 2035 North European EU members should all be established markets and capable of riding unaided, while Southern/Eastern neighbours may still need assistance. Romania‘s Rabla plus scheme highlights the progress that can be made (see report here) BEV penetration levels of 7.6% YTD have been achieved up to May this year, well above its Southern European neighbours such as Spain (3.5%), Italy (3.4%) and Greece (2.5%). The €10,200 Romanian scrappage scheme has been the catalyst here.

France has suggested that they’re not quite ready to take the subsidy stabilisers off just yet, deciding just last week that a €6,000 subsidy that was about to expire and reduced to pre-Covid €5,000 levels on July 1, will been extended for the second time. Up until 2023 this time.

A first possible consequence of this tightening grip on European OEMs may have been Stellantis‘ exit (STEXIT) from the European Automotive lobby group ACEA last month. Seemingly unhappy with the service the Brussels-based group were providing, the Italo-Franco-American company jumped ship weeks after the European Parliament agreed to the European Commission’s stricter Fitfor55 emission regulation proposals. With volume OEMs likely to be worst hit by a drop in subsidies and unable to command a higher price point to justify the costs of electrification, French/Italian OEMs may be particularly exposed despite their lower mass fleet weight – Stellantis 160kg below the European average (1,488kg) in 2021 according to EEA data. With momentum perhaps not up to speed in France yet, don’t write it off that the Elysee Palace could kick the subsides can down the road once again, especially with rising prices on the horizon. Alongside that Parisians have been snapping up BEVs before an inner city ban for older combustion engine vehicles (Crit’Air) is due before the summer Olympics. European Finance Ministers will no doubt be monitoring the UK to see if it keels to one side or rides on serenely..

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