Published on December 16th, 2019 | by Maarten Vinkhuyzen0
Dutch Electric Vehicle Sales Explosion — Market Will NOT Return To Normal
December 16th, 2019 by Maarten Vinkhuyzen
What is happening in the Netherlands is illustrative of what is going to happen in the surrounding countries. The key to understanding this is a European phenomenon (tax loophole) — company cars for private use.
Just over a year ago, electric vehicles were as popular in the Netherlands as they were in many other countries (not popular). They accounted for approximately 2% to 4% of the market. Then came an incentive change — putting an end to the “Tesla subsidy.” The country ended incentives for the portion of the car price above €50,000.
This created a rush on the Tesla Model S, Model X, and the new kid on the block, the Jaguar I-Pace, resulting in the I-Pace becoming the best-selling model of all car types in December 2018. Fully battery electric vehicles (BEVs) reached 30% market share in the same month, pushing the whole market for BEVs to over 5% in 2018.
Last year’s surprise performance of the Jaguar I-Pace was not a sudden rush of customers reacting to an ad and deciding to buy a brand new model from a small brand just before Christmas. It started a year earlier with someone at Jaguar recognizing the opportunity the incentive change offered, and then making a plan for production, logistics to the Netherlands, and a sales campaign that started in the spring — 9 months of looking for prospects, convincing them of the benefits of electric driving, and writing sales orders for the future I-Pace with delivery at year’s end. That is what propelled an unknown car to the top of the sales statistics.
Such a rush is normally followed by a dip, eliminating most of the gains. Indeed, the sales of last year’s three winners tanked. But other BEVs filled the demand gap in January, keeping the market share at over 5%. In February, the Model 3 started its victory march.
What had changed was awareness about BEVs or Zero Emission Vehicles (ZEV) among car buyers. There were a number of new, longer range models in the shops, like the Hyundai Kona EV and Kia Niro EV. Most “Golden Oldies” — the VW e-Golf, BMW i3, Nissan Leaf, and Renault ZOE — got bigger batteries and sometimes a little refresh. And as we know, the car industry is slowly learning that more range = more sales. The incentive was no longer a giveaway to the rich — it was now a way to get these new and improved BEVs into the driveways of normal professionals.
The whole BEV market was stimulated by those recent sales surprises and the accompanying media attention. Most other models followed with somewhat increased sales and improved versions from the extra public awareness. That is, until last month. Another end-of-incentive rush started to disrupt the market. Only Tesla with its Model 3 was prepared and able to respond adequately.
The top and bottom of the car market is mostly private cars. In the middle segment, there are mostly company cars for the better paid foot soldiers. As a special perk, and golden chains to bind them to the company, these professionals and middle management get a company car for private use. They can order a new car every 3–4 years. The taxation on this benefit in kind (BiK) is computed by adding 22% of the “fiscal value” to the taxable income. The actual tax payed depends on the tax rate for the top of the income bracket.
Jump to rest of article here. The nitty gritty boring details for those tax nerds interested in the details of the incentives will follow for a few paragraphs.
In the Netherlands, and in most of Europe, the sticker price is what you pay, and not a penny more. When a car is advertised for €19,283.74, that is the amount you pay before you drive the car home with a full tank or charged battery and valid license plate, fully registered in your name, inspected, cleaned, all taxes paid, etc. The only thing not included is your car insurance.
There are three EV incentives in the Netherlands:
- No road tax for 5 years. Nice, but does not influence buying decisions.
- No luxury car tax. Compared to a fossil fuel vehicle (FFV) in the same class, this could be a few hundred to over €10,000, but it is hardly visible with the way prices are communicated. It does make EVs more competitive, though.
- Lower income tax on the benefit in kind (BiK) value of a company car provided for private use. This is the only incentive that moves sales.
An example: An employer gives a budget of, say, €500/per month to lease a car through lease company XYZ. The lease price for a model is determined by the lease company, depending on their internal calculations, resale value expectations, maintenance cost, expected miles driven, and contracts with carmakers and the employer. The employee can choose a €300/month car and the employer says, “Thank you.” The employee can choose a €600/month car and the employer says “NO” or “You owe me €100/month.” Most will choose something between €450/month and €500/month.
The most important deciding factor is the BiK tax burden. Many will start their search for a new car by selecting all cars with a monthly lease price between €450 and €525, sorted by monthly BiK amount, lowest first.
Two cars with the same monthly lease price can have very different “fiscal value.” A €60,000 luxury car with a 25% discount to the leasing company, hardly any maintenance, and high resale value can have the same monthly lease price as a €30,000 clunker on wheels with no discount, lots of maintenance, and crappy resale value. The clunker on wheels will have takers, because the BiK tax burden is half that of the luxury car that costs his employer the same amount of money each month.
Now comes along the BEV, with only 4% of the “fiscal value” considered income, compared to 22% for all other company cars. While this incentive has always applied to all BEVs, those with smaller batteries and ranges just did not make the cut as real, usable cars for many people, not even at the low BiK taxation rate. Most buyers didn’t want them for free even, only a Tesla was practical enough. Hence, the incentive was called the “Tesla subsidy.”
In a previous article, I did look at BEV model popularity relative to each other. Now, the focus is on the competition between the BEV market and the FFV market. New BEVs and “Golden Oldies” (older BEV models) with more range changed this competition drastically. The competition with gas guzzlers no longer started at €85,000. Now, there were serious alternatives starting at €35,000, some of which were hatchbacks, others SUVs or CUVs.
The Model 3 was the lightning rod that got all the attention, but while Tesla flooded the market, the rising tide did lift all ships. It started to solve the biggest problem the transition to fully electric driving was having — lack of awareness. This end-of-incentive rush brings BEVs to the forefront of attention of car buyers. It is ironic that the lessening of the incentive has more effect than the incentive did have before the rush. [Editor’s note: Maarten has emphasized awareness a few times now, and each time reminds me of a Nissan presentation at EVS27 in Barcelona in 2013. The Nissan exec was giving a presentation on what was so special about Norway, which had just had a stunning EV market share of 13% in a single month (it’s now over 50%). While others emphasized Norwegian subsidies, he said the most important factor — the main reason Norway was such an EV leader — was greater EV awareness in the country. There’s much more to say about this, but let’s get back to Maarten.]
Each year, there are about 250,000 Dutch employees eager to spend their boss’s money on a new car. In 2019, about 50,000 of those decided on a fully electric automobile. Most of those 250,000 in 2020 will have one of those 50,000 from 2019 among his/her colleagues, family, or friends. Word of mouth is the best marketing campaign there is. I think I can guess the advice that will be given. New BEV drivers often turn into enthusiastic advocates.
There will be a lot of preaching about the virtues of BEVs, if only to defend their own unusual choice. This will lead to the realization that the incentive is really interesting. With another dozen of new models coming to the market, and starting prices dropping to below €20,000, demand will follow.
Each month 20,000 people will sort the models of their lease company on the BiK tax they will have to pay each month. Next year, many more models will show up on that list. From the smallest Volkswagen triplets, the funny MG EV, the very normal Peugeot e-208 and Opel e-Corsa, as well as the new Volkswagen ID.3 and the bestseller Model 3, accompanied by all the other models the rising tide of the last end-of-year rush has put in the spotlights.
There will be a dip, of people ordering in Q4 with delivery in Q1 who are angry they couldn’t profit before the rise of the incentive. Many will make the mistake of punishing themselves by ordering a legacy non-electric model instead. Later in Q1 and the rest of the year, demand will shift. The delivery problems Hyundai and Kona had this year will be nothing compared to the problems the market will have next year.
Belgium orders more company cars than the Netherlands. They don’t have the lavish incentives of their northern neighbors, but the BEV premium has come down quite a bit in the last few years. This will make BEVs much more attractive naturally.
Volkswagen replacing the Golf and Passat family with the ID lines (starting to), the Porsche Taycan finally on equal footing with the 2012 Model S, and the Tesla factory near Brandenburg are three very loud wake-up calls in Germany. Combined with the slightly higher incentive, the growth next year could be bigger than the growth this year, which is at around 80%.
The UK will lower its BiK tax value to 2% in the coming fiscal year. The UK’s company-car market is at least 4 times as big as the Dutch company-car market. Bank of America Merrill Lynch sent CleanTechnica a cost of ownership report on this matter that shows how much of a no-brainer BEVs will become.
With the Tesla Model 3, ongoing Dutch disruption, incentives in the UK and elsewhere, there will be strong BEV growth next year in Europe. This is likely to be the breakthrough year for electric driving in at least half of Europe.
The demand will create a lot of problems for carmakers. They deserve it. They should have started sooner to build production capacity and order a lot more batteries.