Hitting the EV Inflection Point in Europe

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Originally published on Transport & Environment.
By Eoin Bannon

Can the entire EU go to 100% electric car and van sales by 2035 in order to decarbonize road transport by 2050? Can a small business as well as an average family, whether living in a city or a village, make the switch? T&E has commissioned Bloomberg New Energy Finance (BNEF) to analyse exactly this. The answer is clear: yes — with the right policy support — Europe can. Download the full BNEF study here (2.7 MB), as well as our briefing on the results and what they mean for EU policymakers (1.1 MB).

Editor’s note: To whet your appetite, here’s the summary from the T&E brief:

Ten European countries, dozens of cities, a majority of urban dwellers, and five major carmakers have all announced their ambition to go all out towards emissions-free electric cars in the future. Following the UK’s commitment to phase out combustion engines from 2030, and ahead of the global climate summit in Glasgow, all eyes are now on the EU as it prepares its large package of climate legislation planned for July. From the climate, industrial and consumer perspective, electric cars and vans are the optimal future technology. The question is: can the entire EU go to 100% electric light-duty sales by 2035 to deliver on the European Green Deal? Can a small business as well as an average family, whether living in a city or a village, make the switch? T&E has commissioned BloombergNEF (BNEF) to analyse exactly this. The answer is clear: yes — with the right policy support — Europe can.

On average, battery electric vehicles reach the same price (before incentives) as equivalent petrol models between 2025 and 2027. Small vans reach price parity the earliest, in 2025, small cars are last in 2027, with medium and large sedans and SUVs hitting the parity point in 2026. In 2030, an average medium electric car is 18% cheaper than the equivalent petrol excluding taxes.

The main drivers of this price drop are twofold: first, falling battery prices, which are expected to drop by 60% over the decade (from 120€/kWh in 2020 to around 50 €/kWh in 2030). The 100$/kWh frontier, said to be a key point for affordability of EVs, would be reached in 2024 (80€/kWh). The second major driver is the switch to dedicated BEV manufacturing platforms (and new vehicle architecture), which allow carmakers to reduce costs by 10%–30% thanks to simpler assembly, standardised battery packs and other components and higher volumes by producing various BEV models on the same chassis.

These findings hold in various sensitivity scenarios and bear a clear conclusion: electric cars and vans will be the cheapest option in six years time, allowing EU drivers to reap large economic benefits, and making the transition to affordable electric mobility economically feasible and desirable.

Based on their in-house model and the price parity points, BNEF then modelled the feasibility of going to 100% pure electric sales across Europe, in Northern, Western, Southern and Eastern blocs of countries. The results show that with the right policy support (which T&E refers to as the Green Deal compliant scenario), conventional cars and vans can be phased out in all European countries between 2030 and 2035. To achieve this most optimally, sales of battery electric vehicles need to hit 22% in 2025, 37% in 2027 and 67% in 2030.

Although an accelerated adoption is seen across all countries from 2025 as different segments hit price parity, not all Member States follow the same trajectory. In the Green Deal compliant scenario, the Nordics group would reach 100% BEVs as early as 2030, the Western group — which includes Germany, France and the UK — would hit 100% BEVs in 2034. This is compatible with the current UK phase-out commitment, where only plug-in cars would be allowed from 2030 and zero emission from 2035. Germany is a clear market leader in this group and it can hit 100% zero emissions even sooner if they enact ambitious policies. The Southern group (Italy, Spain and Portugal) follows a similar trajectory as the Western group, and reaches the full phase-out one year later, in 2035. Finally, the battery electric market in the Eastern group (12 countries including Poland, Greece and Romania) grows the fastest in the late 2020s as these countries start from a low base. Because the second-hand market remains large and the new car market is only 10% of the EU total, growth in new electric sales is slow in this region: BEVs hit 44% sales in 2030 despite having reached price parity several years before. However, very rapid adoption rates are expected close to 2030 and beyond as battery models become cheap and more commonplace.

Crucially, the BNEF analysis highlights the importance of scaling up the production of electric vehicles early. This generates the cost reductions necessary to reach the 2025–2027 cost parity milestones across the light-duty vehicle categories. This has significant implications for the EU’s principal supply side regulation; the car and van CO₂ standards that are up for review this July. The current CO₂ targets for 2025 and 2030 for both car and van makers are way below even the purely market driven trajectory in the 2020s. This means there might not be the timely investments in and supply of electric vehicles for the market to grow. Slow EV market growth in the 2020s will also put in jeopardy the current plans for battery gigafactories across Europe as they might lack the market to sell their product into.

T&E estimates that to be on the feasible path to 100% zero emission sales in 2035 based on the BNEF trajectory, Europe needs at least a 30% CO₂ reduction from new cars from 2025, 45% from 2027 and close to 80% CO₂ from 2030. Raising the 2030 target alone won’t suffice as it will only spur investments towards the very end of the decade and from 2030 onwards. In other words, the long term goal of zero emissions mobility cannot be achieved without much more ambitious short and mid-term targets in the 2020s than the ones the EU has currently set itself. For vans, the situation is even worse as the 2025 and 2030 targets are far too low to drive electrification and without a significant increase in the targets prior to 2030, the CO₂ reduction needed from vans will be achieved through conventional engine fuel efficiency improvements only.

Beyond the supply side regulations, other policies such as smart fiscal incentives and speedy ramp up of charging infrastructure are needed to reach the BNEF scenarios. On taxation, the fast growing electric car sales mean that hefty purchase subsidies are becoming financially unsustainable. Instead, bonus-malus tax systems that use malus on CO2 emitting cars to pay for support on zero emission models — already in place in France, Sweden and Italy — are a much better way to divert car buyers away from CO₂ polluting engines and towards zero emission models. An adequate and seamless charging network — at home, work, in public space and across motorways — is also key. Europe’s infrastructure law (AFID) should fill some gaps here, notably by setting binding targets on all EU countries so that drivers in Romania and Poland, not only Germany, have access to adequate public charging infrastructure. However, with most charging happening in private locations such as home and work, a lot of levers lie at national level to make the approval and installation process quick and easy. This is why a direct link between AFID on the one hand and the ambition levels of the EU-wide vehicle CO₂ standards on the other, as recently suggested by the EU car lobby, is not appropriate.

It is becoming clear that the entire EU can go to 100% zero emissions new car and van sales by 2035. For some segments — notably corporate and urban fleets — a battery car is already the best option today, so these can phase-out conventional engines even sooner, and by 2030 at the latest. The risk now is that the EU automotive industry and suppliers don’t move fast enough in the 2020s to capture the future market and develop the emobility value chain (and corresponding jobs) in Europe. With electric vehicles becoming cheaper to manufacture than conventional ones, the cost advantage will be on the side of those auto majors that convert to emobility quickly. Contrary to some outdated claims, the longer the industry wastes limited resources on conventional engines and fake solutions like e-fuels for road transport, the more of a financial liability they become. The financial markets have already started punishing OEMs that are moving slowly on electrification, fearing stranded engine assets. Faster transition with a clear zero emissions objective in mind will allow Europe to enter the emobility era on a winning horse, not an exhausted donkey.

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