Electric cars are the future. They’re clean, fun to drive and cheap to own. One day all of us will drive electric. And yet, it is undeniable that today EVs are unaffordable for many people.
This will change as EV and battery production scales up, but this simply isn’t happening fast enough. Fast-forward five years, and many rich people may have made the shift to solar, heat pumps, and EVs. Meanwhile ‘normal people’ may still be driving vehicles that are dirty, expensive to refuel, and increasingly stigmatized. This is not acceptable, not socially, and not politically.
Populists like to portray the climate transition as a ploy by the kava-sipping, Tesla-driving elites. They’re wrong to oppose climate action, but they are right that we need a revolution in the way we think about clean energy support. EVs are a great place to start.
The French and their social leasing plan may well have found the solution.
The Problem With EV Subsidies
Many European governments think handing out purchase grants for EVs will make them more affordable. They’re wrong.
Under the EU CO2 standards, carmakers are legally obliged to sell a certain number of electric cars. In that context, EV subsidies create no additional supply. What does happen is best described as “subsidy shopping,” with carmakers allocating cars to the place with the most generous subsidies.
Only people with high incomes buy new cars. Only rich people spend north of €30,000 on a new car, which is exactly the point at which prices for most EVs start. As a result, lower income people are excluded from EV support schemes. They don’t buy expensive new cars. They don’t have the capital for that.
As carmakers have gotten richer off ever bigger, more expensive cars, there is a real risk that low cost EVs will be delayed, and when they come, they might be imported from China. We need a strategy for cheap, entry level EVs. These are the vehicles Europeans want, but also the ones we need to compete in emerging markets.
Social Leasing — EVs For All
The phenomenal success of automobiles is often attributed to Henry Ford lowering their production costs. As important, though, was General Motors’ invention of modern car financing. Whereas Ford insisted on people paying for Model Ts upfront, GM invented car loans and consumer credit, eliminating the capital problem, and massively expanding the number of people that could afford vehicles.
This is exactly what we need now. A monthly leasing fee of around €200 would be within reach for virtually all car drivers. That’s what drivers spend on fuel and maintenance alone these days.
Last year the French government first announced plans to subsidize electric vehicle leasing, which would make electric cars available for low-income households for as little as €100 per month.
This is not only doable, but it also wouldn’t cost the earth. Recent analysis carried by T&E shows that between 2024 and 2030, around 900,000 low-income households could benefit from monthly leasing costs of €70 to €200, depending on the size of the vehicle — €100 per month for a model equivalent to the electric Twingo, or €150 for the equivalent of a Peugeot e-208, for example.
To ensure affordability, models will be no-frills. Accounting for lower advertising and distribution costs for manufacturers, as well as less extras and performance costs, the price of cars can be lowered by 20% to 30%.
The projected €800 million per year cost to the government could easily be offset by gradually removing current subsidies that benefit affluent drivers.
Europe needs a strategy for cheap, entry level EVs. These are the vehicles Europeans need, but also the ones we need to compete in emerging markets. And of course in a context of tight, China-dominated battery material supply chains, using critical minerals efficiently makes a ton of sense. Coupled with affordable, clean electricity, an extra effort to bring charging to lower income neighborhoods and social housing, social leasing of electric cars could become the poster child of climate action done right.
By William Todts, Executive Director, Transport & Environment
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