KEY FINDINGS

Electromobility

The recent market shift towards electric vehicles (EVs) in Europe has been impressive. In 2020, Europe surpassed China to become the biggest market in the world in both the number of EVs sold and the share of EVs in total car sales.

In that year, despite the contraction of overall car sales in Europe, EV registrations more than doubled to 1.4 million and reached 10% of the market, while this number stood at 6% in China and 2% in the US. In 2021, EVs are continuing their impressive growth in Europe and reached 15% of accumulated sales until May, which continues to give Europe a comfortable world lead in the share of EVs.

Firm strategy, structure and rivalry

The strategy of European and International OEMs for electromobility has been directly influenced by the regulatory emission requirements set by the EC for the sales of new cars in Europe.

These requirements, especially the more stringent limits determined for 2020/2021 and thereafter, have forced the sector to embrace EVs as the only solution for compliance. The first EC regulation was adopted in 2009, setting a target of 130 g/km of CO2 for the fleet average (based upon the NEDC laboratory test) to be reached by 2015. However, this regulation was not enough to push the car industry to fully commit to EVs because all major carmakers were able to comfortably achieve the relatively soft target, some several years before the deadline, while keeping the share of EVs in the market at marginal levels.

Several factors explain the sector’s easiness in achieving these targets, such as the increase in the share of diesel cars and the financial crisis, which caused a temporary reduction in the average size and weight of cars, and the increase in the gap between emissions in laboratory tests and emissions in real- world conditions. In fact, the 2015 targets would not have been achieved had this gap remained stable at the 2009 levels. Carmakers’ main strategy to reach the 2015 regulatory levels appears to have been finding ways to reduce internal combustion engines (ICEs) lab test results by using technologies that have a much larger impact in the laboratory than in real-world driving conditions, e.g. stop-start systems.

This initial resistance in increasing the offer of EVs relates to the fact that carmakers have generally not been able to make profits from their sales, especially in the case of BEVs. On the contrary, the heavier and more polluting SUV segment remains the most dynamic and profitable segment of the car market. The previous strategy, however, was soon exhausted and showed itself insufficient to achieve the regulatory levels determined by the European Commission for 2020/2021 and beyond. As it became clear that the regulatory fines for breaching the CO2 emission limits would far exceed the cost of selling more EVs, the European car industry had no option but to embrace electric cars and accelerate the electrification of its fleet.

All European carmakers are set to increase widely the offer of EVs in the coming years, with the Volkswagen (VW) group leading the way .

This change in strategy is also reflected in the long-term goals of the industry, with almost all OEMs public committing to ambitious electrification goals until 2030. According to the International Energy Agency, VW, Daimler, Volvo, and Stellantis have all committed to increasing the participation of EVs in car sales to at least 50% by 2030, while Renault and BMW have announced different, although not necessarily less ambitious, goals. All large OEMs have committed to significant investment in EVs in the coming years.

This movement has translated into an explosion in the offer of EVs in the European market in 2020, with many more models expected for 2021 and beyond.

Figure shows the planned offer of BEVs and PHEVs in Europe until 2025, compiled by Transport & Environment in 2019. It shows that 2020 and 2021, the years the new mandatory emission limits kick in, represent a breakpoint in the growth speed of EVs in Europe, with a noticeable jump in the number of available EVs. European brands appear well-positioned relative to non-European OEMs and account for a wide majority of the models available in Europe. Renault-Nissan-Mitsubishi (RNM), Volvo and Jaguar are treated here as European OEMs due to their strong production and R&D footprint in Europe, although the latter two are controlled by the Chinese group Geely and the Indian conglomerate Tata, respectively.

As cited in the Introduction to this section, the consequent market shift towards EVs in the European market has been monumental. This movement was greatly facilitated by the enabling of stronger subsidies for EVs in the context of green recovery packages during the Covid-19 crisis, notably in Germany, France and Italy. In 2020, Europe, as stated, surpassed China as both the biggest market for EVs in the world and the biggest share of EVs in total car sales.

The European way: between BEVs and PHEVs

A remarkable aspect of the strategy of European carmakers for EVs in the next 10-15 years is that it relies on a balanced sales mix between BEVs and PHEVs.

This is in clear contrast with the rest of the world, where BEVs largely dominate the market. PHEVs are widely seen as a transitional technology by the industry to help for compliance with emission limits in the short- to medium-term. By means of the so-called super-credits, the current regulation offers strong incentives for carmakers to cushion the costs of expanding electric cars by promoting PHEV sales, which contain relatively small batteries and are more profitable. It, therefore, comes as no surprise that PHEV sales have been growing faster than BEVs in Europe, answering for 54% of the EV market until June 2021, while in China, 83% of the market in 2021 has been occupied by BEVs.

The penetration of PHEVs means a de facto postponement of the electric mobility transition since these cars still rely primarily on ICEs, which could mean a disadvantage for Europe in the BEV adoption race. However, this trend will most likely not continue in the coming years, as several factors point to limited space for further PHEVs gains over BEVs, such as:

• The reduction of regulatory incentives for PHEV in 2025 and 2030 when the Zero and Low Emission Vehicles (ZLEV) benchmarks are set to kick in. These new rules are set to treat PHEVs less favourably than BEVs when awarding regulatory credits;
• Most carmakers appear to indeed understand PHEVs as a transition technology and are setting goals that suggest a gradual transition to BEVs as the long-term goal.In fact, releases of new PHEVs models peaked in 2020 and will grow much slower than BEVs thereafter, indicating a stronger long-term bet in fully electric cars;
• PHEVs are coming under renewed scrutiny recently due to their low electric autonomy and much higher real-world emissions than those indicated in lab tests. This pressure is set to only increase in the coming years, especially if this class of EVs continues to make gains at the expense of BEVs. The UK, for example, has already rolled back subsidies for PHEVs, while Germany is explicitly considering changing PHEV subsidy policy; and
  • Finally, most projections indicate that electric car technology is set to mature around 2025, when the cost of batteries will have fallen enough to make BEV sales prices competitive relative to ICEs in the mid-segment of the market. This development will bring the segment closer to economic maturity, paving the way for an expansion of BEVs that is less dependent on subsidies and policy.

  Despite these overall trends, which we believe will be dominant, it is also important to highlight important developments playing in the opposite direction, and that could favour the presence of PHEVs for a longer period, such as the lack of an appropriate charging infrastructure and improvements in the electric range of PHEV models, some of them reaching 100km or more, which should make them more attractive for electric use.

Most European OEMs lag in BEV innovation

European carmakers widening offer of both BEV and PHEV models has resulted in a leading position in the world’s EV market in 2021, although Tesla maintains a commanding position internationally with its Model 3. Figure shows that VW Group, BMW Group and Stellantis are all well- positioned in the international EV market in 2021. However, European OEMs’ situation is significantly weakened when only BEV technology is considered. Chinese brand SAIC and Tesla have their share significantly improved, while BMW posts quite small BEV sales. Daimler, although not shown, shares this PHEV dependence with BMW.

Indeed, except for the VW Group, European OEMs remain followers in the BEV technological race. According to the Center of Automotive Management (CAM) latest ranking of innovative strength, which is based on the compilation of 291 recent innovations in the field of electromobility, Tesla remains the leader, followed closely by the VW Group. BYD (China) and Hyundai (South Korea) are classified as Fast Followers, while all other European OEMs lag significantly. Important carmakers such as Daimler and BMW not only remain behind but have made little recent progress.

The five top-selling automobile manufacturer groups contribute to more than half of the global sales of battery-electric cars. CAM predicts a further consolidation of the sector in the coming years due to the major transformational issues in the industry, of which many are approached in this report.

The recent creation of Stellantis by the merger of PSA and FCA is a first example of this process. The strength of innovation will be increasingly important for survival and economic success.

Despite the recent progress in the offer of models and in sales, it is clear European manufacturers must still boost their innovation performance as lead novelties are coming not only from Tesla and established Chinese OEMs but can also be expected from newcomers such as Lucid Motors (US), Nio and Xpeng (China).

Table 2.1: CAM 2020 ranking of OEM BEV Innovation Strength

Source: CAM (2021).