Why are battery car sales so flat?

August figures for car sales in the European Union (EU) made grim reading. Overall car sales were down 18.3%, with German sales down by a recession-laden 27.8% and France by 24.3%. This left the year-to-date number for the whole EU slightly ahead, helped by mild hybrids.

Battery car sales in August tumbled by 44%, leaving them down 8.3% so far in 2024, a year when policy is to boost them substantially. Tesla, as the market leader for all electric cars, was down 43% last month.

The EU regulatory background

The EU’s whole growth strategy is based around making an early and wide-ranging transition to ‘net zero’. As a crucial industry employing 15 million people, and as a large contributor to EU carbon dioxide emissions, the vehicle industry is required to play a leading role.

EU legislation 2019/631 sets reducing targets for a car makers permitted vehicle carbon dioxide emissions on a fleet basis. The overall average of 115 gm of carbon dioxide per kilometre (km) for cars for 2020-24 which they have been meeting is to drop to 93.6 gm from next year. Manufacturers think that will be too difficult to meet. Failure to do so results in heavy fines based on the average carbon dioxide emissions of the vehicles sold.

The EU has also recently amended its regulation governing the production of batteries. Each battery will have a passport and computer code to monitor its lifetime progress with controls over the environmental impact of making and using them.

The UK

The UK has its own variant of the EU proposals and is equally enthusiastic about introducing an all-electric fleet as soon as possible. The UK is setting quotas or targets for battery car sales. In the current year, manufacturers are meant to hit a minimum of 22% of sales being battery cars. There are high fines for excess sales of petrol and diesel or low sales of electric cars amounting to £15,000 per car.

The UK has set a faster time to eliminate all petrol and diesel new car sales, by 2030. As the UK must get from 22% battery sales this year to 100% by 2030, the required acceleration in battery car sales is large and the rundown of diesel and petrol very fast.

Car sales in 2024 have been better than in the EU, with a rise of 5% so far in the year to August. Battery car sales are up by 10%, but their market share – at 17% so far this year – is well below the target of 22%. They did get to target in the month of August helped by a 10% fall in petrol car sales.

The response of the industry

The leasing industry has found the price of second-hand battery cars can fall 50% in the first two years of use, creating financing risks and costs that is higher than for conventional vehicles. The rental industry has found consumer reluctance to hire electric cars with people worried about range, where to recharge and the unfamiliar controls. Individual car owners may not want the extra cost of the battery product, may suffer from range anxiety, may fear the sharp decline in second hand value – or worry about the time it takes to find a recharger when out, and then to get the car recharged.

As a result, the EU industry demands a rethink. The UK industry concentrates on selling to company customers as the fleet buyer gets a tax incentive and their employee enjoys currently generous tax treatment of the benefit in kind. The UK is concerned about the absence of protective tariffs against Chinese competition, the absence of incentives for individual buyers, and the extreme penalties for failure to sell enough battery cars. Stellantis has raised the issue of whether it should close its factories in the country.

In Germany, where battery car sales are down 69%, VW has announced an end to its 30-year guarantee of no compulsory redundancies and said that it needs to close a couple of plants. A worried government is in talks with them over how to stave off a major closure programme. The higher priced German marques are still hoping hydrogen or syn fuel will come to the rescue as they look at the complications of making electric versions of their famous cars.

The car collapse in Germany – and much of the rest of the EU – is, in part, a normal response to tight money and the down part of the cycle imposed by the European Central Bank (ECB) and governments to control inflation.

There is also superimposed over the cyclical effects the big impact of the ‘net-zero’ imperative. The EU has pursued it through laws, bans, taxes and fines. The industry is faced with consumers who do not want their battery products, finding them too expensive and less useful and more difficult to refuel.

A recent survey has the worrying finding that only 16% of those buying new petrol and diesel cars would consider a battery car next time, whilst 20% of those who bought a battery car are thinking of switching back to internal combustion engines as they have not enjoyed the experience of owning and using a battery-powered vehicle.

In the UK, there is a danger that the accelerated timescale for all battery car sales reinforced by large fines will put manufacturers off extending or improving manufacture here, as Stellantis has threatened. Meanwhile, China sits in a very strong position with a dominant control of the raw materials, components and production of batteries, and with ranges of much cheaper electric vehicles. The West is caught between wanting cheaper battery cars and imposing high tariffs to stop the Chinese undermining home production.