The forces that do not like electric vehicles (BEVs) are becoming bolder. The ACEA (European Automobile Manufacturers’ Association) started by asking to tax the Chinese competition extra to compensate for their government subsidies, a normal request to create a level playing field. In theory, there is nothing wrong with this request. In practice, it also nullified the advantage of more R&D put in Chinese BEVs and the economies of scale they have from a large home market. Protecting the local industry is second nature for the EU, so this request was honored royally without much discussion.
After succeeding in making the Chinese BEVs less competitive, the association asked to give two years respite to meet the EU’s 2025 requirements for average new vehicle CO2 emissions for carmakers. That is the European CAFE regulation they knew about for more than a decade. The regulation was not really a surprise for the carmakers, and most were well prepared to meet it. The wish of the association was granted and now they have three years to reach the easiest CO2 emissions limit as an average over those years. This is not good for the sales of BEVs in the EU, and the EU should have asked for a counter concession. Preferably, instead of five-year periods with large increases by the end of those 5 years, they would switch to yearly periods with increases of 1/5 as much each year, forcing a steady increase in BEV sales. At the moment, we have these five-year walls, with a plethora of new models coming out around the time of the new, much stronger CO2 requirements coming into force. It was a missed opportunity to get the car industry seriously working on the transition to electric driving.
Last week, Transport & Environment reported that the association thought they could stop the world from turning — or more specifically, keep the internal combustion engine from powering nearly half of all cars sold in Europe after 2035. That’s when the EU intends to force a 100% fully electric mandate on the car industry. This attempt is destructive in more than one way, besides being utterly stupid and irresponsible regarding the climate problems we face.
The European car industry is severely behind China in developing technology for fully electric cars and the supply chain to support them. Not going full force into this problem will only enlarge it, making the European industry even less competitive. They are losing their once dominant position in the Chinese market. Without new BEVs that are much better and cheaper to produce, they will completely lose it. Their home market is now protected by a tariff wall, but that is temporarily. It will crumble because of local production in Europe and a growing production cost difference between high-volume Chinese production and the small levels of European production.
Not preparing their factories and workforce to fully switch to producing electric cars will hamper them when the market demands a quicker shift to BEVs. Without production capacity, you are in a very weak competitive position. The Chinese and Koreans will steamroll over the domestic carmakers. Even Ford and GM might be able to re-enter the EU market.
In the next few years, before 2030, battery prices will
drop by about 70% — at least, according to knowledgeable institutions like CATL,
Volkswagen Group, and the IEA. While every article or paper looks to use different reference configurations, most commonly it is about the total cost of the battery. That is the combined cost of the cells, assembly into modules, assembly into packs, and the needed supporting systems for battery management and temperature management. Currently, a 60 kWh battery is on average about $150/kWh (€130/kWh), which will drop to about $60/kWh (€50/kWh) before 2030. For smaller or bigger batteries, the costs of the cells scale linearly. But the costs of assembly scale less, and the costs of the BMS and TMS scale hardly at all. This means that smaller batteries will have a higher price per kWh, and larger batteries will be relatively cheaper. This makes it possible for even the smallest A-class cars to have a capable battery, while D-class vehicles and above often will have a “who cares” size battery (well over 100 kWh IMHO).
When the procurement costs of a 60 kWh battery, complete with auxiliary systems, goes from $9,000 down to $3,600, the retail price of the finished product can be lower by about the same price difference. What this will do to demand for BEVs we can only guess, but even right now the bigger models with bigger batteries are around parity and will drop to well below parity. The midsize and small car segments will become more capable for prices below or around parity with their ICE competitors. Combine that with BEVs getting to be known as better driving machines with lower cost of ownership and the growing awareness of the influence of ICE vehicles on the climate, and the attractiveness of buying an ICE vehicle will plummet later in this decade. Several European markets will follow the example of Norway and cross 90% BEV sales market share before the end of 2030.
The many environmental, low-emission, and zero-emission zones that are being created in most cities will cause early retirement, decommissioning, and scrapping of the ICE fleet. It will not be very supportive for a prolonged business as usual of selling ICE vehicles.
In 2022, Stellantis left ACEA because of a difference of opinion on future policy, followed by Volvo Cars, which explained its departure more clearly by saying it was because of the opposition against the transition to fully electric transport. I think this gave the luddite voices even more influence, with the current lobbying goals as a result.
What I write here is with the market of 2030 in mind. What motivates the European Automobile Manufacturers’ Association to lobby for a weakening of pressure on the European car industry to transition as fast as possible to become competitive in the global market again is not for me to guess or understand. If some European carmakers are lured by the association’s lax regulations, to not prepare for the future, it will diminish or even kill them. Their demise will make it harder for the survivors to compete in the global market with a smaller local eco-system.
My hope is as usual that the invisible hand will save the car industry from overly foolish policies.
