Downfall in Europe’s EV market, automakers appeal for solution

The German electric vehicle (EV) market experienced a significant downturn in August, leading a broader decline across Europe. This slump has prompted automakers to appeal to Brussels for a reconsideration of key climate targets. The European Automobile Manufacturers' Association reported that EV deliveries in Germany, Europe's largest car market, plummeted by 69 per cent during August, contributing to a 36 per cent decrease across the region.

In response, the association has called upon the European Commission to implement urgent relief measures ahead of the 2025 fleet-emissions targets, which could potentially result in substantial fines for carmakers failing to meet the requirements.

The European auto industry has been grappling with a decline in EV demand following the withdrawal of government financial incentives that had previously made these relatively expensive vehicles more accessible to consumers. With the market share of battery-powered cars dwindling to 14 per cent in August, down from just over 15 per cent the previous year, automobile manufacturers are reassessing their strategies and timelines for transitioning away from internal combustion engines.

The decline has been particularly pronounced in Germany, which is facing a series of challenges in its industrial sector. Volkswagen AG, the continent's largest automaker, has abandoned a long-standing labour agreement and is preparing to close domestic factories in Germany for the first time due to waning demand. BMW AG has reduced its full-year earnings forecast, partly attributing this adjustment to sluggish EV sales. In a related development, chipmaker Intel Corp. has delayed the construction of a planned factory for which the German government had allocated euro 10 billion (USD 11.1 billion) in subsidies.

The German economy may already be in recession, according to a report by the Bundesbank. After a slight contraction in the second quarter, economic output is expected to stagnate or decline further in the third quarter. Constantin Gall, EY's mobility lead for Western Europe, noted that Germany's economy is struggling to gain momentum, with both consumers and investors showing reluctance. He attributed this to geopolitical tensions and ongoing conflicts that are negatively impacting sentiment.

The decline in new car registrations was not limited to Germany, as the trend was observed across Europe. In August, new car registrations fell by 16.5 per cent compared to the previous year, totaling 755,717 units. France and Italy also experienced declines, with the United Kingdom being the only major market to see an increase in EV sales, posting a 10.8 per cent gain.

The downturn in EV sales is putting carmakers like Volkswagen and Renault SA at risk of incurring significant fines as stricter European Union fleet-emissions rules are set to take effect next year. The European Automobile Manufacturers' Association has urged the European Commission to expedite planned regulation reviews, although they stopped short of requesting a two-year delay of the new fleet-emission standard of approximately 95 grams of CO2 per kilometer per vehicle, an option that was reportedly under consideration according to a draft proposal obtained by Bloomberg News.

BMW, however, stated that it has been preparing for the new CO2 fleet targets for years and expressed confidence in its ability to meet the stricter thresholds next year. The company asserted that it sees no need to adjust or postpone the 2025 goals.

These developments are also putting pressure on the EU's deadline to effectively ban sales of new combustion-engine cars from 2035. European automakers are divided on how to proceed in light of the impending new regulations, with some calling for adjustments to the timeline and others maintaining their commitment to the original targets.