Europe has become the world’s hottest electric-car market this year despite the slump in overall auto sales, underscoring how government subsidies continue to drive global demand for light vehicles with alternative powertrains, says Scope Ratings agency in its recent report and forecasts a 33% rise in global electric vehicle (EV) sales to around 2.8 mio units in 2020 — based in part on International Energy Agency estimates — from 2.1 mio units in 2019 when growth was a relatively weak 6%. First-half EV sales rose 14% whereas overall light vehicle sales fell 28%.
“In Europe, we expect that EV sales will rise by more than 50% this year, having jumped by around 57% in the first half compared with the same period in 2019,” said Werner Stäblein, analyst at Scope. Generous government subsidies in many markets explained the surge in demand. For the first time since 2015, more EVs were sold in Europe in H1 than in China. Plug-in hybrid vehicles (PHEVs) rather than battery-electric vehicles (BEVs) continue to make up the majority of EV sales worldwide. “We expect these trends to continue for the rest of 2020 and next year,” Stäblein noted.
In Europe, new customer subsidies have come into force in June and July, notably in France and Germany, ensuring bumper summer EV sales compared with 2019. EV sales should approach 1 mio units this year, not far from recent peak sales in China. Sales of that magnitude in Europe — equivalent to around 7% of all light vehicles sold (7.5% in H1) — would allow European original equipment manufacturers (OEMs) to meet emissions targets set by the European Union, thereby avoiding environmental penalties.
Subsidies will also determine growth in the US, where the government has toyed with the idea of phasing out a volume-linked tax credit for BEVs, despite a steep decline in demand of the broader market. In China, sales of new energy vehicles (NEV) — comprising BEVs, PHEVs, and fuel-cell cars – will likely remain relatively subdued following the 70-80% reduction in purchase subsidies in July 2019.
“The crucial role subsidies play was evident in how EV sales developed in 2019, the first year in the past 10 when demand grew by less than 50%,” Stäblein says.
Demand fell in China, with the reduction in incentives, and in the US, where sales volumes of Tesla Inc. and General Motors Co. EVs crossed thresholds that led to cuts in generous consumer tax credits. Strong deliveries of Tesla’s Model-3 sedan in 2018 also distorted comparisons.
As he points out, “In addition to subsidies, technology improvements that bring down the cost of batteries will be important, though US research shows that large economies of scale are hard to come by.”
According to Department of Energy calculations, the production cost for battery cells decreases by 9% when production is increased from 10K battery cell packs (of 60 kWh each) to 50K units while an increase from 100K units to 500K suggests a cost decrease of 12%, an only modest improvement. Much of the battery developers’ focus is on reducing the need for cobalt, the volatile and expensively priced metal, in battery-cell chemistry. Battery pack costs increase by 9% if the cobalt price rises by 50% while the cost increase would be only 2.5% with next-generation chemistry known as NMC811, expected to be in use by 2025, according to IEA calculations.