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Europe cushions a global plunge in EV sales
Global sales of electric vehicles (EVs) rose 65% from 2017 to 2018. However, in 2019, the number of units sold increased only to 2.3mn, from 2.1mn, for year-on-year growth of just 9%. More recently, EV sales have declined by 25% during 1Q2020. These are the headline figures of McKinsey’s latest Electric Vehicle Index (EVI).
Although these developments are disappointing, they largely reflect the decline of the overall light-vehicle market, which fell by 5% in 2019 and by an additional 29% in 1Q2020. Despite the overall drop in sales, global EV market penetration increased by 0.3 percentage points from 2018 to 2019, for a total share of 2.5%. With additional growth in 1Q2020, EV penetration is now at 2.8%.
Key EV markets suggest shifting regional dynamics, with China and the US losing ground to Europe. EV sales remained constant in China in 2019, at around 1.2mn units sold (a 3% increase from the previous year). In the US, EV sales dropped by 12% in 2019, with only 320,000 units sold. Meanwhile, sales in Europe rose by 44% to reach 590,000 units. These trends continued in 1Q2020 as EV sales decreased from the previous quarter by 57% in China and by 33% in the US. In contrast, Europe’s EV market increased by 25%.
The relatively slow 2019 growth of China’s EV market reflects both an overall decline in the light-vehicle market and significant cuts in EV subsidies. The central government, for example, eliminated purchase subsidies for vehicles that achieve electric ranges (e-ranges) of less than 200 km and reduced subsidies by 67% for battery electric vehicles (BEVs) with e-ranges above 400 km. These cutbacks reflect the government’s strategy of scaling back monetary incentives for new-energy vehicles (NEVs) and transitioning to nonmonetary forms of support.
In 1Q2020, China was heavily affected by the COVID-19 pandemic. EV sales dropped by 57% from 4Q2019 as consumer demand declined sharply. Several EV manufacturers were also forced to halt production. In response, the central government extended through 2022 (though at reduced rates) monetary incentives that were about to expire. The government also prolonged the purchase-tax exemptions of NEVs through 2022. These measures, together with the government’s recent decision to invest billions of renminbi in the charging infrastructure as part of an economic-stimulus program, could help EV sales rebound in 2020.
EV sales rose by 80% in the US in 2018, driven by the market launch of the standard version of the Tesla Model 3. The increase slowed in 2019 because of several developments. With Tesla’s overseas deliveries increasing and the gradual phaseout of the federal tax credit in January and July 2019, the brand’s US sales for that year declined 7%, or 12,400 units. Meanwhile, the Chevrolet Volt was phased out, and its sales fell by 14,000 units. Sales of the Honda Clarity also decreased by 8,000 units.
Some international OEMs did successfully launch new models in the US in 2019, including Audi (the e-tron) and Hyundai (the Kona). Sales of VW’s e-Golf also increased. These three brands accounted for more than 24,500 units of EV sales, but their strong performance could not offset the decline of other models. US sales of EVs decreased further in 1Q2020, by 33% from the previous quarter.
The federal government’s recent moves to loosen regulations could further decelerate the EV market in the US. In March 2020, for instance, the government revised fuel-economy standards, to a 2026 target of 40 miles per gallon (mpg), from 54 mpg. Today’s low oil prices are also contributing to the EV slowdown, since they significantly lower the total cost of ownership for vehicles powered by internal-combustion engines (as compared with EVs). These changes are creating great uncertainty, and the US EV market’s development could depend largely on the number of states adopting California’s zero emission vehicle programme and on the vicissitudes of oil prices.
Unlike other key EV markets, Europe has seen significant EV growth. In 2019, sales increased by 44%, the highest rate since 2016. The European Union’s new emissions standard – 95 gCO2/km – could also boost EV sales because it stipulates that 95% of the fleet must meet this standard in 2020 and 100% in 2021. BEV sales picked up speed substantially, with a 70% growth rate propelled by three models – the Tesla Model 3, Hyundai Kona, and Audi e-tron.
EV sales increased by double-digit percentages in 2019 in almost every European country. Sales in some smaller markets, such as Estonia, Iceland, and Slovakia, declined in absolute terms. EV sales in Germany and the Netherlands contributed nearly half – 44% – of overall EV-market growth in Europe; in both countries, units sold increased by about 40,000 units. Those numbers translate into a 2018 growth rate of 55% for Germany and 144% for the Netherlands. In both countries, these strong EV sales resulted from increased demand for new models, the availability of existing models with larger battery sizes, and changed government incentives.
In 1Q2020, European EV sales rose as the overall EV penetration rate increased to 7.5%. With the exception of Hong Kong, all of the top 10 markets for EV penetration were in Europe. The strong regulatory tailwinds and high purchase incentives in several European countries could dampen the impact of the COVID-19 pandemic and further boost the EV market. That said, EV sales will probably face tougher impediments in 2Q2020, when the pandemic’s impact on Europe’s countries and economies should peak. So far, no European OEM (original equipment manufacturer) has changed its plans to roll out EV models, and several countries are discussing additional purchase incentives as part of their economic-stimulus programmes.
Tesla Model 3