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Is the switch to electric cars running out of power?
- By Ben Chu
- Economics Editor, Newsnight
May 17, 2024
Buoyant electric car sales are essential if we are to meet our climate goals. But sales of electric vehicles in the West have declined, and if governments want them to recover, it may have to be at the expense of their own economies.
The numbers
Any highway driver will know the feeling: you’re cruising, miles of open road seemingly ahead, and out of nowhere, a slowdown.
Something similar has hit the electric vehicle market in 2024. After years of rising sales, growth appears to be stagnating.
Replacing fossil fuel cars with EVs is key to the UK government’s plan to meet its climate goals – road transport is responsible for 12% of global emissions.
The question is whether this is a blip that will soon disappear in the rearview mirror or will it be more long-lasting? And if it lasts, will governments have the stomach to do whatever it takes to keep the spectacle of net-zero emissions on the road?
We need to buy a lot more EVs to reach climate goals
The growth in EV sales has been remarkable. In 2020, there were 10 million EVs on the road, in 2023 there were 45 million. But sales need to remain remarkable, and the chart below shows exactly how.
By 2035, the International Energy Agency (IEA) states that there will need to be 790 million EVs if we want to reach net zero by mid-century.
That’s why the fact that global sales of the world’s largest electric vehicle manufacturer, Tesla, were actually lower in the first quarter of 2024 than in the same period in 2023 has raised concern.
China’s largest EV maker, BYD, has been battling Tesla for the top spot. BYD also saw a slow down between January and March.
And EV sales in Europe it fell up more than 10% year-on-year in the final quarter of last year – although in the UK total sales are increasing on last year.
People just aren’t sure if they’re worth it
In the UK, analysts say strong EV sales in recent years have been fueled by company car purchasesthanks to generous tax incentives.
But the domestic market is proving to be a tough nut to crack, with people saying they are mostly put off by the high cost. The average price of a new EV in the US is over $60,000 (£47,433). Prices are also high in Europe It is the United Kingdom.
Large state subsidies and greater production efficiencies mean the average cost to a Chinese consumer is just $30,000. And BYD’s Seagull hatchback sells for less than $10,000.
China is also producing far more electric vehicles than its domestic market needs – it could easily flood the US and European markets with cheap cars if they were not restricted by tariffs.
Difficult choices at a fork in the road
Here is the dilemma for European and North American politicians. They want cheaper electric vehicles to facilitate the climate transition, but not at the cost of undermining their own car manufacturers – like Ford and Volkswagen – and local jobs.
In fact, there is talk of increasing tariffs and other trade barriers on imports to keep out ultra-competitive Chinese EVs.
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The AIE still predicts an increase in sales in 2024, which would keep us more or less on the path to net zero.
Optimists expect more people to buy EVs when cut-price used vehicles hit the market in Europe and America. But this clear path is not guaranteed.
It could be that EV prices in the West prove sticky while China continues to produce super-cheap vehicles.
If that happens, expect the tension between Western governments’ desire to decarbonize transport and their desire to protect national production champions to become even more acute.
At some point, they may be forced to choose.
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