Key Takeaways
Germany’s EV sales are expected to drop 14 percent this year after the government dropped subsidizing them–the first decline in EV sales since 2016.
High up-front costs and lack of charging facilities are the major factors in the decline.
Purchasers of expensive electric vehicles may have saturated that market, leaving only low-cost electric vehicles as a growing market in which China is eager to gain market share.
EV sales in Germany are expected to drop 14 percent this year in response to the government removing heavy subsidies in December. It will be the first decline since 2016. Electric vehicles are much less affordable than equivalent combustion-engine cars and need subsidies for consumers to purchase them as Germany is finding out. In Germany, the upper end of the EV market is almost saturated, and there is little on offer in the lower-end where prices are about €25,000 ($27,000). Germany’s goal is to get 15 million electric vehicles on the road by 2030. As of November, only about 1 million — or 2 percent of all cars — on German roads were fully electric. Without further subsidies, the 2030 target will be a challenge.
Sales of electric vehicles are getting harder to make as generous government incentives are disappearing in Europe and fewer vehicles qualify for them in the United States. Lack of infrastructure and high prices are still roadblocks to widespread adoption, among other issues. In October 2022, Germany invested €6.3 billion ($6.85 billion) in a nationwide infrastructure project to increase the number of charging stations in the country to one million in 2030. But, as of last September, there were only about 105,000 functional public charging stations in Germany, according to the infrastructure authority. At the current rate of construction, Germany will need to triple its pace if it wants to hit its 2030 goal. Rising electricity prices have further reduced EV demand in Germany.
German car manufacturers are beginning to lessen their EV ambitions. Volkswagen’s Audi brand is paring down its EV lineup, and VW is taking a step back from plans to sell stakes in its battery unit. Should the EV slowdown segue into a longer-term slump, it could undermine billions in industry investments, and mean that carmakers would not be able to keep pace with regulations to lower emissions.
Competition from China Will Be Fierce
With its cheaper models and a more varied lineup, China’s BYD overtook Tesla as the world’s top-selling EV company last quarter, despite Tesla’s deep price cuts through 2023. According to Elon Musk, China will demolish most other car companies in the world if there are no trade barriers established. Last year, Musk started a price war to get consumers that were hit with high borrowing costs to buy his Tesla models. That squeezed Tesla’s margins and worried its investors. Musk warned that Tesla was reaching “the natural limit of cost down” with its existing lineup.
Tesla plans to start producing a cheaper, mass market compact crossover named “Redwood” in mid-2025 to compete with inexpensive rivals. Musk expects to start production of Tesla’s next-generation electric vehicle at its Texas factory in the second half of 2025. China currently controls the lower-priced segment of the world’s EV market and is making inroads in Germany where EV imports from China have more than tripled in the first quarter 2023.
Chinese EV manufacturers are keeping costs in check and have a stable supply chain, which other manufacturers do not have since China dominates the battery supply chain. With rising competition and excess capacity of about 10 million vehicles per year in China, many of China’s car makers are working on rapidly expanding their foreign footprint after state subsidies helped increase domestic sales. China’s SAIC Motor, for instance, has been placing orders for more vehicle vessels in its fleet to counter shipping costs as it looks to increase sales overseas. At home, Beijing is tackling overcapacity by limiting production licenses.
Brand awareness of Chinese car companies in the United States, however, is extremely low and their reliability, durability and safety is middling, so the United States is not a ready market for them–yet. In China, their demand is high with innovation such as in-car technology (driver assistance systems) and battery swapping, which could be important factors to their future growth overseas.
Europe has taken a protectionist stance towards Chinese EV makers. Last year, the European Commission launched an investigation into whether to impose punitive tariffs to protect EU producers against cheaper Chinese EV imports that have benefited from state subsidies.
Last year, China displaced Japan as the world’s largest shipper of cars abroad, sending more than 5 million overseas, the China Passenger Car Association said. China’s total auto exports, including passenger and commercial vehicles, were estimated at 5.26 million last year and valued at about $102 billion; while Japan’s full-year exports were forecast at about 4.3 million. Because China’s EV manufacturers can keep costs relatively low due to the country’s highly developed EV supply chain, they can make a vehicle for around 10,000 euros less than a European rival. They also have a technical edge, especially with software and the ability to develop new models quickly. Increasingly intense competition at home, particularly for mid-market electric models in the 200,000 to 300,000 yuan (around $28,000 to $42,000) range, forces them to keep developing that edge.
Conclusion
Germany’s EV sales are expected to drop 14 percent this year as it has discontinued its EV subsidies. Major issues affecting car buyers are the high prices for the electric vehicles and the lack of charging infrastructure. Because of the expected slump in sales, the government’s goal of 15 million electric vehicles by 2030 is unlikely to be met as the country has only 1 million electric vehicles on the road so far. Germany’s car manufacturers are also cutting back on their EV production to lessen their losses. Further, Chinese EV manufacturers want to expand abroad with excess domestic inventory, an edge on in-car technology, and domination of the battery supply chain that enables them to build electric vehicles much cheaper. While Chinese brands are not yet threatening U.S. markets, their lower costs could eventually attract U.S. buyers, particularly if Biden keeps pushing, through onerous regulations, his goal for EV sales to be 50 percent of the new car market by 2030.
