EV Price War Likely In Europe As Sales Growth Slows, Choices Increase

European electric vehicle sales last year allowed enthusiasts to claim that records were still being broken, but the underlying trend which developed later in the year shows growth was daring to slow despite relentless cheerleading.

As demand weakens and manufacturers are forced by governments to bring more EVs to market, a “vicious” price war is expected in 2024. This will get worse as China’s EV leader BYD cranks up its sales onslaught, according to investment bank Morgan Stanley.

Latest data from the European Automobile Manufacturers’ Association (known by its French acronym ACEA) showed EV sales in December declined for the first time since April 2020 – by 16.9% to 160,700 – as the underlying mood music became negative. ACEA data also showed sales in 2023 rose 37% to 1.5 million and a market share of 14.6%.

This may be temporary. EV sales have boomed, driven by affluent early adopters and tax and subsidy-driven corporate buying. Sales in Europe are still expected to more than quadruple between now and 2030. As the mass market beckons, the next level of buyers will need to be assured that range anxiety has been conquered, second-hand depreciation is acceptable, and prices are affordable. “Affordable” will mean within the reach of average European wage earners, not as European manufacturers seem to think, the cheapest of luxury EVs averaging close to $60,000.

Sentiment won’t have been helped by negative stories showing unsold EVs piling up at dealerships, pictures of Teslas stranded in the Chicago snow, or news Germany ended EV purchase subsidies.

In Europe, EV manufacturers are slashing prices, trying to move the reluctant metal. Tesla cut Model Y prices by up to 9%. VW, Renault and China’s BYD have also joined in.

Investment bankers can’t afford to be swayed by fashion or wishful thinking and have scaled back their short-term forecasts. Some, like HSBC Global Research, are starting to back away from the massive sales targets for 2030, which by European Union and U.K. government order, must be at least 80% of SUV and sedan sales. That would amount to 9.6 million according to investment bank UBS. Investment researcher Jefferies says 8.9 million.

“EV pricing is under pressure: growing competition and limited charging infrastructure weigh, but lower raw material costs are helping to ease manufacturers’ cost concerns,” HSBC Global said.

“While we still foresee sustained growth for EV sales – CAGR (compound annual growth rate) of 25% through 2030, after 30% in 2023 – we reduce our penetration estimates by 200-500bp (2 to 5 percentage points) over the period,” HSBC Global said.

HSBC now expects European EV market share of 60.4% in 2030.

Schmidt Automotive Research expects EV sales in Western Europe to rise from just under 2 million in 2024 to 9.2 million or 65% of sales by 2030.

HSBC said in a report because of Germany’s incentive removal, manufacturers will struggle to meet 2025 CO2 targets and the 2035 plan to eliminate almost all new internal combustion engine sales.

In 2025, U.K. rules say 28% of new sedan and SUV sales must be EVs. EU rules demand a similar outcome. There’s a £15,000 fine for every excess ICE vehicle sold.

Investment bank Morgan Stanley expects an EV price war in Europe, which will get worse when BYD’s plans reach top gear,

“We see a vicious cycle/price war for EVs in Europe, as has already happened in China. Fueling the flames is the fact that BYD is only now sending its first vehicle ship to Europe this week, with up to 7,000 vehicles onboard. BYD expects seven more vessels to join the fleet over the next two years,” Morgan Stanley said in a report.

Morgan Stanley has already pointed to a shift towards smaller SUVs, which will press down on the model mix and hurt 2024 profits.

S&P Global Mobility acknowledges the slowing consumer demand for electric vehicles, but it points out global sales in 2024 will still hit 13.3 million or a market share of 16.2%. That compares with 9.6 million in 2023 and a share of 12%.

“S&P Global Mobility’s forecast for 2024 is one of cautious optimism – with an increase in affordable EVs, reliable vehicle charging ecosystems, and profitable returns,” it said in a report.

Any deceleration in EV sales growth might awaken investor interest in so-called “legacy” ICE manufacturers.

“However, slowing consumer desire for existing EVs could boost profitable ICE markets and legacy automaker portfolios, driving consolidation and attracting private equity interest,” S&P said.

At least 15 new EVs will be launched in Europe in 2024, according to French automotive consultancy Inovev, including the Audi 6, Audi Q6, BMW 3 Series, Citroen C3 Aircross, a couple of Opel and Peugeot SUVs, and a Porsche Macan. Citroen, Opel and Peugeot are Stellantis brands. There’s a Renault E-Tech and Renault Scenic E. None look like providing any serious affordability. The new little Nissan Micra E in theory should be cheap, but small size doesn’t always equate with low prices. For instance, the little Fiat 500 E sells for about £30,000 in Britain after tax. That’s about $38,000.