EU electrified car push is driven by rules, not market demand

Automakers are pouring money into electric vehicles as local and Europewide legislation pushes them to electrify their lineups with different combinations of battery technology — whether they want to or not. The small number of EVs available, either full-electric cars or plug-in hybrids, is slowly increasing as the battery technology improves and battery costs decline.

This year, Jaguar launched the I-Pace, the first full-electric model from an established automaker with the performance and price tag to challenge Tesla. In the volume sector, Hyundai introduced long-range capability -- up to 480 km (298 miles) -- with the Kona EV SUV.

German premium brands are launching their fight back against Tesla - Audi with the e-tron SUV and Mercedes-Benz with the EQC. The choice of high-end, long-range (400 to 500 km) electric cars will expand further when Porsche launches the Taycan sedan.

Electric cars are perceived to be image-boosting. Whether that is a result of Tesla's efforts or a backlash against polluting diesels is difficult to say. But over the past 12 months, automakers looking for positive publicity have made bold promises to electrify their global fleets in the midterm.

• By 2023, 86 percent of all PSA Group's models will have an electric or plug-in option.
• By the end of 2022, Fiat Chrysler Automobiles will have launched more than 30 nameplates with electric drivetrains.
• Starting in 2019, every all-new Volvo launched will have some form of electrification. This will include 48-volt mild hybrid, plug-in hybrid and full-electric powertrains. Volvo's headline-generating announcement, made July 2017, inspired many others to follow suit.
• Renault plans to launch eight full-electric models and 12 electrified models by 2022.
• The Volkswagen Group has announced it will launch 25 electric vehicles by 2020 and plans to sell up to 3 million EVs annually by 2025.
• By 2022, Ford will have 16 dedicated battery-electric vehicles globally.
• Also by 2022, Daimler will electrify the entire range of Mercedes cars.
• Every new Jaguar Land Rover vehicle will be electrified by 2020.
• One-third of all Maseratis will be electrified by the mid-2020s.

Legislatively driven

These bullish announcements suggest an enthusiastic switch to electric, but the reality is somewhat different. For many automakers, the word "electrified" encompasses mild hybrids, which gives standard combustion engines a small electric boost for an equally small decrease in CO2 emissions. From the auto companies' perspective, it's clear that switching to electric is largely a response to legislation rather than consumer demand.

In June during FCA's investors' day, where the company revealed its electric ambitions within the new five-year plan for the company, Chief Technical Officer Mark Chernoby described the European Union as the "most challenging regulatory/consumer environment in the world."

FCA traditionally had been the automaker least interested in battery power, citing the slim-to-zero returns. Its former CEO, Sergio Marchionne, famously asked consumers in 2014 not to buy its only electric car, the Fiat 500e, because the company lost $14,000 for each one sold.

Now, however, FCA is working on a new electric Fiat 500 as part of its wider EV plan. The company had little choice, Chernoby said, describing the fines in Europe for not achieving average CO2 targets by the 2020-21 time frame as "significant."

Diesel decline

Meanwhile, consumers are abandoning the carmakers' low-CO2 fuel of choice — diesel — as cities across Europe target the fuel to combat emissions problems. In response, FCA plans to drop diesel in Europe by 2021.

The EU is encouraging this switch toward EVs. The European Commission has set out proposals for new CO2 targets for 2030 that would force manufacturers to cut fleet average emissions by 30 percent from 2021 levels.

Electrification is key to this. The EU has set a benchmark of 15 percent of all sales to be either electric or plug-in hybrid (below 50g/km of CO2) by 2025 and 30 percent by 2030. Any automaker that achieves sales above these targets is rewarded with a higher average CO2 target.

"The framework aims to support a gradual transition from vehicles powered by conventional engines to electric vehicles," the European Commission wrote in November.

Limited uptake

The manufacturers themselves are less keen on being made to switch. "Currently the reality is that the market uptake of electrically chargeable vehicles is low, and this is not due to lack of availability and choice," Daimler CEO Dieter Zetsche said last September. Zetsche was speaking in his role as president of the European auto industry association, ACEA, which continues to press the European Commission to relax the pressure to electrify by softening the 2030 emissions targets. ACEA proposes a 20 percent cut instead.

 In June, ACEA again attacked the commission over electric cars, warning that "affordability is a major barrier to customers." The manufacturers' group contends that EV growth is occurring only in rich countries such as Norway, where average gross domestic product is twice the EU average.

 As an example of that barrier, ACEA singles out Estonia, where just 43 plug-in hybrid vehicles were purchased in 2017. "A forced push for electrification could lead to social exclusion in these countries," ACEA wrote in its report, "Making the Transition to Zero-Emission Mobility."

The association, which speaks for all European automakers, repeated Zetsche's point about slow acceptance of EVs. "Consumers looking for an alternative to diesel now often opt for petrol vehicles or hybrid ones but are not yet making the switch to electrically chargeable vehicles on a large scale," ACEA wrote. Last year the market for plug-in vehicles was just 1.8 percent of the total market, according to figures from market analyst JATO Dynamics. At its current low rate of growth, ACEA argues, the market share would be 3.9 percent by 2025 and 5.4 percent by 2030.

Infrastructure issues

ACEA said that the lack of charging stations is holding back sales. It calculates that at least 2 million chargers will be needed by 2025 to service the demand forecast by the EU. Of the nearly 100,000 charging points currently available, ACEA says, 30 percent are in the Netherlands and 22 percent in Germany. Romania, by contrast, has just 116 stations.

ACEA Secretary General Erik Jonnaert called on the EU to force its member states to increase the number of publicly available charging points. "Without this, consumers will never be convinced to make the switch to electrically chargeable cars on a large scale," Jonnaert said.

The automakers' EV pessimism, as expressed through their European association, contrasts sharply with their public enthusiasm. But analysts and the automakers think the market for plug-in vehicles will grow sharply anyway. The consulting firm AlixPartners forecasts that plug-ins, both battery-electric vehicles and plug-in hybrid EVs, will account for at least 20 percent of European sales by 2025, beating the European Commission's 15 percent benchmark.

The VW Group has reached the same conclusion, telling the analyst firm UBS this year that it predicts the split in 2025 will be 12 percent BEV (battery-electric vehicles) and 8 percent PHEV (plug-in electric vehicles). The VW Group consistently has said it thinks a third of its sales will be pure EVs by 2025. The analyst firm LMC Automotive thinks the 2025 figure will be 18 percent, split between 11 percent BEV and 7 percent PHEV for a total market of 3.7 million vehicles.

By 2020, LMC estimates, the market for EVs will quadruple to 1.15 million, up from 280,767 last year. It thinks plug-in hybrids will remain ahead at just over half the total before being overtaken in the subsequent five years as BEVs become more affordable and the charging network expands.

Massive investments

The investment being poured into electric cars is immense. FCA, for example, plans to devote 20 percent of its total capital expenditure budget up to 2022 (9 billion euros or $10.5 billion) to developing electrified vehicles. By 2022, FCA expects 40 percent of its European vehicles to be mild hybrids, 20 percent "high-voltage electrification" (BEVs or PHEVs) and 40 percent nonelectrified.

Globally, automakers and suppliers are investing $255 billion in electric vehicles up to 2022, compared with around $25 billion in the previous eight years, AlixPartners has calculated. The money will not just go into the drivetrains but also into trying to make the EV driving experience superior to that of conventional combustion engines -- key to stimulating demand.

UBS reports that the first of the new-generation VW electric cars -- the I.D. Neo, arriving in 2020 – will come with augmented-reality head-up display and optional inductive wireless charging. The Porsche Taycan will use an 800-volt system for ultrarapid charging (10 to 15 minutes) and consistent rapid acceleration without sacrificing on performance.

Autonomous technology increasingly will be part of electric cars. For example, the BMW iNext SUV, scheduled to be launched in 2021, will be "fully electric, fully connected and also offer highly automated driving," BMW CEO Harald Krueger said in May.

'More expensive'

Automakers currently unable to command premium prices will use the high-tech allure of electric cars to persuade buyers to pay extra. "We believe electric vehicles in the future will necessarily be more expensive, so we need to find the target group who are ready to pay more," said Alain Favey, Skoda's head of sales and marketing. "It's a matter of getting the cars so attractive with a content that is so compelling that people will be ready to pay more."

Skoda will sell an electric version of its Citigo minicar in 2019 and a production version of the Vision E, built on the new VW Group MEB platform, in 2020. To be successful, automakers must target a different audience, said Christoph Stuermer, global lead analyst at PwC Autofacts. "Trying to sell a different thing to the same kind of people can't work because the properties of battery-electric cars today are worse than for combustion-engine cars," he said.

Applying the same marketing is a recipe for failure, Stuermer said. "Electric cars have not been product-managed or marketed in any professional way," he said. "Take the engineers off the piste and let the product managers start doing their job." Stuermer praised the Renault Zoe as being different enough to appeal to this new crowd. "The Renault brand is slightly nonblingy, it has a cool appeal, and it sells like hotcakes," he said. "In most cases, electric-car buyers are not people who like to show off."