Car buyers are crying out for more affordable electric cars. While charging and range remain issues that hold back a majority of buyers from switching to battery power, the cost of entering the electric market remains too high for many.
Proof of this can be seen in the immense success of MG over the past year. Since the brand introduced the highly affordable MG 4 electric hatchback, its sales in Ireland have jumped by 203 per cent in just one year.
MG, of course, is a Chinese brand and that in and of itself is potentially problematic. We’re still, really, awaiting the full impact on the European market of the massive investments that China and Chinese car makers have made in building up electric vehicle production, but already the dire warnings are being cranked into gear.
Carlos Tavares, the head of the sprawling Stellantis Group (which includes such brands as Fiat, Peugeot, Jeep, Opel, Alfa Romeo, Citroen and more) has already started floating the idea of extra EU tariffs on Chinese-made cars, to give European marques a break.
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Other senior motoring executives, it should be noted, have rubbished the idea but the EU has just announced an investigation into whether Chinese companies are ‘dumping’ cheap EVs on the European market in order to squeeze out home-grown car makers.
There is an issue, though. Small cars — which whether they’re powered by petrol, diesel, batteries or anything else you care to think of — are always going to be the most efficient way of getting about, in a strictly motoring sense. Yet these same small cars, at a time of climate crisis, are starting to disappear from our roads. Why? Because car makers calculate that they can’t make money on them anymore.
The Ford Fiesta, a mainstay of Irish roads and driveways since 1977, is gone. The VW Polo will almost certainly not be replaced once the current model leaves production. You can still buy an Opel Corsa, but the electric version costs well over €30,000. Ditto the Peugeot 208.
The maths is simple, and somewhat devastating for those of us who prefer our cars compact. Battery tech — and alongside it the technology needed to meet the next round of emissions standards for petrol engines — is expensive stuff, and the cost of developing all of that isn’t wildly different if you’re making a small hatchback or a big SUV.
The kicker is that you — ‘you’ being a major car company in this scenario — are able to sell that big SUV for two or three times the price of the small hatchback. So, unsurprisingly, car companies being companies above all else have pursued the almighty Dollar (or Euro) and built big, heavy, often inefficient, but profitable cars.
That may be changing, or at least hopefully it is. A new study by ecological think-tank Transport & Environment (T&E) has found that by 2025, it should be possible to produce compact, battery-powered hatchbacks in Europe, and sell them profitably for a price of around €25,000.
The key figure in this is the cost of the battery itself — which has long since become the most expensive component of any electric car. By 2025, according to research by BloombergNEF and quoted by T&E, the cost of a battery should have fallen to $100 per kWh.
At that point, assuming that a compact hatchback is designed around a 40kWh lithium-iron phosphate (LFP) battery — which is cheaper to make than a current lithium-ion design, and to which many car makers are already switching — should be able to provide its buyer with a 250-300km range on one charge, and a four per cent profit margin to its manufacturer.
Julia Poliscanova, senior director for vehicles and e-mobility supply chains at T&E, said: “Survey after survey has shown prices are one of the biggest barriers to drivers going electric. The €25k small EV will be a game changer for public adoption of electric cars. Bringing those models to market quickly and in volumes is crucial for European manufacturers to compete with Chinese rivals which are already offering cheap, small electric cars here.”
According to T&E’s research, one-quarter (25 per cent) of new car buyers already intend to buy an electric car in the next year, according to a YouGov poll for T&E in France, Germany, Italy, Spain, Poland and the UK. But when given the option of a small €25,000 electric car, the share of new car buyers willing to buy a battery electric model increases to 35 per cent. This would equate to an additional one-million EVs being sold in Europe annually, replacing combustion equivalents.
T&E’s research also shows that European car makers have been speeding in the other direction, away from the sort of small, affordable vehicles that most of us actually want.
Between 2019 and 2022 their net profit per vehicle jumped from between -€40 to €1,920 to €510 to €8,940, adjusted for inflation, the T&E report finds. “This was delivered by prioritising sales of larger, more lucrative SUVs which today account for over half (53 per cent) of all vehicles sold in Europe. Electric SUVs, which consume more electricity and raw materials, accounted for 51 per cent of electric car sales in 2022″ said a T&E spokesperson.
Julia Poliscanova said: “More car buyers will go electric if small affordable EVs are available. But right now carmakers are happy to cream the profits off large SUVs which are too expensive for many low-income households. Lawmakers need to step in with efficiency standards, taxes, reform of subsidies and other measures that tip the balance in favour of small, affordable electric cars and ordinary people.”
Volkswagen, for one, appears to be in agreement with T&E. Back in May, when the company first showed off its new ID.2all concept car, which previews a 2024 compact production car with a range of up to 400km, the company’s finance chief, Arno Antlitz, said during a press conference that: “We have not given up the topic of margin parity.”
VW is currently building a massive battery ‘gigafactory’ in Salzgitter, where it will make its own batteries to a new, theoretically more profitable design that can be made as a low-cost, lower-performance version fore more affordable cars, or a pricier, high-performance cell for Audi and Porsche models.
While all of this is hopeful, it is looking increasingly as if Europe’s car makers face an uphill struggle. Research by Allianz Trade has shown that China’s car makers are expected to steadily increase their European market share, which would result in falling sales for the familiar European brands — potentially leading to a loss of €6-billion in collective sales.
