Without subsidies, who can afford an electric car?

Right now, if you buy a new electric car the exchequer is subsidising your purchase by as much as €10,000. There are two grants in play: a rebate of Vehicle Registration Tax (VRT) of up to €5,000 and a €5,000 grant from the Sustainable Energy Authority of Ireland (SEAI).

These financial helping hands don’t come without strings attached. Your new EV must fall within a certain price category. Above €40,000, the VRT rebate is tailed off but you can still get an SEAI grant for cars costing more than €60,000.

The grants have been hugely beneficial in getting people to move to electric motoring. For a start, they helped to subvent the prices of electric vehicles at a time when the technology was in its infancy and therefore hugely expensive. They also provide a nice carrot, dangled in front of buyers’ faces. After all, if the Government is shouldering €10,000 of the price of your new car, why not go electric?

Those days are fast coming to an end, however. Subsidies for electric cars are being trimmed across Europe and the world, which only makes sense. As electric power moves from the early-adopter periphery to the mainstream, so too the cost of designing and making such vehicles has come down. To give an example, according to Bloomberg News, in 2010 the price per kWh of an electric car’s battery was $1,200 (€1,200). Last year, that figure had fallen to just $132.

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The sudden climb in the cost of energy has had knock-on effects in the car-making industry

That’s still not cheap — producing a 50kWh battery pack, quite a small one, would sill set you back $6,000 but it’s certainly an improvement. It has been predicted that across all car segments, by 2027, an electric vehicle should be cheaper to build and buy than a conventional petrol or diesel model.

Julia Poliscanova, senior director for vehicles and emobility at eco-think tank Transport & Environment told Business Ireland: “EVs will be a reality for all new buyers within six years. They will be cheaper than combustion engines for everyone, from the man with a van in Berlin to the family living in the Romanian countryside. Electric vehicles are not only better for the climate and Europe’s industrial leadership, but for the economy too.”

However, that rather lovely vision of the future — where clean electric vehicles would be cheap to buy and cheaper to run — has taken a battering in recent months. The sudden climb in the cost of energy has had knock-on effects in the car-making industry, with many manufacturers dramatically raising prices across the board. To add to those energy woes, the price of the raw materials needed to make car batteries — notably nickel, lithium, and cobalt — has also risen dramatically, slowing down and in some cases even reversing the trend of cheaper battery production. Tesla, the world’s most famous electric car maker, has seen the price of its cars rise by 20 per cent in the past year.

Take away government subsidies and the price of electric cars will balloon pretty quickly, potentially putting them out of the reach of many buyers, even in Ireland where the average price of a new car has risen to €33,000 and beyond. While some EV advocates reckon electric cars can and should always come with a bit of a price premium, given that their running costs are so much lower than a petrol or diesel equivalent, the recent spike in electricity prices has undermined at least some of that argument. Certainly, if you’re unable to charge an EV at home, and have to rely on public charging points, the cost of charging is rapidly rising to a point where it can be more expensive than pumping petrol.

So, is it too soon to start cutting back on subsidies? Clearly, they’ll have to go eventually but if they’re cut off now (and the Department of Finance has a habit of springing unwelcome surprises on the car industry in the budget) will that cut the electric car market off at the knees?

“The existing subsidies have had a very positive effect on sales, and they have played a significant role in the continued success of the Nissan Leaf,” says Adam Wheatley, senior marketing executive at Nissan Ireland. “They are certainly a factor in the decision-making process to buy an EV. The transition to EV driving represents an enormous task for all manufacturers, especially when the cost of raw materials, such as the production of lithium batteries, is rising globally. This is having a knock-on effect on pricing. At the same time, inflation, rising interest rates and a general increase in the cost of living is having an impact on the demand for new car sales in Ireland. In this environment, customers are even more focused on the existence of subsidies and their ability to off-set the cost of making the switch to electric driving.

“The Government has set an ambitious target to have one million EVs on Irish roads by 2030. The industry and consumers require certainty around the extent to which subsidies will continue to exist during that time frame. This is critical if the Government is serious about attracting drivers to make the switch to EV driving and achieving the targets that it has set down in its Climate Action Plan.”

Stephen Gleeson, managing director of Hyundai Ireland — a company which has hit a rich seam of EV sales success with models such as the Kona Electric and the Ioniq 5 — is even more adamant. The Government needs to tell car makers and car sellers what its plans are now, and then stick to them.

“We 100 per cent need a roadmap for where we are going”, Gleeson told Business Ireland. “Right now, we are delaying ordering for 2023 and falling behind the queue of other countries for EVs as we have no idea what cars or specs we should be ordering for next year. If the Government reduces the qualifying threshold for grants, then cars we order now may not qualify for the grant. Rather than reducing the threshold for what cars qualify for the grant the Government should reduce the grant itself.

“It is a fact that there will be fewer EVs sold in Ireland next year than there could be due to the Government making it impossible for car manufacturers to plan for 2023 until after the budget. The Government could end this problem now by telling the industry that whatever changes they make in future budgets will not come into effect until the following July rather than immediately in January. As EVs become a bigger percentage of overall sales, the ordering gamble becomes bigger. We are shooting ourselves in the foot unnecessarily on this issue.”

Gleeson has little time for arguments that lowering subsidies encourages car makers to greater efficiencies to bring their wholesale prices down. “The argument that the Irish Government removing subsidies in our market of circa 100,000 units per year out of a global market of 60 million plus would get manufacturers to make efforts to reduce EV costs is nonsense. Our market is so small it has zero influence on the direction manufacturers take. All manufacturers are working at 100 per cent to reduce costs to try to gain a competitive advantage and need no encouragement to greater efforts. The only effect it will have is to make EVs more expensive in Ireland leading to reduced sales compared to other countries.”