Europe expects a resurgence in electric vehicle sales this year, with automakers delivering more than 160 models to the market, but executives warn profits could fall further due to regulatory costs and rebates.
Growth in VE Sales in major European markets ground to a halt last year as governments cut subsidies and companies held off on launching new electric vehicle models until 2025 in anticipation of new, tougher emissions rules of the continent.
Matthias Schmidt, an independent automotive analyst, predicts that electric vehicle sales in 2025 in Western Europe, including the United Kingdom, would increase by 40% to 2.7 million vehicles, as automakers race to reach their CO₂ targets. He predicted that the share of battery-powered cars would surpass the 15 to 17 percent range to reach 22 percent of the total market this year. “We certainly expect the market to rebound in 2025 thanks to EU regulatory efforts,” he said.
But the return of electric vehicle sales growth will also come with high costs of complying with stricter emissions rules and more discounts as consumers seek affordable cars. While underlying demand remains weak, executives said the overall outlook for the European auto industry remains challenging at a time of growing Chinese competition and growing protectionism in the United States.
“In terms of offering between electric and hybrid vehicles, we are ready,” said Fabrice Cambolive, who heads the Renault brand, 13% of sales of which are electric. “In terms of demand, we are seeing very volatile signals. The level of hesitation is really high among our customers.
European auto industry body Acea estimated that fines, carbon credit costs or loss-making sales of electric vehicles could cost carmakers 16 billion euros if fines for 2025 were not delayed. Its preliminary data showed that new electric vehicle registrations in Europe fell by almost 6% last year.
Shares of electric car maker Polestar fell 11% on Thursday after revealing it would take another two years for its free cash flow to become positive and after scaling back its market expansion plans.
Schmidt expects more than 160 electric vehicles to be available this year in Europe, including cheaper offerings under €25,000, such as the Renault 5 and Citroën ë-C3. The range also includes 20 new models such as BMW’s Neue Klasse electric sport utility vehicle and Mercedes-Benz’s new electric CLA, while Tesla’s updated Model Y released in China on Friday will also travel to Europe.
With the record number of product launches in the company’s history starting in 2025, Ola Källenius, chief executive of Mercedes-Benz, said the company would “launch a fireworks display of products, most of which will be entirely electric.
But he warned that “natural demand” from consumers was unlikely to increase in 2025 to a level that would allow the industry to sell battery-powered cars at healthy profit margins.
Starting this year, the EU will require carmakers to reduce their carbon emissions by increasing the share of electric vehicles sold. Automakers and analysts are closely watching the United Kingdom, which last year launched its electric vehicle quota system that requires 80% of car sales to be zero-emission vehicles by the end of the decade.
UK performance in the first year of EV targets provides a first indication of the impact of regulatory pressure on sales and profits.
Registrations of new electric vehicles jumped 21 per cent to a record 382,000 last year, with the UK narrowly overtaking Germany as Europe’s largest battery-powered car market for the first time .
However, discounts on electric vehicles to attract customers are reluctant The move away from petrol vehicles is costing car manufacturers billions of pounds. Despite the price cuts, companies accounted for a large share of electric vehicle sales, with only one in ten private buyers choosing an electric model.
“The amount of money available to stimulate demand is going to come under severe pressure at a time when manufacturers have very limited resources,” warned Mike Hawes, chief executive of the Society for Motor Manufacturers and Traders in the UK.
Analysts predict that falling profits in Europe would weigh on the global performance of automakers. UBS estimates that the profit before interest and taxes of European automobile groups would fall by 7% compared to 2024.
Even if companies had every incentive to sell more electric vehicles this year, “the question is to what extent automakers will give additional discounts to sell more electric vehicles,” said Patrick Hummel, an analyst at UBS.
In addition to discounts and promotions, some manufacturers will face additional costs related to purchasing carbon credits from companies like Tesla and Chinese rivals which are ahead in the electric transition, in order to meet new European regulations.
This month, Stellantis, Ford, Toyota, Mazda and Subaru announced plans to “pool” their carbon emissions with Tesla, allowing them to purchase emissions credits, while Mercedes-Benz wants to work with Volvo and Polestar, owned by Geely.
Hummel estimated that these various measures, including reductions and carbon credits, to meet the targets would have an impact of up to €4 billion on profits for the entire sector.
While Europe’s auto industry has asked Brussels to consider easing regulations, it also hopes governments will help revive consumer demand for electric vehicles by restoring incentives.
Registrations of new electric cars in Germany collapsed by 27 percent last year after purchase subsidies were abruptly removed at the end of 2023. France suffered a drop of 3 percent year-on-year and 21 percent just in December.
Some governments have begun to address concerns about the targets, with Britain considering ways to make it easier to meet its mandatory electric vehicle sales targets. France has suggested that carmakers should be spared heavy fines if they fail to comply with EU emissions rules.
But we still do not know where the political debates will take place.
In France, a popular leasing program allowing less well-off families to buy electric vehicles ended in February 2024, after 50,000 applications in two months were more than double the total expected over a year.
Paris reduced subsidies for the purchase of electric vehicles from a maximum of €7,000 to €4,000 last month, but as the French government has not yet adopted a budget for 2025, additional support for electric vehicles or sanctions for polluting vehicles remain unclear.
In Germany, uncertainty around subsidies has impacted sales of electric vehicles.
Gilles Le Borgne, head of engineering at Renault, said the German government’s removal of incentives had been “instantaneous”. He added that car manufacturers “above all need stability in public policy around electric vehicles” and that “often it is 1,000 or 2,000 euros (of support) that can move things in a way. or another”.