Column: Manufacturers need EVs but do consumers want electrification?

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Peter Els
02/03/2020

With governments around the world struggling to meet their commitment to the 2015 Paris Accord, regulators in Europe are tightening fleet average carbon emissions.

The reduction of CO2 emissions from 120 to 95g/km on January 1 2020 will compel manufacturers to step up their electrification efforts – but will they have the consumer’s support?

Reading the EV market is a tricky science

According to a December 2019 report by McKinsey and Company titled The future of mobility is at our doorstep, automakers would need to sell up to 2.2 million EVs in Europe in 2021 to meet their CO2 targets – equal to the total global consumer demand for EVs in 2018.

Reassuringly, in 2019 EV sales-tracking portal, EV Volumes, reported that the plug-in electric vehicle market from January to October was consistently greater than that recorded in 2018. An increase of 39 percent boosted plug-ins’ share of the overall market to three percent, compared to 2.1 percent for the same period in 2018. BEV deliveries increased by 128,000 while PHEVs lost 2,600 sales compared to 2018, resulting in a net gain of 125,400 units.

Driven by the new regulations BloombergNEF expects sales of full-electric and plug-in hybrid cars to grow 35 percent in the first nine months of 2020, a rate far higher than China and North America.

What’s more, the production of electric vehicles in Europe is forecast to multiply six-fold between 2019 and 2025, reaching more than four million cars and vans, or more than 20 percent of total EU light vehicle production. Based on these figures, the European Federation for Transport and Environment (T&E) believes that manufacturers should be able to meet their CO2 targets up to 2025.

However, these figures are by no means guaranteed, relying heavily on consumer uptake of the technology. In this rapidly evolving market manufacturers find themselves in uncharted territory, fueled by changing customer demands and uncertainty over the acceptance of electrification by the consumer – “if we build them, will they buy them?”

A shift in consumer preferences threatens the industry’s emissions compliance

While manufacturers look for ways to cut emissions, a shift in consumer preferences is making this difficult. Not only are customers turning their backs on diesel-powered vehicles, but they are also opting to purchase heavier SUVs with higher greenhouse gas emissions.

In 2015, diesels accounted for 51.4 percent of LDV sales in Europe. This dropped to 35.9 percent in 2018 and is likely to decline to 32 percent in 2020 according to analyst firm LMC Automotive. This decline is seen across all segments of the market.

At the same time a shift to SUVs is also having a significant impact on emissions – not only in Europe, but across the globe.

This is well illustrated by the performance of SUVs at two of Germany’s top brands, BMW and Mercedes-Benz:

While BMW deliveries rose two percent to a record 2,168,516 vehicles in 2019, its X-branded SUVs jumped 21 percent, making up 44 percent of the brand's global sales
At Mercedes-Benz, every third vehicle sold in 2019 was an SUV, with the company saying it posted sales records in Germany, China and the United States on the back of strong demand for its sports utility vehicles

According to the International Energy Agency’s (IEA) World Energy Outlook 2019 report, SUVs were the second-largest contributor to the increase in global CO2 emissions since 2010 – behind the power sector, but ahead of heavy industry including iron and steel, cement, aluminum, as well as trucks and aviation.

There are now more than 200 million SUVs around the world, up from about 35 million in 2010, accounting for 60 percent of the increase in the global car fleet over the same period. The IEA concludes that a doubling in market share has seen CO2 emissions from SUVs grow by nearly 0.55 gigatons during the last decade, to roughly 0.7 gigatons.

As a result, while T&E previously estimated that, to meet 2020/21 CO2 targets, EU carmakers would need between five and seven percent of their sales to come from plug-in vehicles, the impact of rising SUV sales and the declining diesel market is likely to push this number closer to 10 percent.

Faced with these challenges, stemming from a shift in consumer preferences, it is understandable that automakers operating in Europe may have a hard time convincing consumers to buy zero emissions EVs that they have not yet shown much interest in.

Hearts and minds: Winning over the consumer on EVs

While surveys measuring barriers to consumer adoption of EVs differ over which one is most important, the same three challenges are highlighted over and over again:

Initial purchase cost – A recent Global Mobility Navigator Syndicated Study by Ipsos found that consumers are only willing to pay 10 percent above the price of a comparable gas or diesel model, and once the difference goes beyond 20 percent interest disappears
Range anxiety – A 2019 survey by Clean Technica, Electric Car Drivers: Demands, Desires & Dreams (2019), polling American, Canadian and UK drivers found the majority of those surveyed in all three regions demanded a minimum EPA-rated range of between 355 and 402kms
Availability of charging infrastructure – ACEA's 2019 progress report shows that in 2018 there were fewer than 145,000 charging points throughout the entire European Union; far short of the minimum figure of 2.8 million charging points that will be required by 2030

What is lacking, however, is education of the consumer. With this quantum leap in technology the customer’s apprehension is quite understandable, but could be quelled given sufficient information and education.

A recent survey by the AAA showed that EV owners were overwhelmingly positive about their post-purchase experience, proving that early negative perceptions can largely be overcome once the functionality is better understood.

According to the survey, conducted in October 2019, prior to owning an electric vehicle the majority of owners (91 percent) said they had at least one concern – things like insufficient range, implications for long-distance travel and finding a place to charge. Post purchase, many of these reservations were put to rest.

This led the AAA to conclude that, if consumers have a better understanding of the real cost and experience of owning an electric vehicle, then the gap between expressed interest and actual adoption will close, resulting in increased sales of EVs.

What’s more, with 71 percent of respondents being first-time EV owners, the survey unearthed some interesting results that the industry would do well to heed:

The majority (96 percent) said they would buy or lease another electric vehicle the next time they were in the market for a new car
Two in five said they drove more since owning an EV
Three quarters (78 percent) also have a gas-powered car in the household, yet they reported choosing to do the majority of their driving (87 percent) in their EV

Perhaps the most encouraging finding to come out of the survey was the impact ownership has on commonly held perceptions about electric vehicles, particularly those that are typically cited as dissuading consumers from making the leap to electrification: Range anxiety and availability of charging infrastructure:

95 Percent of owners surveyed report never having run out of a charge while driving and, on average, they do 75 percent of their charging at home
Likely as a result of their personal experience, 77 percent of those who were originally concerned about insufficient range also said they became less or no longer concerned, post-purchase

This mission to successfully sell consumers on the idea of an electrified future is not only to avoid hefty penalties – according to the EU, fleet emissions in 2018 were 120g/km, which means automakers need a 21 percent reduction to avoid fines that, at Euro 95g/km per vehicle, could cost the industry as much as €33bn this year – but will also be an early but important measure of customers’ acceptance of EVs as manufacturers rollout their new models.

Manufacturers, worldwide, will be watching consumers’ response to EVs in Europe with baited breath

The electrified fleet is set to grow from about 60 BEV, PHEV and FCEV models at the end of 2018, to a combined total of 176 models in 2020, 214 models in 2021 and 333 models in 2025.

With the Volkswagen Group planning global sales of 28 million EVs, generated by 70 different models, by 2028, consumer response to the industry’s drive to increase the EV market in Europe could prove to be the ultimate acid-test of customer acceptance of electrification, and as such a barometer of how smoothly the rollout of the technology will occur.

Referring to the ID3, Jonathon Poskitt, LMC’s head of global forecasting commented: “If it doesn’t hit the sales it’s supposed to, then maybe that’s a signal that the market is just not there yet.”

Should customers be reluctant to adopt the technology the consultancy Wood Mackenzie projects that VW might only realize 14 million EV sales by 2028.

While Wood Mackenzie predicts that the estimated 14 million EV sales would still equate to 27 percent of the total global EV market it would be a far cry from VW’s plans, with the potential of significantly disrupting the company’s near-term commitment to BEVs.

And even as automakers execute their electrification strategies to meet the current CO2 regulations, storm clouds are gathering on the horizon: There is a very real possibility that the CO2 rules will get even tougher. In a document called the European Green Deal, the European Commission proposes revising legislation on emissions standards for cars and vans “to ensure a clear pathway from 2025 onward toward zero-emissions mobility.”

With the revision set to be finalized by mid-2021, manufacturers will be hoping that EV interest turns to EV ownership sooner rather than later, but if not, the industry will have to revert to fleet deals and internal sales to attempt to take up the slack.