T&E: ‘Producing affordable EVs can be profitable by 2025’

Carmakers can sell small electric cars made in Europe for € 25 000 while making a profit, new research from Transport & Environment (T&E) shows. Falling production costs and battery prices would make mass-market B-segment vehicles feasible to electrify by 2025, according to the study by Transport & Environment (T&E) based on analysis by the Syndex consultancy.

T&E says the availability of smaller, more affordable EVs could be a game changer for mass adoption of electric cars and will be crucial if European carmakers are to hold off the challenge of Chinese companies surging into Europe.

4% profit

European manufacturers can make a reasonable 4% profit margin on a small battery electric vehicle produced in Europe in 2025, according to the report’s ‘favorable market conditions’ scenario. This would see battery costs fall to $ 100 per kWh, in line with forecasts by BloombergNEF and others.

The report factors in other direct cost reductions while keeping broad industry expectations around indirect costs and mark-ups. The B-segment vehicle would have a 40 kWh LFP battery and a range of 250-300 km.

Julia Poliscanova, senior director for vehicles and emobility supply chains at T&E, said: “Survey after survey has shown prices are one of the biggest barriers to drivers going electric. The € 25 000 small BEV 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,” she added.

Small is beautiful

The arrival of more affordable, small electric cars would hasten the uptake of zero-emission cars in Europe, a new survey shows. One-quarter (25%) 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%. This would equate to an additional 1 million EVs being sold in Europe annually, replacing combustion equivalents.

Preferring higher profits per car

However, six big European carmakers have abandoned small, affordable cars in pursuit of profits that have grown far faster than inflation. Between 2019 and 2022, their net profit per vehicle jumped from between -€ 40 – € 1 920 per car up to € 510 – €8 940 per car, adjusted for inflation, the report finds.

This was delivered by prioritizing sales of larger, more lucrative SUVs, which today account for over half (53%) of all vehicles sold in Europe. Electric SUVs, which consume more electricity and raw materials, accounted for 51% of electric car sales in 2022.

For the six carmakers analyzed by T&E (BMW, Mercedes, Renault, Stellantis, Volvo Cars, and Volkswagen), the revenue, or the gross income, per new car has increased significantly: between 33% and 52% between 2019-2022, or around 3-4 times more than inflation in the same period. This means car prices in Europe have grown 17%-34% on top of inflation.

“This increase in profits accounts for up to 94% of all revenue generated over the same period. This means that the carmakers’ race for profits, rather than supply chain problems, is at the heart of making cars more expensive,” concludes T&E.

Prioritizing smaller EVs

T&E says lawmakers need to create the conditions for car companies to prioritize small electric cars, which are better for the environment, more accessible to low-income households, and enhance the competitiveness of the European auto industry.

It calls for a joined-up strategy of EV efficiency rules at the EU level, vehicle taxes and subsidies at the national level that penalize weight, and higher parking charges for SUVs at the local level.

Julia Poliscanova commented: “More car buyers will go electric if small affordable BEVs 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 favor of small, affordable electric cars and ordinary people,” she concluded.

Even cheaper

Even in such a scenario, the really cheap cars one could buy a few years ago at € 10 000 to 15 000 will be gone in the electric era, making a lot of people with lower incomes turn to the second-hand market or hold on to their old, severely polluting car.

The price of really affordable EVs for everyone should be around € 20 000, but then people will have to change their expectations for an EV of this size and price. Such a car can’t be very powerful or have a range of 500 km or more. The basic question is if this is really necessary. The answer is no, but prejudice remains. Or will this segment of the ‘car’ market finally be taken by the proliferating EV four-wheelers like Citroën Ami, Mobilize Duo, Silence S04, and other Microlinos?