Electric Car Market: Will the Boom Be Followed by a Slowdown?

Is the current boom in electric cars followed by a sobering reality? According to the latest statistics from the Federal Motor Transport Authority, 220,000 electric cars were sold in the first half of the year, 31.7 percent more than in the previous year, a number hardly ever achieved before. According to VDA figures, a third more electric cars were built in the first half of 2022. However, initial indicators suggest that the supposed boom could soon be over, a disastrous signal for the transition to electric vehicles. The high number of orders from the past, as reflected in the currently positive figures, apparently does not continue, as reported by the Süddeutsche Zeitung. According to VDA figures, domestic orders from German manufacturers are declining, dropping by 20 percent over the half-year period, and even by 27 percent over the entire year. VDA President Hildegard Müller noted that "consumer demand is partially weakening in the current difficult economic situation".

From the VW electric plant in Emden, where the ID.4 and soon the new ID.7 are rolling off the production line, works council chairman Manfred Wulff reported feeling the "hesitance to buy in the electric car market very strongly". Much fewer people than hoped are ordering a VW electric car, a substantial one-third below projected production figures. They are cutting shifts, extending factory holidays for electric cars, and letting the contracts of 300 of the 1,500 temporary workers expire.

Small and compact cars particularly affected by the reduced premium

Segment-wise, small and mid-sized cars are particularly affected. According to automotive expert Ferdinand Dudenhöffer from the Center for Automotive Research (CAR), manufacturers like Fiat, Renault, and Opel are selling fewer electric cars, likely due to the reduced environmental premium. The price difference becomes too large, says the auto expert, which is expected to have a stronger impact as the premium continues to decrease. CAR also sees the larger discounts offered by manufacturers on electric cars as an indicator of the declining market. VW is offering a 20 percent discount on its ID.3 and the sluggishly sold ID.4, BMW is selling off the soon-to-be-replaced E-Mini for a third less, and Skoda is offering up to a 14 percent discount on the Enyaq SUV, which was recently almost sold out and difficult to deliver. Tesla has also made headlines with discount campaigns to support its high sales numbers. Despite free charging promotions, Dudenhöffer sees an overproduction of 91,000 or more vehicles worldwide at the Californian electric car pioneer.

Allensbach survey: Circle of interested parties stagnates

The Süddeutsche Zeitung identifies several factors for the weakening demand for electric cars, including inflation, which is dampening consumer spending. Many potential buyers are still hesitant to switch from a combustion engine to an electric vehicle. An Allensbach survey indicates that the circle of electric car enthusiasts remains stagnant at a mere 23 percent. High prices and inadequate charging infrastructure are still cited as reasons.

From personal recent experience, not only the lack of infrastructure, especially noticeable in cities, but also the high prices of driving electricity seem to play a role. A colleague's journey from Munich to Budapest resulted in price parity with a not particularly fuel-efficient petrol car that would have used around 8 liters/100 km, as HPC operators charge 70 to 80 cents per kilowatt hour. Diesel is sometimes already cheaper again. As long as fossil fuels are not significantly more expensive than driving electricity and are also partially subsidized through diesel privileges, the cost advantage of electric vehicles is unlikely to reach the level necessary for a vigorous market ramp-up. Here, policymakers are called upon to reduce outdated tax advantages.

The calculations of premium manufacturers, as analyzed by Dudenhöffer, could work out: for them, the price of driving electricity and the premium play a lesser role in relation to the overall price. For the lower segments, the Economics Minister of the VW state of Lower Saxony has already proposed new purchase incentives, such as reduced VAT. The reduced premium is a "significant challenge."