Dilemmas of the Ruling: Protecting Domestic Production or Decarbonizing Transport

The International Energy Agency (IEA) states that by 2035, 790 million electric vehicles must be on the roads if we want to achieve net zero by mid-century. However, these plans are becoming increasingly distant as electric vehicle sales are declining in both Europe and the US. Even Mate Rimac has wavered, stating that he will no longer produce Nevera because the wealthy prefer gasoline cars. Therefore, electric vehicle sales are declining, prompting enthusiasts to call on governments for assistance, even ‘at the expense of national economies.’ This year has started very poorly for electric vehicle sales, and the trend does not seem to be stopping even after nearly half a year.

The growth in electric vehicle sales has been remarkable. In 2020, there were 10 million electric vehicles on the roads, and by 2023, there were 45 million. However, this is still far from the 790 million that are projected to be needed for net zero. The story is, they say, simple. We need to buy more electric cars. However, this is easier said than done given the current prices of such vehicles.

The IEA states that annual growth in electric vehicle sales must exceed 27 percent to meet the aforementioned targets.

Global Tesla sales were lower in the first quarter of 2024 than in the same period in 2023, and a decline was also recorded by Chinese BYD between January and March of this year.

In Europe, electric vehicle sales fell by more than 10 percent year-on-year. Customers have stopped believing in electric vehicles and are unsure whether they are worth the prices being asked for such vehicles.

In the United Kingdom, analysts say that strong electric vehicle sales in recent years have been driven by the purchase of official cars, thanks to generous tax breaks. However, the household market has proven to be a tougher nut to crack, with price being the main obstacle. The average price of a new EV in the US is over $60,000 (£47,433), and prices are similarly high in Europe and the UK.

Large state subsidies and greater production efficiency in China, however, lower prices for Chinese consumers, so for example, BYD’s Seagull hatchback is sold for less than $10,000. China also produces significantly more electric vehicles than its domestic market needs, so it could easily flood the US and European markets with cheap cars if not hindered by tariffs, which in the US can go up to 100 percent.

The Politician’s Dilemma

American and European officials find themselves in a dilemma. Everyone is cheering for cheap electric vehicles to facilitate the climate transition, but not at the expense of undermining their own car manufacturers – such as Ford and Volkswagen – and local jobs. For this reason, both the US and the EU are raising tariffs and creating other trade barriers to prevent ultra-competitive Chinese electric vehicles. This is precisely what US President Joe Biden did this week, with a new 100 percent tariff on imports of Chinese electric vehicles.

Optimists hope that more people will buy electric vehicles when used cars at reduced prices hit the markets in Europe and America, but demand for used electric vehicles is almost non-existent. Regardless, many states and governments are in trouble. Transport needs to be decarbonized because that is what everyone is shouting, but domestic production also needs to be protected, and what will ultimately prevail remains to be seen, but we bet on protecting domestic production.