European EV market revival faces profitability challenges

Europe's electric vehicle (EV) market is poised for a significant rebound this year, as automakers prepare to launch over 160 models in response to stringent new emissions regulations.

However, industry leaders caution that profitability may remain under pressure due to regulatory expenses and aggressive discounting strategies to stimulate demand. This analysis, based on a report by the Financial Times, highlights key trends and challenges shaping the EV sector.

After a period of stagnation in 2024, caused by subsidy cuts and delayed model launches, EV sales are projected to grow significantly. Analyst Matthias Schmidt forecasts a 40% increase in EV sales in Western Europe, including the UK, reaching 2.7 million vehicles by 2025. The market share for battery-powered cars is expected to rise from the current 15-17% range to 22% this year, driven by regulatory mandates and an expanded vehicle lineup.

The revival of EV sales comes with increased costs for automakers, including compliance with tougher EU emissions standards and offering price cuts to attract budget-conscious buyers. Despite a record number of product launches planned by manufacturers like BMW, Mercedes-Benz, and Renault, natural consumer demand remains tepid, compounded by rising competition from Chinese brands and evolving U.S. trade policies.

The European Automobile Manufacturers Association (Acea) estimates that meeting emissions targets, coupled with discounts and potential fines, could cost the industry up to €16 billion by 2025. Some carmakers, including Ford, Toyota, and Stellantis, have opted to pool carbon emissions with companies like Tesla to manage regulatory challenges.

In the UK, where a mandatory EV sales quota scheme was introduced, new EV registrations rose 21% to a record 382,000 last year, making it the largest European market for battery-powered cars. However, significant discounts have eroded profit margins, with businesses accounting for most purchases and private buyers showing hesitancy.

Governments across Europe are re-evaluating their subsidy frameworks to address declining demand. For instance, Germany experienced a 27% drop in EV registrations after abruptly ending purchase subsidies in 2023. France reduced its maximum subsidy from €7,000 to €4,000 and concluded a popular EV leasing program earlier than anticipated.

Industry leaders stress the need for consistent public policy to ensure market stability. Gilles Le Borgne, a Renault adviser, noted that even modest subsidies could influence consumer decisions, underscoring the importance of governmental support in achieving sustainable growth for the EV sector.

By Vugar Khalilov