WHILE governments and policy makers have become increasingly influenced by environmental issues and the  green agenda, analysis by JATO Dynamics finds that not enough is being done to produce affordable EVs.  

While the pricing of EVs in China – the world’s largest market for EVs – has significantly fallen by almost half (47%) since  2011, US and European markets have seen EV prices rise over the same time period, by 38% and 28% respectively.  

Affordable EVs

China’s success in producing affordable EVs comes down to a number of factors, including its government’s decision to  invest heavily in the domestic market from as early as 2009. Today, consumers in China can buy a brand new EV for as little  as €3,700. In stark contrast, the average retail price for an EV in the US continues to rise faster than any other major global  market and now stands at €36,200, up from €26,200 in 2011.  

Average retail prices today are highest in Europe. In May 2021, EVs were on average 52% more expensive than ICE cars in the  UK, and 54% more expensive in the Netherlands. In Germany, the average retail price of an EV is €39,755 compared to  €36,979 for ICE vehicles. Norway is the only exception – the average retail price for EVs is €44,500 compared to €53,000 for  ICE cars.  

To date, government-led incentives have been a vital factor supporting the automotive industry to offset the price gap  between traditional cars and EVs. China’s commitment to the development of affordable EVs has strengthened the market to  such an extent that its government is now in the process of phasing out incentives, while OEMs in Europe and the US  continue to rely on such schemes to boost their sales.  

Tax credits

In the US, tax credits have accelerated the growth of the premium EV market, failing to help lower income buyers purchase  EVs with OEMs yet to develop a truly affordable EV offering. Prioritising environmental action in recent years, European  governments have developed a range of incentivisation schemes including tax exemptions and purchase grants with varying  success across the continent.

For both the US and Europe, it remains to be seen if rolling back these incentives will stimulate  manufacturers to take action or see them fall behind competitors in China.  

 Ye Qi, member of Volkswagen Sustainability Advisory Council, said: “China has been hugely successful in the race  of EV leadership – growing and evolving their model ranges at incredible pace, which is a positive result of a number of  factors working in tandem.

“The urgent need to combat the country’s air pollution problem, the influence of visionary and  entrepreneurial leadership, and the country’s significant financial subsidies all contributed to the impressive adoption rates  seen in recent years.

“Looking ahead, as the climate crisis climbs even higher on government agenda, it’s more likely that  Western countries will start to push EVs into the mainstream, with the same determination that China has done since  2013.” 

Risk of losing home advantage

Unless OEMs in Europe and the US find avenues to create more affordable EV offerings, they run the risk of losing their home  market advantage to Chinese competitors. As the popularity of SUVs has continued to grow in Western markets, the  segment looks set to be an important battleground for manufacturers seeking to establish themselves as leaders within the  EV market.

In the short term at least, government subsidies and incentives will continue to support EV sales, but for how long  remains a crucial question for the industry.  

David Krajicek, Chief Executive at JATO Dynamics, said “Governments and manufacturers have made significant progress over  the last decade in expanding the EV market, however, the industry remains under pressure as it continues to adapt to the  requirements of sustainability targets and shifting market forces.

“The incentivisation of EVs has supported Western  manufacturers seeking to expand their offering as consumer demand has evolved, however, the industry’s key players must  start to address the price gap between EVs and ICE cars if they are to remain competitive with their peers in China.”