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Where Next for Subsidies as Electric Vehicles Mainstream?

The future of transport is shaping up electric — by 2040, more than half of all new car sales and a third of global fleet will be electrified, according to research from Bloomberg New Energy Finance. Its latest forecast shows sales of electric vehicles (EVs) increasing from 1.1 million worldwide in 2017 to 11 million in 2025, then surging to 30 million in 2030 as they become cheaper to produce than internal combustion engine cars.

By Maxine Perella | Published 6 years ago | About a 4 minute read

The future of transport is shaping up electric — by 2040, more than half of all new car sales and a third of global fleet will be electrified, according to research from Bloomberg New Energy Finance. Its latest forecast shows sales of electric vehicles (EVs) increasing from 1.1 million worldwide in 2017 to 11 million in 2025, then surging to 30 million in 2030 as they become cheaper to produce than internal combustion engine cars.

Global sales of EVs are currently growing at an average of 55 percent a year, says Viktor Irle, sales & market analyst for EV.volumes.com. His research firm notes that plug-in volumes have almost quadrupled since 2014, due to rapidly falling battery prices, government incentives and more widely available charging infrastructure.

“The market is growing because these vehicles are becoming more effective,” he says. “Once the technology starts to mainstream, even those people who might have been initially skeptical start buying these cars.”

As EVs start to compete with petrol and diesel engines, Irle believes the end of subsidies may be in sight. “The trend in Europe is to subsidize at the moment, but in two years’ time EVs will be on a cost parity with regular vehicles because of the rapid decline in battery price. In that case, subsidies will be useless,” he says.

Going forward, Irle thinks new taxes for EVs will start to surface as they become more popular with drivers. These could take the form of an annual mileage or kilometer tax based on odometer readings, or a tax on the actual vehicle purchase price, perhaps based on the size or weight of the vehicle.

“Norway is already considering introducing taxes on EVs, based on the weight of the vehicle,” Irle says. This may not be surprising, given the success of EV adoption in the country. Norway remains the undisputed leader when it comes to deploying EVs successfully in its own car market; in 2016, almost a third of cars sold in the country were electric.

The proposal in Norway is to introduce a taxation on heavier EVs, dubbed the Tesla tax, which would mark a significant change for the country’s EV-friendly tax and incentive structure. Irle advises taking a phased approach here in order to avoid any backlash. “You have to probably gradually introduce [EV] taxation or gradually remove the subsidies,” he says.

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SB'18 Vancouver!Any move towards taxation may also be offset by the generous user incentives Norway offers to EV drivers. These include free city parking, access to bus lanes, free ferry rides and exemptions from road toll fees. In contrast, drivers of conventional vehicles face very high taxation; they can pay up to 80 percent of the vehicle purchase value in tax. Irle says it’s expensive to travel in Norway if driving a petrol car. “You could easily incur road toll costs of €50 a day,” he says.

Irle adds that while subsidies are a good way to increase EV adoption in the short term, user incentives should have a more important role to play going forward.

“The most important thing is to be consistent in the policy strategies that you have,” he says. “Once you have cost parity with the vehicles, remove the subsidy.”

Irle also feels that drivers would ultimately benefit more from user incentives rather than subsidies: “If you give a monetary incentive, then carmakers will just increase their prices and take that money themselves, which is a big problem of subsidizing things. On paper, it is the purchaser who receives the bonus when they purchase the EV, but that bonus may have already been factored into the original purchase price of the EV.”

But if carmakers start to take a hit on their profits, will they be encouraged to sell EVs over internal combustion engines? Several countries have pledged to ban sales of new petrol and diesel cars by certain timeframes, but in the immediate to short term, some green groups are already warning that carmakers are losing what were previously considered strong incentives to sell EVs.

Irle thinks it’s an issue that needs addressing. He recalls an incident in which he turned up at a garage to test drive an electric car which had been booked in advance, only to discover it hadn’t been charged. The salesman then attempted to sell him a conventional car.

“When you go to a car dealership, the salesmen are not educated about EVs and they don’t really want to sell them because at the moment, the profit levels are a little bit lower for the car dealership on EVs,” he says. “Car brands and dealerships have a big responsibility to educate consumers about EVs and to sell them.”