EV incentives to drive demand in Europe

Europe is rapidly becoming a global hotspot for growth in the electric vehicle (EV) market, with incentives introduced by multiple national governments expected to drive growth over the next five years.

EVs accounted for 6.8pc of Europe's total vehicle sales in the first quarter of 2020, up from a 2.5pc share a year earlier, in part because of an overall drop in sales due to Covid-19 but also indicating robust demand within this sector. Overall, EV market share crept up to 3pc in 2019 from 2pc in 2018, according to the ACEA.

Meanwhile, the number of EV models available in the EU market is set to reach 214 by 2021, up from 98 at the end of 2019, according to the European Battery Alliance. With all these new models to sell during an era of declining overall vehicle sales, EU countries and the UK have introduced further incentives to encourage uptake of EVs.

In the EU's largest market, Germany, several carrot and stick policies have been designed to increase EV demand. From 1 July until December 2020, value-added tax (VAT) on EVs will fall to 16pc, down from 19pc. Any privately owned EVs registered until the end of 2020 will have a 10-year tax exemption and EVs with a sales price below €40,000 will qualify for a €9,000 subsidy until December 2021.

France announced a package of support for carmakers in May, which included several loans to its embattled national producers such as Renault. In addition, all EVs in France are subject to a tax exemption from CO2-related taxes. France has subsidies of up to €7,000 for households buying EVs below €45,000 and a scrappage scheme of up to €5,000 for households and €2,500 for individuals.

Spain has reduced tax by 75pc for EVs in big cities like Madrid and Barcelona, and a scheme which subsidises the purchase of EVs by €4,000-5,000 depending on if a vehicle seven years or older is scrapped. In Italy, EVs are tax exempt for five years from registration and get a 75pc reduction in tax after that. Italy also has a bonus-malus scheme, where vehicles are subsidised up to €6,000 per car emitting less than 70g of CO2/km, but penalised by €2,500 per car if they emit above 250g of CO2/km.

Outside the EU, in the UK there is a road and VAT tax exemption for zero-emission vehicles and a €3,000 government grant for vehicles below €50,000. Every country in the EU 27 plus the UK, excluding Lithuania, offers incentives, tax reductions or a combination of both.

The EU battery market is now expected to rival China in the coming years. EV production is set to surge to over 2mn vehicles by 2021, from under 500,000 in 2019 according to clean transport campaign group Transport & Environment. Investments in EVs were €60bn in 2019 according to the group's estimates, compared to €17bn in China. German carmakers could overtake Chinese companies in 2021 in EV production, according to the European Battery Alliance.

By Thomas Kavanagh