This article has been sourced from Fitch Solutions Country Risk & Industry Research
- The EU’s ‘European Green Deal’ and its prospective ‘Next Generation EU’ recovery package will accelerate electric vehicle (EV) adoption across the bloc, albeit to varying degrees among member states.
- Investment into EV charging infrastructure from EU associated institutions, local authorities, publicly owned utilities and the private sector will drive growth in the European EV fleet by alleviating ‘range anxiety’ concerns among consumers.
- We note that disparities in EV fleet penetration among member states will remain, owing to endogenous factors including in the breadth and quality of charging infrastructure, national incentives and social sentiment.
- Decarbonisation efforts bode well for the adoption of integrated micromobility solutions, providing opportunities for automakers in that space.
The EU will solidify its position as a global leader in electric vehicle (EV) adoption over the coming decade as it facilitates an uptick in investment into associated charging infrastructure. Representing the bloc’s collective fiscal response to the Covid-19 pandemic, the EUR750bn ‘Next Generation EU’ (NGEU) fund aligns spending initiatives with the EU’s green infrastructure and broader decarbonisation push, epitomised by the ‘European Green Deal’. The EU views EV adoption as a key pillar of its decarbonisation aims (carbon neutrality by 2050), with transport currently accounting for an estimated 25.0% of total emissions. We view a significant expansion of EV charging infrastructure as a prerequisite to mass EV adoption in the bloc, in order to alleviate visceral ‘range anxiety’ concerns among consumers. More automakers will then invest resources into EV production, with more diverse EV product line-ups produced at a greater scale translating into more affordable prices for consumers. These factors inform our forecast that EV sales will proliferate by 358.0% over the coming decade, increasing from a forecast of 525,000 units sold in 2020 to over 2.4mn in 2029 (see chart below).
Our Infrastructure team estimates that the EU currently hosts around 102,000 EV charging stations, which we approximate serve a combined fleet of 1.7mn EVs. According to the EU’s own forecast scenario, around 1.0mn public recharging and refuelling stations will be required to service a fleet of 13.0mn zero-and low-emission vehicles by 2025. The NGEU and European Green Deal earmark funds for direct investment from the EU budget into EV infrastructure, primarily through the Just Transition Mechanism, a fund dedicated to aiding the transition toward carbon neutrality in member states that remain heavily carbon-intensive. Poland, Germany and Romania are the largest beneficiaries, accounting for a combined 44.0% of the total EUR10.0bn allocation. Fiscal commitment from the EU will precipitate a combination of national government and European Investment Bank (EIB) financing which, coupled with the efforts of InvestEU to crowd-in private investment, will take the total value of the Just Transition Mechanism’s investment to EUR100bn between 2021-2027.
Vast disparities in the depth and quality of EV infrastructure across member states will remain over the coming decade. Despite the EU’s attempts to bridge the green infrastructural gap between some of its developed and less developed states, our Infrastructure team notes that it is a combination of local authorities, publicly owned utilities and dominant private utility companies that typically finance the initial investment into EV charging infrastructure, before nationwide networks become more commercially viable and attract wider private investment. Owing to that effect, we expect there to be winners and losers among member states, depending on national and regional policy to direct investment in local EV infrastructure and the appeal of the local market to private investors. While the Netherlands, Germany and France currently host the largest volume of EV charging stations, our Infrastructure team highlights that the ratio of EVs per charging station is the most relevant metric for identifying countries and regions most in need of investment (higher number of EVs per charging station indicating a greater need of investment). Considering the aforementioned standard, our Infrastructure team highlight Belgium, Romania and Greece as member states with unfavourable EVs per charging station ratios and thus the greatest need for an uptick in investment.
Disparities in EV charging infrastructure will translate into disparities in EV fleet penetration among member states. Coupled with the traditional factors impacting new vehicle sales in European markets (predominantly macroeconomic and most importantly private consumption), we expect to see a broad correlation between the markets improving their EV charging infrastructure and the markets with the highest EV fleet penetration. We note the significance of endogenous political and socio-economic factors on EV fleet penetration in specific markets, including the current EV incentive structure or lack thereof, trajectory of household incomes and prevalence of the used vehicle market.
While the EU’s European Green Deal and NGEU fund will provide stimulus for EV adoption in the bloc, specifically by financing an uptick in charging infrastructure, national policy will dictate the pace of EV adoption through both the visibility of public charging infrastructure and spending incentives. In Germany, the most developed autos market in the union (where we estimate EVs currently account for only 0.59% of the total domestic vehicle fleet), the government announced its intention to mandate that all fuelling stations host EV charging points, and extended its grant for EV purchases to EUR6,000 for a battery EV (BEV). In Romania, arguably one of the least developed markets in the EU, the Rabla Plus Program combines a scrappage scheme with government grants of up to EUR10,000 for BEVs and EUR4,500 for plug-in hybrids (PHEV). Outside of insufficient charging infrastructure, the factors constraining EV adoption in Romania will include low household incomes, urbanisation and the dominance of the used vehicle market.
The Netherlands boasts one of the best EV incentive schemes in Europe, wherein personal and commercial consumers are exempt from vehicle purchase and ownership tax, in addition to a EUR4,000 subsidy for the purchase of a BEV with a list price between EUR12,000 and EUR45,000. Equally importantly, it hosts a fleet of 220,529 EVs (2020 estimation) and 32,875 charging stations, a ratio of 6.7 EVs per charging station, by far the lowest of any country in the EU with an EV fleet greater than 4,000. These factors, combined with the high level of environmental consciousness among the Dutch population, inform our assessment that EVs will represent 17.6% of the total Dutch vehicle fleet at the end of our forecast period (2029), up from an estimated 2.7% in 2020.
Automakers with competitively priced EV models and strong brand recognition will be best placed to benefit from an acceleration in EV adoption among European consumers. With a broad proliferation of charging infrastructure across member states, albeit to varying degrees, we expect to see consumers increasingly opt for an EV, especially in markets with vehicle replacement schemes or outright grant initiatives. Given elevated financial insecurity due to the Covid-19 pandemic, we expect automakers with competitively priced models to benefit from this shift in consumer sentiment in the near term. To that effect, we highlight the SEAT Mii Electric, Renault Zoe and Kia eNiro as potential beneficiaries.
We expect consumers to initially opt for EVs with strong brand and model recognition (particularly when purchasing an EV for the first time) in order to be assured of quality and accessibility of maintenance. This inclination will be compounded as the vehicle purchasing process digitises, with consumers more comfortable engaging in a digital process with brands that they know and trust. We highlight ‘spin-off’ EVs (electrified versions of established ICE brands) as the best placed to meet the aforementioned criteria, with Hyundai‘sIoniq and Volvo‘s Polestar notable examples. In the middle-upper echelons of the market, automakers with electrified SUV offerings such as the Audi e-Tron and Mercedes Benz EQC will serve to meet both the lifestyle and environmental aspirations of consumers, offering more space and utility with minimal carbon footprint. We have highlighted the popularity of traditional ICE SUVs in European markets over the last several years and expect electrified versions to be equally popular among consumers should EV charging infrastructure proliferate accordingly.
European decarbonisation efforts also bode well for the acceleration of multimodal integrated micromobility solutions. The European Green Deal and by extension the NGEU seeks to facilitate ‘Mobility-as-a-Service’ solutions in major European cities, through the deployment of digitised smart traffic management solutions, the widening of road spaces to accommodate personal light EVs (PLEVs) such as e-bikes and e-scooters, and direct funding instruments such as ‘Connected Europe’, which will assist in an expansion of associated infrastructure, such as docking stations. While we have highlighted risks associated with inadequate regulation in this space, we expect central and municipal authorities to commit resources both to the creation of actionable legislation and infrastructure in the micromobility space, in order to achieve their decarbonisation aims. We note that public and private micromobility initiatives align with the disincentivising of high-emission vehicle usage in major European cities such as Copenhagen, Madrid, and Rome, where use is not explicitly prohibited but restricted in certain areas and punishable with a fine.
The Covid-19 pandemic has weighed on demand for public transport in European cities. City dwellers are increasingly working from home and some appear reluctant to use public transport when they do travel due to safety concerns. While road-traffic has returned to pre-pandemic levels in major European cities as lockdowns ease, demand for public transport remains muted, compounding the case for urban planners and local authorities to invest in micro-mobility infrastructure as a viable long-term and eco-friendly alternative. Our Infrastructure team highlight the precarious financial position of e-scooter operators as a downside risk to the proliferation of such devices over the long term. Though the weak global vehicle sales environment will weigh on balance sheets over 2020 and into 2021, we expect automakers who commit financial resources and technological expertise to increased micro-mobility uptake to profit over the long term. We note the opportunity for automakers (who possess scaled manufacturing capacity and technological expertise) to expand into either the production of micro-mobility vehicles or operation of a Mobility-as-a-Service platform, particularly in developed European and North American markets where some of the requisite infrastructure (albeit limited) already exists and consumers have shown a willingness use these devices.
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