The paradox of the €25,000 EV

A new study by Brussels-based thinktank Transport and Environment (T&E) suggests that, with a following wind, Europe’s OEMs could make a marginally profitable B-segment small BEV at €25,000 before subsidy by 2025. But it suggests that automakers, even under an existential competitive threat from China, are not necessarily that keen to prioritise such models ahead of fatter margins available on SUVs.

A survey carried out on T&E’s behalf suggests the share of new car buyers opting for BEVs would rise from 25pc to 35pc if this €25,000 option was available to them. But that is contradicted by real-world data showing European buyer flight from small cars to C-segment SUVs.

And this leads to something of a paradoxical conclusion. Rather than affordable BEVs being the “gold standard” for driving wider adoption, the thinktank ends up recommending incentives to make both OEMs keener to make them and, crucially, consumers to buy them.

Profits possible

Falling production costs and battery prices could see OEMs make a “reasonable” 4pc profit margin mass market B-segment vehicles by 2025, according to the ‘favourable market conditions’ scenario of T&E’s study, based on analysis by consultancy Syndex. This scenario would see battery costs fall to $100/kWh — in line with forecasts by consultancy Bloomberg NEF — and factors in other direct cost reductions while keeping broad industry expectations around indirect costs and mark-ups. The B-segment vehicle would have a 40kWh LFP battery and a range of 250-300km.

“Survey after survey has shown prices are one of the biggest barriers to drivers going electric. The €25k small BEV will be a game changer for public adoption of electric cars. Bringing those models to market quickly and in volumes is crucial for European manufacturers to compete with Chinese rivals which are already offering cheap, small electric cars here,” says Julia Poliscanova, senior director for vehicles and e-mobility supply chains at T&E.

And T&E has another survey to bolster its case. A quarter of new car buyers already intend to buy an electric car in the next year, according to a poll from market researcher YouGov for T&E in France, Germany, Italy, Spain, Poland and the UK.

But when given the option of a small €25,000 electric car, the share of increases to 35pc. The 10-percentage-point difference equates, according to T&E, to an additional 1mn EVs being sold in Europe annually.

Real-world behaviour

The slight issue comes with a disconnect between surveys and actual buyer behaviour. T&E accuses OEMs of having “abandoned small affordable cars”, in pursuit of profit.

The net profit per vehicle of six European OEMs — Germany’s BMW, Mercedes-Benz and Volkswagen, France’s Renault, Franco-Italian automaker Stellantis, and Sino-Swedish Volvo Cars — jumped from a range of -€40-1,920 in 2019 to €510-8,940 in 2022, adjusted for inflation, the report finds, as the firms prioritised sales of larger, more lucrative SUVs.

For Europe as whole, SUVs accounted for 53pc of all vehicles sold in 2022.Electric SUVs accounted for 51pc of all electric car sales. Sales of SUVs of the six carmakers made up just 9pc of new cars in 2010. By 2022, this has ballooned to 47pc, T&E finds.

And it notes that this is not a premium segment phenomenon. In fact, the SUV share has grown fastest in the C segment, which traditionally includes medium-sized hatchbacks and sedans such as the VW Golf and Peugeot 308. This segment sees SUVs taking up 61pc of its total European sales in 2022, representing over half of all SUV sales in the EU.

In contrast, the smaller B segment and larger D and E segments have SUVs making up 40-50pc of sales. The decisive shift towards C-segment SUVs has, T&E notes, led to the “small affordable car models that have defined Europe for decades… being discontinued”. It bemoans the loss of the Fiat Punto, Peugeot 108, Citroen C1 and Ford Fiesta.

Whose choice?

T&E characterises the shift to SUVs as OEM price gouging, saying a “purposeful strategy to maximise profit per car is at play” and that there is a 8-30pc price premium for SUVs.  “More car buyers will go electric if small affordable BEVs are available. But right now, carmakers are happy to cream the profits off large SUVs which are too expensive for many low-income households,” says Poliscanova.

But this does not tackle the elephant in the room that buyers themselves are making the choice to opt for C-segment SUVs rather than smaller B-segment cars of any powertrain. “In public, automakers often blame the EU emission rules and changing consumer preferences,” T&E carps.

It is hard not to conclude that, on the latter at least, the OEMs have a point. No-one is making the consumer choose larger cars.

Indeed, even T&E seems to concede that, in order to reverse this change in consumer sentiment, more than just a €25,000 price point for a B-segment BEV will be required. Instead, it admits a triple whammy of regulatory intervention will be needed — EV efficiency rules at EU level, vehicle taxes and subsidies at national level that penalise weight, and higher parking charges for SUVs at local level.

“Lawmakers need to step in with efficiency standards, taxes, reform of subsidies and other measures that tip the balance in favour of small, affordable electric cars and ordinary people,” Poliscanova says.

EV inFocus broadly agrees with T&E’s sentiment that legislation should be introduced to try to incentivise a retreat from vehicle bloat. And it also shares the belief that European OEMs need to be working flat out to get the costs of BEVs in all segments down — both to accelerate adoption and head off the competitive threat from China by methods other than simply lobbying politicians to throw up trade barriers to the detriment of the European consumer, and of European air quality by retarding moves away from exhaust fumes.

In fact, it could be argued that Europe's OEMs face an even stiffer challenge getting C-segment all-electric SUV costs down to competitive levels with Chinese imports, unless the European Commission offers a significant helping hand. Affordable BEVs in this class could actually end up being at least as important as in the B segment.

But portraying the switch towards larger SUVs as some sort of plot by capitalist OEMs against the unsuspecting consumer, and low-income households in particular, is not a useful contribution to the debate. Nor is portraying the €25,000 BEV as some sort of magic bullet, then having to admit that, actually, most European new car buyers have moved on from the B segment and will have to encouraged back by carrots and sticks other than price.