Stakeholders across the automotive industry in Europe and the United States—from auto dealers to vehicle manufacturers and industry groups—have called for delaying the transition to electrification. While this may seem a practical response to current challenges, the question arises: can this delay compensate for their shortcomings in the field of electrification?

On the path to automotive electrification, Europe and the United States are once again slowing down. Recently, over 5,000 U.S. auto dealers jointly signed an open letter urging both political parties to review and adjust their clean car strategy. This was the third such letter this year advocating for a relaxation of relevant emission standards and mandatory electric vehicle (EV) requirements. Similarly, European automotive lobbying groups had previously planned to submit a proposal to the European Commission suggesting that the EU use emergency regulations to postpone automakers' 2025 emission targets by two years. Notably, amidst sluggish demand for EVs in the European market, vehicle manufacturers seem to have lost their initial ambition in their electrification strategies, and there are even signs of "reversing course." For instance, Porsche and Ford have both announced plans to slow down their original EV plans. In response, Ji Xuehong, Director of the Automotive Industry Innovation Research Center at North China University of Technology, believes: "It's not that Europe and the United States do not value electric vehicles, but rather that they believe it is difficult to promote them on a large scale given the current situation. It can be said that the objective conditions of the European and American markets and the subjective initiative of automakers have led to this situation."

Three letters in a year, requesting a slower pace of electrification

As early as November 2023, 3,882 U.S. auto dealers jointly wrote a letter expressing serious overstocking of EVs, but the Biden administration did not respond. Subsequently, more dealers strongly opposed the proposed EV mandate, considering it "completely unrealistic." At the time, these dealers were targeting the vehicle emission standards proposed by the EPA for passenger cars and light trucks for the 2027-2032 model years. The standards were scheduled to be formally confirmed in March 2024, aiming to increase the sales market share of new EVs in the United States to 60% by the 2030 model year and further increase to 67% by 2032.

Then, at the beginning of 2024, 5,000 U.S. auto dealers signed a second letter. Although the U.S. approved changes to EPA regulations in April this year, indicating that regulators were listening to their opinions, dealers were not satisfied, pointing out that EV sales accounted for only 8% to 9% of total vehicle registrations and declaring: "Undoubtedly, the reduction in tax incentives, the severe shortage of charging infrastructure, and insufficient consumer demand make the proposed EV mandate completely unrealistic."

In the third letter submitted this time, dealers declared: "The government may be able to force automakers to manufacture EVs and force dealers to sell them, but they cannot force Americans to buy EVs. These mandatory regulations are out of sync with EV technology, charging infrastructure, and especially the current situation of American consumers."

Compared to the U.S., European automakers are facing an even more difficult situation. In April this year, the EU Council adopted Euro 7 emission standards, which will be implemented from July 1, 2025. The new regulations stipulate that automakers must reduce the average CO2 emissions of new vehicles to 93.6 grams per kilometer by 2025, with a fine of 95 euros for every additional gram per kilometer of CO2 emissions per vehicle. To make matters worse, the European EV market is sluggish. According to the latest data from the European Automobile Manufacturers Association, EV sales in Europe fell for the fourth consecutive month in August this year.

In this regard, Luca de Meo, President of the European Automobile Manufacturers Association (ACEA) and CEO of the Renault Group, recently stated that due to the decline in EV penetration, automakers may face fines of up to 15 billion euros for failing to meet the EU's 2025 emission targets due to excessive carbon emissions. It's no wonder that European automotive lobbying groups have submitted a proposal to postpone the implementation of the 2025 emission targets by two years. On September 12, the European Automobile Manufacturers Association also stated in a statement published on its website: "The EU automotive industry has invested billions of euros in the electrification transformation of automobiles, but other necessary conditions for realizing this transformation have not yet been in place, and the EU's competitiveness is being eroded."

Insufficient demand for electric vehicles in Europe and the United States?

Since the beginning of this year, there have been successive proposals from European and American automakers to postpone electrification. Recently, many European and American automakers, including General Motors, Ford, Porsche, and Audi, have announced plans to slow down their EV programs, with related investments and layouts shrinking to varying degrees.

Mary Barra, CEO of General Motors, recently stated that due to the current slowdown in demand for EVs, the company will not be able to achieve its original goal of producing 1 million EVs in North America by 2025. Future EV planning and goals will be flexibly adjusted based on market demand; Audi, a subsidiary of Volkswagen, also announced that it will expand and upgrade its hybrid product line in the coming years while maintaining a dual-track layout of gasoline and EVs in major model segments. "Plug-in hybrid models are more important than initially expected, and the transition from gasoline vehicles to EVs will take longer than anticipated," said Markus Duesmann, CEO of Audi.

Interestingly, when European and American automakers talk about "switching sides" and slowing down the pace of electrification, they all cite insufficient local market demand as the reason. In November last year, Oliver Blume, CEO of the Volkswagen Group, announced that the company would not make a decision on the location of its fourth battery factory for the time being due to "lower than expected" demand for EVs in the European market.

According to data from KBB, an authoritative automotive industry organization in the United States, EV sales in the U.S. only increased by 2.6% year-on-year in the first quarter, with a month-on-month decrease of 7.3%. Although sales grew again in the second quarter, the increase was only 11.3%, far below the 59% increase in the same period last year. In the second quarter, the penetration rate of EVs in the U.S. was a paltry 8%, making it difficult to achieve the goal of a 10% penetration rate this year, and there is a huge gap from the Biden administration's goal of EVs accounting for 50% of sales by 2030.

The same is true in Europe. Data shows that in August this year, pure EV sales in the EU fell by 43.9% year-on-year, marking the fourth consecutive month of decline. Among them, Germany and France, as the two pillars of the EU's EV market, saw sales declines of 68.8% and 33.1%, respectively. This directly led to a year-on-year decline of 18.3% in new car sales in the EU, setting a new three-year low.

However, the global EV market is recovering. According to Rho Motion, a market research firm, EV sales in the U.S. and Canada increased by 4.3% year-on-year to 150,000 units in September, while sales in Europe grew by 4.2% to 300,000 units. Especially in the U.S., EV sales in the third quarter increased by 11% year-on-year, setting a new record high, with a market share approaching the 10% milestone. Cox Automotive predicts that 2024 will be a "growth year" for EVs in the U.S.

Judging from the latest development trends in the automotive markets in Europe and the United States, after a period of economic downturn and sluggish market demand, the demand for EVs still exists and will be higher than what these automakers have estimated. One can even boldly speculate that "insufficient demand" is just one of their excuses for slowing down electrification.

Challenging Electrification Transformation

Based on this, the more important reason why European and American automakers choose to "delay" the electrification process is the greater challenges they face during the transformation.

The primary challenge comes from insufficient industrial competitiveness. Currently, European and American automakers lag behind Chinese automakers in terms of the technical level, supporting capabilities, and cost advantages of the entire EV industry chain. Marton Nagy, Minister of the Hungarian Ministry of National Economy, candidly stated in an interview with the media: "I believe that Chinese EVs are very competitive, not only in the mid-to-low-end market but also in the high-end market, where many automakers are also making efforts." This has even become a justification and basis for some European countries and the United States to adopt unreasonable and unfair tariff policies to "suppress" Chinese automobiles. Of course, in Nagy's view, strengthening cooperation with China is a better approach. On the contrary, setting punitive tariffs is the worst way and will block the correct path for the entire human race and global development.

The second challenge is the issue of profitability. According to public information, currently, only a few automakers such as Tesla, BYD, and Li Auto have announced profits, and the EV businesses of most automakers are still in a state of loss or non-profitability. Ford executives have pointed out that EV models face challenges of downward pressure on industry prices and declining wholesale volumes. Currently, Ford's core business is divided into three major segments: Ford Blue, Ford Pro, and Ford Model E. Among them, Ford Blue is responsible for traditional gasoline vehicles, including gasoline and hybrid models, achieving a 3% increase in gasoline vehicle sales and a 34% increase in hybrid vehicle sales in the second quarter, with earnings of $1.2 billion; Ford Pro focuses on commercial and super truck businesses, with revenue increasing by 9% and earnings of $2.6 billion; only Ford Model E, which is responsible for the EV business, incurred a loss of $1.1 billion in the second quarter. The data shows that Ford is still using the money earned from gasoline vehicles to subsidize the losses of its EV business.

Thirdly, the market revenue from traditional gasoline vehicles is still very considerable, and European and American automakers lack the motivation and enthusiasm for transformation. Industry insiders point out that large-displacement pickup trucks are still the most popular category in the American market. Last year, overall pickup truck sales in the U.S. increased by 9.3% to 2.18 million units. In comparison, EV sales in the U.S. barely exceeded 1.2 million units last year. To better meet the robust demand in the pickup truck market, traditional automakers can only sacrifice EVs. In July this year, Ford Motor Company underwent a major transformation of its Oakville assembly plant in Ontario, Canada, shifting the production of EV assembly lines to the production of the mid-to-large-sized pickup truck Super Duty series. Jim Farley, CEO of Ford Motor Company, pointed out that demand for the Super Duty is very strong, and even with overtime at the two factories in Kentucky and Ohio, it cannot meet the demand. Therefore, Ford plans to open a third assembly plant. In the first half of this year, Ford produced over 200,000 Super Duty trucks.

Against this backdrop, some European and American automakers are even "going against the grain" by increasing investment in internal combustion engines. It is understood that Mercedes-Benz has invested 14 billion euros this year in the research and development and production of its internal combustion engine passenger cars, including improvements and innovations in hybrid systems. In February this year, Mercedes-Benz announced that it would postpone the target of achieving a 50% sales share of EVs from 2025 to 2030 and continue to update its internal combustion engine vehicle product lineup over the next decade.

Electrification is an irreversible trend

However, as Ji Xuehong said: "It's not that Europe and the United States no longer value electric vehicles, but rather that they believe it is difficult to promote them on a large scale given the current situation. There is an essential difference between the two, and the development direction of China's automotive industry is also correct." On the one hand, under the pressure of achieving global climate goals, both Europe and the United States still have a practical need and urgency to reduce carbon emissions in the transportation sector, making automotive electrification imperative; on the other hand, as automobiles gradually become a new generation of intelligent terminals, electrification is undoubtedly one of the better matching technological forms. Therefore, from the perspective of seizing the technological high ground, electrification is also a necessary path for European and American automakers.

"On the one hand, Europe and the United States have scaled back or adjusted their vehicle electrification targets, driven by cost, market, political, and other considerations. Crucially, these adjustments are adaptive and pragmatic, tailored to their specific circumstances," wrote Liu Kai, Deputy Director of the Technical Department at the China Association of Automobile Manufacturers and Director of the China EV Charging Infrastructure Promotion Alliance. It's imperative to acknowledge that the advancement of electric vehicles (EVs) forms a cornerstone of the climate policies in both regions. Despite recalibrating their goals, they've introduced a suite of targeted laws and initiatives aimed at fostering an EV-centric industrial ecosystem, thereby bolstering their global competitiveness amidst the electrification revolution."

"The Volkswagen Group remains steadfast in its belief that electrification heralds the future of mobility. While some regions are witnessing astonishing strides in the transition, others are lagging behind expectations. Consequently, the Group has adopted a flexible approach. Amidst this transformation, Volkswagen is significantly investing in electric mobility while maintaining a competitive portfolio of efficient and appealing gasoline models. Additionally, the Group is introducing facelifts and all-new plug-in hybrid vehicles across various markets to diversify its product offerings," affirmed the Volkswagen Group.

Notably, amidst the hurdles faced by EV promotion in Europe and the United States, automakers in these regions are proactively seeking solutions. For instance, to counter the sluggish demand stemming from economic pressures, Tesla, Ford, Renault, and other European and American automakers are shifting focus to affordable EVs, aiming to launch models priced between $20,000 and $30,000 or euros, with the hope of revitalizing the sluggish EV market.

In fact, even the 5,000 American auto dealers highlighted at the article's outset emphasized in their third open letter that they do not oppose electrification: "Mr. President, we share your vision for the future of electric vehicles. We merely request that you do not hasten into this future before the road is paved." However, they may overlook that as the trend is already upon us, early adaptation will undoubtedly confer a competitive edge over late adopters. Delaying electrification not only fails to enhance industrial competitiveness but may even jeopardize their future market standing.

Note: This article originally appeared in the "Hot Topic Tracking" section of the December 2024 issue of Auto Industry Review magazine. Stay tuned for more updates.

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