EV Index 2022 Q1

For the first time since its inception, the EV Index has shown some significant reversals in the factors driving electric vehicle adoption in the European markets that Sophus3 monitors. During the first quarter of 2022 the affordability of electric cars relative to their diesel and gasoline counterparts worsened considerably in all six markets. This caused the index as a whole to fall in three markets — by one point in the UK, by two points in Italy, and by three whole points in Germany.

In France and Spain there were comparable shifts in vehicle pricing that favoured combustion engine models, but the impact on the overall index score was mitigated by improvements in public charging provision and consumer interest — the two other ‘pillars’ besides pricing from which the EV index is calculated. In France the Index remained the same as in the previous quarter at 35 points, whilst Spain achieved a modest gain of a single point.

Norway, as previously, continues to be the outlier, with an EV Index score of 131 showing that conditions within the market are now weighted heavily in favour of choosing an EV and that to do otherwise is an act of extreme cantankerousness.

Other than that, the ranking of the individual markets remained much the same, except that Italy displaced Spain at the bottom of our notional league table.

The problem at present for the manufacturers of EVs, and the governments wishing to encourage their adoption, is the continuing shortage of critical components that has slowed vehicle production globally. This has now been exacerbated by the Russian invasion of Ukraine which has further affected the supply of specific components, like wiring harnesses, but also contributed to huge rises in the cost of the raw materials used in batteries.  In early April the Financial Times reported that the price of the nickel, lithium and cobalt required for the battery of a family sized EV had risen from $1,400  to more than $7,400 in the space of a year, largely as a result of Russia’s actions in Ukraine.

The outcome is that vehicle manufacturers are simply unable or unwilling to supply sufficient numbers of electric cars. Volkswagen, for example, has a backlog of orders for 300,000 EVs and has just announced it will not be able to supply any more EVs until 2023 in either Europe or the US. Global market leader, Tesla, has been forced to suspend output from its Shanghai plant due to component supply issues and the reinstatement of Covid-19 lockdowns.

Up until this point, the trends had been encouraging. Sales of battery electric cars in Europe doubled during the first quarter against the previous year, giving them 10% market share. In France during the same period, sales of electric powertrains of all types (i.e. including plug-in Hybrids) overtook the sales of petrol cars for the first time.

Whilst manufacturers are understandably frustrated at their inability to supply electric cars, the current shortages throw in to complete disarray governments’ policies to encourage EV adoption. This is because most are using demand-side interventions to achieve that goal: directly subsidising EV purchase through either grants or tax benefits. That strategy is now broken. Without vehicles to meet that demand, these payments become nothing more than a cash handout to those lucky enough to obtain a car whilst doing nothing to increase EV sales overall. This is leading to some absurd distortions within the electric vehicle market.  In Germany for example, buyers of the Tesla Model 3 can effectively drive the car for free at the expense of taxpayers: the depreciation of their car over a six month period is covered by the grant they receive on purchase.

So what should governments do? An obvious alternative might be to divert spending from the subsidy of vehicle purchase to the subsidy of charging infrastructure. But, as we have previously noted, the relatively high contribution that the charging network makes to the EV Index in all but the Italian and Spanish markets suggests this could be needless additional spend that would likely achieve little extra benefit. (In the UK for example the government has already committed GBP1.6 billion to fund a ten-fold increase in the country’s charging network.) Taxpayers might also feel aggrieved that their hard-earned taxes are being handed over to enable energy companies to pivot parts of their business at the same time as they are announcing record profits.

Until these well-documented supply side blockages are overcome we expect to see little progress, and the signs are that the EV Index is unlikely to count any significant gains over the next couple of quarters.

The EV Index from Sophus3 provides an objective measure of the readiness of the vehicle market to enable and encourage the mainstream adoption of electric vehicles (EVs).

The index is formed from three pillars, each measuring distinct factors that help or hinder electric vehicle acquisition. First of these is the consumer appetite to buy electric, the second is the capability of the automotive companies to supply these cars, and the third is the availability of suitable charging infrastructure.

A score of 100 represents parity in the attractiveness, availability, pricing and usability of an electric car compared with a conventionally fuelled vehicle.

We publish the EV Index for the UK, Germany, France, Italy, Spain and Norway.

A fuller explanation of the EV Index from Sophus3, and links to previous issues, can be found here.