From Fantasy to Fact: The EV Slowdown Gets Real

Electric cars are one of the pillars of the energy transition. Mass adoption is regularly included in forecasts as a necessary condition for the success of that transition. Yet, despite efforts and investments, this mass adoption remains as elusive as nuclear fusion. The decline in EV demand growth is a fact. And it is accelerating.

Earlier this week, a battery material maker from Belgium became the latest to sound the alarm on EVs. "Against the backdrop of a sharp slowdown in the growth of demand for EVs impacting the entire supply chain, customers' demand projections for Umicore's battery materials have steeply declined in recent weeks," the company said in an update. "Consequently 2024 volumes for its battery materials could be equal or slightly lower than last year."

Were it anyone else saying this, the warning might well have been dismissed as speculation or climate denialism. But Umicore is one of the biggest makers of battery materials used in electric cars. It should know what it is talking about and it clearly has an interest in strong EV demand. So its warning should carry more weight than, say, OPEC's projections of strong oil demand, which is where OPEC's interest lies.

And yet this warning, although reported by major media outlets, didn't draw as much attention as the latest International Energy Agency market report, which yet again cited EV adoption as one of the drivers of the transition that will see oil demand growth peak before 2030, with supply swinging into a massive overhang of 8 million bpd.

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The IEA takes the continued-linear, one might say-growth in EV adoption as a fact. It is, however, very much not a fact. And the European Union just added an obstacle to EVs' course with its new tariffs on China-made vehicles.

Earlier this week, the bloc's executive body, the European Commission, will impose additional import tariffs on China-manufactured electric cars of up to 38%. The levy follows a so-called anti-subsidy investigation by the EU after it alleged that China essentially over-subsidizes its EV makers to make their cars cheap, undercutting other-European-auto manufacturers.

But here is the thing. The European Commission will also punish those same European automakers with the new tariffs-for daring to outsource their manufacturing to China. So, Mercedes, Renault, and any other European carmakers with factories in China will, starting next month, pay an additional 21% import tariff, while Chinese carmakers will pay individually set tariffs of between 17% for BYD and 38%, the top rate, for SAIC, which the European Commission claimed had not cooperated with its investigation.

These tariffs will be added to an already existing import levy of 10% for EV importers, pushing their prices higher. According to reports following the announcement, most Chinese carmakers would not feel much pain from these additional tariffs, but one thing is certain: it will affect the end price of those electric cars that both European and Chinese carmakers want to sell on the European market. And it won't be in a positive way.

While the European Commission tries to hamper its own plans for mass EV adoption, the new European Parliament might kill the main tool for enabling that mass adoption that the Commission had at its disposal: the internal combustion engine car ban. With Greens losing seats in the EP and more right-wing EMPs about to take their places for the new five-year term of the parliament, chances are the upcoming 2026 review of the ban could produce very different results from the original vote.

None of this should be any surprise, really, except perhaps the European Commission's actions, which would clearly be detrimental to EV adoption in Europe. Yet for months now, carmakers have signaled they were starting to have misgivings about their full-EV plans, with Mercedes saying in February that it no longer plans to be selling EVs only from 2030 and Renault's EV sales, while rising, were rising a lot more slowly than that of rivals including Mercedes.

There are warning signs all over the world, not only in Europe. What these signs are saying is that EVs cannot make it on their own in a free market. In New Zealand, EV sales had been going strong for years thanks to generous government subsidies-until 2023. At the end of last year, the New Zealand government ended the subsidies, and sales immediately plummeted. The same happened in Germany, where the government was forced by financial circumstances to phase out EV subsidies.

EV sales growth is slowing to a crawl in favor of hybrid vehicles all over the world except China, although there have been reports that the Chinese EV market may have reached the saturation point, too. If this is indeed the case, no amount of subsidies will help-unless there is a government willing to make EVs free for everyone to stimulate uptake. And since there is hardly such a wealthy government anywhere, the mass EV adoption predicted repeatedly by every transition forecaster is about to get delayed once again, just like that fusion breakthrough that could change the transition game.

By Irina Slav for Oilprice.com

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