Global electric vehicle sales slump in January as governments ease subsidies

Published On 03 Mar 2023 03:45 PM

Global sales of electric vehicles grew 3 percent annually in January, marking one of the "most dramatic collapses" in monthly sales as the removal or reduction of government incentives hit consumer sentiment, a report from Rystad Energy has shown. About 672,000 EVs were sold in January, about half the number of sales recorded a month earlier, the Norway-based research company said in its monthly industry update on Thursday.

That also dragged the EV market's share among total worldwide passenger car sales down to 14 per cent, from 23 per cent in the previous month, amid attempts by manufacturers to prop up demand by offering lower price tags, it said.

“The sands are shifting for the global EV market. Consumer appetite for electric cars remains strong, but it’s clear that tax credits and subsidies still play a significant role in convincing consumers to make the switch," Abhishek Murali, a clean tech analyst at Rystad Energy, wrote in the report.

"Car makers may have no option but to respond with reduced prices."

The EV market continues to grow amid a global shift towards energy conservation, with car makers' consumer and commercial divisions tapping into the technology's potential.

It is expected that EVs will account for half of the global car sales by 2035 and hit about 73 million units by 2040, from two million in 2020,  a study by goldman sachs showed 

During that time, the percentage of EVs in global car sales is projected to rise to 61 percent, from 2 percent.

The sector's market value is projected to hit more than $1.1 trillion by 2023, from about $209 billion in 2022, at a compound annual growth rate of more than 23 per cent, the latest data from Precedence Research has shown.

Several governments have offered incentives including subsidies and tax credits to convince people to buy EVs, but potential customers had to meet certain criteria to avail those benefits.

In the US, tax credits have been offered since 2010, but were only available to those earning at least $150,000 a year.

The tax credits did not apply to luxury cars worth $80,000 and above.

It was only in August last year that  Washington removed those caps in a bid to make the benefits more accessible to more consumers.

EV sales in the US reached about 80,000 in January, accounting for a 7.8 percent market share, Rystad said.

The world's biggest economy was also one of the only markets to introduce new incentives through federal tax credits 

However, the industry did not post any surge in sales from those credits as car manufacturers offered EV discounts in December to avoid "an unmanageable influx of orders", Rystad said.

Market leader Tesla, which previously offered considerable discounts to boost demand, began increasing prices to gauge consumer price ceilings.

It has raised the price of its best-selling vehicle the model y, after US tax credit terms were eased.

While US car makers are "grappling to make smart pricing decisions for their EV models ... the market outlook for 2023 is strong, and the country is expected to break the 10 per cent adoption mark this year", Rystad said.

China, the world's biggest EV market, posted flat sales in January on a monthly basis, but this was an almost 50 percent slide from a year ago.

Rystad attributed this to consumers' preference for locally made  Vehicles that are more affordable 

Beijing in January also ended a decade-long subsidy, which covered between 3 percent and 6 percent of EV costs, forcing sellers to offer more discounts.

EV sales in the world's second-biggest economy are projected to slow down this year to about eight million, but recent price cuts announced for battery cells could boost sales again, the Chinese Association of Automobile Manufacturers said.

In Europe, EV sales recorded marginal annual growth in January, but the overall market has been "grim" as several countries posted steep sales drops as EV subsidies ended, Rystad said.

"Widespread subsidy reductions will have a lasting impact on sales activity, but auto makers will not tolerate this weakening for long," it said.

Tesla is "already testing their pricing limits, offering a massive discount, triggering a large volume of pre-orders” in Europe, the report said.

Sales in Germany, Europe's biggest economy, dropped about a third year-on-year to about 27,000 in January, resulting in EV market share plunging to 15 per cent from 55 per cent in December.

Latest EV subsidy rules in Germany state that all-electric vehicles with a net list price of up to €40,000 ($42,500) are eligible to receive €4,500 from public funds.

EVs worth more than €65,000 and plug-in hybrids, however, are no longer subsidised.

January EV market share in the UK and the Netherlands were flat compared to the same period a year earlier, but were down by half compared with December figures.

On an annual basis, EV market share in France rose to 22 per cent from 18 per cent, while Norway dropped to 76 per cent from 90 per cent. Italy, Sweden and Spain were all relatively flat year-on-year.