1. Reports
  2. The True Cost of Electric Vehicles - Europe Energy Sector
Research

The True Cost of Electric Vehicles - Europe Energy Sector

Read disclaimer
Electric Vehicles Reports Header Europe

The fourth of four reports focusing on how the electricity to charge electric vehicles is generated in Europe, comparing their overall efficiency and carbon footprint with internal combustion engine vehicles.

Introduction

The reformation of taxes on vehicle costs, changing supply chains, as well as rolling out smart charging points and ensuring sustainable battery production is essential in driving the take up of e-mobility in the coming years. For more than 20 years, the EU has been at the forefront of the race for renewable energy deployment. Supporting policy measures along with the establishment of long-term targets have resulted in strong growth in renewable energy uptake across the region, with consumption increasing from 8% share in 2005 to 17.6% in 2018. For 2020, the EU is on track to meet its target of 20%. In 2014, the European Council agreed on a new set of energy and climate targets, including a target of 27% for the share of renewable energy in the area until 2030.

Global Electric Car Sales by Key Markets

EV sales continue to grow in 2020, despite the impact of COVID-19 crisis.

Since this target adoption, much has changed in the energy sector. Crucial renewable technologies, including solar PV and wind, have achieved significant cost reductions, exceeding expectations. As these technologies improve, so will the renewable potential and its cost-effectiveness. At the same time, EVs are quickly approaching commercial maturity and will play a key role in driving the share of renewables in the EU in the coming decades, as their incremental demand rises. Meanwhile, new technologies regarding charging and vehicle autonomy are revolutionising the way these systems are operated. Thanks to these favourable developments, the 27% renewable target may be regarded as a conservative objective for the EU.

Electric Vehicle Incentives

The share of respondents across the EU, stating that they would certainly or probably consider purchasing a hybrid or a BEV in the near future rose from 32% in 2014 to 37.4% in 2018. There is, however, high variability among EU member states, as well as across different urbanisation level. Local conditions and regional variation are a major factor regarding purchasing decisions. According to the Christidis and Focas study, while most barriers, including consumer awareness, purchase cost, and recharging availability, are being removed through policy and technology, the uptake of hybrid and electric vehicles follows diverse patterns across different areas and socio-economic groups.

Indeed, when asked a question of considering a purchase of a hybrid or electric car, only Spain and Italy had the majority of 'yes' responses, whereas countries, such as Czechia and Estonia were predominantly against it. This begs the question of what is driving that opinion. We have compared the data provided by individual countries in the survey and corresponded them to each country's renewable fossil split. We have found that countries with higher rates of renewables in their mix seem to be more interested in purchasing an EV. Indeed, said countries have extensive policies and education around renewable energy and therefore have higher understanding and acceptance of EVs.

While growing and developing EV market might attract some niche customers, most clients will not consider buying an electric vehicle before reaching the price-parity with its diesel and petrol equivalent. Most European countries, therefore, are planning or have already installed support schemes for EVs to reduce the overall costs for the consumer and scale up production. There seems to be no clear favourite instrument, although almost half the countries use a reduced annual vehicle tax and a reduced sales tax. Subsidies are more prevalent in Western Europe, as wealthier countries are likely to invest more in infrastructure and offer greater cash and tax incentives to accelerate initial growth. Despite economic support, cities can also use soft factors, e.g. free parking or high occupancy lanes, to pitch the advantages of EVs to car users. The incentives for EVs differ strongly in Europe, with some countries already applying up to three price instruments with a high overall volume and others with no dedicated EV incentive scheme in place.

These tax reductions help to decrease the large difference between the prices for ICEs and those for EVs, and as Edquist, Hommen (2000) show, will be the major driver of EV adoption in the next few years. Direct reductions of the sales price have twice the effect of deferred support schemes such as income tax reimbursements. To some extent, this instrument runs the risk of subsidising car dealers, although it finds that the customer receives most of the reduced tax. From a practicability viewpoint, tax reductions are easy to integrate and are well accepted by the public.

France, in particular, has offered some of the most generous incentives of any country to purchase an EV. Consumers could be eligible to receive up to EUR12,000 per vehicle, as part of the EUR8bn rescue plan to revive the auto industry. This should help reduce the cost of a battery electric vehicle by nearly 40%. While nearly all EU countries offer a mix of subsidies and tax cuts, the newly-released plan by France outstrips most of them. These incentives, however, are short-lasting as they are planned to be decreased as the sales of EV start to pick up.

Electric Vehicle Market

Road transport is the bloc's largest source of CO2 emissions, accounting for 20% of the total. Therefore, for Europe, more than ever, the reduction of road emissions will be the biggest hurdle in becoming 'cleaner'. In order to decarbonise the transport sector, the most efficient and convenient zero tailpipe emission technology available is battery-electric cars. Thanks to the EU 2020/21 CO2 standard for cars of 95g/km, carmakers are in a hurry to decarbonise - around 200 plug-in models will be available on the EU market from next year onwards, according to the Transport and Environment study. Governments and manufacturers continue to make new commitments for electric vehicle sales. From the energy side, the EVs will add an extra 26% to demand by 2050. Indeed, EVs add a substantial amount to electricity demand, and without EVs, the electricity demand in Europe would fall by 6% by 2050. Comparing to other economies, Europe has the highest share of EV demand in total demand (21% in 2050).

Passenger EV sales increased by 199% y/y in Q3 2020, reaching 369,000, as automakers pushed to meet the 2020 fuel economy targets in the region. 2020 is shaping out to be a record year at 1.2m, with sales to increase again in 2021. Europe continues to exceed market expectations, as additional government stimulus along with the increasing demand for e-mobility spurred the uptake of electric vehicles recently. EVs continued to hold up better than ICE sales, which declined by 13% in the same period. Germany, France, the UK, and Norway accounted for 66% of all EV sales in Q3 2020. Nearly 79% of all passenger cars sold in Norway were plug-ins. At the time of writing, Europe's EV share of new passenger vehicle sales stands at 12%, up from 1.6% at the beginning of 2016.

Global Electric Vehicle Stock

Europe EV stock is seen outpacing one of the US, while still behind China.

As of now, the EU does not have sufficient clean energy capacity to support a direct transition to pure electric vehicles, and many defend interim technologies such as plug-in hybrid cars as means of transition towards cleaner transport. Plug-in hybrids, which tend to offer somewhere between 50-90km of emissions-free driving, have become a crucial part of many carmakers' strategy to achieve CO2 reduction targets. More than 0.5m plug-in hybrids were sold across Europe in 2020, thanks to purchase subsidies and tax breaks across the bloc. However, there is a strong criticism regarding the plug-in models, that are rarely charged by drivers and are more often polluting than advertised. Indeed, according to the Transport & Environment study, three of the most popular plug-ins from BMW, Volvo and Mitsubishi sold in the EU emit more CO2 than their manufacturers claim. Most models have weak electric motors, big, polluting engines, and usually cannot fast charge.

We expect the importance of PHEVs in Europe to increase in the coming years, as some domestically strong brands are increasing the number of PHEV models they offer to comply with the 95g CO2/km regulations. With increased EV incentives in countries like Germany or France, and long-awaited EV models being released, sales will likely continue to rise in 2021 as well. More importantly, next year marks another increase in the stringency of the fuel economy targets for automakers selling in Europe. From 2021, the average emissions of all new registrations will have to be below the target, including the worst-performing 5%. This means that some of the more popular automakers in Europe which rely on sales of SUVs will need to double down on EV sales.

2020 vs 2019 Car Sales Change Across the World

In 2020, Europe was the biggest beneficiary of COVID-19 pandemic driving EV sales.

The UK's decisions to end the sale of petrol and diesel vehicles by 2030 is a crucial step in its energy transition as it puts the country at the forefront of EV evolution while simultaneously changing consumer behaviour. Additional funding towards greater energy efficiency for residential and public buildings, as well as new 5G targets regarding low-carbon hydrogen production by 2030 would spur that growth. But a more detailed plan will be required if the UK is to have any chance of meeting its target of reaching net-zero emissions by 2050.

Battery Market

Investment in the battery market has been substantial in recent years, as Europe starts to ramp up production for current and future demand. This investment is coming from leading automakers across the globe, this investment will help the bloc reach its goal of carbon neutrality by 2050. However, there is a long way to go to bring the industry up to speed to hold a significant share of $300bn annual market by 2030, according to the World Economic Forum. Europe comprises about 3% of the global battery market as of July 2020 with China representing 80% of global lithium-ion battery (LIBs) production, but the European Commission has stated that Europe will be self-sufficient by 2025, this will equate to batteries for 6m EVs annually. Demand for batteries is increasing rapidly and is set to reach 17% of global demand by 2030. Creating a more local supply chain is beneficial for the European economy and reduces carbon emissions of the battery pack itself. Questions remain if Europe can take some of the LIBs market shares away from Asia, but for EU automakers to reduce costs, they need to localise their supply chain.

LCA analysis of batteries in Europe outline that the raw material and battery manufacturing are the most damaging phase of the battery life cycle under a cradle to grave system boundary. Human toxicity and freshwater ecotoxicity were particularly damaging basis ICE vehicles, the latter due to increase SO2 emissions from battery production. From a cradle to gate study, using the Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model of a nickel, manganese, cobalt oxide (NMC) battery pack the energy use and environmental impact are greater for cell production, however initial results suggest that the impact differs depending on the geographical location and the cathode material. However, Europe traditionally imports raw materials for battery production or imports the cells from China which increases emissions due to freight shipping, that is why recycling of EV batteries is imperative to reduce pressure on the raw material extraction of nickel, cobalt, and lithium specifically.

With stronger EV consumption and battery production, there will be a waste, but the new European Battery Regulation increases the collection rate of portable batteries from 45% to 65% in 2025 and 70% in 2030, EV batteries must be collected in full. However, as things stand, the recycling rate is around 5%, but waste batteries typically have 70% of their original capacity remaining, therefore adopting the circular economy is imperative for the EU battery industry. This starts with battery design; battery manufacturers and policies makers should target designing batteries that are easily dismantled. Currently, battery recycling is expensive, but as investment increasing, this in conjunction with the new framework improves the preparedness of the EU to increase recycling. Article 9 of the proposal for a regulation on batteries and waste batteries outlines that as of January 1st, 2030 batteries shall contain a minimum share of recovered lead 85%, lithium 4%, nickel 4% and cobalt 4%. These figures will increase to 20% cobalt, 10% lithium, 12% nickel. This will improve the circularity of the EU battery industry, reduce the environmental impact of resource extraction and batteries, but also soften the pressure on raw material extraction.

Emissions Results

As a result of high-efficiency motors as well as the engine's ability to generate electricity from low-carbon sources, EV on average have lower emissions in the use phase compared to their combustion counterparts. Many studies show that the EVs are responsible for considerably lower emissions over their lifetime than conventional vehicles across Europe as a whole. In coal-intensive countries, the benefits diminish, as they reach similar lifetime emissions to hybrid-electric models. According to the study by Transport & Environment, the EU EV is already close to three times better than an equivalent car today. However, as countries decarbonise their electricity grid to meet the climate targets, emissions should fall for existing electric cars, and manufacturing emissions fall for new EVs. For example, in the UK in 2019, the lifetime emissions per km of driving an average electric vehicle like Nissan Leaf were shown to be about three times lower than the ICE car.

Comparison of life-cycle GHG emissions in conventional, electric, and plug-in hybrid vehicles in various European markets

While an average EV is 'cleaner' than its combustion engine counterpart, this benefit is further increased in countries with higher renewable generation.

In most countries in the bloc, the majority of emissions over the lifetime of both electric and conventional vehicles come from vehicle operation – tailpipe and fuel cycle – rather than vehicle manufacture. The exception is in countries, such as France and Norway, where nearly all electricity comes from near-zero carbon sources, such as hydroelectric or nuclear power sources. In all scenarios, EVs outperform diesel and petrol cars, and even on carbon-intensive grids such as Poland, where they are about 40% better than conventional cars. In Sweden, they are five times better. Crucially, the evidence shows that EV powered with average electricity repay their carbon debt from the production of the battery after more than a year and save more than 30t of CO2 over lifetime comparing to conventional vehicles.

Investments

In 2020, global energy investment totalled $1,520bn, down from $1,891bn in 2019, according to IEA. This figure includes investment in projects, energy use and efficiency, power sector and fuel supply. Total investment activity has been disrupted by the crisis but also by a sharp fall in revenues for fossil fuels, especially for oil. Fuel supply investments have been hit hardest, while utility-scale renewable power has been more resilient. European countries drove much of that resilience in energy transition investment last year. The total for Europe was $166bn, greater than $135bn and $85bn for China and the US respectively, with big offshore wind financings in the UK and the Netherlands. Germany led the way in Europe, with its total of $29.1bn, up 103%, while the UK enjoyed a 137% jump in commitments to $25.6bn in 2020. France invested $19.7bn in the energy transition, an increase of 61%.

The largest investment sector in 2020 was renewable energy, which attracted $68.7bn for new projects. Indeed, after experiencing a large decline in 2017, Europe has seen a consistent rise in investments ever since. With $16bn investment on renewable capacity in 2020, the United Kingdom remained the largest renewable investor in Europe. However, the most spectacular change in Europe came from Spain. New investment there jumped 900% since 2017 to $10bn in 2020, as a new generation of low-cost solar and wind projects got the go ahead on the back of auctions or private sector power purchase agreements. In comparison to other regions, renewable energy capacity investment in Europe almost caught up with China, at $83.6 billion, while outpacing the US, at $49.3 billion, as of 2020.

Analysts expect Europe to invest nearly $1trn to increase its renewables capacity by 2030, with rooftop PV accounting for $339bn and onshore wind $250bn. Offshore wind is to be the only major renewable power source to remain subsidised in the 2020s. Europe will add 64GW of offshore wind capacity between now and 2030, involving an investment of $296bn, as governments continue to back it for energy security and industrial development reasons.

From the electric vehicle production, Europe invested EUR60bn in 2019, while China secured EUR17.1bn. Carmakers alone have invested up to EUR47.7bn to produce EVs in Europe. The investments targeted mainly eight countries, with Germany getting the biggest chunk, EUR40bn coming mainly from the Volkswagen Group, but also thanks to the investment made by Tesla near Berlin. The second to Germany comes the Czech Republic: EUR6.6bn. We believe that with EUR60bn invested in producing EVs in Europe, 2020 and 2021 are to be a tipping point. Eleven member states have received support for sustainable, low-carbon projects aligned with the bloc's energy and climate goals. An additional €16.9bn in investment is expected in sustainable and low-carbon energy projects over the coming years.

European Energy Reforms

Since the beginning of the century, the EU has been at the forefront of global action to combat climate change. It has developed ambitious energy and climate goals, including the target of reducing GHG emissions by 80% by 2050. Given the current outlook, Europe will remain the clear winner in the race for the low-carbon future. Indeed, looking back by five years, the bloc has made significant progress in developing the electricity and gas markets, promoting energy efficiency, renewable energy, and reduction in GHG emissions. In 2020, the EU is to complete several energy targets known as "3*20" policy, which pledge to cut GHG emissions by 20% from 1990, raise the share of renewable energy consumption to 20% and improve energy efficiency by 20%. While it has been clear that this package fell behind set-out targets, we believe that this could be achieved soon.

While overall, most of the targets were not yet achieved, the EU-28 has made considerable progress towards realising the objectives, with many countries on track to meet the targets. However, it is hard to judge whether that result is due to the policy or other external factors. Indeed, the economic crisis and the current pandemic mean that emission reduction achievements look better than they could otherwise year-on-year, as the common denominator of most of the targets, i.e. the final consumption, was much lower-than-expected during the normal course of economic activity.

Since the EU Commission President Ursula von der Leyen took office in late 2019, the centrepiece of the new initiative towards energy efficiency, the Green Deal (GD), was introduced, aiming to prepare the country for climate neutrality by 2050. The EU's track record of decarbonising power systems through the use of renewable energy sources, especially offshore wind and solar PV, offers an inspiring example for many economies around the world. In our opinion, to achieve climate neutrality, EU policy efforts need to focus on transport, industry and buildings, alongside policies that support energy system integration.

Energy Outline and Outlook

In 2020, the EU economy contracted by 7.2%, according to the IMF. Maintaining energy security during this time is crucial, and while physical resilience of the energy sector has been strong, its fiscal resilience is under severe stress. As expected, through the sharp reduction of air and road transport along with industrial activity, the energy demand and supply, along with CO2 emissions, declined significantly. In Q3 2020, EU coal generation fell by 11% y/y, according to the European Commission, and the share of renewable reached a new high of 37% in the power mix. Thanks to their near-zero generation costs, renewables were the least affected by the pandemic and were able to capture a larger size of a shrunken consumption pie. Accordingly, the CO2 emissions fell by 25% y/y in the quarter. Counting in the 22% decrease from Q1 2020, the power sector is on track for another double-digit decline in emissions in 2020, after a 15% annual drop in 2019.

For the whole year, the EU energy demand is expected to be 10% lower than that seen in 2019, nearly twice the decline compared to the 2008/09 financial crisis. However, investment towards renewable energy is also set to decline by 33% in 2020, a historic low; notably, the investment into solar PV is set to fall by 50%. As the economy moves to normality after the introduction of the vaccine, the rebound in emissions is likely expected to be high, supported by low global commodity prices. In general, there is a general trend in GHG emission reduction over the last couple of decades, declining by 23% since 1990, according to IEA. Energy efficiency, the introduction of renewable energy as well as fuel switching, were essential drivers in the emission reductions.

Europe's power sector is transformed the most and the fastest. It is also first to hit a deep decarbonisation barrier. It is already relatively clean, with around 65% zero-carbon electricity from wind, solar, geothermal, biomass, nuclear and hydro plants in 2019. That reaches 83% in 2030, before hitting the ceiling of around 90%, the most anywhere in the world. By 2050, Europe will get a quarter of its electricity from wind turbines. New demand is predominantly met by renewable sources. It proves hard, however, to displace all-natural gas generation as wind, PV, and batteries alone are not able to deliver a net-zero energy system. Today, the most digitalised power plants and grid are in Western Europe because of the high renewable penetration and strong digital strategy of large utilities.

Total Net Electricity Generation by Source

Renewables should take up the majority of the electricity generation early this decade. 

Across the EU, renewable electricity has priority access to the grid, guaranteed by the Renewable Energy Directive, with other forms of generation feeding in electricity in order of price until demand is met – merit order principle. In some countries, after renewable generation, nuclear and coal generation provide an inflexible 'baseload' of continuous generation (e.g. France and Poland, respectively); additional demand above the base load may need to be met through gas- and oil-fired power stations, imports or release for storage. In other countries, the generation capacity of renewables is high, like Germany and Denmark, and therefore have more advanced flexibility to ramp up supply during peak demand and fossil fuels are often used as intermittent sources of energy.  

Share of Energy from Renewable Sources by Country

Nordic countries have the highest share of renewables as hydro and wind power dominates respective energy mixes.

The clean-power transition goes furthest and fastest in Europe, where wind and PV are forecast to account for 74% of electricity by 2050. Some markets, such as Germany, get beyond 80%. In 2018, the EU share of renewables reached 32%, thanks to substantial investments and robust renewable energy policies. In electricity, in particular, wind power is on the path to becoming the largest renewable power source. Solar grows at around 30GW per year until 2050, with small-scale PV installations making up more than half of solar generation throughout the outlook. In 2031, PV will overtake nuclear to become the third-largest source of electricity after hydro and wind, at 18%. Its share continues to grow, and by 2050, PV makes up 24% of Europe's generation. Solar PV is prominent in southern Europe, where there is a large untapped renewable energy potential, such as Spain and Portugal, where it provides 30% of generation in 2030. On average, solar tends to do best in southern regions where ample sunshine matches well with summer-season demand pattern. Wind, however, does better further north due to the exposure to coastal areas.

Europe retires almost 100GW of coal over 2020-30, partly as a result of deteriorating competitiveness and partly via existing phase-outs programs. Rising carbon prices and cost-competitive renewables reduce coal run-hours, forcing them to compete during peak times where other technologies, including baseload and peaking gas, are economically preferable. Tightening emissions standards force coal plant operators to upgrade equipment or retire. Emissions limits already prevent access to capacity market payments and other lifelines. Rising carbon prices make coal plants uncompetitive with gas. Retiring coal creates opportunities for other generation technologies. Renewables can replace the bulk of the energy supplied by coal. Gas plants will firm their position as the technology of choice for periods with low wind and solar output. Gas use grows to 2024 from its COVID-19 lows to fall later on to 10% of generation by 2050. Thanks to the low prices of gas of the last decade, the coal to gas switch took place, and as of 2018, natural gas took up 25% of electricity generation. In line with the US, natural gas remains the key contributor to the energy mix, especially heating and cooking, and it is forecast to grow by 30% between 2019 and 2050.

The Transition for Western and Eastern Regions

Central and Eastern Europe (CEE) has attracted attention from the global automotive industry in recent years, notably the investments from major equipment manufacturers and suppliers. Successive Hungarian governments have encouraged investments aimed at shifting towards an electric, connected and autonomous future. But this progress is not as straightforward as it may seem, especially when it comes to electric vehicles. As Europe is set to reach net zero emissions by 2050 and the European GD becomes a key part of the economic policies in the current decade, interest in 'cleaner' auto industry and the uptake of electric vehicles will become more prevalent for manufacturers, investors, and consumers alike. CEE is no exception, with several countries in the region updating their public transport fleets with EVs, offering subsidies for car purchases, and even in the case of Poland and Romania, producing electric cars of their own. As of now, western and northern Europe takes up the large majority of the bloc's EV sales.

Most of these countries' coal fleet is already uncompetitive, making it harder to sustain them in the long term. Until 2030, around 40GW of coal is seen retiring, with the biggest difference seen before 2025. In Romania and Bulgaria, this leads to a complete phase out of coal in 2050, while Czechia sees this happen before 2030. And while some countries, such as Poland, have renewable projects in the pipeline, the rest are starting from a much lower baseline. As renewable face heightened structural hurdles in the next years, natural gas might take a bigger role to fill the gap.

Installed Generating Capacity by Source

Installed generating capacity progress towards the renewables exceeds the one of electricity generation due to increased investment.

Central and Eastern Europe's power markets are in the middle of two big shifts: decarbonisation and liberalisation. The region only recently implemented the EU's power market liberalisation legislation, later than much of Western and Northern Europe. Renewables growth has remained low, as the EU accepted low 2020 renewables targets for member states with a lower GDP per capita. The ambition modestly increased for the 2030 renewables targets but might increase further to respond to the EU's new 2030 emissions reduction target of 55%.

With current renewables targets for 2030, the total investment in the region's renewables over 2020-2030 could reach around EUR32bn. Barriers to onshore wind deployment limit future renewables potential. However, with the EU's new 2030 emissions target of 55%, ambition is likely to be raised. Most CEE utilities have not built capabilities in renewables development, but as their old coal assets retire, they could maintain their future market shares both by developing new projects and buying already built solar and wind farms. The major retail electricity providers have recently broadened their service offering, with some offering residential solar PV installations and EV charging.

Norway and its Success

As one of the largest energy exporters globally, Norway is committed to environmental transition and climate policy. The country continues to manage its significant fossil fuel resources sustainably and remains a reliable supplier of oil and gas. While Norway's energy mix seems to be in line with the bloc's average, its electricity generation comes mostly from hydropower. Its large hydropower generation is a valuable energy asset, particularly when European electricity markets are integrating, and variable renewable energy generation is growing.

In order to meet its targets to reduce GHG emissions by 40% from 1990 to 2030 and to become low carbon by 2050, Norway needs to address the issues regarding transportation, oil and gas production and manufacturing, as this is where we see most of the potential coming from. However, the speed of this transition is uncertain and controversial. This transition will have significant implications for Norway, as one of the world's largest energy and capital exporters.

Norway's Electricity Generation by Source in 2019

Norway is the leader in the renewable energy transition, as nearly all of its generated electricity comes from hydro.

Conclusion

The European Commission saw President Ursula von der Leyen taking office in 2019, with an ambitious programme for five years to come. The centrepiece of this initiative is the European Green Deal, which aims to prepare the EU for climate neutrality by 2050. The proposed EDG is a set of 50 actions for the coming five years across all sectors to transition the EU away from fossil fuels. The EU's impressive track record of decarbonisation through the introduction of renewables, especially offshore wind and sold, offers an example for many economies around the world. To achieve the goal of carbon neutrality, the bloc's policy efforts primarily focus on transport, industry and residential sectors, alongside policies on energy integration. Over the past decade, the EU has made significant progress in developing the internal market for electricity, promoting energy efficiency, increased renewable energy deployment, and the reduction of greenhouse gas emissions.

In Norway, in particular, affordable and clean hydropower coupled with government subsidies has resulted in a record high level of renewables in the grid. However, driving this sector throughout the whole of Europe will be challenging and will require increased political action, with regulations covering the whole energy system and synergies. There are clear benefits of renewable energy; they are by far the most efficient means to decarbonise Europe's electricity grid; it increases the energy efficiency of the economies and reduces emissions. The EVs drive this change, by decreasing the emissions produced by the transport sector – the second biggest contributor to the bloc's CO2 emissions. As with previous reports, on average, driving an EV in Europe is 'cleaner' than its conventional substitute. This also goes for countries with higher levels of fossil fuels in their grid, such as Poland, Czechia and Bulgaria. Crucially, the evidence shows that EV powered with average electricity repay their carbon debt from the production of the battery after more than a year and save more than 30t of CO2 over lifetime comparing to conventional vehicles.

European EV sales are rising quickly, driven by national subsidies, tightening vehicle CO2 regulations, increased model availability and rising concern over urban air quality. Europe is the second-largest EV market globally after China, but different countries within Europe are progressing at very different rates. In 2019, EVs were over 10% of sales in four countries. Adoption rates in the largest auto markets –Germany and France –are slower but are rising quickly. EV sales in Europe are forecast to account for 57% of car sales in 2030, up from just 1% in 2019. The COVID-19 pandemic did not hinder their growth, and instead surged the sales, which grew by 135% in 2020. More in the long-term, subsidies and taxes, in particular, will drive most of the new growth in terms of new EV sales; however, we do not envisage a widescale use of electric models until they reach complete cost-parity with ICE vehicles. Fortunately, rapid technological advances, standardisation and increasing adoption all continue to drive down the cost of electric cars, making them cost-competitive against their fossil-fuelled alternatives.

Contents

Disclaimer

The material in this report has been issued in the United Kingdom by Sucden Financial Limited ("Sucden") which is incorporated in England and Wales with company number 1095841. Sucden's registered office is: Plantation Place South, 60 Great Tower Street, London, EC3R 5AZ. Sucden is authorised and regulated by the Financial Conduct Authority.

This material constitutes "investment research" for the purposes of the Markets in Financial Instruments Directive and as such contains an objective or independent explanation of the matters contained in the material. The information in this report is provided solely for informational purposes and should not be regarded as a recommendation to buy, sell or otherwise deal in any particular investment. All information in this report is obtained from sources believed to be reliable and we make no representation as to its completeness or accuracy. Please be aware that, where any views have been expressed in this report, the author of this report may have had many, varied views over the past 12 months, including contrary views. A large number of views are being generated at all times and these may change quickly. Any valuations or underlying assumptions made are solely based upon the author’s market knowledge and experience. Please contact the author should you require a copy of any previous reports for comparative purposes. Any reference to past performance should not be taken as an indication of future performance. This report is for the use of intended recipients only and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without the prior written consent of Sucden. The material in this research report is general information intended for recipients who understand the risks associated with investment. It does not take into account whether an investment, course of action, or associated risks are suitable for the recipient. Furthermore, this document is intended to be used by market professionals (eligible counterparties and professional clients but not retail clients). Retail clients must not rely on this document. To the fullest extent permitted by law, no Sucden Group company accepts any liability whatsoever (including in negligence) for any direct or consequential loss arising from any use of or reliance on material contained in this report. All estimates and opinions included in this report are made as of the date of this report. Unless otherwise indicated in this report, there is no intention to update this report. Please read our full risk warnings and disclaimers.