European car makers have made strong support arrangements for 2025

Europe is poised to see a resurgence in sales of electric vehicles this year, with automakers launching more than 160 models, but executives warn that profits could fall further due to regulatory costs and discounts.

Growth in EV sales in Europe’s key markets stalled last year as governments withheld subsidies and companies delayed new EV models until 2025 in anticipation of the continent’s strict new emissions laws.

Independent auto analyst Matthias Schmidt predicted 2025 EV sales in Western Europe, including the UK, would jump 40 percent to 2.7 million vehicles as carmakers rush to meet CO₂ targets. Battery-powered cars are predicted to account for 22 percent of the total market this year, in the 15-17 percent range. “We definitely expect the market to rebound in 2025 due to EU regulatory pressure,” he said.

But the return of EV sales growth comes at a higher cost to meet tougher emissions laws and more discounts as consumers seek affordable cars. With underlying demand still weak, the overall outlook for the European auto industry remains challenging amid rising Chinese competition and growing protectionism in the US, executives said.

“We are ready in terms of the offer between EVs and hybrids,” said Renault brand chief Fabrice Camboliev, with 13 percent of sales being electric. “In terms of demand, we see very volatile signals. The level of hesitation among our customers is very high.

European car industry body Acea has estimated that by 2025, fines, carbon credit costs or sales of EVs could cost car manufacturers €16bn if penalties are not delayed. Preliminary data shows that new EV registrations in Europe fell by almost 6 percent last year.

Shares of electric utility Polestar fell 11 percent on Thursday after it said it would take two more years to turn free cash flow positive and scaled back its expansion plans.

Schmidt expects more than 160 EVs to be available in Europe this year, including cheaper sub-€25,000 offerings like the Renault 5 and Citroën ë-C3. The lineup includes 20 new models, such as the BMW NuClass electric sports utility vehicle and Mercedes-Benz’s new electric CLA, while Tesla’s updated Model Y, released in China on Friday, will also make its way to Europe.

From 2025, the production number is a record in the company’s history, and Mercedes-Benz CEO Ola Callenius said the company will “launch a firework of products, most of which will be fully electric.”

But they warned that “natural demand” from consumers is unlikely to increase in 2025, at a point where the industry can sell battery-powered cars at a healthy profit margin.

Starting this year, the European Union will require car manufacturers to reduce carbon emissions by increasing the proportion of electric vehicles they sell. Carmakers and analysts are closely watching the UK, which launched its EV quota program last year, requiring 80 percent of car sales to be zero-emission vehicles by the end of the decade.

EV Targets’ performance in the UK in its first year provides an early indication of how regulatory pressure will affect sales and profits.

With registrations of new EVs up 21 percent last year to a record 382,000, the UK has overtaken Germany as Europe’s biggest market for battery-powered cars for the first time.

However, discounts on EVs cost carmakers billions of pounds to lure customers away from petrol cars. Despite the price cuts, businesses account for a large share of EV sales, with one in 10 private buyers opting for an electric model.

Mike Howes, chief executive of the Association of Motor Manufacturers and Traders in the UK, warned: “The amount of money to stimulate demand will put manufacturers under extreme pressure with very limited resources.”

Analysts predict that the weak profits in Europe will reduce the global performance of car manufacturers. UBS estimates that before interest and taxes, European automobile taxes will decrease by 7 percent compared to 2024.

While companies are eager to sell more EVs this year, “the question is how much more will we see from automakers to sell more EVs,” UBS analyst Patrick Hummel said.

In addition to discounts and promotions, some manufacturers expect to spend more to buy carbon credits from rivals in the electric transition, such as Tesla and China, to meet the new EU rules.

This month Stellar, Ford, Toyota, Mazda and Subaru announced plans to “merge” carbon emissions with Tesla, allowing them to buy emissions credits, while Mercedes-Benz wants to work with Geely-owned Volvo and Polestar.

Hummel estimates that these various measures, including rebates and carbon credits, could impact industry-wide profits of up to €4 billion to meet the targets.

While Europe’s auto industry is urging Brussels to consider making regulations more flexible, governments hope to revive consumer demand for EVs by restoring incentives.

In the year Registrations of new electric cars in Germany have fallen 27 percent since the end of 2023 when subsidies for purchases were abruptly pulled. France saw a 3 percent year-on-year decline and a 21 percent fall in December alone.

Some governments are already taking risks around the targets, considering how Britain can meet mandatory EV sales targets. France has proposed that carmakers be spared heavy fines if they fail to meet EU emissions rules.

But it is not clear where the political debates will be resolved.

In France, a popular leasing scheme for low-income families to buy electric vehicles ends in February 2024, after 50,000 requests in two months more than double what was expected in more than a year.

Paris last month cut subsidies for EV purchases from a maximum of €7,000 to €4,000, but as the French government has yet to pass a budget for 2025, additional support for EVs or fines for vehicles that pollute are unclear.

Uncertainty over subsidies in Germany has had an impact on electric vehicle sales.

Renault’s head of engineering, Gilles LeBourne, said the removal of German government incentives was “instant”. Above all, he said, car manufacturers “need stability in public policy around electric vehicles” and “usually €1,000 or €2,000 (on support) can change things one way or the other”.