Electric cars are not selling as expected. New data shows that this is exactly what some automakers, like Volkswagen, want: They prefer to sell more profitable combustion engines because they are short on cash.
The plan from both politics and the automotive industry seemed clear: The electric car should conquer the market as quickly as possible. While the transition might be faster in some parts of the world than others, the general direction for battery-powered cars was supposed to be upward.
However, where the real transformation happens—in car dealerships—things have often gone in the opposite direction since the beginning of the year. “In several EU countries, there is currently a decline in the market share of electric cars—progress in electromobility is stalling,” observed Axel Preiss, an automotive expert at the consulting firm EY, in July. In Germany, 20% fewer fully electric cars were sold in the first seven months of this year compared to the same period last year.
Auto executives, such as VW CEO Oliver Blume, are calling for temporary purchase incentives or tax breaks to boost sales.
Upon closer inspection, however, it turns out that the slump in electric car sales is not as dire for manufacturers as it appears. In fact, this downturn is not just a matter of fate; it follows a script—one that manufacturers themselves have written.
The story goes like this: With the current mix of combustion and electric cars they are selling, automakers are meeting the EU’s CO2 targets. Therefore, they do not need to sell more electric cars for the time being. Instead, they have turned their attention in recent months to another goal that is at least as important to them: making profits. Many volume manufacturers are struggling to meet their announced profit targets. As a result, they are boosting sales of gasoline and diesel vehicles through lower prices because they earn significantly more money from them than from electric cars. And climate protection? That comes later. Only when the EU’s CO2 targets become stricter in the coming years will manufacturers be truly forced to sell significantly more electric cars.
This is not just wild speculation; industry insiders openly admit it. In the coming months and years, traditional automakers with their combustion engine portfolios will have one last chance to improve their profit margins, especially with gasoline vehicles. Even though the range of electric models will continue to expand, decisions will still be made pragmatically: pro-cash, contra-climate protection.
At Volkswagen, profit margins are currently the central issue, as research by the Handelsblatt shows. According to the newspaper, the VW brand is short by two to three billion euros to meet its annual targets. When presenting the half-year figures, VW CEO Blume said that at VW, everything currently revolves around “costs, costs, costs.”
More room for less climate protection
The leeway for automakers has arisen because they sold more fully electric cars in recent years than Brussels originally expected. Since electric cars can be counted as having zero CO2 emissions under EU law, they significantly reduce a manufacturer’s average greenhouse gas emissions. As a result, according to a study by the environmental organization ICCT, all manufacturers were below the legal limit for average CO2 emissions of their cars sold in the EU in 2023. The situation is expected to be similar this year. Stricter limits will only apply from 2025.
Even then, manufacturers have several ways to maneuver, as the example of Volkswagen shows. Last year, 12% of the cars sold by VW in the EU were fully electric. To meet the 2025 target, this figure would need to rise to around 24%, according to the European environmental organization Transport & Environment (T&E). Only Ford and Mercedes are similarly far from meeting the 2025 targets in Europe.
However, Volkswagen is not necessarily forced to double its electric car sales from now on. The company could do what competitor Toyota has been doing for years: form a “pooling” arrangement with manufacturers who have particularly low CO2 emissions. In a pooling deal with Volvo, VW’s electric car share would only need to increase to 19%; with Tesla, it would be just 15%. According to T&E calculations, Ford and Mercedes could also meet their targets more easily through pooling.
Filling their pockets first
Since the EU’s CO2 limits have temporarily lost their sting, manufacturers can now focus on profit optimization. What stands out: the further manufacturers are from their profit targets, the more they promote sales of combustion engines.
BMW, with a 9.6% profit margin in the first half of the year, is at the upper end of its promised range (8 to 10%). Mercedes, with 10.2%, is also within its target range (10 to 11%). Both manufacturers are trying to get their electric cars on the road with relatively low prices, as the Center for Automotive Research (CAR) in Bochum has found. “It is noticeable that German premium automakers, especially BMW, are keeping the price gap between electric cars and combustion engines relatively small,” states a recent CAR study.
The study compared the actual selling prices of 20 electric cars with the actual selling prices of comparable combustion engines. On average, electric cars were 21% more expensive. However, the differences varied widely among manufacturers. BMW settled for a 6% premium on the electric iX1 and 8% on the i4 compared to comparable combustion models. As a result, BMW is currently also successful in selling electric cars. At Mercedes, the differences ranged from 7% to 15%.
The situation is very different for volume manufacturers like Volkswagen or Stellantis. The VW ID.3, for example, is a hefty 40% more expensive than the comparable VW Golf, and the gap between the ID.5 and the VW Passat is similarly large. The electric Opel Corsa and the E-version of the Peugeot 208 (both Stellantis) even shock with an average price increase of 79% compared to their combustion engine siblings.
The reason for this pricing strategy is obvious: VW and Stellantis urgently need to make money—and therefore do not want to sell electric cars that offer little or even negative returns. At the VW brand, the profit margin fell to 2.3% in the first half of the year, while CEO Blume’s target is 6.5%. Stellantis is also seeing declining profit margins, but the demands remain high: CEO Carlos Tavares has promised a “double-digit” profit margin for 2024, even though the group is currently struggling to maintain the 10% mark.
According to T&E, automakers will need to sell more electric vehicles from 2025 to meet the legal CO2 requirements, but—most importantly—”not before then.” Until 2025, manufacturers will therefore aim to “maximize profits with combustion engines.” And if they want to sell electric cars at all, they often do so only in the most expensive versions, T&E says. These are the “factors that are slowing down the sale of electric vehicles.”
The automakers’ strategy is not without risk. They may regret it in hindsight if others have divided the market among themselves. However, the fact that the sales crisis is partly self-inflicted also offers hope: that sales will pick up again when manufacturers eventually decide they want it to.
