Affordability: Overcoming a major barrier to widespread EV adoption

Current initiatives in France and their dynamics

1.  The ecological bonus

As I discussed in an earlier article, this French government initiative originally encouraged the purchase of electric cars in general, but it was recently updated to address the carbon footprint of the electric car’s whole lifecycle from design and manufacture to sale.

The revised scheme encourages consumers to buy vehicles that are more environmentally friendly in terms of overall decarbonization, not just emissions on the road. In addition, the bonus is available only for vehicles costing less than €47,000.

These recent changes disqualified almost 40% of cars on the French market from the bonus scheme. Leading models affected included MG Motor’s MG4, Tesla’s Model 3, Dacia’s Spring, and the Kia Niro.

In order to remain competitive, some OEMs whose models are excluded by the new rules have been quick to take compensating actions. Two options have emerged here. First, BMW, Audi, and Peugeot have lowered some prices to less than €47,000 to qualify for the bonus. Second, where a car didn’t score high enough on sustainability to earn the bonus, some manufacturers have offered a discount instead. Both changes will tend to heat the price competition already happening in this market area.

Note, though, that manufacturers whose cars did not initially qualify for the current version of the ecological bonus also have the option of applying for a review of the score. To do so, they need to provide convincing evidence that their actual emission values are better than the location-based values used by the initial assessment. Ideas like battery passports are relevant here.

2.  Social leasing

Alongside the ecological bonus for car buyers, the French government has introduced a long-term leasing offer for electric cars priced at just €100 per month. The first wave of the scheme, which ended on February 14, 2024, was a spectacular success, not least with younger drivers. In total, 50,000 electric cars were leased – double the initially anticipated 25,000 – and a total of 90,000 applications were received.

Although successful, the scheme is quite costly. The French government provides a one-off €13,000 subsidy for each leased vehicle; unsurprisingly, this year’s scheme had to be halted, leaving around 40,000 disappointed applicants. A new wave of leasing will open in 2025, according to the government’s website, but we don’t have details yet.

Given their costs, incentive schemes need to be carefully assessed and compared, to ensure that the optimum mix of incentives is chosen. That necessitates an objective, quantitative assessment of the costs and benefits of each scheme, together with modelling of alternative approaches.

3.  Manufacturing small, affordable small cars in Europe

It’s not just the French government that’s taking action. France’s OEMs, too, recognize that customers’ budget constraints are a limiting factor for electrification and that affordable models are needed. 2024 looks set to mark a turning point in that respect, with leading French OEMs introducing new, high-quality electric models at competitive prices.

As announced at the recent Geneva International Motor Show, the new Renault 5 electric will be available from September 2024 for approximately €25,000. In October, the new Citroën ë-C3 electric will go on sale for around €23,300; details are already online. If these vehicles benefit from the ecological bonus, as hoped, then actual prices could be as low as €20,000, providing unprecedented accessibility.

Let’s hope that these new vehicles are the first of many. In a “letter to Europe” published in March 2024, Luca di Meo, CEO of Renault Group, proposed promoting small, affordable cars and vans made in Europe. He envisages cooperative projects between manufacturers to develop and market these vehicles; consumers can be encouraged to buy them via benefits such as reserved parking spaces, cheaper parking and reserved charging points, along with bonuses.

In technical terms, producing this new affordable generation of vehicles looks likely to present challenges of its own, many of them around “lightweight” – reducing the weight of vehicles and batteries to make them more economical to run. This requires expert knowledge of the latest materials and design techniques.

Building on initial experience

With initiatives like these, France is advancing toward the dream of putting electric vehicles within the reach of every citizen who needs a car, including the younger generation.

Of course, there are still challenges to overcome. Today’s more affordable prices are, to a large extent, the result of state subsidies. With many other demands on state funds, these subsidies are always going to be limited, so other ways to achieve affordability are needed. A related challenge is that in response to the ecological bonus in particular, fierce price wars are being waged between OEMs, involving not only European manufacturers but also some based further afield. That means margins are being severely squeezed. For businesses to remain viable, and for governments to achieve their goal of decarbonization, this picture must change. Instead of price-cutting, we need schemes and actions that encourage OEMs to compete through innovation to deliver genuinely affordable, sustainable e-mobility. And this has to happen at a time when some manufacturers have been putting back the scheduled release dates for new electric models. To bring about the required shift, governments may want to consider a range of different interventions in addition to those that incentivize consumers: for example, offering investment aids to help OEMs improve the sustainability of manufacturing processes, particularly concerning batteries.

Clearly, success within a single country is not going to achieve global climate change objectives. Proven ideas need to spread rapidly from country to country and from continent to continent.

At all levels, focus needs to be maintained. In the EU, the coming months promise to be exceptionally busy, with the European Parliament elections from June 6 to 9 and the subsequent establishment of a new commission in Brussels. It’s to be hoped that automotive sustainability initiatives are not deferred as a result.

Meanwhile, for individual OEMs, the current price war mustn’t be allowed to distract attention from long-term strategy. As with many innovations, profitability from e-mobility won’t arise immediately, but patience (and flexibility) will be rewarded. It’s also important to keep a close watch on the marketplace – for example, we’ll soon have the opportunity to study the impact of affordable models such as Renault’s R5 and Citroën’s ë-C3.