Slow progress for alternative-fuel cars

6 March 2020

Autovista Group's chief economist Christof Engelskirchen analyses the performance so far of alternative-fuel vehicles in the key European markets.

Registrations of battery-electric vehicles (BEVs) and plug-in hybrids (PHEVs) are not expected to represent more than around 5% of total registrations in 2020. The biggest volume-growth expectations for BEVs (and PHEVs) are in the German market, due to the highest GDP per capita, strong consumer expenditure, and substantial advances in infrastructure build-up, together with an automotive industry and government serious about making the third wave of BEVs a success.

Only around 2% of new-car registrations in the big five European markets are represented by BEV or PHEV powertrains. The reality is that 95% of registrations are for internal combustion engine (ICE) models, including hybrids, while the rest are other fuel variants.

Growth beyond the 5% level is possible but will likely stem from artificially-induced supply since OEMs have an interest in increasing this number to stand a chance of hitting their respective emissions targets. This could be done by creating short-cycle registrations (demo vehicles, dealer registrations, rentals) or offering higher discounts.

Used BEVs and ICE-powered cars

The used-car market performance of BEVs versus ICE-powered vehicles differs by market, subject to maturity of the market, charging infrastructure, economic power, energy prices, and tax benefits as well as supply/demand imbalances. These factors also influence PHEV performance versus ICE but to a lesser extent.

There is still a limited number of BEV and PHEV options in the used-car market, mostly in larger-size segments and often consisting of high-performance, highly-priced premium models such as the Audi e-tron, Jaguar i-Pace and Mercedes EQC.

Lately, there have been some noteworthy launches of BEVs, in particular from Korean manufacturers and Tesla. And manufacturers are gradually expanding their ICE portfolio with PHEVs, for example, BMW with the X1 and X3. The VW group is offering very attractive rates for the A-segment up!, SEAT Mii and Skoda Citigo BEV variants. Also, the group's new BEVs will come later this year so it will take time for them to hit the used-car market.

When it comes to charging infrastructure, all markets are making progress but Germany is leading the way, while the UK and France are not far behind and in some areas are even slightly ahead. Spain and Italy, however, are falling behind.

Germany has the highest energy prices – at about twice the cost of the country with the lowest costs, which is France. The UK is not far above France, then comes Italy and then Spain.

Residual values (RVs) for diesel cars are down across all markets and are now performing below petrol in most markets, with the exception of Italy; but even there, the gap has narrowed. We see some evidence of stabilisation of diesel RVs due to shorter supply and less negative media coverage.

In the big five markets, PHEVs usually perform above ICEs and BEVs in terms of residual values, in both value and percentage terms. PHEVs are considered a best-of-breed vehicle for the time being, although they are an interim solution in the transition to full-electric or fuel-cell technology. They offer the advantages of an electric vehicle without the negative elements of suitability for daily use. They are usually very high-performing variants and there is a limited supply. Tax breaks exist in some markets but they tend to have less impact in the used-car market.

BEVs and PHEVs

In Germany, RVs are lower in percentage terms for BEVs compared with petrol but they are still performing slightly above petrol in Euro terms. This is a realistic RV performance, compared with what was previously inflated due to very little supply (most BEVs were exported to the Nordic countries).

Spain has the highest residuals in Europe overall but there is a substantial gap between BEV and petrol, in favour of the latter. Although RVs have risen for BEVs, the relatively low market values indicate that the market is not ready for BEV adoption, neither economically or from an infrastructure perspective. That is also why demand and RVs are higher for PHEVs as they offer some of the BEV advantages without the disadvantages.

In Italy, market shares of BEVs and PHEVs are small, yet both outperform diesel and petrol. In the past, there was no substantial government support for buying an electric vehicle. This is only now beginning to change, with the March 2019 introduction of a bonus/malus system. Although it is less pronounced than in France, with lower bonuses and penalties, and only new-car buyers are eligible (i.e. only an indirect impact on RVs), it is the first step towards a more BEV-friendly environment. The charging infrastructure is the weakest among the five markets. As a result, the number of used BEVs on the market is marginal.

France was one of the first countries to introduce a bonus/malus system to promote the purchase of vehicles with low CO2 emissions and to make vehicles with higher emissions less attractive. The 2008 scheme laid the foundation for a positive BEV environment. However, the massive government support has not helped increase the attractiveness of BEVs as a used-car as government support had been targeted at the new-car buyer. Ironically, this has created an oversupply and, consequently, residual values have been under pressure for BEVs. They are now performing well below ICEs and PHEVs.

The UK offers benefits for owning a used BEV, e.g. there is a subsidy for installing a charging station at home. BEVs registered after 1 April 2017 are exempt from road taxes and recent changes have brought about higher taxes for diesel cars. An important peculiarity of the UK car market is the right-hand drive. This makes its car market almost totally isolated from the rest of Europe and prevents imports and exports of used cars almost completely. As a consequence, and with a growing interest in BEVs, RVs have started to rise over the past year and are performing well there when compared to petrol and diesel.