European car sales drop in May as drivers wait for cheaper EVs

High prices have become a major obstacle to EV growth in Europe after countries ceased or pared back subsidies

Automakers are grappling with slow EV sales as drivers are turned off by high sticker prices and subpar charging infrastructure. 

Carmakers in Europe sold 2.6% fewer vehicles in May than a year ago, as buyers balked at the still-high prices of electric models.

New-car registrations fell to 1.09 million units last month, the European Automobile Manufacturers’ Association said on Thursday. 

EV sales slumped 11% amid declines in several major markets, and their share of the total also decreased.

High borrowing costs and muted growth across Europe are weighing on consumer sentiment. Automakers are grappling with slow EV sales as drivers are turned off by high sticker prices and subpar charging infrastructure. 

The European Union’s move this month to impose additional tariffs on Chinese EVs threatens to make imported alternatives more expensive.

Market assumptions on EVs “have been too optimistic,” Citi analysts led by Harald Hendrikse said in a note. “Investments need to be cut.”

High prices a major obstacle

High prices have become a major obstacle to EV growth in Europe after countries including Germany and Sweden ceased or pared back subsidies. Mass-market manufacturers Volkswagen, Stellantis and Renault are preparing cheaper models costing about €25,000, but they will not start arriving until next year.

The share of EV sales in the region declined one percentage point in May, to 14% of the total, amid double-digit drops in markets including Germany, Sweden and Norway. Sales of plug-in hybrids fell 9.6%.

Some automakers have begun adjusting their EV targets, with Stellantis and Mercedes-Benz putting on hold work on two EV battery plants in Germany and Italy. VW admitted last month it would need more plug-in hybrids, while Mercedes plans to sell combustion-engine cars longer than expected.

Inflation and high interest rates also remain a drag on big-ticket purchases. The European Central Bank cut rates earlier this month, but stopped short of indicating more reductions may follow.

Volkswagen and Toyota were among the few mass-market automakers managing to increase sales in May, with gains of 1.8% and 8.2%, respectively.

Tesla's registrations in the region declined 36% last month, a steep drop that continues the EV maker’s poor performance in the second quarter. The company’s sales are down about 14% after the first five months of the year.

With demand having exceeded supply since the second half of 2020, a reversal of that trend “is a key industry risk this year as vehicle output normalises and orders soften”, Bloomberg Intelligence analysts Gillian Davis and Mike Dean said in a note.

Bloomberg