Electric cars are leaving the niche. How can we face new directives and new goals on clean energy if we consumers in the first place don’t do our part in the system? Do consumers actually prefer electric vehicles? Let’s try to give an answer to this question.
Five years ago in Europe, the reported share of consumers considering the purchase of electric vehicles was 40-60% and trending upward, while in China it was over 70%, given the presence of strong government incentives to adopt these vehicles. This trend is even more pronounced among customers younger than 50 years old living in urban areas. However, that doesn’t really paint the Italian picture: there is growing interest in electric cars in Italy, but their price is still out of reach for Italians, who are willing to spend around 30% less than the average cost to buy them. Other key issues in the past years have been ‘range anxiety’, which is the fear of running out of power while on a journey and not being able to find a charging point, as well as the lack of perception awareness, a gap that can be only filled by communicating more information about the electric to the consumers.
Europe: where are you at?
The European Union has set targets to become carbon neutral by 2050 and achieve a 55% reduction on 1990 emissions by 2030. To meet these targets, passenger cars — which today represent around 12% of EU CO2 emissions — must rapidly decarbonize. The most recent study carried out by Element Energy, an energy consultancy, seeks to understand if European consumers will embrace e-mobility in the next years or not. Even if Italians seem to be positive about electric car, achieving purchase price parity of battery electric vehicles with petrol internal combustion engine vehicles is key. In order to do that we need to produce batteries mainly in Europe. In the meantime, BEV (battery electric vehicles) market share continues to grow, driven by demand from enthusiastic consumers, also in Italy, while the need for strong policy intervention is highlighted. Before electric vehicles become price competitive at the moment of purchase, member states should support consumers through smart incentives and tax cuts, including disincentives to buy diesel and petrol cars.
On March 20, 2022, a new EU proposal was unveiled concerning a regulation establishing ecodesign requirements for sustainable products, which are still to be defined but will affect textiles, furniture, mattresses, tires, detergents, paints, and lubricants, as well as iron, steel, and aluminum. The regulation extends the scope of Ecodesign Directive from energy-related products to all products — save food, feed and medicines — which would help the EU countries to reach the 2030 objectives. This may result in a price rise of regulated products as all actors from manufacturers to suppliers put in place structures to comply with these new rules. This may also impact the import of goods for electric car production, since in the proposal it is stated that “importers shall ensure that, while a product is under their responsibility, storage or transport conditions do not jeopardise its compliance with the requirements set out” (page 67 of chapter VII, Article 23).
This has many implications, and it’s important for Italy to stay up to date with these new regulations and be ready to act. This proposal, if it will be adopted this year, will help optimize the way products are used throughout the economy and society, by reducing the negative environmental life cycle impacts of products and improving the functioning of the internal market.
Italy at the bottom of the pile?
As of January 2022, there are 244,944 electric cars in circulation in Italy — 127,789 are pure, battery-powered cars and 119,155 are plug-in hybrids. In the above-mentioned study, Italy has the lowest annual mileage of the European markets studied, as a result this reduces the short-term uptake of BEVs in Italy. The surest way to convince a lot of Italians is by lowering the price, this way demand might really jump. At the moment, even if the momentum of electric mobility is still ongoing, sales are not sky rocketing and according to some studies an average electric car can be cheaper than a petrol one as early as 2026, which might be too far away if we consider the 2030 European targets. PNIEC has set a target of 6 million electric vehicles by 2030 in Italy, a very ambitious target that is still a long way off. As underlined by think tank AWARE in 2021, 2019 budget law wasn’t enough for a big shift of consumers to move to the electric, since support measures, such as the reduction of traffic costs through targeted exemptions, are decided by the local administration. Italy, as well as every member state, has to monitor and report relevant data to the European Commission each year in line with the Regulation (EU) 2019/631 that sets targets for the EU fleet-wide average CO2 emissions of new passenger cars and light commercial vehicles.
However, the collection, publication, and monitoring of real-world fuel and energy consumption data is mandatory as of 2021, based on an obligation for manufacturers to equip new vehicles with on-board measurement devices, which means that only now these data are being reported to the European Environment Agency (EEA) (as of April 2022). This implementation of the most important regulation regarding CO2 emission in Europe is key because of the gap between type approval and real-world emissions. However, this change came slowly, especially considering that next year the European Commission must thoroughly review its effectiveness and probably amend it, since many member states will struggle to reach or even get close to the EU targets.
In Italy prices are too high and incentives too little. We’ve heard this song before, right? Car insurances are lower for electric vehicles but still not low enough (-14-21%). More cars are being produced, but electric mobility is still a niche product in Italy due to costs. However, it is estimated that as soon as the price diminishes, consumers will be ready to switch to electric. From which incentives can consumers benefit now? Very little, but the future seems to be rosier: this year in March it entered into force a pluriannual plan for the automotive amounting to €700 million and €8 billion until 2030, potentially starting in May of this year. For electric vehicles the fund amounts to €220 million in 2022, €230 million in 2023 and €245 million in 2024; €15 million are reserved for each of the years 2022, 2023 and 2024 for the purchase of electric and hybrid motorbikes and mopeds.
All of this means that this and the following years might be crucial since more consumers might opt for electric cars long before 2026 as forecasted. The problem that may arise since production and assembly continues to be located outside Europe is how long we have to wait: we already have many cases of delays due to the pandemic and the war in Ukraine, and with a higher demand we could face even longer waiting time that could discourage consumers.
Producing batteries in Italy seems to be a dream of the future. Europe’s leading clean transport campaign group Transport & Environment estimated an annual production of lithium batteries in 2030 is expected to be between 360 and 750 Gwh/year, i.e. 10 to 15 times the EU’s production in 2020. On top of that, the amount of raw materials that can not be safely extracted in Europe has increased in the last decade.
A study carried out by the IPCEI (Important Project of Common European Interest), established to tackle the challenges to develop a competitive, innovative and sustainable battery value chain in the EU, shows that Italy is still and will probably be hesitant in the production, since today it has only one operational plant — Faam, based in Caserta — which to date only makes lithium batteries for stationary use. If there isn’t a huge investment in the production chain, the EVs in Italy will still be a niche product; while in China, for instance, the State helped companies first by creating a supply chain for raw material, then by financially encouraging companies to build EVs. However, in the bigger European picture, a study by Transport & Environment shows that in line with the aim to create a dedicated authority to ensure security of supply of sustainably sourced critical metals, Europe has enough raw metals to make 14 million electric cars globally in 2023.
People have been investing in electric cars since 2018; back then, when the electric more or less meant hybrid, in Italy we had 10 electric cars available to consumers, and many publications like WIRED underlined the enormous pros of the electric, even if electric cars still made up a tiny percentage of global vehicle sales. This was a far cry from Norway and Germany, which with 62,000 and 55,000 registrations respectively were (and still are) the leading markets in Europe. Virtuous countries? Certainly, they have a more widespread ecological awareness but they also have higher average incomes (clean cars cost on average 20-30% more than conventional ones) and, above all, governments who are generous with economic and regulatory incentives.
After four years the situation has slightly improved: today in Italy we have almost 70 cars to choose from and the market has invested greatly in the production of cars. In 2019 the European Environment Agency published the Transport and Environment Reporting Mechanism (TERM) sustaining the preference of electric cars to fuel and diesel, and even with the current energy mix in Europe, which still includes a significant amount of coal-fired electricity, there seems to be more advantages than disadvantages. However, the reuse and recycling of electric cars and their components should be improved in order to minimize the impact of their production on the environment. In 2020 we witnessed the success of the Italian flagship Enel X digital project on the eMobility business aka the electrification of the transportation sector by Enel, born in 2017. In the 2020 Barkeley Haas case study, Enel X: Driving Digital Transformation in the Energy Sector, Professor Henry Chesbrough studies how Enel did manage to shift this new area to a new parent company, Enel X, which today is world leader in advanced energy solutions.
Who profits from this?
Producing most of the components abroad isn’t the worst action to do to put more pressure on the Italian economy? Is it really convenient for the average consumer and the automotive chain?
Automotive CEOs for years warned that making electric cars would devastate profits and for long they rejected the idea, now they are slightly changing their minds because the cost of batteries has slightly dropped, even if battery costs represent the largest single factor in this price differential. This viewpoint was shared by Sergio Marchionne, ex CEO of Fiat, who five years ago was discrediting the electric because it was not profitable for the automotive industry, and just as polluting as much as other vehicles. On the other hand, today VW claims that the EV business could also be profitable for the automotive industries as much as combustion-engine models. The group’s main VW brand expects EV margins to hit a tipping point around 2025. BMW is also sticking to its long-term margin target, and many manufacturers in general are confident on EV profitability.
Consumers are not in the same mind. Apart from the longer waiting times and the previously mentioned cons, the standard VAT rate for cars in Italy is 22%. While there are also reduced rates for specific goods and services, these do not include electric cars. Maybe this governmental profit on every EV sold to a private driver is too unfair due to the goals consumers and companies need to reach by 2030? With things as they are today, it doesn’t yet seem like a good idea to invest in a new electric vehicle, even if each consumer considers their traveling distances, time, and needs.
To sum it up
After the big boom, everyone is now talking about the problems arisen by this new mobility: not enough infrastructure, zero incentives for companies to switch to electric, no renewable sources for the production of the electric cars, not long enough mileage-life for each produced car, not enough charging columns (according to Forbes, Europe needs to invest in the equivalent of at least $4.3bn each year in charging infrastructure until 2025 if it is to meet its target of net zero emissions in 2050. This gives us an idea of how Italy is still the straggler in the world as well in Europe), but most of all the problem of the waste disposal.
As earlier generations of electric vehicles today start to reach the end of their lives, preventing a pileup of spent batteries looms as a challenge. Currently the EU is also pushing for the expansion of battery production in Europe, as for now batteries for electric cars are mainly produced in Japan, China, and South Korea. According to an Italian study published in April 2022 by Fondazione Caracciolo and CARe, the Center for Automotive Research and Evolution of the University Guglielmo Marconi, the environmental impact of the electric car in its entire life cycle, taking into account real driving cycles in the country of specific types of users, shows that the extraction of materials for the construction of batteries and the energy mix used for the construction and assembly of the vehicle are among the factors that produce the most CO2. For example, the carbon footprint of a vehicle built and assembled in China is more than 35% higher than that of the same vehicle built in Europe. In support of this argument, a 2020 study by Transport & Environment demonstrated an electric car with a battery produced in China and driven in Poland still emits 22% less CO2 than diesel, and 28% less than petrol, so it seems like we should start thinking about buying an electric car — maybe not today, but in the near future.
What’s clear so far is that we need to put an interest in the electric discourse and try to understand what we can expect: its life cycle, and the incentives and advantages related to how we use it. Priority number one is producing and assembling cars in Europe, possible only if we have tax cuts and incentives, which is why many are asking the government to put more funds in the electric ‘transition’. Bringing together all the main actors involved in it — private and business consumers, car manufacturers, energy suppliers, supply chain companies and public authorities — is the only difficult but long-overdue way forward.