EV sales in Europe hit a speed bump — and the US should be worried too

• Electric cars have hit a major speed bump in Europe.
• According to industry data, EV sales fell 44% in August as demand cooled across the continent.

Europe is facing plunging sales of electric vehicles — and the continent's struggles are a warning sign for the US.

Registrations fell by nearly 44% in August compared with the same month last year, according to the European Automobile Manufacturers' Association. The slump was driven by a 69% decline in Germany, Europe's biggest car market and economy.

The cooling demand has led to questions over whether European automakers can meet the European Union's ambitious climate goals, which require all new cars to be zero-emission by 2035.

It's also put pressure on EV companies and their suppliers. One of Europe's key battery manufacturers, Northvolt, announced on Monday it will lay off 1,600 employees and scale back its expansion plans to focus on existing customers.

EVs hit a speed bump

Europe's EV industry is suffering from a complex mixture of challenges, auto industry analysts told Business Insider.

In Germany, home to a massive Tesla gigafactory and a famous automotive tradition, demand has been hit by a government decision to phase out subsidies for EVs in December 2023.

William Roberts, automotive research lead at battery consultancy Rho Motion, described the decision to pull the country's EV subsidies with barely a week's notice as a "shock removal" that, coupled with weak economic conditions, has severely dented consumer sentiment in Germany and the rest of the EU.

A lack of affordable electric vehicles has not helped the situation. Although EU customers do have access to some EVs that are not available in the US, Roberts said most still fall into the premium category.

Dylan Khoo, an analyst at technology intelligence firm ABI Research, told BI: "There are only a handful of models that you could really say are mass market, and even those are quite a bit more expensive than their gasoline counterparts."

The lack of affordable models is unlikely to be helped by the EU's proposed tariffs on China-made EVs, which include a 17% tariff on BYD vehicles and 9% on Teslas imported from China.

Roberts said that's probably not great news for drivers. "If the consumer is just looking for the cheapest possible EV, then at the moment, that would probably be satisfied by an imported Chinese vehicle."

Supply chain struggles

Europe has also faced difficulties in developing its EV supply chain, with many factories left with under capacity and startups such as Northvolt struggling after the demand slowdown hit their ambitious expansion plans.

"I think for Northvolt there was a sense of over-optimism and over-ambitiousness, when you compare their plans to where some of the manufacturers are," Khoo said.

Roberts said Europe has suffered from a patchwork attempt to encourage EV demand and build out its supply chain.

"The EU is not a federal government like the US — they can't blanket provide huge incentives and subsidies and have every country take them up," he said.

"So the supply chain is always going to be a bit more fragmented, and that's going to lead to difficulties when you're all trying to move towards one target as a bloc."

A warning for the US

The struggles faced by Europe provide a warning sign to the US, which lags behind its cross-Atlantic neighbor in EV adoption.

Electric cars accounted for 25% of new vehicle sales in Europe last year, compared to just 10% in the US, according to IEA data.

Like Europe, few affordable EV models are on sale in the US, which experts have suggested has contributed to a slowdown in demand in recent months.

Key EV factories and infrastructure have also been delayed as automakers rethink their EV plans and shift focus to hybrids. Ford is halting production of a new electric pickup at a planned factory in Tennessee, and GM is delaying an EV battery plant in Indiana.

Consumers face concerns over subsidies with the election looming, too.

Trump and his running mate, JD Vance, have cast doubt over whether the $7,500 tax credit for purchasing a new EV, introduced by Joe Biden's Inflation Reduction Act, will continue if they win the presidential election in November.

The prospect of crucial subsidies being suddenly removed, as in Germany, could have an equally chilling effect on America's EV industry.

However, Roberts said while the US will likely face its own pressures down the line, it has a significant supply chain advantage over the EU.

"There's a lot more funding available," he said. "If that's used correctly to build out the supply chain, then that can have a much more positive impact than in Europe, where the funding for the supply chain has been a lot more reliant on just the private sector."

Still, "I'd argue the US is still in an early adopter phase when it comes to EVs. You'd be silly to not take these warning signs from anyone further ahead of you in the curve," he added.