Automakers in the US and Europe that have dedicated vast resources to developing electric or hybrid vehicles are slowly waking up to an uncomfortable reality: The market for electric vehicles in the West would simply not exist without subsidies.
Even with the generous tax credits and rebates, received more often than not by wealthy buyers who treat their Teslas like expensive playthings, sales of these vehicles have lagged expectations at every turn. And now one German car maker is proving that effective state sponsorship of the EV industry still isn't enough for auto manufacturers to hit lofty sales targets.
To wit, German carmaker Daimler told investors Monday that it would be saving 4 billion euros ($4.8 billion) by 2025 to help offset the lower profitability of electric cars, which it now believes will earn only half the profit margins of traditional IC vehicles. According to Reuters, the company’s Mercedes-Benz brand is preparing to launch its “EQ” electric car, which shares some characteristics of the Mercedes-Benz GLC, a model that sells at a rate of around 1,000 cars a day. Even if the EQ proves popular, Daimler told investors that it expects to take a hit on profits, at least initially.
You heard that right: On top of the generous subsidies that European governments extend to consumers, Daimler is effectively offering a discount on the sticker price as an added enticement to meet its optimistic sales goals.
“In the beginning of the cycle we believe that we will have to face a significantly lower margin, for some vehicles half of the margin of the vehicles they replace,” Frank Lindenberg, Vice President of Finance and Controlling at Mercedes-Benz Cars, said at Daimler’s investor day.
The desire to goose sales isn’t surprising: As some readers may recall, Obama famously predicted that there would be one million electric vehicles on US roads by 2015. To date, electric vehicles in circulation in the US number 500,000. Expectations in Europe have also fallen short.
While many European governments offer electric vehicle owners subsidies through various tax exemptions, the US has since 2010 offered buyers of qualified plug-in electric-drive vehicles a federal tax credit of up to $7,500. These credits are available for the first 200,000 customers of each auto company producing eligible vehicles. To date, Tesla has sold nearly 100,000 vehicles, which would put the company near the halfway point of its 200,000 federal tax credit, according to a report by Edmunds published last spring.
To find confirmation of just how important tax subsidies are to boosting sales of electric vehicles, look no further than a batch of European Automobile Manufacturers Association sales data released back in June…
As we noted at the time, sales of Electrically Chargeable Vehicles (which include plug-in hybrids) in Q1 of 2017 were brisk across much of Europe: they rose by 80% Y/Y in eco-friendly Sweden, 78% in Germany, just over 40% in Belgium and grew by roughly 30% across the European Union.
But there was one notable exception: Sales in Denmark cratered by over 60% for one simple reason: the government phased out taxpayer subsidies.
The Denmark case study is emblematic of where the tech/cost curve for clean energy vehicles currently stands. Despite the lofty aspirations of “green” pioneers, rescuing the planet from fossil fuels is, simply put, economically unfeasible. The data also show why Trump's recent withdrawal from the Paris Climate Treaty is nothing short of a business-model death threat for Tesla and other OEMs that have ventured into the electric space. As Elon Musk probably knows all too well, the results confirm that "clean-energy vehicles aren’t attractive enough to compete without some form of taxpayer-backed subsidy."
But costs aside, there’s another reason why – despite Elon’s plans for a more-affordable Tesla – electric vehicles are still years away from widespread adoption: The recharging process remains unrealistically time-intensive. The idea that hundreds of thousands of electric-car users would queue up to spend 30-45 minutes each at a recharging port is ludicrous – imagine if you had to wait that long to grab a burger at McDonald’s? And what if we told you there was a Wendy’s across the street that’d serve you that same burger in under five minutes. Which restaurant would you patronize?
Leaving aside the economic absurdity of electric cars – the least expensive of them cost more than $30,000 (heavily subsidized, the true cost is much higher), we’d wager that most Americans simply don’t have an extra half hour during their morning commute to wait for their car to charge. Hell, even a 15-minute wait would be unacceptable. Perhaps if carmakers could build a battery that could power a car for 600 miles before needing a charge, consumers might find that to be a suitable offset. Until then, spending an amount of time equivalent to watching one episode of the Sopranos waiting for your electric car to charge simply isn’t feasible for most commuters.
Read the the Edmunds report in full below: