Frost & Sullivan: Concerted Government Support Critical for Powering the Electric Vehicle Market - Press Information

Comment By Frost & Sullivan Automotive & Transportation Senior Research Analyst Anjan Hemanth Kumar

Frost & Sullivan estimates that the European market for electric vehicles (EVs) could potentially grow to 480,000 units by 2015. Although vehicle manufacturers, suppliers, utilities and other businesses have jumped onto the EV bandwagon, government support in terms of subsidies and incentives is critical for both the supply and demand side. Some governments have announced different forms of incentives. For instance, the UK government announced a subsidy of up to €5,600 (£ 5,000) for EV buyers - the first scheme that encourages consumers to such high levels. The US government offers a tax credit of up to €5,800 ($7,500) for EV consumers, and the Chinese government has proactively offered subsidies of up to €6,700 for taxi fleets and agencies for the purchase of an electric car.

Government Incentives- Insufficient and Out of Sync

European governments fall short in terms of offering EV-related subsidies to consumers. The German government, for instance, offers no incentives to EV customers except for a car tax exemption for five years. This is insufficient motivation for consumers to consider the purchase of an EV. Countries such as France, Netherlands, Belgium and Austria offer subsidies on green vehicles but these are not clearly defined. In Italy, the tax exemptions and subsidies are limited to specific regions within the country. Some of these policies are old, others lack public awareness and haven’t been sufficiently advertised or detailed. Denmark has been proactive in its support of EVs. Denmark is one of the highest auto tax collectors in Europe and, while it doesn’t offer direct purchase subsidies, the government does offer consumers the incentive of waiving the 180% tax on vehicle purchase for an EV. The scheme, therefore, substantially decreases purchase costs, reinforcing efforts to boos the uptake rates of EVs.

The Supply Issue

While consumer incentives have been offered, there are not enough vehicles on the road to utilize the benefits. Paralleling the latest subsidy in UK are problematic issues connected with the supply of EVs till 2012. It is expected that, with the exception of some niche manufacturers like G-Wiz, Tesla, and a few others, only Mitsubishi will have a market ready model available in 2011. Most OEMs including Nissan, BMW and Renault are expected to enter the market only in 2012 and therefore the total volume sales in the UK will be restricted to less than 20,000 units in 2011. If this is the case, then the government will be spending less than £100 million in 2011, assuming the full subsidy of £5,000 is used by all consumers. Frost & Sullivan estimates that the European market for EVs is likely to be about 480,000 units by 2015. Most OEMs including BMW are currently in the testing phase of their vehicles and are at least three years away from mass roll out. In the meantime, consume subsidies should not only have well-detailed budgets and clarity, but, governments should also ensure that an adequate number of vehicles are available.

What are Governments Doing?

Governments have been active in supporting EV manufacturers and utilities through funding and other incentives. Berlin has been the EV hub for German OEMs such as Daimler, BMW and Volkswagen, each having partnered with a utility to fleet test their EVs among consumers. Daimler’s “e-mobility” project focuses on Berlin and Italy (Rome, Milan and Pisa) where 100 plus Smart EVs will be tested in each region. The German OEM is associated with RWE in building a network of 500 EV charging stations in Berlin and, with ENEL in Italy but with no direct funding from the Federal or local governments. BMW has more than an estimated € 20 million in funding from the Federal Environment Ministry for “project-i, Berlin” which tests 150 Mini E’s among consumers. It plans more than 150 charging stations with Vattenfall and other partners. Volkswagen has numerous partners partly funded by the Ministry of Environment to build and test about 20 PHEVs in Germany. In Spain, the Federal government, M Ministry of Industry and Ministry of Environment have been pursuing various EV projects. The French government has taken the lead in moving towards commercialization through Renault (15% government owned) and EDF (85% government owned). In 2008, President Nicolas Sarkozy pledged €400 million in support of electric and hybrid vehicle development.

Focus on Critical Issues- Infrastructure, Battery and Regulation

Although there has been some support in terms of building infrastructure, it has not been on a large scale. To make the EV dream a reality, governments need to ensure the availability of at least four charging points per EV in the 1st year, thereafter reducing to 2.5 charging points per EV by the 5th year. A fast charging infrastructure is also required, possibly including battery swapping stations at a ratio of one per 100 EVs sold during the 1st year, followed by one per 1000 EVs post the 5th year of sales. This density of charging station networks will be able to meet the majority of EV owners' charging needs, especially when battery technology is improved such that EVs can travel further on a single charge.

A key opportunity for European governments with EVs is to take the lead in developing battery technology. Incentives could be provided to local manufacturers to encourage them to create and keep jobs in Western Europe instead of moving them to the Far East, as is currently the case.

Governments should influence the standardisation of batteries and EV infrastructure. Currently, no standard exists for the nominal voltage of batteries which has led to different manufacturers using different specifications. Battery manufacturers have to make different packs for different customers, resulting in the considerable wastage of effort and money. Standardisation will have a major impact on significantly reducing battery prices. Governments should also legislate safety and crash norms for EVs. There exists a certain degree of ambiguity among consumers and OEs about the safety of EVs; a common standard mandated by governmental agencies will provide a clearer definition, while removing existing uncertainties.

Governments- Act Now!

Frost & Sullivan believes that Federal governments will play a pivotal role in realising the dream of pure green mobility. Considering the current state of the auto sector/industry, oil dependence and available technologies, it is time for change and EVs are the right choice.

A direct purchase subsidy is not only a requirement, but should also be well budgeted ensuring a full scale participation of consumers and ensure there is enough supply. Government involvement in EV initiatives has been visible, but efforts towards realising commercialisation are unclear in some cases. Infrastructure projects have been small and city centric - authorities need to ramp them up into large-scale, nation-wide projects. In addition to monetary issues, authorities should look to resolve regulatory matters immediately.