Carbon-free Mobility in the EU
The EU transport sector is undergoing a historic transformation driven by multiple climate targets. More specifically, EU road passenger transport must reach 30m electric vehicles by 2030, close to six times more than the 5.3m registered today. For the scope of this article, electric vehicles (EVs) will refer to passenger cars and vans, categories M1 and N1 in the European Alternative Fuels Observatory data.
In parallel, the aim is to have a charging point (CP) every 60km on main roads by 2030. This density implies that we need to deploy around 3.5m CPs in Europe, up from the 325,000 available today.While electrification is not the only option for decarbonizing the road transport fleet, its advantages in terms of energy performance have already been extensively discussed. For example, hydrogen-based fuel cell vehicles require more than twice as much energy per kilometer than electric vehicles (see Figure 1).
Figure 1: Well-to-wheel fuel efficiency comparison for 100MWh for electric and hydrogen based cars
Parallel Takeoff: Cars and Charging Points
In the last decade, the EU market for EVs has really taken off. Since 2018, annual growth has exceeded 60%. The EV market includes both plug-in hybrid electric vehicles (PHEVs) as well as battery-powered electric vehicles (BEVs). PHEVs have a combustion engine with battery-based support, while BEVs are powered only by batteries feeding an electric engine. The number of registered EVs in the EU-27 jumped from around 6,000 (mostly PHEVs) in 2010 to more than 5m today. Since 2015 the balance has been hovering around 55% and 45% for for BEVs and PHEVs, respectively (see Figure 2). To put these numbers in perspective, there are currently a total of 280m passenger cars and vans in the EU-27, of which 2.5% are EVs.
Figure 2: EVs in the EU-27, 2010-2022
Zooming in on the different countries in Europe, we see very different adoption rates (see Figure 3). In total, 5.2m EVs were registered in the EU in 2022. Germany and France are clearly leading the rankings. Together, the two countries have registered almost 2.7m EVs (more than 50% of all EVs in the EU). The Netherlands follows with almost 500,000 EVs.
Figure 3: EV fleet by EU country, 2022
We can assess EV penetration in each country by looking at the percentage in the total national passenger car fleet (see Figure 4). Sweden clearly ranks first in EV penetration, followed by Denmark and the Netherlands.
Figure 4: Percentage of EVs in total fleet, by EU country, 2022
More specifically, the merit order becomes slightly different when BEVs are considered (see Figure 5). The Netherlands leads in BEV penetration at 2.5%, followed by Sweden, Germany, Denmark, and Luxembourg.
Figure 5: Percentage of BEVs in total number of vehicles, by EU country, 2022
Charging infrastructure is also unevenly distributed across EU countries (see Figure 6). Interestingly, even though the Netherlands is far from having the longest road network or the largest fleet, it is a clear leader in terms of total number of public CPs, followed by Germany and France.
These changing merit orders are the result of varying behaviors, policies, and market dynamics across European countries. In the next section, we discuss the influence of GDP per capita and other key variables on the market uptake of EVs.
Figure 6: Available public CPs in EU countries, 2022
Key Adoption Drivers for Passenger EVs
As hinted before, explicit analysis of the relationship between EV market penetration and GDP per capita shows a very strong correlation (see Figure 7). In general, the higher the GDP, the higher the EV penetration rate. The strong and systematic relationship across the EU implies that the required initial investment is likely one of the main drivers for EV adoption rate. The outliers are Luxembourg and Ireland where – all other things being equal – we would have expected to see higher penetration rates, due to significantly higher GDP per capita than in the rest of the EU. However, it should be taken into account that the GDP per capita of both countries is positively affected by the fiscal residence of international and financial firms.
Figure 7: GDP per capita versus EV market penetration in the EU, by country, 2022
The cost analysis of all expenditures required to enjoy the complete technical life cycle of a given car is often referred to as the total cost of ownership (TOC). TOC includes the investment required to purchase the vehicle, fuel costs during use, road taxes, car maintenance, etc. As shown by the European Alternative Fuels Observatory, the TOC of EVs is almost equal to, if not lower than, the figures corresponding to traditional internal combustion engines. Nevertheless, the strong correlation between GDP per capita and market uptake suggests that, despite lower TOC for EVs, the higher initial investment required by EVs may be delaying market deployment in countries with a lower GDP per capita.
As for other drivers, if we analyze the relation between the number of available CPs per EV in a country and the resulting EV penetration, there is no clear link across countries. A higher number of available CPs per EV does not guarantee higher market penetration for EVs: The Netherlands clearly leads in terms of the number of CPs per vehicle (0.22), and has a significant EV market penetration of 4.2%. But both Sweden (6.4%) and Denmark (4.9%) have higher EV penetration rates, with almost four times fewer public CPs available per EV (close to 0.05). Also, countries with higher EV penetration (over 4%) have a number of CPs per vehicle of at least close to 0.05. In other words, in the leading markets there is at least one public charger for every 20 EVs (see Figure 8).
Figure 8: Number of public CPs available for every EV versus EV market share in the EU, 2022
The relation between network density and vehicle penetration changes slightly if we consider only the purely battery-based BEVs fleet (see Figure 9). In that case, the significantly denser Dutch charging network seems to be more clearly related with the leading market penetration of EVs in the country. It is fair to suspect that the high density of the charging network in the Netherlands is related to the remarkable Dutch BEV market penetration, although a cause-effect relationship cannot be established. Since 2018, the Dutch charging infrastructure has been the most dense in the EU. It is also clear that the deployment of the charging infrastructure is less correlated with EV penetration than GDP per capita is.
Figure 9: Number of public CPs available per EV versus BEVs market share in the EU, 2022
The relative density of the charging network slightly fell across all countries from 2015 to 2020 (see Figure 10). When EV markets really began to take off, the CP/EV ratio started to decrease. Today, charging networks in most EU countries have a density of between 0.05 and 0.1 CP per EV. The Netherlands and Slovenia have a leading position with a network density consistently over 0.2 CP per EV. The Netherlands is the only country that has seen sustained parallel growth of both the EV market and the CP network. The Dutch CP installation rate increased proportionally with EV adoption, which seems to have contributed to positioning the country among the EU leaders in terms of EV market penetration. However, a dense CP network did not have the same effect in Slovenia. As shown before, other countries such as Sweden or Denmark reached high market penetration with lower recharging network density.
Thus, having a dense charging infrastructure appears to speed up deployment of the EV market, but it is not the only ingredient required.
Figure 10: Availability of public CPs for every EV in selected EU countries, 2015-2022
The support schemes in place across the EU are another obvious key driver of EV adoption. Both the European Alternative Fuels Observatory and the Automobile Manufacturers’ Association (ACEA) provide EU-wide overviews. Checking ACEA’s 2021 and 2022 summaries, we can observe a wide variety of subsidies in the EU. They can be divided into tax benefits and purchases incentives.
The efficiency of these subsidies is difficult to determine. On the one extreme, Cyprus offers an incentive of up to EUR 19,000 to buy an EV and to scrap old cars. Denmark, on the other extreme, offers no direct support to EV buyers at all. In between, we find the EUR 9,000 bonus for new EVs in Germany, the EUR 6,000 grant in France, and the announced EUR 3,000 subsidy for this year in the Netherlands. Clearly, such incentives support EV market penetration. However, in view of available data, it is very difficult to infer their impact.
There is no clear relation between the distribution of EV market penetration and available direct purchase support (see Figure 11). But some patterns do arise. There are two clearly differentiated groups of countries: those with direct support schemes of less than 25% of GDP per capita, and those with support schemes ranging between 25% and 120% of GDP per capita. Unsurprisingly, market penetration is most advanced in the countries with lower direct support. This group generally consists of countries with higher GDP per capita. On the other hand, countries with higher specific support schemes also have lower GDP per capita and lower EV market penetration. This shows that the higher initial investment of EVs is still one of the main barriers to deeper and more even market uptake across the EU.
We must keep in mind that the behaviors described relate to a very specific type of customer: the early adopters of electric mobility. These are consumers who have a more positive attitude toward the technology and/or who wish to reduce their carbon footprint. Achieving further EV market penetration, and therefore engaging a different type of customer, with different drivers than those discussed, may work differently.
Figure 11: EV market penetration versus direct BEV purchase subsidies relative to GDP per capita
Pathways to 2030 E-mobility Targets
Having outlined the main dynamics behind the takeoff of EVs, we can now assess the ambition of EU targets. As mentioned earlier, the EU’s Sustainable and Smart Mobility Strategy aims to achieve 30m electric passenger cars and vans by 2030. This 2030 target is exactly in line with the growth trend of recent years, not even counting Q4 2022 registrations (see Figure 11).
The effort required to meet the 2030 target is significant, even if it fits more or less into current market trends. There are two ways to reach 2030: either by adding 3.2m EVs every year, or by an annual market growth rate of 27% (see Figure 13). An annual market of 3.2m EVs is bigger than all of the EVs accumulated in the EU by 2020 (see Figure 2), or close to half of the 7.5m new passenger cars registered in the EU between January and October 2022.
There are currently no agreed criteria on how member states should contribute to the joint EU target. However, bearing in mind that the 30m EVs would correspond to a share of around 11% of the total EU passenger car and van fleet, a penetration rate of 11% can be used as a good proxy reference for each country.
We expect there to be large differences across countries. In the Netherlands, as mentioned above, the market is in full throttle (see Figure 12). If the current EV penetration trajectory were to sustain annual growth in the years to come, it would result in market penetration of almost 30% by 2030. This is almost three times the average 11% market penetration pursued by the EU target of 30m EVs.
Figure 12: EV market development and required path to reach EU 2030 target
Figure 13: Possible EV market growth trajectories toward 2030 target
Regarding the charging network, the EU targets to deploy a new transport infrastructure can be translated into 1m CPs by 2025 and approximately 3.5m by 2030. This is almost exactly on the trajectory of exponential growth already underway in the current trend. As a benchmark, while around 325,000 CPs had been installed across the EU until September 2022, achieving the targets ahead will require an annual market addition of around 225,000 CPs until 2025, and 500,000 CPs from 2025 to 2030.
Figure 14: Dutch EV trend toward (estimated) 2030 target
If we distribute the EU target of 3.5m CPs across the EU in proportion to the total size of each country’s car fleet, the Netherlands should reach 130,000 CPs by 2030. The total number of registered CPs had already reached 101,585 in September 2022, which also places the Netherlands well ahead of the CP curve.
Figure 15: EU’s pathway toward 2025 and 2030 CPs target
Equipment Manufacturers Demand More Ambition To Reach Climate Targets
The EV market takeoff is clear, as is the policy support and demand-side awakening. So, the war in Ukraine aside, it is only logical to expect accelerated deployment in the coming years. The scale-up required to reach the EU target is significant, and there are diverging views on the size of the challenge ahead.
Mckinsey collaborated with ACEA to assess the implications of decarbonizing the transport sector, following the EU 2030 climate targets. ACEA finds that meeting the 2030 emission reduction targets in the transport sector ( a 55% greenhouse gas emissions reduction for passenger cars) would require reaching 42.8m EVs, as opposed to the 30m EVs targeted by the EU Sustainable and Smart Mobility Strategy. As for CPs, ACEA estimates range from 2.9m to 6.8m public CPs, depending on the scenario. The highest value would entail a ratio of 0.16 EVs per CP, close to the ratios of the currently leading Dutch infrastructure. However, looking at cases like Sweden or Denmark, such a high density may not be essential to ensure faster EV deployment (see Figure 8). A more important role is played by EV affordability, since there is a very clear correlation between GPD per capita and EV adoption across all of the EU.
ACEA estimates that reaching the transport climate targets for 2030 will require a EUR 185bn investment in EVs. This should be accompanied by an investment of EUR 30bn to EUR 70bn in CPs, EUR 30bn in related transport grid upgrades, and EUR 49bn in the renewable energy capacity required to power them. ACEA puts these investments in context: The required annual investments in the EU for charging infrastructure represent 18% of the investments in 5G mobile networks, while the required upgrades to the power distribution network represent 11% of the EU’s annual grid investments.
While the level of ambition in both charging infrastructure and EV targets can be debated, the order of magnitude of the effort required is well represented in these comparisons.
Beside the two internal key factors discussed (affordability and CPs), other dynamics, such as the state of global supply chains in a more polarized world, congestion and management of local and national electric grids, as well as the market for the supply of critical materials, will ultimately determine the deployment of e-mobility.
We have analyzed the current deployment of EVs across Europe, and some of the particularities in the leading role of the Dutch market.
Developments vary widely across the EU. The differences can mainly be explained by GDP per capita and influenced, but not determined, by the deployment of public charging networks. National support schemes have no significant impact below a certain level of GDP per capita, suggesting that the initial investment required for EVs may be the strongest barrier to market takeoff in countries currently experiencing slower growth. It can be concluded that cost reduction is more likely to boost market deployment than a densely populated charging network.
To achieve the targets of the EU’s Sustainable and Smart Mobility Strategy will require consistent market growth close to 30% annually both for EVs and for CPs until 2030. Such growth rates may test the limits of the required supply chains even under normal geopolitical conditions..
ACEA believes the EU’s targets in the Sustainable and Smart Mobility Strategy are insufficient to achieve the targeted emission reductions for the transport sector in line with the increased EU climate ambition for 2030. Their scenarios could require up to EUR 185bn of investment in EVs and up to a EUR 80bn investment in the charging infrastructure.
It is clear that the decarbonization of road transport in the EU will completely reshape the related industries. The current impulses could consolidate a new sector that is already in a clear takeoff phase. Strategic factors such as global supply chains and the supply of critical materials should be carefully monitored to ensure that the current trend accelerates as required by the EU’s climate targets.