Subsidy-Fueled EV Bubble Likely To Pop

Electric car manufacturers in Europe are slowing down production because battery cars have proven too expensive for the middle class and the supply of lithium for their batteries is too uncertain. Production in Europe this year is expected to be 12 million cars—a million less than previous estimates. Tesla, for example, is cutting prices to boost demand. Of more than 900 auto executives surveyed internationally, 76 percent believe that inflation and high-interest rates will slow sales and that EV adoption will take longer. In the United States, that figure was 84 percent. The median expectation for EV sales by 2030 dropped to 35 percent in the United States, from 65 percent a year earlier. Longer-term impediments cited by the executives include the availability of raw materials for batteries, as well as stricter rules around federal incentives for buying electric vehicles. Also, consumers see touted fuel savings not materializing. Britain’s Daily Mail reports: Electric vehicles can be more expensive to fill up on the open road than their petrol and diesel equivalents as the cost of utilities continue to spiral.


It is now expected that the UK will produce 280,000 fully electric cars and vans in 2025, down from a previous estimate of 360,000. That forecast means only a quarter of car output will be electric within the next two years, lower than prior forecasts of more than a third. Declining production threatens to wreck a key government plan to cut greenhouse gas emissions by banning sales of new petrol and diesel cars by 2030. A recovery in EV sales by 2030 is ‘uncertain’ due to ongoing supply chain issues, particularly of lithium needed for electric car batteries, as well as political tensions across the globe.

BMW announced in October that it would stop production of the electric Mini at its plant in Oxford, England and transfer that operation to China. Jaguar, owned by India’s Tata Motors, has not produced further details on plans to become fully electric by 2025.

UK consumers are also concerned about operating costs with the average cost of charging an electric car increasing by 58 percent since last May. Also, UK councils are planning double-digit increases in parking fees. Charges will increase by around 10 percent from April in various areas. An all-day ticket in Dudley will shoot up by 43 percent to £5 and fees will rise by 29 percent at the most popular sites in Cornwall, to £2.20 an hour. Local authorities have defended the increases because they are under financial pressure, but others worry that higher parking fees will hurt town businesses.

Slowing U.S. Auto Market despite Rising EV Sales

U.S. auto sales fell about 8 percent last year to fewer than 14 million cars and trucks, the lowest level since 2011, due to shortages of computer chips and rising borrowing rates that made customer financing more expensive. While auto sales declined, sales of electric vehicles increased 66 percent to over 808,619, according to Kelley Blue Book.

Tesla’s Price Cut and Outlook

Tesla cut prices on most of its electric cars in the United States and Europe by as much as 20 percent to boost demand as stiff competition and rising interest rates have reduced the demand for electric vehicles. By cutting the prices of its current models, Tesla is conceding some profit in order to increase sales volume. The company typically shows gross profit margins of 26 percent — more than double that of some competitors. Tesla’s high-end Model 3 Performance compact is now selling in the United States for just under $54,000, down from $63,000, a price cut of 14 percent. The most affordable version of the Model 3 now sells for just under $44,000—a reduction of about $3,000 or 6 percent. The Model Y now starts at $53,000—a cut of 20 percent from the previous price of $66,000.

Tesla’s websites for Germany, France and other European nations showed similar price cuts. The base Model 3 is now listed at 44,000 euros—a reduction of about 12 percent from the previous price.

In the United States, Tesla’s price cuts will allow some of its lower-priced models, depending on optional features, to qualify for federal tax credits of $7,500 that were made available starting January 1 under the Inflation Reduction Act. The credit is available on electric cars priced under $55,000. In the past, Tesla’s sales were aided by a $7,500 tax credit provided by an earlier federal program. Despite those credits disappearing after Tesla sold 200,000 vehicles in the U.S. market, the company’s sales continued to grow, in some cases aided by state incentives.  Tesla expects its sales to grow about 50 percent a year for the next few years.

Tesla offers only four models—two are luxury models out of reach of most mainstream consumers. Tesla last introduced a car in 2020, when the Model Y went into production. Since 2019, Tesla has promised to introduce a pickup, called the Cybertruck, but has delayed its production several times. The company hopes to begin making it this year. The Cybertruck has an angular, futuristic design and is expected to be sold as a luxury vehicle, which could limit its appeal. At one time, Elon Musk indicated a desire to produce an electric car that can sell for around $25,000, but there are no formal plans available. In December, Tesla began delivering a small number of battery-powered semi trucks to PepsiCo, its first truck customer.

Tesla sold 1.3 million cars in 2022—a 40 percent increase from the year before but short of the 50 percent target. Tesla’s fourth-quarter production of 440,000 cars was 34,000 more than the company delivered. The company weathered the computer chip shortage early in the COVID pandemic better than most automakers because it rewrote software that could run on substitute chips that were in more plentiful supply. Other automakers temporarily idled plants because of shortages of certain electronic parts.

While Tesla dominates EV sales, several automakers are gaining ground. Ford, Volkswagen and several other automakers posted sizable increases in EV sales last year, offering many models that were significantly more affordable than Tesla’s. Hyundai and its affiliate Kia together sold more than 43,000 electric vehicles in the United States in 2022—up from a just few hundred in 2021. This year, General Motors is supposed to start making electric versions of its Chevrolet Silverado pickup and Chevrolet Blazer and Equinox sport utility vehicles.

Tesla also faces major competition in China, its largest market, where a local manufacturer, BYD, is now the number 1 electric vehicle brand. Tesla recently lowered prices in China and reported a global sales total for 2022 that was below analysts’ expectations.


The EV mania may be over or at least slowing as interest rates increase, inflation and supply chain shortages continue and restrictions remain on tax credits. While some politicians are following in California’s footsteps by banning gasoline-powered vehicles and President Biden has a goal for 50 percent of new car sales in 2030 to be electric, those feats may not be attainable due to problems in manufacturing and selling of electric vehicles. Range and performance problems still exist making consumers wary. And with escalating electric rates, operating costs may not be less than those for gasoline vehicles as Europe is seeing. Despite some manufacturers such as Tesla lowering purchase costs, competition from other manufacturers and consumer awareness may keep goals from reaching fruition.

*This article was adapted from content originally published by the Institute for Energy Research.

Speak Your Mind


Anonymous says:
Your email has been received. Thank you for signing up.