Automotive transition: The future is electric, but how do we get there?

• Scenario #1 - Delay or dilution of targets ➡️ A sector-wide decline expected for the mid to long term

• Scenario #2 – Stand firm to 2035 objectives without adaptation ➡️ A world with leaders and left behind

At the same time, the gap between early adopters and those left behind is widening. Electric vehicles are still in their infancy in most of Southern and Eastern Europe countries. Even in countries with a reasonable share of BEV in new registration (i.e. UK, Germany and France with BEV penetration around 20%), there is a long way to go to convince customers skeptical about innovation or with limited financial resources. Among the top concerns for potential buyers, higher upfront prices, range anxiety and lack of charging infrastructure are mentioned

• Scenario #3 - Align climate objectives and policies with economic realities ➡️ The ambitious and inclusive path

This approach keeps the existing targets of reduction of CO2 emissions for the different types of vehicles and focuses on the areas where the transition is the most challenged. Additional measures should be considered to help meet these goals, especially for smaller electric cars, vans, batteries, and charging infrastructure.

If the European targets and the local incentives have enabled the EV market to take off, it has created a multi-speed world. The adoption of EV has been very high in specific contexts:

> High sensitivity to the energy transition (early adopters / EV enthusiast, company frontrunners in sustainable practices, etc.)

> Strong purchasing power to support the higher upfront cost of the electric vehicle, and where the total cost of ownership is the key purchasing criteria

> Existence or ease of development of electrical/charging infrastructure

Hence EVs are already dominant, or nearly so, in Nordic countries and much of Western Europe, especially within corporate fleets and higher socio-professional groups.

Several voices coming from European car OEM and backed by politicians have been calling for renegotiating and diluting targets: postponement of the 2035 zero-emission target for cars and vans to 2040 or even further, reduction of penalties, non-binding target for vans, inclusion of alternative fuels / powertrains such as biofuels to power up ICE, plug-in hybrids or range extenders, etc.

👍 This scenario preserves the short-term margins of OEM procured by ICE and gives them more time to adjust their manufacturing capacities to raise the proportion of EV from 20% to 100%

👎 However, it compromises the long-term role of the European automotive and EV charging ecosystems in the electric world

> Maintaining innovation and manufacturing capabilities both for ICE and EV will increase pressure on the competitiveness of OEM and their suppliers

> Business plans of the EV charging players have been based on a steep increase of the utilization rate of the charging stations. A lower growth of the EV fleet will compromise both the profitability of the charging point deployed and the planned trajectory of future deployments (new stations and densification)

> In terms of technology sovereignty, the risk of dependency on non-EU players - already high - would increase dramatically: while Europe slows down, other markets like China have been accelerating, thereby speeding up the scaling of both their automotive and battery industries

In addition, backing down on this objective would undermine the credibility of the carbon neutrality targets announced for 2050.