(Bloomberg) — With road transportation accounting for around 12% of global emissions, it’s hard to see how the world will reach its net-zero climate goals unless people give up their gasoline and diesel cars.
For many years, governments offered generous subsidies to encourage drivers to switch to electric vehicles. Automakers began to retool factories and offer a wider selection of EVs to meet demand. As prices fell and the technology improved, zero-emission cars went from niche to mainstream and it started to look as though the combustion-engine era may end sooner than expected.
But over the past couple of years, the EV transition has wobbled. Governments have scaled back financial incentives for EV buyers, sales growth has tapped the brakes, and the auto industry is having second thoughts about some of the investment plans that were predicated on a more rapid shift to electric.
Now there are signs that some of the slowdown pressures may ease and 2025 could mark a turning point. Here’s what you need to know.
What’s happened to EV demand?
Growth in global EV sales has been decelerating. According to BloombergNEF, sales of all-electric passenger vehicles and plug-in hybrids (which can also be powered by gasoline or diesel) climbed by 24% in 2024. That’s down from a 33% increase a year earlier and a more than doubling of sales in 2021.
However, slower growth doesn’t mean no growth. Overall EV sales have continued to reach new annual highs, propelled by China. BNEF estimates China accounted for almost two-thirds of the 17.2 million EVs sold worldwide last year.
The US saw EV sales edge up by 7% in 2024, buoyed by a 15% surge in the fourth quarter, according to the latest count from researcher Cox Automotive. This was driven by President-elect Donald Trump’s threat to end tax credits for EVs, which spurred consumers to pull the trigger on purchases before potential policy changes make electric options more expensive.
Over in Europe, the shift to EVs effectively went into reverse for much of last year, as cars with exhaust pipes increased their share of overall sales. From January through November, sales of battery-electric cars and plug-in hybrids were down slightly from a year earlier, with Germany, the continent’s biggest market, seeing a 17% plunge, based on data from the European Automobile Manufacturers’ Association.
What’s behind the growth slowdown?
For the first wave of EVs, carmakers were able to offer drivers the allure of being an early adopter, loading vehicles with tech gadgets and functions to boost their cachet.
The drivers they needed to win over next were more cost-conscious. They were also more likely to be skeptical of the technology, and wary of buying an EV when they weren’t sure they could find somewhere to charge it en route. That’s especially the case in the US, where EV charging locations are clustered in cities and along the East and West coasts.
In Europe, weaker sales coincided with the removal of government subsidies. Without those incentives, EVs are still proving too expensive compared with equivalent fuel-burning cars. On average, all-electric vehicles are 30% pricier in Europe and 27% more costly in the US.
There are cheaper EVs out there, namely in China. But governments in Europe and the US are protecting their domestic auto manufacturers with tariffs and other barriers to keep Chinese EV makers like BYD Co. at bay.
What does the slowdown mean for the auto industry?
Several manufacturers, including General Motors Co., Ford Motor Co., Mercedes-Benz Group AG, Volvo Car AB and Toyota Motor Corp., have softened their EV ambitions. The legacy carmakers — those with a long history of making combustion-engine vehicles — are now targeting a combined 23.7 million EV sales in 2030, according to BNEF’s last stocktake in September. That’s a more than 3 million vehicle haircut compared with their end-of-decade ambitions laid out in 2023.
Even Tesla Inc., the pure-play EV maker that did most to make electric cars a hit with drivers, has stopped referring to its goal of delivering 20 million units a year by 2030. The world’s top EV seller, which is still just about in front of BYD, experienced its first annual sales drop in more than a decade in 2024, despite record fourth-quarter deliveries.
Amid the more tepid EV sales momentum, some automakers in Europe have warned they could incur billions of euros in fines if they can’t meet the European Union’s tougher pollution standards. To minimize their penalties, companies are now pooling their fleets of EVs with manufacturers such as Tesla and Volvo.
Under this arrangement, carmakers selling fewer EVs can buy emissions credits from brands that are over-complying with the bloc’s carbon dioxide limits. In doing so, laggards can average out the emissions of their fleets to stay within the 2025 threshold.
In contrast to those struggles, Chinese producers have gained an upper hand in EV technology and are overtaking European brands in China, the world’s biggest EV market. China’s automakers have also been making inroads in Europe where, until relatively recently, they had little presence.
What’s at stake?
The shift to EVs is a pillar of global ambitions to fight climate change. It’s also a major challenge for an auto industry that’s critical to many economies.
Car manufacturers employ hundreds of thousands of people, as do suppliers such as battery makers, which are being squeezed by the weaker-than-expected appetite for EVs as well. Northvolt AB, Europe’s most promising battery producer, whose owners include Volkswagen AG and Goldman Sachs Asset Management, is restructuring after slowing demand pushed the company into bankruptcy.
The global push to electrify road transport has left European and US carmakers facing a major competitive threat from China. Western governments now face a dilemma. Opening the door to more imports and manufacturing of Chinese EVs and components would help maintain downward pressure on prices in Europe and North America, and spur demand. However, it could also undermine local automakers and further entrench China’s dominance in the green industries of the future.
For now, governments on both sides of the Atlantic are imposing additional import barriers to protect their emerging clean-technology industries from Chinese competition. But Europe’s bid to build a homegrown battery industry to rival that of China is faltering, with 11 out of 16 planned European-led battery factories delayed or canceled.
China’s price advantage is striking, buoyed by significant manufacturing overcapacity. The cost of batteries there has dropped to $94 per kilowatt-hour on a volume-weighted average basis, while packs are priced almost a third higher in North America and 48% higher in Europe, according to BNEF. In the meantime, Chinese manufacturers have already unveiled a new generation of batteries, including solid-state and sodium-ion technologies, which are less prone to catching fire.
Is there relief in sight?
Perhaps. While the headwinds are far from gone, the outlook seems to be improving. BNEF expects global EV sales growth to accelerate to 30% in 2025. China will continue to drive the market forward, aided by a likely extension of a vehicle scrappage scheme, which rewards consumers for trading in an old, higher-emissions car and replacing it with an electric one.
Meanwhile, other governments, alarmed by the recent downturn in EV demand, are weighing whether to restore their financial incentives for buyers.
All the work carmakers have done reconfiguring their factories to make EVs means they are getting closer to offering a wider selection of more affordable models to entice wavering buyers.
European automakers are launching new, cheaper EVs to help meet CO2 targets. The region could see seven new electric models costing less than €25,000 ($25,738) across 2024 and 2025, including the Renault 5 and Stellantis NV’s Citroën e-C3, according to lobby group Transport & Environment.
Under T&E’s optimistic scenario, EVs could grab as much as 24% of the European market this year. That would be a big leap from their 13.4% share in EU countries over the first eleven months of 2024, as measured by the European Automobile Manufacturers’ Association.
©2025 Bloomberg L.P.
