Electric vehicle sales decline as governments cut subsidies, tax credits – study

The global Electric Vehicle (EV) market is reeling from one of the most dramatic collapses in monthly sales, with only 672,000 units sold in January, almost half of December 2022 sales and a mere three percent year-on-year increase over January 2022, according to a study by Rystad Energy.

The energy research firm says that the EV market share among all passenger car sales also tumbled to 14 percent in January, well down the 23 percent seen in December.

“Tax credits and government subsidies have propped up the EV market to date as countries identify passenger car fleet electrification as a core tactic for meeting net-zero emissions goals, but the reduction or removal of these subsidies this year has dampened consumer sentiment. Automakers are now scrambling to reverse the downward spiral and salvage the market in 2023.”

The energy firm also said that the automotive market is usually cyclical, with sales taking a hit after new subsidy rules come into effect at the start of each year, followed by a gradual recovery.

However, January’s cuts hit harder than normal, triggering this dramatic collapse. The ramifications of this will be long-lasting and will impact sales through the first quarter of the year and potentially the rest of 2023.

“The sands are shifting for the global EV market. Consumer appetite for electric cars remains strong, but it’s clear that tax credits and subsidies still play a significant role in convincing consumers to make the switch. Carmakers may have no option but to respond with reduced prices,” said Abhishek Murali, clean tech analyst, Rystad Energy.

According to Rystad Energy, EV subsidies in many European countries and mainland China were sliced at the start of the year. A return of any significance is highly unlikely in the immediate future.

It said: “One ray of hope for the global outlook is the US market, which is just beginning its electrification journey and rolling out tax credits thanks to the Inflation Reduction Act. The US was the only major market that saw an increase in EV sales and market share year-on-year, although its contribution to the global total is still relatively minimal.

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“China, the largest EV market globally, experienced a nearly 50 percent cut in EV sales in January 2023 compared to the prior month, but the year-over-year change was relatively flat due to consumers’ affinity for cheaper domestic-made models.”

The energy research firm also said that the Chinese Association of Automotive Manufacturers forecasts a slowing of sales momentum this year, predicting around 8 million EV sales this year.

“We expect slow sales to continue through the first quarter, but Contemporary Amperex Technology Limited’s (CATL) announcement of a price cut in battery cells for automotive off-takers will help boost sales again,” Rystad Energy said.

According to Rystad Energy, widespread subsidy reductions will have a lasting impact on sales activity, but automakers will not tolerate this weakening for long – Tesla is already testing their pricing limits, offering a massive discount, triggering a large volume of pre-orders.

It said that sales in Germany dropped about a third in January compared to 2022, totalling only 27,000 for the month. Market share in the country also fell off a cliff – after EVs accounted for 55 percent of all car sales in December 2022, the market share fell to just 15 percent.

“The EV market share in the UK halved from about 40 percent to 20 percent month-to-month and from 50 percent to 24 percent in the Netherlands. This downward trend is replicated across much of Europe and will give automakers sleepless nights,” Rystad said.

“Norway experienced the worst monthly passenger car sales in over 60 years, with just 1,860 vehicles sold, including EVs. Electric cars accounted for 76.3 percent of those sales, totalling 1,419 units.”

Rystad Energy says the market share was also the lowest and dipped below 80 percent for the first time in two years. Several new taxes have contributed to this, and battery electric vehicles are now impacted by two new taxes that will negatively impact sales.

“Across the Atlantic, the US anticipated falling EV sales and was one of the only markets to implement fresh incentives through federal tax credits. Around 80,000 EVs were sold in January – a 7.8 percent market share,” Rystad Energy said.