Jan. 10, 2025
As described below, EVs have a multifaceted nature for the nation, which influences policy for EVs.
EVs accounted for 18% of global new car sales in 2023. New EV (passenger car) registrations in 2023 were 13.8 million units worldwide (+35% YoY). In terms of region, China accounted for the majority, with China, Europe, and the U.S. accounting for more than 90%. In 2024, however, a slowdown in the pace of sales has been noted, especially in the U.S. and European markets. European and U.S. companies have also announced a series of revisions to their EV sales and investment plans.
Factors behind the slowdown of EVs in the U.S. and European markets in 2024 include (1) sluggish sales of new cars, (2) reductions in subsidies, and (3) early adopters’ completing the cycle. In addition, structural factors that have long posed challenges to the spread of EVs are also pointed out, such as limited cruising range and uncertainty about recharging networks. As a result, they have not led to the capture of an early majority share of the market. This situation is working toward lowering the percentage of battery electric vehicles (BEVs) sold and increasing that of plug-in hybrid electric vehicles (PHEVs) sold.
The medium-term goals of the U.S. government (Biden administration) and EU for the period 2030-2035 are as follows:
With the current sluggish sales of EVs in the U.S. and European markets, many market participants are revising downward their near-term outlook for EVs. Various market participants' outlooks for 2030 show the following trends:
Factors that may affect the outlook for the U.S. and European markets include policy developments such as the degree of incentives and support offered to the EV industry, and the extent to which countries open their markets to foreign manufacturers, including the acceptance of direct investment from price-competitive Chinese EV manufacturers. Even the prospect of how long it will take to attract an early majority will depend on what policies the U.S. and European countries adopt.
CO2 emissions reduction from 2021 | 2025 | 2030 | 2035 |
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Passenger car | -15% | -55% | -100% |
Light commercial vehicle | -50% |
In March 2024, the EU Energy Ministerial Council changed its policy of banning all sales of new ICE vehicles in 2035 and beyond and, at the request of Germany, decided to allow their sales only if they use synthetic fuels with zero greenhouse gas emissions
Policies (home industry support/competitor exclusion) | |
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Purchase subsidies in EU countries |
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R&D subsidy for battery production in EU |
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Subsidy investigation and additional tariffs on Chinese EVs |
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Subsidies for EVs are usually provided on a country basis. Purchase subsidies are generally granted to not only local manufacturers as part of EV promotion measures. France has nevertheless excluded Chinese EVs by taking into consideration CO2 emissions from the EVs’ transportation process as a condition for granting subsidies. The EU, concerned about the rising presence of Chinese EVs in the EU region due to China's policy support, launched a subsidy investigation in October 2023, and on October 4, 2024, decided to impose additional tariffs on Chinese EVs.
Policies (home industry support/competitor exclusion) | |
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Inflation Reduction Act (IRA) (August 2022) |
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Infrastructure Investment and Jobs Act (November 2021) |
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Additional tariffs on Chinese EVs (September 2024) |
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EV industry policy promotion at the federal level moved forward with the enactment of the Inflation Reduction Act in August 2022. The program promotes domestic production and capital investment while promoting decarbonized EVs and at the same time excluding competing countries through selective tax credits. In addition, the decision to increase tariffs on EVs, batteries, and other products against China is intended to protect jobs and industries from Chinese EVs in a precautionary manner.
The main policy objective of the EU’s EV policy has been to decarbonize the transportation sector, focusing on fuel efficiency regulations and subsidies seeking to reduce CO2 emissions. However, due to financial resource issues and the fact that EVs have spread to a certain extent, purchase subsidies are being reduced or eliminated.
On the other hand, along with the rise of Chinese EV manufacturers, policies have been adopted to protect the European EV auto industry and jobs in the region with an eye on Chinese EVs, such as tariffs on EVs against China and subsidies based on France's environmental score.
The U.S. Inflation Reduction Act has initiated a subsidy policy that prioritizes the production of EVs, batteries, and materials in North America. Together with tariff measures against China, industrial hegemony of EVs and considerations for jobs are emphasized.
In setting targets for carbon neutrality and introducing fuel efficiency regulations, considerations for realistic responses have been given in order not to impose impossible obligations. For example, the EU has approved zero-emission ICEs using synthetic fuels, while the U.S. has revised its fuel efficiency standards downward from the initial proposal, based on comments from the automobile industry and other factors.
The followings are possible reasons for these changes in policy stances:
The above policy shifts will advance under the second Trump administration, which will begin in 2025. Going forward, there is uncertainty regarding the elimination or revision of EV support measures under the Inflation Reduction Act, as some Republican legislators' hometowns are benefitting from EVs. However, on top of the existing IRA, there is little incentive for the Trump administration to provide additional support for EVs, either in terms of climate change policy or job retention. Moreover, the Trump administration may also cast a stern eye on Chinese EV imports and further tighten restrictions on them. The policy trend will therefore adversely affect the spread of EVs.
Note: This report is based on information available up to early November 2024.
Teruaki Kotaka
Chief Researcher, Global Intelligence and Research Office, Hitachi Research Institute
Since February 2020, he has been engaged in research in the geopolitical and other fields at HRI. After graduating from Hitotsubashi University with a bachelor's degree in economics, he worked at Japan Bank for International Cooperation, including as Representative in Manila and Senior Representative in Washington, D.C., conducting political and economic research in emerging economies and geopolitical research before assuming his current position. MSc in Economic Analysis and Policy, University of Warwick
Author’s Introduction
Teruaki Kotaka
Chief Researcher, Global Intelligence and Research Office
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