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After a crash, the pain can be delayed but then hits with a vengeance. That is the danger European carmakers face.

Sales of battery electric vehicles (BEV) in Europe dropped 11.3 per cent year on year in March, the second fall in four months, according to figures this month. The timing of Easter played a part. But globally sales growth has also slowed. Tesla is cutting 10 per cent of its global workforce. Mercedes-Benz has pushed back its electrification target.

For Europe’s laggard carmakers, if not the planet, slowing EV growth isn’t all bad news. They took a lackadaisical approach to electrification compared with Chinese rivals. European carmakers’ shares have held up well in the year to date. Meanwhile, EV specialist Tesla is down 40 per cent.

Sales of higher-margin combustion engine vehicles help with cash flows while the legacy European companies invest in electric models. The question is how long the breathing space will last.

The industry is divided over what recent data tells us. One school of thought is that EV sales growth in Europe has, thus far, been from wealthy early adopters and corporate buyers. As soon as the market needed to rely on the mass market, sales would inevitably slacken. Countries such as Germany dropping subsidy schemes hasn’t helped. But as sticker prices decrease, more drivers should still convert.

The other side in this debate argues that EV forecasts were always overly optimistic, given persistent concerns over price, range and charger availability.

The truth is probably somewhere in between. Jefferies has trimmed its forecast for European battery electricity vehicle penetration this year by 1.6 percentage points to 21 per cent. But don’t write the market off, says the bank’s Philippe Houchois. 

From 2025, European carmakers must comply with new standards for average fleet CO₂ emissions. Some are offering discounts on BEVs to avoid fines next year. These should convert to deliveries in the second half of 2024. Volkswagen reported a 154 per cent year-on-year increase in its BEV order book in Europe in the first quarter. 

As long as governments maintain 2035 targets to ban new combustion engine vehicle sales, a tipping point should still come. 

The bigger worry remains whether European carmakers can compete with Chinese rivals when it does. Chinese carmakers’ product costs are €3,500-€5,000 per unit cheaper than European counterparts, says Fabian Brandt of Oliver Wyman. Without trade restrictions — which hurt European marques that still rely on China sales — it is difficult to see how that gap can close.

Europe’s carmakers should use this market slowdown to play catch-up.

nathalie.thomas@ft.com