Environmental concerns among consumers are growing everyday, boosting the demand for a faster green transformation of the economy. However, imperfect information and misleading claims can generate confusion and distrust, jeopardizing the success of the green transition. The aim of this article is to show what can be done about it, both at an individual and institutional level, in order to spread clear information and build trust in the green markets.
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Automotive electric technology has witnessed rapid growth and achieved considerable progress, especially in the last decade. Nevertheless, the pace at which battery electric vehicles are imposing themselves on the market over fossil fuel cars has still been relatively slow, as actions taken by governments to incentivize sustainable mobility have not achieved the hoped success. Now, the reasons why many people are hesitant to switch to electric are always the same: high purchasing prices and lack of infrastructure for recharge (if these were equal to the ones of petrol and diesel vehicles, very few would probably be so “masochistic” to still prefer a fossil-fuel car to an EV), and it’s on those aspects that more efficient national and regional policies are needed in order to push the zero-emissions car market to the level it deserves and that our planet very much needs it to reach. Surprisingly enough, the global crisis brought about by the new coronavirus could be the perfect occasion for a true change that would result in favor of both the environment and the global economies. Let me show you why!
Coronavirus has made the world stop and put its gearbox in “neutral”. Lockdown measures and the absence of market dynamics have forced economies to slow down, creating a frightening prospect of an incumbent massive financial crisis. The car market has been no exception; less people going around have resulted in a heavy decrease in demand for new vehicles: the car industry – electric vehicles included – has therefore halted its production. As pointed out by T. Gül, M. Gorner and L. Paoli in their commentary for the International Energy Agency, China, the world’s largest car market, registered its sharpest year-on-year decline in February, while other major car markets experienced their heaviest declines in April. In Germany, sales dropped about 60%, in France they plunged nearly 90%. In the UK and Italy sales collapsed by 98% in April. Being a complex and critical part of the world’s largest economies employing millions of people across the entire supply process – a vehicle’s value chain involves more than ten thousand suppliers – such a massive halt of the car industry, if prolonged, risks to contribute to an already probable, if not certain, future economic crisis following the current health emergency.
However, paradoxically enough, what is happening now is that as more and more countries are gradually easing their confinement measures, demand for private car purchases is actually increasing. This is mainly due to the fact that, with the pandemic still on-going, driving is increasingly considered safer over any kind of public transportation. Demand is therefore being bolstered by health concerns, consequently inverting – even though presumably only in a short-term dimension – the recent trend that has seen the younger generation in particular moving away from private car ownership towards public forms of mobility, such as car-sharing. “We can’t see that (yet) in vehicle sales obviously but we can see it in searches for vehicles” affirmed ING’s senior economist J. Konings. In China, one of the first countries in the world to adopt less strict confinement measures, policymakers were quick to identify this phenomena and targeted the car market with important economic stimulus. As a result, Chinese car sales rebounded strongly to reach 80% of the level registered in April of last year.
Overall global car markets are generally expected to pick up during the second half of 2020, even though auto-industry executives are perfectly aware that a prolonged depression could lead the economies and the automotive industry to another halt, but much will depend on local institutional actions. In European countries now easing their lockdown measures, national governments could seize the opportunity to partly re-launch market dynamics through measures that stimulate car sales, simultaneously reducing the risk of employment losses in the auto industry. However, while production and sales levels do need to rise again, carbon emissions should not. Therefore, this may also be the right moment to act in terms of more effective policies in favor of sustainable mobility; policies that, if before were supported and carried out “only” for environmental purposes, now can also be crucial to re-launch a stalled economy.
But why, you might ask, is this the right time to act with regard to green energy? The demand for electric cars hasn’t really changed, has it? Well, actually, as shown by the International Energy Agency, while some electric car markets slumped during confinement, others actually grew. Electric car sales in European countries, for instance, bucked the trend of the overall car market. This is the result of a combination of factors: 2020 is the target year of the European Union’s CO2 emission standards, Germany had increased electric car purchase subsidies in February, and the impacts of the system introduced in Italy in 2019 to encourage electric cars had started to affect the market. As a consequence, in the largest European car markets combined, sales of electric cars in the first four months of 2020 reached more than 167.000 electric cars, about 100% higher than in the same period last year.
To this, we may also add the psychological effect that recently blue skies and reduced pollution have had on people around the world. As air became cleaner and our planet could finally take a breath, the pandemic has actually given us all a taste of how a zero-emission world would look and feel like. It is not casual, if of the participants surveyed by Venson Automotive Solutions, 45% agreed that air quality has made them reconsider owning an electric car, while another 17% said that it has reaffirmed their decision to buy an electric car. With these premises, EVs have all the potential to continue their upward trend in the market and could even set their all-time market share record in the overall car economy. They are gradually becoming economically competitive on the basis of the total cost of ownership, even though the high purchasing investment for consumers means that the electric car market still relies on government support. This is why, although the electric car markets are generally expected to suffer less in the short-term, these expectations and their transition in the long run are still highly dependent on national governments’ responses. This is yet another reason for why “now” is the perfect moment for car manufacturers and for governments to finally act in favor of a more incentivized sustainable mobility, which would allow for a more rapid pick-up of markets together with positive effects on our planet.
So what can governments do exactly? Some measures are available from past experiences and “just” need to be applied in a more effective way. For instance, the incentivizing efforts which have been seen so far to have undoubtedly contributed in bringing the EVs market to where it is today (that mostly took the form of direct purchase subsidies and tax reductions). The fear, with the explosion of the global pandemic, was that local governments could suspend incentives on sustainable mobility to concentrate funds on other sectors in need. Luckily, so far countries haven’t cancelled such stimulus efforts: China, for example, already announced the extension of their purchase subsidies plan until 2022 and France prepared a new massive investment plan including financial incentives up to seven thousands euros for EVs purchases. Cash-for-clunkers programmes also represent another well-known practice that, if appropriately designed, could boost the demand for electric vehicles among those people that would currently like to sell their old car for a new one, but haven’t done so because of poor past incentivizing efforts in the field of car scrapping practices.
However, as Daimler board member M. Daum correctly pointed out, “to incentivise the purchase of a car, that is always short-term”. Local policymakers should also realize they now have “a unique opportunity to support the build-up of the infrastructure”, such as charging stations, which is something that definitely hasn’t been given enough thought in the past years and that would allow for a long-term shift to green transportation. Of course, in order for it to be a true and complete shift to clean energy, the way in which electricity for cars is and will be produced must also be taken into account; the entire electricity supply chain, involving power plants, should become “green” as well, and although this will surely become a subject of debate very soon – if and when electric cars will hopefully become more popular – it is something that our global crisis currently doesn’t help dealing with.
As of now, in conclusion, governments need to realize the positive potential effects that the electric car markets could have not only on our environment, as it did before Covid-19, but on our struggling economies as well. As people have become and are becoming more willing to switch to electric, policymakers should become aware of this golden opportunity to quickly re-launch the private mobility sector – an important part of local and global industries and markets – so as to enable the workforce to get back to their jobs while also making the electric car industry a key contributor to the global economic recovery. All this, by simply doing something that has never before occupied a high position on political and economic agendas essentially because it “only” served environmental purposes, but that, once again, now could also result in a key factor in the post-Covid economic recovery phase: investing for a greener future.