The European car market barely grew in 2024, with new car registrations rising by just 0.9% to 13 million units, according to the European Automobile Manufacturers’ Association (ACEA). This modest uptick came despite a strong finish in December, where registrations rose 4.1% across the EU, UK, and European Free Trade Area.
While hybrids experienced significant growth—accounting for a third of all December registrations—fully electric vehicles (EVs) struggled, with sales falling by 1.3% over the year. In December alone, EV registrations dropped by 0.2%, signaling consumer reluctance to embrace battery-powered models.
This trend has raised concerns about the future of the EV transition, as European automakers face mounting pressure to meet stricter emissions regulations while navigating consumer skepticism and diminishing government support.
As EV subsidies vanish, so does demand
The collapse of EV sales in markets like Germany, where EV registrations declined by 27% last year, has been particularly stark following the removal of state subsidies. Germany’s VDA car lobby predicts a 30% increase in domestic EV production this year, but without strong consumer demand, these vehicles may struggle to find buyers.
Local automakers are calling for renewed government support, with VDA Chief Hildegard Müller urging policymakers to establish trade agreements and partnerships to keep the industry competitive. Early elections in Germany could provide an opportunity for policy changes, but uncertainty looms.
Complicating matters, Friedrich Merz, the conservative frontrunner for chancellor, has pushed to extend the sale of new combustion-engine vehicles beyond the EU’s planned 2035 ban, while incumbent Olaf Scholz has advocated for continued EV tax incentives.
Tesla drags down the EV sector
There’s no getting around the fact that EV demand in Europe isn’t as strong as automakers need it to be, but it’s not as bad as it may seem at first glance. As we’ve pointed out before, EV sales in Europe are actually growing—if only slightly—if you remove Tesla from the equation.
Last year, Tesla saw its European sales decline by nearly 11%, selling about 40,000 fewer vehicles than in 2023. The release of the updated Model Y Juniper may help sales rebound in 2025, but it’s safe to say that Tesla was lagging behind the rest of the EV pack in 2024.
After subtracting Tesla sales, overall EV sales were actually up 0.9% year-over-year in 2024—about the same as the overall market. Still, that’s hardly a reason to celebrate. If generous incentives and government subsidies only managed to keep EV sales at pace with the rest of the market, then automakers could face a very difficult time selling EVs without those aids propping up demand.
A shift to hybrids complicates the EV transition
As EV demand falters, hybrids and PHEVs are gaining traction. In December, hybrid registrations jumped 29.5%, with plug-in hybrids up 2.5%. These models, which combine many of the upsides that ICE and EV vehicles offer, have become a popular choice among consumers hesitant to commit to fully electric cars.
The rise of hybrids has muddied automakers’ EV strategies. Many had been banking on a sharp pivot to fully electric vehicles to meet emissions targets and stay competitive globally. However, hybrids' increasing market share highlights lingering range anxiety and concerns about charging infrastructure as key barriers to EV adoption.
Global headwinds compound European challenges
Europe’s automakers are not only grappling with domestic struggles but also facing pressure on the global stage. Declining sales in China—the world’s largest car market—are eroding revenue, while heightened competition from Chinese manufacturers is intensifying price pressures.
In the U.S., additional tariff risks under President Donald Trump’s administration have further complicated the outlook. Trump’s recent repeal of EV-friendly regulations, referred to as the “EV mandate,” has left automakers uncertain about the future of the American market for battery-powered vehicles.
In a note earlier this month, UBS analyst Patrick Hummel described these converging challenges—price pressure, market-share losses in China, tighter emissions regulations, tariff risks, and lackluster demand—as a “perfect storm” for Europe’s manufacturers.
Can price cuts and policy changes turn things around?
There may be some relief on the horizon. Analysts at Bloomberg Intelligence predict that while European car sales could dip in the first half of 2025, price cuts in the second half might provide a slight rebound.
However, the industry remains divided over how to address the challenges. ACEA President and Mercedes-Benz AG CEO Ola Källenius has called for revisions to the EU’s CO2 regulations. He also urged the EU to negotiate a “grand bargain” with the U.S. to avoid escalating trade tensions.
Even in a relatively bleak market, automakers like Renault have accomplished significant growth in 2024. Renault’s market share in Europe grew to 11.9% in December, overtaking Stellantis for the first time since the automaker conglomerate was formed in 2021. Hybrid models have been key to Renault’s success, highlighting a potential path forward for companies willing to pivot their strategies.
Final thoughts
As European automakers enter 2025, they are confronted by a landscape full of economic uncertainty, evolving consumer preferences, and intensifying regulatory pressures.
Meeting stricter emissions targets while navigating weak demand for fully electric vehicles will require some weighty moves—from pricing strategies to government lobbying. The popularity of hybrids offers a glimmer of hope, but it also underscores the complexity of the EV transition.
In the face of these challenges, one thing is clear: European automakers must adapt quickly or risk falling further behind in an increasingly competitive car market.
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