Europe's EV Transition Faces Hurdles

Europe plans to transition its automobile industry to electric vehicles (EVs), an ambition that could be slowed primarily by grid infrastructure inadequacies and bureaucratic delays across the continent.  

Electricity industry association Eurelectric, which represents the common interests of European industries, said in September that to support Europe's climate targets, average annual investments in electricity grids from now to 2050 need to be at least 84% higher than they were in 2021. 

The European Council on Foreign Relations (ECFR) provided a dire assessment in October. "The grid is too small, outdated, centralized, and lacking sufficient connections," wrote Szymon Kardaś, an ECFR Senior Policy Fellow. 

The 27-country European Union (EU) plans to increase the share of renewable energy in its total energy consumption to 42.5% by 2030 and possibly even 45%. The EU's previous 2030 target was for a 32% renewable energy share.

Grid Challenges

The EU's 11 million kilometers of distribution grids need substantial investment and modernization to support the growing EV market. Electricity use must grow 20% faster over the next decade than the previous one to meet global climate goals, the International Energy Agency (IEA) said. 

The EU needs to increase its investment in grid expansion to at least €38 billion per year by 2030 to meet its climate targets, according to Eurelectric. The EU spends around €23 billion annually on expanding electricity distribution networks. 

Implementation delays

Implementation delays are another significant barrier to Europe's EV transition.

In Germany, grid connections for EV charging points and solar photovoltaic (PV) installations can take up to 18 months to be set up, with distribution grid operators sometimes refusing connections due to capacity constraints. Stefan Genth, managing director of the German retailer association HDE, said in January that delays and refusals are slowing down the country's shift toward renewables.

Nearly half of the Spanish energy company Repsol's 1,600 charging stations in Spain remain dormant due to the lack of power connection. 

Lucie Mattera, secretary general of ChargeUp Europe, spoke to Reuters, describing the situation as "Kafka meets the energy transition," indicating the complex and often confusing rules across different EU jurisdictions.

Who Will Pay For Grid Updates?

The EC's Action Plan for Grids, published in November 2023, identified the need for €584 billion in investments to upgrade Europe's power grids by 2030. This figure could be higher due to the complexity of cross-border projects and aging infrastructure.

Eamon Ryan, Ireland's climate and energy minister, told the Financial Times in March that private sector investment is critical to funding grid upgrades.

"There's no transition without transmission," he said.

He noted that grids are not an appealing asset for investors, suggesting that longer-term debt instruments and support from the European Investment Bank (EIB) could help attract private capital. Ryan emphasized that cross-border interconnectors could pose a challenge in terms of cost-sharing between countries.

Decline Sales

Despite Europe's ambitious renewable goals, EV sales have declined following the drop in government subsidies. 

With lower sales, the financial incentives for companies to invest in new charging stations also diminish. This development creates a self-reinforcing cycle, where fewer charging points lead to reduced consumer confidence in EVs, further hampering sales.

The abrupt discontinuation of tax incentives in Germany has contributed to the decline of EV sales, raising concerns about the sustainability market growth. In Germany, EV sales fell by 14.1% in the first quarter of 2024, with Tesla Inc. (TSLA), the leading EV manufacturer, experiencing a significant decline of 36.7% compared to the same period in 2023. 

Volkswagen AG ( VOW3) reported  a 24% decrease in EV sales. Mercedes-Benz Group AG (MBG) reported in April an 8% decline in EV sales, and blamed 'the abrupt end of a tax incentive' in Germany and the gradual phasing out of an electric model from its Smart brand.” 

Volkswagen shares have climbed 4.2% year-to-date, while Mercedes shares have 7.5% for the same time period. Tesla shares are down 31% year-to-date.