“Electric cars for all” put to the test
Coline Pavot, Head of Responsible Investment Research at La Financière de l’Echiquier (LFDE) | July 2024
Electric cars – do they have a future? Hailed by the European Parliament, which voted the ban on sales of new combustion and hybrid vehicles in Europe from 2035 early last year, the environmental relevance of these vehicles is frequently called into question by their critics. Despite these debates, all scenarios – including those developed by the IPCC[1] – have come to the conclusion that the electrification of vehicles is vital to attain our climate objectives and reduce our dependency on oil. Beyond the environmental stakes around their deployment, the aim of this article is to address the many social challenges associated with the development of this industry.
Electric cars for all?
While in the US, the astronomical stock option plan[2] rolled out by Elon Musk was approved by Tesla’s shareholders, much to the discontent of responsible investors, in Europe, the main issue today is the affordability of electric vehicles, which is key to their future expansion. According to estimates, electric cars cost between 25 and 50% more than an equivalent petrol or diesel car but cost 36% less to run[3]. In response to this challenge, the French government launched a social leasing mechanism enabling low-income households to benefit from an electric vehicle manufactured in Europe at a cost of €100 per month. A victim of its own success, the plan was suspended in February 2024 only two months after it was launched. The ideal of an electric vehicle accessible to all seems to be slipping away.
An economic sovereignty tool
Responding to the subsidies paid by Beijing to China’s car manufacturers, authorities in Europe and in the United States have deployed protectionist measures taxing the imports of Chinese electric vehicles. The objective of these higher tariffs is to give Western manufacturers more time to work on their costs and remain competitive in the commercial battle to make these vehicles more affordable. They should also help accelerate the re-shoring of this value chain, creating employment in Europe, reducing reliance on Asia, and scaling down the impact of their manufacturing process thanks to a lower-carbon energy mix.
Affordability, price war and rebound effect
Amid the price war, some manufacturers have adopted design techniques that are rendering repairs economically infeasible, or even technically impossible. This is the case of “giga-casting” for example, which involves producing several auto parts in one massive single cast. These practices, which undermine the environmental case for EVs due to planned obsolescence, also raise social issues in relation to the higher cost of maintaining these vehicles – repairs, insurance… A cost that could financially weaken the owners of this new generation of more affordable vehicles. The absence of standards guaranteeing the sustainability of the vehicles sold in the European market could allow these practices to become mainstream – leading to the concept of a “disposable electric car”. It is urgent to engage with regulatory authorities and companies to restrict the expansion of these deleterious practices.
At LFDE, we strive to support the transition of this industry by backing different players along the value chain. We conduct a full analysis of target companies – notably via our proprietary “Climate Maturity and Biodiversity” methodology – to ensure they manage their adverse environmental externalities and consider the issues of a fair transition in their business model. These themes, which are key to the sustainability of corporate business models, are addressed through our shareholder stewardship, notably within our impact funds, to encourage the adoption of best practices.