Europe’s EV sales are recovering: did EU carbon regulations change the game?

Core Insights - The European electric vehicle (EV) sector has experienced a significant sales increase since early 2025, with battery electric vehicle (BEV) sales in the EU and UK rising by 30% year-on-year by July 2025, primarily driven by OEMs offering more affordable BEVs and attractive lease deals in response to CO₂ targets [1][7][8] Sales Trends - In 2024, there was a 6.1% decrease in the registration of battery-only electric passenger cars compared to 2023, with 1.45 million new registrations versus 1.55 million in 2023 [4] - The decline in sales was attributed to a lack of new models and reduced government incentives, such as Germany's termination of the 'Umweltbonus' subsidy, which previously provided grants of up to €6,000 ($7,058) for EV buyers [2][4] - Non-plug-in hybrids performed well during this period, with FHEVs growing by 21% year-on-year and 48V hybrids increasing by 30% year-on-year, as consumers sought economical options [9] Regulatory Impact - The EU's carbon mandate, which requires automakers to cut fleet-wide CO₂ emissions by 15% from 2025 to 2029 compared to 2021 levels, has been a significant factor in the recent sales recovery of BEVs [6][12] - An amendment approved in May 2025 allows for a three-year compliance period, providing flexibility for manufacturers to meet the new targets, which has positively influenced sales results [5][14] Market Dynamics - The market share of European EVs increased by 29.4% year-on-year by July 2025, indicating a shift towards a more democratized EV market, with premium brand share declining from around 50% in early 2024 to 39% by August 2025 [10][11] - Analysts suggest that the recovery in BEV sales is largely due to the EU carbon mandate, which has encouraged manufacturers to enhance their offerings and expand charging infrastructure [8][12] Industry Challenges - The automotive industry acknowledges the need to transition to EVs but has expressed concerns about the stringent carbon mandate, which some view as a "regulatory cliff-edge" that could lead to detrimental long-term decisions [12][15] - Major industry figures have highlighted challenges such as dependency on Asia for the battery supply chain, insufficient charging infrastructure, and high manufacturing costs, which could hinder the transition [15][16]