The Visible, but Hesitant Hand: Regulation of Electric Vehicles in Denmark

The evolution of Tesla in Denmark reveals a story of politics with profound dilemmas for a small welfare state. It is a peculiar case of how a green and progressive government, with all the best intentions, finds it difficult to promote the desired transition to energy-efficient fuels because it goes against vested interests of the state. 

In short: The Danish state heavily regulates the market for cars, but in wishing to encourage the sale of electric vehicles (EVs) by lowering their cost, politicians encounter two obstacles. On the one hand, they stand to lose out on significant tax revenues. On the other, they are hesitant to distort the level playing field in the market by favoring one product over another. As such, a combination of economic interests and ideas has so far hindered the government’s ambitious green goals.

Recent data on the Danish automobile market allow us to tell this story in numbers (Danmarks Statistik, 2020):

The graph raises eyebrows, but first of all shows that green cars are in demand. Both EVs and hybrid cars make up increasingly larger portions of the market, and Tesla is by far the most popular choice (Dansk Elbil Alliance, 2020). The trend has continued in the first half of this year, in spite of the pandemic: The share of electric and hybrid cars has more than doubled in the period (Motormagasinet, 2020). Still, they make up a very small portion of total sales and accounted for just 3.4 percent last year. Even if Denmark is a frontrunner in the area of green technology and one of the wealthiest countries of Europe, the market share is lower than for the rest of the continent. Industry analysts from Transport & Environment, a campaign group, expect green cars to account for about a tenth of the market in Europe this year and 15 percent in 2021 (Campbell, 2020). In ing country Norway, however, EVs already account for over half of all cars sold due to heavy subsidies (NTB, 2020)!

Ironically, the reason why Denmark lacks behind other countries in this aspect is the state’s deep involvement in the market. Taxes vary for different price ranges, but for all cars it holds that taxes are above 100 percent. In other words, when you buy a car in Denmark, more than half of what you pay goes to the state. This inflates prices on the market and makes all cars more expensive, but the dearest cars become proportionally more expensive. Since EVs generally fall into this category, they are out of reach for most consumers - especially as consumers of green cars tend to be young and living in the city (YouGov, 2020).

The growth in demand is not very even, though. Why did sales go down dramatically in 2016? This is where the politics reveals itself. In 2012 the government removed taxes on EVs completely, but the tax-break was cancelled again as of 2016. Politicians worried that the unequal advantage bestowed upon EVs distorted the market and effectively subsidised Tesla which made up the majority of electric car sales in 2015. The following year it became obvious that EVs couldn’t compete on merit and cost alone in the Danish market. This abrupt fall in 2016 demonstrates the deep influence of the Danish state over the economy and, indirectly, over the attractiveness of environmentally friendlier cars.

In all of Europe, the cost of EVs is among the top concerns of consumers, as evidenced by a recent YouGov report that surveyed sentiments across the continent, Denmark included (YouGov, 2020).

Multiply those concerns by taxes above 100 percent, and cost is most likely the main impediment for the growth of EVs in Denmark. Accordingly, a large majority (69 percent) of Danes now want the government to take action to lower the cost through regulation instead of upholding market neutrality (Dahlager, 2019).

The survey results also prove that cost is not the only important factor in the market. On top of European consumers’ minds is the limited availability of charging points, a key piece of infrastructure which the state can invest in to promote the transition (which it traditionally has done in Denmark for similar types of technology). Finally, doubts about the technology’s merits are prevalent. But it is most likely just a matter of time before they fade, too: Battery efficiency is under massive improvement these years, in large part driven by Tesla’s huge investments in the technology. 

Meanwhile consumers are primarily motivated by EVs’ less harmful effect on the environment compared with regular cars (YouGov, 2020):

As costs decrease, the trade-off between environmental concerns and price will become more attractive. Electric cars might even become the economically sound choice for some, as this survey indicates: Already today a third of consumers seek ‘lower running costs’ in purchasing EVs. For this factor to have wider effect, EVs must either be heavily subsidised by states, become much cheaper than today or a combination of both. Manufacturing costs are still almost 50 percent higher than for classic, combustion-engine cars. And according to recent estimates by Oliver Wyman, a consultancy, EVs will remain more expensive for a decade to come (Miller, 2020): 

The battery is by far the dearest part of EVs and is understandably the main focus of corporate leaders like Elon Musk. He has famously declared he wants to halve the cost of batteries within three years - yet another of his shoot-for-the-moon targets (Waters, 2020) - but few deem it realistic. 

Nonetheless, Tesla’s decision to build a high-tech factory in Berlin - the focus of this collaborative project across Berlin, Copenhagen, Silicon Valley and Congo - could have a decisive impact on the Danish market if it succeeds to lower the manufacturing cost and, by its close proximity to Denmark, reduce the need for transportation. This proves that even if the Danish market for electric cars is first and foremost ruled by domestic politics, its fate will just as likely by determined by decisions made in the other three places of this investigation.

Answer to: What media forms would be best suited to communicating these findings?

Mixing text, numbers and visuals, all of these data are arguably communicated most effectively through written media. TV documentary would also be suitable.

EXTRAS

An unrelated note: This year the case of EVs and their batteries has become a major geopolitical concern in Denmark and the EU. COVID-19’s impact on global supply chains has made everyone realize how reliant Europe is on foreign supplies, in particular on rare earth materials. The trade war between US and China has further strengthened the demand for resource independence. Beneath the surface, EVs are now becoming not a question of environmental concern, but of geopolitics in a multipolar, deglobalizing world. China produces and extracts most of rare earths, as the following graphs illustrate (Financial Times, 2020). In the market for EV-battery resources, China today processes 82 percent of global cobalt and 65 percent of nickel (Sanderson, 2020). 

SOURCES

Campbell, Peter. 2020. “Electric car sales triple in race to meet Europe CO2 rules”. Financial Times. Accessed October 16, 2020: https://www.ft.com/content/f3f7d99a-34a4-4650-a529-3731bd8bc17c

Dahlager, Lars. 2019. “Danskerne efterlyser politisk mod: Gør det nu attraktivt at købe elbil”. Politiken. Accessed October 16, 2020: https://politiken.dk/forbrugogliv/forbrug/art7512116/Danskerne-efterlyser-politisk-mod-Gør-det-nu-attraktivt-at-købe-elbil

Danmarks Statistik. “Statistikbanken”. Accessed October 16, 2020: https://www.statistikbanken.dk/statbank5a/default.asp?w=1024

Dansk Elbil Alliance. “Statistik”. Accessed October 16, 2020: https://www.danskelbilalliance.dk/statistik

Financial Times. 2020. “Why China's control of rare earths matters”. Financial Times. Accessed October 16, 2020: https://www.ft.com/video/c3b50a0d-c224-4865-bede-4389ae017737

Miller, Joe. 2020. “Electric car costs to remain higher than traditional engines”. Financial Times. Accessed October 2020: https://www.ft.com/content/a7e58ce7-4fab-424a-b1fa-f833ce948cb7

Motormagasinet. 2020. “Salget af elbiler er tæt på fordoblet i 2020”. Accessed October 16, 2020: https://www.motormagasinet.dk/article/view/727999/salget_af_elbiler_er_taet_pa_fordoblet_i_2020

NTB, 2020. “Rekordmåned for elbilsalget i september”. E24. Accessed October 16, 2020: https://e24.no/naeringsliv/i/zgLaR1/rekordmaaned-for-elbilsalget-i-september

Sanderson, Henry. 2020. “TechMet wins US backing for Brazilian mining project”. Financial Times. Accessed October 16, 2020: https://www.ft.com/content/e004e34d-6d8f-4ba1-ad45-687787a6606b

Waters, Richard. 2020. “Tesla outlines ambition to halve cost of batteries”. Financial Times. Accessed October 16, 2020: https://www.ft.com/content/184acb43-b99a-4312-9318-04aa142cc4c1

YouGov. 2020. “ The European Electric Car Market 2020”. Accessed October 16, 2020: https://yougov.co.uk/topics/transport/articles-reports/2020/09/14/european-electric-car-market-2020