Why cheap and small electric cars may soon be too expensive to afford

By DPA | 27 July 2021

FRANKFURT: A new car for less than €10,000 (RM50,000), preferably a small one that fits into any parking space at less than four metres long.

This kind of compact model helps many young people save on their first car and fits better into congestion-plagued inner cities. But experts fear that it could soon be history.

Because in order to prepare internal combustion engines for future emission standards and to follow the trend towards electrification, manufacturers will have to put so much money into cars that small cars will become significantly more expensive.

As a result, they could largely disappear from the market.

So why are the small models becoming more expensive? Frank Welsch, head of quality at the VW Group, is looking ahead to the next stage of European emissions standards, which are currently being discussed and defined for the middle of the decade.

"Implementing the discussed EU7 scenarios would only be possible with far-reaching technical measures, which are complex and therefore very cost-intensive."

Mild hybrids, which are already standard at least from the mid-size class upwards and are slowly diffusing into the compact class, would hardly be enough.

To actually achieve the required CO2 values, significantly more powerful electric motors and larger buffer batteries would have to be installed - not to mention extended exhaust gas aftertreatment in the fight against nitrogen oxides and carbon monoxide.

"That would make most vehicles significantly more expensive," Welsch says, and fears that this surcharge would no longer be affordable for many in the particularly sensitive segment of small cars.

"Affordable entry-level vehicles with combustion engines would definitely become a thing of the past," says Welsch. His boss at VW, Herbert Diess, is even more explicit: He has already rejected a successor to the small car Up. Given the environmental goals in the coming years, he's even put a big question mark over the VW Polo.

When more expensive means cheaper

VW has every reason to now be questioning the validity of these cars, says Professor Stefan Bratzel, a specialist in automotive economics at the University of Applied Sciences in Bergisch Gladbach in Germany.

That's because the cheaper a car is, the more you end up spending on improved exhaust purification and the more difficult it will be to pass these costs on to customers, says the automotive economist.

In the luxury class and the premium segment, the proportionate impact is not so great and can be refinanced better. "But smaller cars are then practically unsellable and are likely to be discontinued."

Andreas Radics of strategy consultant Berylls in Munich wouldn't go quite that far, but he too expects dramatic changes in the range. The model selection will be significantly thinner and the time between new generations of small cars will also be spaced out, he predicts.

"Remaining models will only be able to continue to be part of the range if their model run cycles are significantly extended so that the development costs are amortised."

High prices for electrics without government subsidies

But even if small cars continue to be available, they are likely to become much more expensive, according to many experts. CO2 reduction isn't cheap, according to the German Association of the Automotive Industry (VDA).

And because car manufacturers usually pass on such costs to their customers, we'll have to dig deeper into their pockets for cars like the VW Polo.

Things get even more expensive without government subsidies making it easier for drivers to go electric. Without these grants, a relatively poorly equipped small electric like the Opel Corsa E ends up costing the same as a well-equipped Astra.

And for the price of a Smart Forfour EQ, you can also get a Golf from VW two classes above.

Pricier cars does not mean pricier mobility

And yet if people someday have to pay more for their cars, this doesn't necessarily mobility will become more expensive. At least that's what the International Council on Clean Transportation (ICCT) believes and links the forecast to further increases in fuel prices.

Because clean cars also need less fuel and electric cars are cheaper to maintain, customers could even save money in the long run, the lobbyists argue.

Although the pressure on small cars is obviously increasing, they will probably not disappear from the market altogether.

It is not for nothing that Toyota, for example, announced the development of a new Aygo in spring. The Aygo X Prologue, which has already been unveiled, has anticipated the future designs with a concept car.

Skoda is meanwhile countering the scepticism of the VW Group boss with a new edition of the Polo-related Fabia.

And the low-cost brand Dacia wants to prove with the Spring that the trend towards electrification does not necessarily have to lead to larger and more expensive cars.

The four-seater measures just 3.73 metres. And for a conventional subcompact, it may be expensive at €20,490. But among the electric cars, it is among the cheapest mass-produced models to come out of Europe.

Goodbye exhaust Polo - hello plug-in Polo?

The first major car manufacturers have also already found their way out of the dilemma - and are using low-cost production in China to help keep the next generation of small cars such as the MINI and Smart affordable, even with electric drive.

VW boss Diess also does not want to let go of the small car permanently. While he has doubts about a future for the Polo, he has already ordered development of an entry-level electric model that will be priced well below the ID.3.

According to Frank Welsch, the price will start at around €20,000. The launch is planned for the middle of the decade - only fitting that the current Polo should also be phased out around this time.