The Green Divide: How Income Inequality Shapes EV Adoption in Europe (Part 1)

Executive Summary

The European Union’s ambitious climate goals hinge on a rapid transition to electric vehicles (EVs). However, this transition is being undermined by a growing affordability gap. Key findings from this analysis include:

• Income inequality plays a significant role in EV adoption, with low- and middle-income households—representing 80–90% of the population—unable to afford EVs priced at €40,000 or more.

• Automakers’ profit-driven strategies have led to a surge in SUV sales (47% of new cars in 2022) and the discontinuation of affordable models, further limiting access to EVs.

• Total cost of ownership (TCO) for EVs is often lower than for internal combustion engine (ICE) vehicles, but high upfront costs remain a barrier for most consumers.

• Tariffs on Chinese EVs are exacerbating the affordability gap, raising prices on once-accessible models while European automakers prioritize high-margin vehicles.

• Non-EU markets like Norway demonstrate that aggressive incentives and policies can drive EV adoption, but the EU’s current approach risks leaving its citizens behind.

In Part 2, we’ll explore how tariffs and industry strategies are shaping the future of EVs in Europe and whether the EU’s policies align with its climate ambitions.

Income Distribution in the EU

Income distribution in the EU is typically divided into three groups: low-income, middle-income, and high-income households. Low-income households, which earn less than 60% of the median income, make up about 20–25% of the population (roughly 100 million people) (OECD, 2023). For example, in Germany, low-income households earn less than €15,000 per year, making even a used car a financial stretch. Middle-income households, which earn between 60% and 200% of the median income, represent the majority of the EU population—around 60–70% of people, or 270–315 million (Eurostat, 2023). In France, for instance, middle-income households earn between €13,200 and €44,000 per year. While some in this group can afford a used car or even a new one, EVs are often still too expensive without subsidies or financing. Finally, high-income households, which earn more than 200% of the median income, make up about 10–20% of the population (45–90 million people). This group is the primary market for new EVs, but they represent a small fraction of the population needed to achieve the EU’s climate goals.

Car Ownership in the EU

Car ownership in the EU is widespread, but the type of car people own—new, used, or electric—varies significantly by income level. About 80% of EU households own at least one car, with ownership rates higher in wealthier countries like Germany (85–90%) and lower in countries like Romania (60–70%) (ACEA, 2023). However, new cars are typically purchased by higher-income households, with only 10–15% of EU households buying a new car in any given year (Eurostat, 2023). Used cars are far more common, especially among middle- and low-income households, with around 50–60% of EU households owning a used car (European Automobile Manufacturers Association, 2023). When it comes to electric vehicles, ownership is still relatively low but growing. In 2023, EVs made up about 10–15% of new car sales in the EU (International Energy Agency, 2023). However, they are primarily purchased by high-income households who can afford the higher upfront costs. For example, in Germany, where the median income is €25,000, a new EV like the Volkswagen ID.4 costs around €40,000—far out of reach for most middle- and low-income households (CleanTechnica, 2023).

The Perception of EVs

The EU Aggregated Report 2023 highlights that 37% of non-BEV drivers in Europe are interested in electric vehicles, but cost remains the primary barrier. People view EVs as only for the rich, and as we look at the data, we can see why. The majority of the population buys used cars because of affordability. The used EV market is still in its infancy, with very few used EVs available and uncertainty about their longevity and maintenance costs. (McKinsey & Company, 2023). Facing this, along with the perception of a lackluster charging network, many people feel they are being forced to become more carbon-neutral and transition to sustainable energy at their own expense—which is often prohibitively high. This creates resistance to the green transition, as people feel they are being asked to bear the financial burden of climate goals without adequate support.

Total Cost of Ownership (TCO)

While the upfront cost of EVs remains high, the total cost of ownership (TCO)—which includes fuel, maintenance, and tax savings—often makes EVs more economical than ICE vehicles over time. For example:

• Fuel savings: Electricity is cheaper than petrol or diesel, and EV drivers can save €1,000–€2,000 annually on fuel costs.
• Maintenance savings: EVs have fewer moving parts, reducing maintenance costs by 30–50% compared to ICE vehicles.
• Tax incentives: Many EU countries offer tax breaks, reduced registration fees, and exemptions for EVs, further lowering TCO.

However, these long-term savings are not enough to offset the high upfront cost for most consumers. A €40,000 EV is simply out of reach for households earning €25,000 or less per year, even if the TCO is lower than that of a €20,000 ICE vehicle.

Consider a household in Germany earning €30,000 per year. While a €40,000 EV may seem out of reach, the long-term savings—€1,500 annually on fuel and €500 on maintenance—could make it a viable option. However, the high upfront cost remains a significant barrier.

The Profit-Driven Price Challenge

While affordability is often discussed as a technology cost issue, manufacturer strategies play a crucial role. Between 2019 and 2022, European automakers increased their revenue per car by 33–52%—far outpacing inflation. Net profits per vehicle skyrocketed from a range of -€40 to €1,920 in 2019 to €510 to €8,940 in 2022, accounting for up to 94% of all revenue growth (Transport & Environment, 2023). This profit-driven pricing strategy coincides with a dramatic shift toward larger vehicles. SUV sales have exploded from just 9% of new cars in 2010 to 47% in 2022. Meanwhile, affordable models like the Fiat Punto and Ford Fiesta are being discontinued. The industry often blames EU emission rules and consumer preferences, but the data tells a different story: SUVs command an 8–30% price premium over equivalent non-SUV models.

This shift towards larger, more profitable vehicles further limits the availability of affordable EVs, leaving many Europeans with no choice but to stick with older, polluting vehicles. It’s a stark reminder that the high cost of EVs isn’t just a result of market forces—it’s also a reflection of automakers’ profit-driven strategies.

Lessons from Norway

While the EU struggles with EV affordability, Norway offers a compelling example of how policy can drive adoption. In 2023, 80% of new car sales in Norway were EVs, thanks to aggressive incentives:

• Tax exemptions: EVs are exempt from VAT (25%) and import taxes, significantly reducing upfront costs.
• Infrastructure investment: Norway has built a robust charging network, with over 20,000 public charging points for a population of 5.4 million.
• Non-monetary incentives: EV drivers enjoy perks like free tolls, reduced ferry fares, and access to bus lanes.

These policies have made EVs not only affordable but also more convenient than ICE vehicles. Norway’s success demonstrates that aggressive incentives, such as VAT exemptions and infrastructure investment, can make EVs accessible to the masses. The EU could adopt similar policies, but its current approach—including tariffs on Chinese EVs—risks widening the affordability gap

The affordability crisis in EV adoption isn’t just about technology costs or income inequality—it’s also about strategic choices by manufacturers. As we’ll explore in Part 2, the EU’s tariffs on Chinese EVs are being implemented against this backdrop of record industry profits and a deliberate shift toward higher-margin vehicles. This creates a stark contradiction: while the EU mandates ambitious climate goals for 2030—just five years away—it simultaneously imposes tariffs that protect manufacturer profits and keep EVs out of reach for most Europeans. The result is a policy framework that demands rapid adoption of electric vehicles while actively making them less affordable for the very citizens who are expected to make this transition.

This disconnect between climate mandates and economic reality raises troubling questions. How can the EU expect its citizens to embrace a green transition that many cannot afford? And perhaps more importantly, why are policies being crafted that appear to prioritize industry profits over both climate goals and economic accessibility? In Part 2, we’ll examine these contradictions and explore whether there’s a path forward that can balance environmental ambitions with economic realities.

References

• European Commission. (2021). Fit for 55: Delivering the EU’s 2030 Climate Target on the Way to Climate Neutrality.
• Eurostat. (2023). Income and Living Conditions in the EU.
• ACEA (European Automobile Manufacturers Association). (2023). Car Ownership in the EU.
• International Energy Agency. (2023). Global EV Outlook.
• McKinsey & Company. (2024). How European consumers perceive electric vehicles
• Transport & Environment (T&E). (2023). Small and profitable: Why affordable electric cars in 2025 are feasible.