The West’s humiliating electric car climbdown has begun

France’s President Macron had a plan to make millions of electric vehicles a year. Chancellor Scholz planned to put 15 million on Germany’s roads by 2030. President Biden trumped the lot with a $174bn (£138bn) plan to make the US the world leader. Even Boris Johnson – remember him – had a £1bn plan to beef up our charging network.

Rewind only a couple of years, and almost every president or prime minister was making electric vehicles the cornerstone of an industrial strategy. And yet, this week we have learned that Renault is abandoning plans to separately list its electric vehicle (EV) and software business, while Volvo is winding down its Polestar electric sports car subsidiary.

In reality, amid an onslaught of Chinese competition, and falling sales, the West’s electric vehicle dream is quickly unravelling – and we need to relearn all the lessons in why grand, state-led industrial strategies never work.

It was not so long ago that countries were competing furiously to launch battery-powered visions of the future. With Tesla riding the wave of green demand to become the world’s largest car manufacturer, measured by market value if not volume, and with ambitious net zero targets to meet, they all wanted to make sure they could compete in electric vehicles.

We would reduce carbon emissions, create many jobs, and shore up our industrial base. Sure, governments would have to commit a few billions – or tens of billions – to make it happen. But it would pay for itself many times over.

And yet, right now, plans for an EV-led industrial revolution are in full-scale retreat.

Renault, despite the programme of state support, has this week scrapped the separate listing of its EV unit Ampere, which has been scheduled for the first half of the year. It was a “pragmatic decision” according to the company’s chief executive Luca de Meo, arguing that falling sales for EVs across Europe meant the market was more challenging than forecast.

Likewise, Volvo announced that it would stop funding its EV unit, Polestar, and might even offload its 48pc stake on other shareholders, including China’s Geely. Last September, Volkswagen said it was cutting production of two of its flagship EV models, while in November, Ford said it was scaling back its battery plant in Michigan.

It looks like all those “well-paid green jobs” are going to take a little longer to arrive than anyone anticipated. As for the payback on huge sums various governments have “invested” in the industry, it looks like the returns on that money will take a while to come through as well.

There is nothing wrong with EVs themselves. They are often great as run-arounds for dense urban environments, and as long as the raw materials are sourced correctly, and the chargers are not powered by coal-burning generators, they are probably a little better for the environment than the petrol version.

If people want them, then that’s great. The trouble with the industry right now is that demand is falling because the vehicles cost far more than anyone expected, and what market there is will be captured by Chinese manufacturers such as BYD that can make vehicles far more cheaply than anyone in the West can. The result? A lot of government money will be wasted.

There is a lesson in the humiliating climbdown. State-led industrial strategies never work. Indeed, the failure of the drive into EV is a textbook example of everything that goes wrong.

First, it backs the wrong industries. No one really has any idea what products people might want in five or ten years time, which is why it is best to leave it to private companies and their investors to make their own bets, reap the rewards when they get it right, and bear the losses when they don’t.

Politicians and bureaucrats are no better at making those decisions, as usually a lot worse. Don’t believe me? Just ask consumers. Hertz in the US is disposing of the 20,000 EVs it bought with great fanfare in recent years, and is replacing them with petrol models, due to lack of demand. Over the past year, figures from the Society for Motor Manufacturers and Traders revealed a steep fall in EV interest from private buyers.

Next, the state over-invests. Even if there is a small market for EVs, there certainly wasn’t space for huge new industries in France, Germany, the US, or in a dozen smaller countries. The car industry was awash with over-capacity already, and that was before the Government started throwing billions at electric vehicle plants. All that happens is that prices collapse, and no one makes any money.

Finally, it distorts the market with subsidies. Governments start out spending a few billion on new EV factories, then they have to start subsidising the EVs so that people actually buy them, then they have to impose tariffs and quotas to stop imports from countries where other government have invested too much.

Finally, they have to pay out even more to keep alive the factories making a product that no one wants. It’s a vicious cycle, and once it starts it is very hard to stop.

The one relief for the UK is that our political and administrative class was too inept to pour even more money in, despite the best efforts of the former PM’s Theresa May and Boris Johnson to splurge a few tens of billions into the “race for EVs” and the endless warnings that we risked “getting left behind’”. We will be spared the worst of the pain ahead.

In reality, the volte-face on the electrification of the auto industry is underway. Major manufacturers have started to pull back, but all the grand projects for battery factories, for shiny new EV plants, and for charging infrastructure, will inevitably be scrapped very soon.

Billions of taxpayer’s money will have been wasted. We should draw the lesson from that, as bitter as it might prove. The Government never knows what the industries of the future will be – and should leave it to entrepreneurs and customers to work that out.

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