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If you holidayed in Italy or Spain recently, chances are you noticed an old but familiar sight on the autostradas and autovías. Small, nimble cars – like the Fiat Panda and Seat Ibiza – are the preferred choice of Italian and Spanish car buyers.
Yet for decades, these affordable and largely homegrown iconic vehicles have been disappearing from much of the rest of Europe. Saving them would not be a heritage project but an important part of securing the European car industry's future.
While the industry often blames regulations for the decline of small cars, the reality is manufacturers chose to chase higher profit margins by shifting their line-ups towards large SUVs. They shrunk their offering of the cheaper, smaller mass market cars that once underpinned European industrial strength. That practice continued in the ‘early adopter’ phase of electrification with a focus on big, high-end EVs. Only a quarter of new electric cars are small, compared to around 40% of the overall car market.
But now, with European car sales well below their 2019 peak, and BYD other Chinese brands filling gaps in our EV market, the big-margin big-car strategy has come back to bite the domestic car industry.
Enter EU Commission President Ursula von der Leyen, who announced a “small affordable car initiative” in her State of the Union speech this year. If done right, the European Commission’s upcoming plan could solve in one go two challenges of the EV transition: consumer affordability and industry competitiveness.
What Europe needs: a boost for the next generation of small affordable EVs
Demand for small electric cars is vast and largely untapped but EV uptake remains low because of the very few small, affordable BEV options. (In Spain and Italy, smaller cars dominate with 53% of sales, but just 6% of the overall market is electric.) For Europeans, the main barrier for EV adoption today is higher upfront price. The average European is willing to pay at most €20,000 for an electric car.
But the industry is finally ready. Carmakers from Volkswagen to Renault are lining up new next generation small BEV models including the ID Polo and Twingo. These cars can succeed, but only if sold in high volumes. This would make them profitable for automakers and affordable to ordinary households, not just wealthy buyers seeking a small second car.
Boosting the small electric car segment could be the key to bringing carmakers’ production volumes back to pre-Covid levels. Up to 1.5 million additional small EVs could be sold in the EU every year as a result of a small electric car strategy, according to a study for the European Commission. (T&E was part of the advisory board.) It estimated that this could generate around 120,000 new jobs.
The direction of the EU’s small car initiative should be a Small Affordable Electric Vehicle (SAEV) strategy. SAEVs would be compact, efficient, safe, and crucially, built in Europe with European-made batteries. A target price of around €15,000-€20,000 would put clean mobility at parity with small combustion cars and within reach of millions while securing the scale Europe needs to remain competitive.
A SAEV strategy should launch an Affordable EV Platform using ETS2 revenues to support small electric cars built in Europe. By guaranteeing demand for millions of vehicles, the platform would give manufacturers the volume certainty needed to invest in lower-margin compact EVs. Car labelling should be reformed to help consumers identify and choose the cleanest, Made-in-Europe small EVs. And national governments should provide favourable tax treatment, targeted purchase support, and social leasing schemes to make small EVs cheaper than petrol cars for low and middle-income drivers.
What the EU should avoid: weaker safety rules and free CO2 credits
But other ideas being floated risk sending small cars on a dangerous diversion. Some manufacturers are calling for a new small-car category for a European version of the “Kei” microcar. This is not the right answer: microcars like the Citroen Ami are already sold in Europe. And cities need fewer vehicles, more space for walking, cycling, and public transport – not smaller cars for the wealthy. Focusing on Kei-style cars would also be a misguided industrial strategy that would benefit Chinese and Japanese manufacturers which have been producing them for decades.
An even greater danger is posed by a proposed freeze of regulatory requirements for a broad range of small cars. The Commission has shown openness to this approach. It would mean small cars, mostly driven by lower-income Europeans becoming less safe than larger, more premium vehicles. Safety must not become a two-tier road.
At the same time, the car industry is also lobbying for bonus credits for small electric cars to meet their fleet average CO2 targets. Past experience with super-credits show this is a free lunch for the industry: by counting each small EV as more than one sale, the credits would allow them to sell fewer electric cars and more gas guzzlers.
Europe’s automotive success depends on small, mass-market EV models like the VW ID. Polo, ID.1, Renault 5 and Twingo which are already here – or coming soon – and are designed to meet today’s EU car standards.
It’s over 20 years since Renault turned to a nimble French footballer to put the ‘Va Va Voom’ into sales of its Clio supermini. In a series of TV ads, Thierry Henry told prospective buyers that less is more. A European small car initiative could provide a similar kick to mass market EV sales and help carmakers achieve scale. But doing that should not mean compromising on safety and emissions targets.
