As Europe’s EV market struggles to gain momentum, declining sales, factory closures, and mounting insurance costs threaten the continent’s green ambitions. Industry insiders warn that without urgent action, the pace of transition could grind to a halt.
Europe’s electric vehicle sector, once the poster child for sustainable innovation, is facing a stark reality check in 2025. Despite bold policies and strong rhetoric about the green transition, the continent’s EV market is encountering a convergence of challenges that threaten to stall progress: slowing sales growth, manufacturing plant closures, and escalating insurance costs are all conspiring to undercut Europe’s ambitions for a clean automotive future.
The European Automobile Manufacturers’ Association (ACEA) reported that EVs—including battery electric vehicles (BEVs) and plug-in hybrids (PHEVs)—accounted for just over 16% of new car registrations in the first nine months of 2025. This represents a healthy 24.1% year-on-year increase, yet notably falls short of the 25% target originally set for the year. More troublingly, the overall car market is hovering near stagnation, and EV sales growth is uneven across member states.
Countries like Germany and the UK have led the charge, with German EV sales surging 38.3% and the UK maintaining over 21% market share amid a 34.6% rise in registrations. Yet in other parts of Europe, such as Italy and Croatia, growth has stalled or even reversed, with Croatia experiencing a 50% drop in EV registrations year-on-year. This patchwork performance hints at affordability and infrastructure discrepancies, alongside varying levels of government incentives.
Meanwhile, automotive manufacturing is feeling the pinch. Giants like Volkswagen and Stellantis have announced temporary halts and reduced output at several production sites. Volkswagen paused production at key German EV plants, citing excess inventory and tepid demand, while Stellantis is grappling with factory closures and layoffs as it struggles to balance ambitious electrification targets with real-world sales figures.
The supply chain remains another hurdle, with critical bottlenecks impacting battery production and raw material availability. Combined with persistent semiconductor shortages and soaring input costs, these factors have throttled manufacturers’ ability to ramp up EV production to meet evolving market expectations.
Insurance Challenges Compound Market Strains
The shift to electric vehicles introduces a host of complex challenges for Europe’s insurance industry, underscoring yet another barrier to the smooth adoption of EVs. According to the recent Morningstar DBRS report on EV insurance in Europe, BEVs present insurers with fundamentally different risk profiles than traditional internal combustion engine (ICE) vehicles, necessitating updated pricing and risk management approaches.
Primarily, BEVs tend to be more costly than comparable ICE vehicles — both in purchase price and repair costs. The sophisticated technology packed into EVs, including extensive digital components and large batteries typically located beneath the vehicle floor, results in more expensive and complex repairs.
Battery repairs or replacements alone are costly and complicated, especially since battery damage is common in accidents. Moreover, the risk of fire following severe collisions is higher in EVs, which contributes to claims volatility and expense.
While some early data from sources such as the German Insurance Association indicate that BEV claim frequency is currently lower than that of ICE vehicles—a possible reflection of more cautious driving due to limited range—there is an expectation that this frequency will rise as EV adoption grows and driving patterns normalise.
Insurance premiums already reflect these complexities. The Morningstar DBRS report cites studies from European comparison websites showing that average EV insurance can be significantly more expensive: in Italy, EV premiums averaged EUR 620 in Q1 2024, versus EUR 565 for diesel and EUR 483 for petrol cars.
In Spain, EV insurance costs were around 13% higher than petrol equivalents by early 2025, while in the UK, a 2023 study found EV insurance prices roughly double those of comparable ICE models. Conversely, in markets like Germany, competition has kept EV insurance premiums competitive or occasionally lower than ICE vehicles, though this appears to be an exception.
The report highlights a critical factor driving pricing disparities: insurers currently lack sufficient historical claims data specific to EVs, limiting their ability to accurately assess risk. This “data gap” forces carriers to price premiums conservatively higher to mitigate uncertainty, though the report anticipates this gap will narrow over time, helping reduce the price differential.
These factors play into a broader industry challenge: the profitability of Europe’s motor insurance segment is under severe pressure. Motor insurance constitutes nearly 40% of total nonlife insurance premiums in the EU, yet rising claims costs, inflationary pressures, and higher repair expenses have pushed combined ratios—the ratio of claims plus expenses to premiums collected—to 100% or greater in major markets including Italy, Germany, Spain, France, and the UK. Combined ratios at or above 100% signify that insurers are essentially breaking even or incurring underwriting losses, undermining financial stability.
To adapt, insurers have had to raise premiums, which is a potential headwind for EV adoption, given the already higher upfront vehicle costs. The Morningstar DBRS report emphasises that insurers must continue to review and adjust their pricing models to maintain underwriting profitability in this evolving environment. The challenge is to balance adequate pricing against the risk of discouraging consumers from switching to EVs, a key objective underpinning Europe’s environmental goals.
In conclusion, Europe’s electric vehicle insurance market epitomises the broader transitional challenges facing the continent. Greater collaboration between insurers, manufacturers, and policymakers will be essential to develop innovative insurance products tailored to the unique risks of EVs while supporting the affordability and growth of sustainable mobility.
The regulatory landscape further complicates matters. European Union mandates impose stringent CO2 emissions targets, compelling manufacturers to rapidly electrify their fleets or face substantial fines. However, this regulatory push is colliding with market realities, creating misaligned incentives that result in production gluts, unsold inventory, and economic uncertainty for automotive workers.
Economically, consumers are feeling the pinch from inflation, energy price volatility, and overall cost-of-living increases, all of which dampen purchasing power and delay adoption of relatively pricey EV alternatives.
To meet climate goals and avoid jeopardising the automotive sector’s economic viability, experts call for a multi-pronged effort: greater innovation to reduce battery and vehicle costs; strengthened, resilient supply chains; more equitable and supportive government incentives; and insurer models adapted to the specific risks of EV ownership.
Europe’s EV transition, though essential, is clearly not a straightforward journey. Without coordinated action addressing market, manufacturing, and insurance challenges, the continent risks falling short of its ambition—a scenario that would reverberate beyond automobiles, impacting jobs, investment, and climate commitments alike.
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