The Cost of Going Green: Economic Trade-offs in Electric Vehicle Adoption

Battery-electric vehicle sales in Europe surged 28% in Q1 2025, but that growth comes with rising uncertainty. While consumer demand rebounds and new models hit the market, manufacturers are facing shifting regulations, volatile input costs and mounting pressure on profitability. In this article, we will look at the economic trade-offs behind the EV transition - and how cost engineering teams can stay in control as the landscape keeps changing.

Electric Vehicle Demand Is Rising, But Market Signals Remain Unclear 

The European EV market is enjoying a strong first half of 2025. According to ACEA, battery-electric vehicle registrations across Europe and the UK rose 28% in the first quarter, reaching over 573,000 units. In Germany, a rebound in corporate fleet demand contributed significantly: 

• Volkswagen’s EV sales more than doubled 
• BMW posted a 64% increase 
• Renault saw EV volumes rise 88% globally.

This data confirms a clear consumer shift. However, this growth did not come without pressure. The Financial Times reports that many carmakers had delayed their EV launches until 2025 to align with emissions rules. Now that those rules have been relaxed, analysts warn the momentum may not last. 

Why Cost Engineers Struggle to Plan EV Programs Reliably 

Despite rising demand, EVs remain significantly more expensive to produce than combustion models. Battery systems alone account for 35–40% of total cost. Add rising energy prices, labor rates, and localization requirements in Europe, and the pressure builds quickly. 

Even as brands like VW prepare sub-€25,000 EVs such as the ID2, many OEMs are struggling to achieve sustainable margins without relying on aggressive discounting. That challenge is further compounded by: 

• U.S. tariffs on European auto parts 
• The sudden end of German EV subsidies 
• Continued volatility in key raw material markets 

As Volkswagen CFO Arno Antlitz noted, “the significant expansion of BEV volumes, particularly in Europe, as well as the ramp-up costs of numerous new models, are expected to burden earnings in 2025.” 

Cost engineers must now account for these external risks while maintaining clarity on product cost targets. In this climate, early cost transparency and faster iteration are essential to protect profitability. 

Regulatory Delays Are Increasing Long-Term Cost Risk 

While governments support the EV transition in principle, recent decisions have added ambiguity. Both the EU and the UK have chosen to relax certain emissions regulations. The European Commission introduced more flexibility in how carmakers can meet 2025–2027 CO₂ fleet targets. The UK now allows hybrids to remain in showrooms until 2035 and has reduced fines for missing EV quotas. 

This regulatory flexibility provides manufacturers with an opportunity to adapt to market conditions. However, it also poses the risk of delaying essential investments. The NGO Transport & Environment warns that such delays could allow the automotive industry to ease off on the acceleration of the EV rollout, ultimately hindering investment in necessary infrastructure and technology. If this flexibility is mismanaged, it could lead to a "compliance cliff edge" as we approach 2030. 

Why Traditional Cost Tools Can’t Handle the EV Shift 

This volatility makes traditional cost engineering methods increasingly inadequate. Excel models and homegrown tools are too slow to adjust to weekly changes in design, sourcing, or legislation. Many organizations lack the ability to simulate multiple technical architectures or to evaluate cost and carbon together in the same workflow. 

This is where purpose-built product costing software like Tset delivers immediate value. Built to support complex cost breakdowns, Tset helps cost engineering and sourcing teams quantify calculate costs and carbon throughout the product development lifecycle. With Tset’s cost management software, you can:  

• Advanced Automation: Tset delivers fast, accurate, and customizable cost calculations. This allows teams to save time, reduce manual errors, and focus on strategic decisions. 
• Scenario-Based Costing: Evaluate the impact of regulatory changes, sourcing shifts, or design alternatives without rebuilding models from scratch. 
• Cost and CO2 Integration: Excel models can’t link CO₂ footprint to component-level cost breakdowns. Tset connects financial and environmental impact early in development, thereby supporting ESG targets without compromising on cost objectives. 
• Structured Supplier Inputs: Compare quotes, track cost changes, and prepare for negotiations using consistent, fact-based data. 
• Ease of Collaboration: The intuitive interface supports cross-functional work between engineering, procurement, and suppliers – even for teams without cost engineering backgrounds. 

What Cost Engineers Need to Navigate the EV Shift 

The EV transition will not be linear. As Håkan Samuelsson, former CEO of Volvo, said in a recent Finincial Times interview, “the challenge is to stay on course and not be distracted”. Staying on course requires more than strategic vision. It demands operational resilience at the level of design-to-cost. 

As we move forward, the challenges related to regulatory changes, fluctuating input prices, and heightened pressure on profit margins will only intensify. Cost engineers will need to manage this complexity while making informed decisions. Product costing software provides the structure and agility necessary for teams to adapt to changing conditions, align cost and carbon targets, and ensure profitability across vehicle programs. In this uncertain environment, having clear and reliable cost insights is vital for success.