European car sales rose in June after a surge in demand for electric cars in Italy as Prime Minister Giorgia Meloni’s government introduced long-expected subsidies.

New-car registrations climbed 3.6% to 1.31 million units last month compared to a year ago, the European Automobile Manufacturers’ Association said Thursday. EV sales in the region were flat after a slump in Germany and France offset the gain in Italy, where deliveries more than doubled. Across Europe, market share for battery-powered cars declined slightly.

Europe’s EV shift has faltered due to high sticker prices and the removal of subsidies by a number of governments. The lull is prompting companies like Mercedes-Benz Group AG to push out EV sales targets while battery makers are reviewing projects. Stellantis NV has halted EV output at its Mirafiori plant near Turin, and Volkswagen AG this month started proceedings that may see it shut a factory in Belgium making the electric Audi Q8 e-tron.

“Battery-electric vehicle losses remain too high, and investments need to be cut, and are being cut,” Citi analyst Harald Hendrikse wrote in a note this month.

In June, the share of fully-electric vehicle registrations fell to 15.9%, down from 16.5% a year ago, extending a trend of disappointing EV sales for the year. Their share has declined to 13.9% through June, compared with 14.2% a year earlier, in a reversal of expectations for the shift to gather pace.

High borrowing costs and muted growth across Europe are weighing on consumer sentiment across the market. Auto sales in the European Union remained some 18% below pre-pandemic levels in 2019 during the first half of the year. The outlook for Germany, Europe’s biggest economy, is dimming on the back of falling exports and political uncertainty in France, according to ZEW President Achim Wambach.

EV demand remains highly susceptible to buying incentives. In Germany, Europe’s biggest auto market, the government suddenly stopped subsidies in December, leading to a 16% decline in registrations during the first half of the year. In Sweden, which also rolled back subsidies, sales fell by a fifth.

Conversely, the Italian government introduced long-awaited subsidies at the start of June, which resulted in EV registrations more than doubling for the month.

“This is a market that’s extremely sensitive to regulation,” Renault brand Chief Executive Officer Fabrice Cambolive said on a media call Thursday. “New incentives spur EV demand, whereas demand for electric hybrids is really being driven by clients.”

Demand for Tesla Inc.’s vehicles continued to wane across the region, with a 7.2% decline in June. Sales dropped 12% during the first half.

  - Bloomberg