European automakers are slowly withdrawing the urban minicars to which they owe a great deal of their present-day fortunes as the costly transition to electric and digitalized vehicles prompts manufacturers to axe their least profitable products.

The car class known as the A-segment, or city car, has been falling out of favor for at least a decade. Since 2014, sales have been broadly flat while total car registrations have grown 22.2%, according to data from the European Automobile Manufacturers' Association, or ACEA.

Automotive consultancy LMC said that from 2010-2019, the European city car market contracted from 27 distinct models with significant sales to 20. It projects the segment's market share to plunge to 4.5% by 2023, compared to 7.6% in 2019 and 11.4% in 2010.

"While we do continue to forecast various manufacturers staying in the segment over this decade, the risks are that it will continue to prove less appealing to develop products here than in larger, higher-margin segments," said Jonathon Poskitt, director of global sales forecasts at LMC. "In EV form, the price sensitivity of the segment presents challenges in making the vehicles a compelling purchase proposition."

City cars make good sense as electric vehicles from an engineering perspective as their lower weight helps eke out extra range, but the economics are unappealing. The cost of battery packs would push their price close to double that of the gasoline equivalent and well inside the territory of some larger and premium-badged conventional cars.

"If we are selling an EV up!, which is an entry segment car, this is a nightmare for us. So we stopped selling [electric] up!s already and we will be proceeding via a top-down strategy for EVs. That's why we think we can manage that change process into EVs probably better than some of our peers," Volkswagen AG CEO Herbert Diess said in November.

Volkswagen's top-down strategy means it is introducing battery-electric variants first in larger and premium cars, like its Porsche Taycan and Audi e-Tron. Their higher price tags and better margins make achieving a profit easier, even with the cost of battery packs.

The list of sacrificed small cars continues to grow. France's Peugeot SA has dropped the Peugeot 108 and Citroën-badged C1 minicars, as well as the Adam, launched six years prior as part of a turnaround at Opel/Vauxhall, which it acquired in 2017.

Daimler AG in 2019 sold half its Smart minicar brand to China's Zhejiang Geely Holding Group, moving all production to China, while Ford Motor Co. has withdrawn the Ka after two decades. Suzuki Motor Corp.'s smallest cars, the Alto and Celerio, have also vanished from Europe. Nissan Motor Co. Ltd.'s foray into European city cars was brief, dropping its Pixo after one model generation in 2013.

Some automakers have pushed their city car models a size category upwards during redesigns, leaving nothing in the segment they vacate. The increasingly sparse minicar offering has given Volkswagen room to make "significant" price increases to its smallest cars, Diess said.

Sealing the fate of some city cars, electrification aside, has been the design of European CO2 emissions regulations. Automakers say these rules, which are tightened every five years, disproportionately penalize small cars as larger models have more room for hybrid powertrains and are granted more generous tailpipe emissions allowances.

Speaking to S&P Global Market Intelligence in 2019, Peugeot CEO Carlos Tavares said an EV battery in a small car would "blow up the economics" of the model, adding that the skewed design of EU rules is "killing the small cars." Carmakers face fines if the average CO2 emissions of the vehicles they sell exceed their individualized annual targets.

Throw into the mix the cost of the many safety features that EU regulators have made mandatory from 2022, including emergency braking, lane holding and distraction detection, and the ability to market a car segment whose appeal derives from its accessible price becomes more complicated.

"It is a sector that is collapsing because the blood is being sucked out of it, not because the market segment is shrinking so badly," said Christoph Sturmer, global lead analyst at PwC Autofacts.

"Vehicle technology has become so complicated that building a car that is technically in the A segment is by no means cheaper than building a car that is technically in the B segment, only they can charge the consumer €2,000 or €3,000 more. So why bother to build a really small car when you can build a car that is just a little bit bigger and gives you at least a positive margin?"

Brighter days ahead?

While minicars continue to disappear from Europe's cities, analysts say the segment could make a comeback in electric form once batteries' energy density can be increased and cost reduced to the extent it makes them economically viable once again.

Volkswagen, the most aggressive electric convert, does not plan to launch up! or Polo-sized EVs until 2023 or 2024, according to a product strategy seen by the Financial Times in November, perhaps giving an indication of the time frame of any revival. Renault, meanwhile, has electrified its smallest car, the Twingo, fitting a comparatively small 22 kWh battery pack, good for a 180-kilometer range. The case for a plug-in Twingo is bolstered by Renault's head start in EVs, economies of scale from the components of its fast-selling, larger ZOE model and lower manufacturing costs in Slovenia.

The coronavirus pandemic has also given a kickstart to another emerging trend, one which Sturmer argues could solve the conundrum of how to keep personalized zero-emission urban mobility affordable: the electric micro-car. These models can't entirely replace a conventional car but they can meet the needs of some urban and suburban dwellers, especially with increasingly flexible hire and sharing options to access larger vehicles for longer trips.

One such offering is Citroën's Ami, a two-seater cube-shaped car, or "mobility device" as Groupe PSA CEO Carlos Tavares has called it. Its launch at the outset of the pandemic was a coincidence but the timing could hardly have been better as many sought alternatives to public transport. The no-frills version starts at €6,000 and its 5.5 kWh battery can take it 60 miles at up to 30mph. Citroën has confirmed more than 2,500 orders to date.

Renault's more scooter-like but much faster and more expensive Twizy, which offers a top speed of 50mph and a 56-mile range for €10,800, has sold 25,000 units in Europe since its 2011 launch. Another, the Buddy, has been on sale in Norway since 1991 and while sales have been meager, its longevity offers some evidence that microcars cars could be more than a passing fad.

"What I think could happen is that when this main segment is totally thinned out, cities are going to still want to have more efficiency on the road," said Sturmer. "And people are still going to want to buy an electric car for less than €10,000. So there will be a wide-open strategic gap in the vehicle market."