Private equity and venture capital investment in the European electric vehicle sector grew in the first quarter as firms try to ride on the increasing popularity of electric cars in the region.

In total, private equity and venture capital investment in European companies that manufacture EVs or provide components and services to the EV industry stood at $964.7 million in the first quarter, compared with $374.6 million in the same period a year earlier, according to S&P Global Market Intelligence data.

Investment in the EV industry dwarfed those of the automobile sector, which only pulled in $59.6 million in the first three months of the year.

PE investment in EVs up in 2022

The European EV sector secured roughly $3.50 billion in 2022, up 48.3% from $2.36 billion the previous year. The number of transactions remained unchanged year over year at 22. The transaction value in 2023 so far was $1.07 billion as of May 19, almost a third of the total investments for the entire 2022.

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By contrast, companies in the automobile sector only raised $98.3 million in 2022 and $81.6 million so far in 2023.

The upcoming ban on the sale of new combustion engine vehicles in the EU by 2035 and the greater uptake of electric vehicles on the continent are helping to accelerate investment in Europe, according to Preqin.

EU lawmakers approved a law in February effectively banning the sale of new gasoline- and diesel-powered cars by 2035, The Wall Street Journal reported. About a month later, the bloc struck a deal with Germany allowing new cars with combustion engines to be registered after 2035 if they only use carbon-neutral fuels, according to the publication.

The International Energy Agency said in its Global EV Outlook 2023 that electric car sales in Europe grew more than 15% in 2022, which means that more than one in every five cars sold was electric.

"Investors are looking to capture some of this, and we are seeing this come through with increased deals across the electric and hybrid vehicle value chain," Michael Patterson, a senior associate for Preqin's Research Insights product, told Market Intelligence in an emailed statement.

EV charging companies secure most capital

Companies that operate EV charging stations received the two biggest private equity investments in the year through May 19. Dutch solar power company PowerField Realisatie & Exploitatie BV, which operates solar parks, charging stations and energy storage systems, secured $545.9 million in the largest funding round of the period for an EV company. EIG Global Energy Partners participated in the round.

Second on the list was UK-based EV Chargers Ltd., which received $199.9 million in funding from funds managed by Denham Capital Management LP's Denham Sustainable Infrastructure arm.

The Netherlands secured the largest amount of private equity investment so far in 2023, with $556.6 million of capital raised as of May 19, mostly due to PowerField's funding round. The UK came in second with $334 million, followed by Finland and France with $93.4 million and $30.7 million, respectively.

Investments in EVs to grow further

"Investment in the European electric vehicle vertical has been growing, and we believe we will continue to see increasing deals and capital deployed here in the medium term to meet requirements for the banning of new petrol and diesel cars," Patterson said. "We may see lower multiples for buyers on deals coming to market now in comparison to what we were seeing in the last two years."