A variety of Mercedes-Benz vehicles are assembled in the ‘Factory 56’ production hall.
Picture Alliance | Picture Alliance | getty images
Automakers have a number of ways to mitigate the impact of the European Union’s stricter emissions targets, but analysts say all options are likely to come at significant costs.
The prospect of hefty fines for failing to comply with the bloc’s new emissions standards has sparked heated debate within the car industry. This is especially true given that the sector is currently not on track to meet its targets for this year.
Major original equipment manufacturers (OEMs) have had a tough time in 2024 as the road to full electrification presents enormous challenges, and few expect 2025 to be much better.
The average emissions limit from new car sales in the European Union will be reduced to 93.6 grams of carbon dioxide per kilometer (g/km) in 2025. This is a 15% decrease from the 2021 standard of 110.1g/km.
Exceeding these limits, which were agreed in 2019 and form part of the 27-nation bloc’s ambitions to achieve climate neutrality by 2050, could result in fines running into billions of euros.
“Everyone is in the dark about this question,” Rico Luman, chief economist for transportation and logistics at Dutch bank ING, told CNBC via video call.
“This is a very big deal because as we’ve seen with everything that’s been going on at VW over the last few weeks and months as they adapt their organization to the new world, they’re still struggling with change and restructuring,” Luman said. . said.
“There is a long-term interest in terms of catching up with the competition, which means the direction of movement is pretty clear. So eventually you have to achieve that, but in the short term it is not very attractive because it hurts them in many ways,” he added. .
What can I do?
Most of Europe’s top automotive giants are currently falling short of the EU’s new CO2 targets, ING’s Luman said. This means that measures are needed to mitigate the impact of financial penalties.
Some of the options on the table include boosting battery electric vehicle (EV) sales by launching more affordable models and lowering prices, reducing conventional internal combustion engine (ICE) production in favor of plug-in EVs and hybrid models, and “pooling.” It works. Collaborate with competitors who are already compliant with your goals. Or the car company may pay the fine.
Pooling refers to the process of teaming up car manufacturers so that they are considered as one entity when calculating performance against CO2 emissions targets.
Currently, Sweden’s Volvo is believed to be the only large car manufacturer to have achieved its goal, along with the US EV maker. tesla And some Chinese companies.
The Volvo emblem is seen on the front bumper of a vehicle at the Austin Volvo Car Dealership in Austin, Texas, on September 4, 2024.
Brandon Bell | getty images
Stephen Reitman, head of European automotive research at Bernstein, said car manufacturers operating in Europe face a “massive emissions cliff” this year due to tightening regulations in the EU.
“Now we can work with companies that exceed their greenhouse gas emissions allowances to mitigate them,” Reitman said on CNBC’s “Squawk Box Europe.” “But that company is Tesla, and the other big company is Volvo, which is owned by (China’s) Geely.” said. On Thursday.
“And many of the cars that Tesla sells in Europe, which are generating greenhouse gas emissions, are produced in China. So you’re basically seeing money from European car manufacturers being transferred to Chinese companies or Chinese companies. This is probably going to affect the EU and the country.” “It wouldn’t be the best look for the government,” he added.
heated discussion
Some European OEMs have expressed concerns about tightening carbon regulations in Europe, especially as demand for electric vehicles falters.
Industry lobby group the European Automobile Manufacturers’ Association (ACEA) called on the European Commission to provide “urgent relief” over the new rules, while German Chancellor Olaf Scholz said failing car companies should not be fined. To comply with new standards.
Joint press conference between European Commission President Ursula von der Leyen, European Council President Antonio Costa, and Hungarian Prime Minister Viktor Orban following the EU Summit and European Council Summit held at the European Union (EU) Headquarters on December 19, 2024. In Brussels, Belgium.
Nurphoto | Nurphoto | getty images
For some, any move to weaken or delay the EU’s stricter carbon regulations would be tantamount to scrapping them altogether.
Julia Poliscanova, senior director of vehicle and e-mobility supply chains at campaign group Transport and Environment, told CNBC last month that the rules are designed to help automakers become more competitive. Profit margin in the short term.
“We’re behind on electrification. So how on earth are they delaying that goal and putting us even further behind to help the industry? I don’t understand. I don’t see how it’s going to help them make the transition they need to go through.” Poliscanova said.
European Commission President Ursula von der Leyen announced late last year that she would convene a strategic dialogue on the future of the European automobile industry.
The dialogue, which will be officially launched this month, is designed to quickly implement urgently needed measures in this area.
