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Several Mercedes-Benz vehicles are assembled in the production hall “Factory 56”.
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Car manufacturers have many ways to mitigate the impact of the European Union tighter emissions targetsalthough analysts say that all options are likely to come at a significant cost.
The prospect of heavy fines for not complying with the bloc’s new emissions standards has raised a heated debate in the automotive industry, especially given that the sector is currently not on track to achieve this year’s goal.
A perfect storm of challenges on the road to complete electrification ensured that the major original equipment manufacturers (OEMs) suffered a torrid time in 2024 – and few expect 2025 to be much better.
The European Union maximum on average emissions from the sale of new vehicles falls to 93.6 grams of carbon dioxide per kilometer (g/km) in 2025, reflecting a decrease of 15% from a 2021 base of 110.1g/km.
Overcoming those limits – which were agreed in 2019 and are part of the ambition of the 27-nation bloc to achieve climate neutrality by 2050 – can lead to fines of several billion euros.
“Everyone is in the dark around this question,” Rico Luman, senior sector economist for transport and logistics at Dutch bank ING, told CNBC via video call.
“It’s such a big deal because they’re still struggling to make change and restructuring, as we’ve seen with everything that’s going on. VW during the last few weeks and months as we adjust the organization to the new world,” Luman said.
“There is a long-term interest in maintaining competition with competitors. I mean, the direction of travel is quite clear. So, in the end, they need to achieve, but in the short term, it is not so attractive to them because it hurts them in many ways,” he added.
What action can be taken?
Most of Europe’s car giants are currently far from meeting the EU’s new CO2 target, ING’s Luman said, meaning action is needed to mitigate the impact of and financial penalties.
Some of the options on the table include boosting sales of battery electric vehicles (EVs), rolling out more affordable models and lowering prices, reducing production of conventional internal combustion engines (ICE) in favor of plug-in EVs. in and hybrid models, and “pooling” with competitors who have already met the goal. Alternatively, the car companies could simply pay the fines.
Pooling refers to the process in which car manufacturers join together to be considered as one entity when calculating their performance against a CO2 emissions target.
Currently, Sweden Volvo It is thought to be the only major automaker to meet the target, alongside the US EV maker Tesla and some Chinese companies.
The Volvo emblem is seen on the front bumper of a vehicle at the Volvo Cars of Austin dealership on September 4, 2024 in Austin, Texas.
Brandon Bell | Getty Images
Stephen Reitman, head of European automotive research at Bernstein, said carmakers operating in Europe are facing a “massive emissions drop” this year given the tightening of EU regulations.
“Now they can mitigate this by combining with companies that have excess greenhouse credits. But those companies are one, Tesla, and the other big one is Volvo, which is owned by [China’s] Geely,” Reitman told CNBC “Squawk Box Europe” on Thursday.
“And many of the cars that Tesla sells in Europe, which generates its greenhouse credits, come from China. So, basically, you see a transfer of money from European manufacturers to Chinese entities or companies that are originated in China, which is perhaps not the best aspect for the EU and for national governments,” he added.
A heated debate
Some of Europe’s OEMs have expressed concern about the tightening of carbon regulations in Europe, especially as the demand for electric vehicles falters.
The European Automobile Manufacturers Association (ACEA), an industry lobby group, has called to the European Commission to provide “urgent relief measures” on the new rules, while German Chancellor Olaf Scholz has he said there should be no fines for car companies that do not adhere to the new standards.
Joint press conference of the President of the European Commission Ursula von der Leyen, the President of the European Council Antonio Costa and the Prime Minister of Hungary Viktor Orban after the end of the Summit of the European Council, the meeting of the leaders of the EU at the headquarters of the European Union in Brussels, Belgium on December 19, 2024.
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For some, any move to dilute or delay the EU’s tougher carbon rules would be tantamount to scrapping the regulation.
Julia Poliscanova, senior director for vehicles and e-mobility supply chains at the campaign group Transport and Environment, told CNBC last month that the rules are designed to help make carmakers more competitive – even if it is to the detriment of some of his higher ones. short term profit margins.
“We are behind the electrification. So, how the Earth delays the target and makes us even more behind to go to help the industry? I do not understand. I just do not know how to help the transition that they have to go. across,” said Poliscanova.
The President of the European Commission Ursula von der Leyen he said at the end of last year, he will convene a strategic dialogue on the future of the European automotive industry.
The dialogue, which should be officially launched this month, is designed to quickly implement the measures that the sector urgently needs.
