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Various Mercedes-Benz cars are assembled in the factory “Factory 56”.
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Car manufacturers have several ways to mitigate the effects of the European Union tighter emissions standardsalthough analysts say all options are likely to cost significantly.
The prospect of large fines for non-compliance with the block’s new emissions standards has raised concerns heated debate in the automotive industry, especially given that the sector is currently not on the way to meet this year’s goal.
A perfect storm called for the the path to full electrification has ensured that the major original equipment manufacturers (OEMs) have a tough time in 2024 – and few expect 2025 to be much better.
The average emissions cap from new car sales in the European Union will drop to 93.6 grams of carbon dioxide per kilometer (g/km) in 2025, representing a 15% reduction from the 2021 baseline of 110.1 g/km .
Exceeding these limits, which were agreed in 2019 and are part of the 27-nation bloc’s ambitions to achieve climate neutrality by 2050 — can lead to fines in the amount of several billion euros.
“Everyone is in the dark about this issue,” Rico Luhmann, senior economist for the transport and logistics sector at Dutch bank ING, told CNBC via video call.
“It’s such a big deal because they’re still struggling to shift and restructure, as we’ve seen with everything that’s going on in VW over the last couple of weeks and months, adapting the organization to a new world,” Luhmann said.
“There is a long-term interest in keeping up with the competition. I mean, the direction of travel is pretty clear. So, eventually, they will need to achieve this, but in the short term, it is not so attractive. for them because it hurts them in so many ways,” he added.
What measures can be taken?
Most of Europe’s leading car giants are currently far from meeting the EU’s new CO2 target, ING’s Luhmann said, meaning measures are needed to mitigate the effects of financial sanctions.
Some of the options presented include increasing sales of battery electric vehicles (EVs) through more affordable models and lower prices, reducing production of conventional internal combustion engines (ICEs) in favor of EVs and hybrid models, and “teaming up” with competitors that already fit the purpose. Alternatively, car firms can simply pay the fines.
Pooling refers to the process by which car manufacturers come together to be treated as one when calculating their performance against a CO2 emissions target.
Currently in Sweden Volvo is believed to be the only major automaker to meet the target, along with an American electric car maker Tesla and some Chinese companies.
The Volvo logo is seen on the front bumper of a car at the Volvo Cars of Austin dealership on September 4, 2024. in Austin, Texas.
Brandon Bell | Getty Images
Steven Reitman, head of European automotive research at Bernstein, said automakers operating in Europe have faced a “huge emissions cliff” this year as EU regulations tighten.
“Now they can mitigate this by teaming up with companies that have excess greenhouse credits. But one of those companies is Tesla, and the other big one is Volvo, which is owned by (China’s) Geely,” Reitman told CNBC.Squawk Box Europe“on Thursday.
“And a lot of the cars that Tesla sells in Europe, which generates its greenhouse credits, come from China. So, basically, you see the transfer of money from European automakers to Chinese organizations or enterprises that took place in China, which is perhaps not the best look for the EU and for national governments,” he added.
Hot dispute
Some of the European OEMs are expressed concern on tougher carbon emissions rules in Europe, particularly as demand for electric vehicles fluctuates.
The European Automobile Manufacturers Association (ACEA), an industry lobby group, has is called The European Commission is to provide “urgent relief measures” under the new rules, while German Chancellor Olaf Scholz has said there should be no fines for car companies that do not comply with the new standards.
European Commission President Ursula von der Leyen, European Council President Antonio Costa and Hungarian Prime Minister Viktor Orbán hold a joint press conference following the conclusion of the European Council Summit, a meeting of EU leaders at the European Union headquarters in Brussels, Belgium on December 19, 2024.
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For some, any move to soften or delay the EU’s tougher carbon rules would be tantamount to deregulation altogether.
Yulia Poliskanova, senior director of vehicle supply chains and e-mobility at the campaign group Transport and Environment, told CNBC last month that the rules are designed to make carmakers more competitive – even if it hurts some of their top profits. in the near future.
“We are lagging behind in electrification. So how about delaying the goal and further delaying helping the industry? I don’t understand that. I just don’t see how that helps the transition they have to go through,” Poliskanova said.
President of the European Commission Ursula von der Leyen said At the end of last year, it will hold a strategic dialogue on the future of the automotive industry in Europe.
The dialogue, which is scheduled to officially begin this month, aims to quickly implement measures that the sector urgently needs.
