The European Union starts an investigation January 30 into its ailing automotive manufacturers as the industry seeks relief from the existential threat of tightening CO2 emissions rules and their unintended consequences.
Europeans automakers are struggling to meet the requirements but Chinese manufacturers are ready, willing and able to meet demand for electric vehicles. This is an outcome EU regulators surely didn’t plan.
EU commissioners, lobby groups and environmental organizations are determined to force the industry to comply.
EU Commission President Ursula von der Leyen (if recovered from sickness) will lead the Strategic Dialogue on the Future of the European Automotive Industry. Volkswagen, BMW, Mercedes, Stellantis and Renault and their ilk hope the assembled delegates will quickly decide to address their most pressing problem and mitigate the tightening rules designed to force Europeans to buy electric vehicles.
The rules tighten significantly in 2025 and continue to squeeze the industry until 2035, when no new internal combustion engine-powered sedans and SUVs will be allowed. The rules threaten the bottom lines of European players. Sales of EVs are stumbling because they are too expensive for Europeans on average wages and are unable to provide the all-round utility that ICE vehicles can.
Chinese manufacturers of EVs are way ahead with a 30% cost advantage and the CO2 program is more like a free lunch for the likes of BYD, Geely, Great Wall Motors and SAIC’s MG that threatens to undermine profits and the viability of Europeans.
Can the Strategic Dialogue quickly suggest some changes to the CO2 regime, like stopping the huge fines for missing the timetable, or perhaps spreading them over 5 years, maybe using the money to fund EV research, or cancelling the 2035 ICE end-of-life date?
Dream on, manufacturers. The Dialogue will more likely be a waffle fest as the delegates preen and posture about advancing climate goals and broader objectives for society.
13.2 million Europeans are employed by the industry, representing just over 10% of all manufacturing jobs, and generating over 7.5% of EU GDP, according to the European Automobile Manufacturers Association (known by its acronym in French ACEA).
“I’m afraid it (the progression to banning new ICE vehicles by 2025) will really be a disaster for the European auto industry. We already see the signs of really big troubles. Last year, a lot of important factories shut down, even some with strong and solid market positions and reputations were closing factories and this was something that never happened before in Germany for 60 years,” said Federico Millo, professor of automotive internal combustion engines at Politecnico di Torino.
Last year, even mighty Volkswagen, in financial trouble because its range of EVs wasn’t able to keep pace with the EU’s demands, tried to close three German factories in a radical restructuring program. In the event the closures were thwarted, but Volkswagen announced more than 35,000 job cuts and a capacity reduction of about 700,000 vehicles. Production of the Golf hatchback will move to Mexico.
“The situation is going to become more and more dramatic in terms of decline if the CO2 rules are not changed and the targets revised,” Millo said in a telephone interview.
Late last year ACEA renewed a call for relief from huge fines manufacturers face for failing to meet vehicle emissions standards.
“(EU CO2 rules) must be subject to a reality check and a realignment – to make it less rigid, more flexible and to turn the decarbonization of the automotive industry into a green and profitable business model,” ACEA President Ola Källenius (CEO of Mercedes) said in a letter to EU leaders.
Renault CEO Luca de Meo has said the European industry faces fines of around €15 billion ($15.6 billion) for missing the 2025 CO2 emissions target.
According to Berenberg Bank, Germany, Poland, France, Italy and Czechia have asked the Commission to relax CO2 regulations to avoid weakening an already challenged automotive sector.
These pleas from the manufacturers and EU member states has generated much opposition from politicians, lobby groups and environmentalists.
EU transport commissioner Apostolos Tzitzikostas said the EU must stick to the CO2 plan. Green lobbyist Transport & Environment described the industry claim that fines will reach €15 billion as “bogus.” T&E said the industry’s program of new EVs will be more than enough to match the demands in 2025.
“It is deeply concerning that critical debates on the future of one of the EU’s most important climate regulations are being driven by such flawed arguments,” T&E said in a statement.
Volkswagen said Thursday it will take an estimated €1.5 billion ($1.6 billion) hit to the bottom line this year for exceeding the EU’s tougher emissions target.
The U.K. has a similar ban on CO2, demanding 80% of new car sales are EVs by 2030 and 100% by 2035. The Labour government is thinking about making 2030 the 100% deadline, while the industry seeks relief.
“The (U.K.) government must stand firm against calls to water down the law and instead focus on delivering a robust industrial strategy,” T&E said.
The European Consumer Organisation, known by its French acronym BEUC, is adamant the rules must remain.
“Any watering down would be bad news for consumers as it would reduce the affordability and availability of EVs,” BEUC spokesperson Andrew Canning told Forbes.
In a letter to Commissioner for Climate and Net Zero Wopke Hoekstra, BEUC supported maintaining emissions reduction efforts. The EU should boost the market for affordable electric cars by introducing an electrification mandate for corporate fleets or by extending social leasing schemes.
The centre-right political grouping in the European Parliament, EPP, wants to reverse the ICE ban and change to a technology-neutral approach, temporary relief measures to help carmakers avoid being penalized, and help to boost the charging infrastructure.
“The automotive industry is an indispensable pillar for employment, innovation and prosperity in Europe. At the same time, it faces enormous challenges: unfair competition, high energy costs, a decline in demand, adaptation to climate change and strict regulatory requirements weighing heavily on the sector,” the EPP said in a statement.
According to the Wall Street Journal, the EPP is the biggest political grouping in the European Parliament composed of national center-right parties such as Germany’s Christian Democrats and Spain’s Popular Party
“We demand to return to technology neutrality as the guiding principle, make proposals to avoid penalties for the industry and propose how we can help the industry,” the EPP said.
Politecnico di Torino’s Millo worries that any action taken now to ease the burden on the auto industry is too late, even as the EPP seeks an end to the EU demand that EVs win. That would allow competing technologies like hybrids, plug-in hybrids and fuel cells a role in the market past 2035
“These huge contractions in the market have already had a dramatic impact in terms of jobs in the EU. Huge damage has already been done,” Millo said.
“Most manufacturers have dramatically reduced their R&D and no one is now developing new engines and new power trains, except for new electric vehicles which are not going to be sold in big enough numbers to compensate for sales of conventional internal combustion engine. This really is a kind of nightmare. We have thrown away supremacy and knowledge which took more than a century to acquire,” Millo said.
