Various Mercedes-Benz vehicles are assembled in the production hall of “Fabryka 56”.
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Carmakers have many ways to mitigate the effects of the European Union more stringent emissions targetsalthough analysts say all options will likely involve significant costs.
The prospect of high fines for non-compliance with new EU emission standards resulted in: hot debate in the automotive industry, especially considering the current situation of this sector not on track achieve this year's goal.
A perfect storm of challenges on the road to full electrification assured that major original equipment manufacturers (OEMs) survived a difficult period in 2024, with few expecting 2025 to be much better.
The EU cap on average emissions from new vehicle sales falls to 93.6 grams of carbon dioxide per kilometer (g/km) in 2025, reflecting a 15% reduction compared to 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 ambition to achieve climate neutrality by 2050 — may result in financial penalties amounting to several billion euros.
“Everyone has no idea about this issue,” Rico Luman, 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 make change and restructure, as we've seen with everything that's going on in VW over the last several weeks and months, adapting the organization to a new world,” Luman said.
“There is a long-term interest in keeping up with competitors. That is, the direction of travel is quite clear. Ultimately they will have to achieve it, but in the short term it is not very attractive for them because in many ways it hurts them,” he added.
What actions can be taken?
Most of Europe's leading car giants are currently far from meeting the EU's new CO2 emissions target, ING's Luman said, meaning action is needed to mitigate the impact of financial penalties.
Some of the options being considered include increasing sales of battery-powered electric vehicles (EVs) by introducing more affordable models and lowering prices, reducing production of conventional internal combustion engines (ICEs) in favor of plug-in electric vehicles and hybrid models, and pooling with competitors. who have already achieved their goal. Alternatively, car companies could simply pay the fines.
Resource pooling is the process by which car manufacturers join forces so that they are treated as a single entity when calculating their performance against CO2 emissions targets.
Currently Sweden Volvo is considered the only major automaker to have achieved this goal, alongside the US electric vehicle maker Tesla and some Chinese companies.
A Volvo emblem appears on the front bumper of a vehicle at the Volvo Cars Austin dealership on September 4, 2024, in Austin, Texas.
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Stephen Reitman, director of European automotive research at Bernstein, said carmakers operating in Europe would face a “huge emissions hit” this year due to tighter EU rules.
“Now they can remedy this by connecting with companies that have excess greenhouse credits. But these companies are one, Tesla, and the other big one is Volvo, which is owned by (Chinese) Geely,” Reitman told CNBC “Squawk Box Europe“on Thursday.
“And many of the cars Tesla sells in Europe, which generates greenhouse credits, come from China. Essentially, we are dealing with a transfer of money from European car manufacturers to Chinese entities or to companies that originate in China, which may not be the best solution for the EU and national governments,” he added.
Hot debate
Some European OEMs do expressed concern on tightening regulations on greenhouse gas emissions in Europe, especially due to the falling demand for electric vehicles.
The European Automobile Manufacturers Association (ACEA), an industry lobby group, made this decision called calls on the European Commission to provide “urgent countermeasures” to the new rules, while German Chancellor Olaf Scholz he said There should be no penalties for car companies that do not comply with 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, following the conclusion of the European Council Summit, a meeting of EU leaders at the headquarters of the European Union in Brussels, Belgium, 19 December 2024.
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For some, any move to relax or delay tougher EU carbon rules would be tantamount to scrapping the regulation altogether.
Julia Poliscanova, senior director of vehicles and e-mobility supply chains at campaign group Transport & Environment, told CNBC last month that the regulations are intended to help make automakers more competitive – even if it will be to the detriment of some of their higher profit margins in the near future .
“We are behind in electrification. So how on earth can delaying the target and delaying it even further help the industry? I don't understand this. I just don't understand how this is going to help with the transformation they have to go through to the end,” Poliscanova said.
President of the European Commission, Ursula von der Leyen he said late last year to convene a strategic dialogue on the future of the European automotive industry.
The dialogue, which is scheduled to officially launch this month, aims to quickly implement the measures urgently needed by the sector.