Automakers Shift Limit-Setting Deadlines to the Final Moment
Instead of investing in affordable electric vehicles, German car manufacturers have been focusing on profitable gas-guzzling SUVs for years. Consequently, the environmental impact of new cars in Germany has worsened for the second year in a row. Companies like Volkswagen are running out of time to avoid penalties.
When it comes to environmental protection, it appears that the German automotive sector is failing to move forward, and instead, is taking a step back. Data from the Federal Motor Transport Authority indicates that the average CO2 emissions of newly registered passenger cars are on the rise - for the second consecutive year. Since the abolition of the electric car subsidy, diesel and gasoline-powered vehicles are regaining popularity.
From an environmental standpoint, this is good for car companies, according to Sebastian Bock, CEO of the European environmental and transportation organization T&E (Transport and Environment). "For instance, Volkswagen is intentionally pursuing a 'Value over Volume' strategy. This means they prefer to sell fewer cars, but ones that generate the maximum possible profit. Since these are often large and heavy gasoline engines, this is reflected in the CO2 emissions," Bock told ntv.de.
The EU has a plan: zero emissions by 2035
This situation needs to be rectified urgently. Starting in 2025, car manufacturers will face stricter CO2 fleet limits for the first time in five years. The overall goal is to reduce the average CO2 emissions of newly registered cars by 15 percent, to 93.6 grams of CO2 per kilometer (g CO2/km) by 2025.
These targets are part of an EU plan adopted in 2019, which calls for a gradual reduction of fleet limits. The goal is "combustion engine phase-out": from 2035, only cars that no longer emit climate-harming gases will be allowed on the road. Cars that are already registered will not be affected by the zero-emission requirement.
However, achieving climate neutrality will not be easy. While it has been possible to reduce the CO2 emissions of new vehicles in the EU by 28 percent since 2019, the reduction has recently slowed significantly.
Tighter climate targets drive electric car sales boom
This is not surprising to T&E analysts. Because the EU's CO2 targets only change every five years, there is little incentive for car manufacturers to continuously promote low-emission vehicles. Instead, the electric car market thrives in phases: sales stagnate when limits remain the same, but tighter climate targets trigger a boom. "Manufacturers only meet the targets in the year when the stricter limits actually take effect, not before," says Bock. "Until then, they try to maximize profits from the gasoline engine market."
The situation in Germany, Europe's largest and most important car market, is critical for the overall balance. No other EU country registers more cars than Germany each year. "The narrative that electric car sales are declining across Europe is often promoted," says Bock. In actuality, electric car sales increased by 1.3 percent in the first half of 2024 compared to 2023. "Exclude Germany, and the increase is over nine percent," Bock continues. "Germany acts as an anchor for Europe, slowing down the electric mobility transition."
Volkswagen has faced fines before
To meet the CO2 limits set for 2025, manufacturers will need to significantly boost the sale of battery-powered and low-emission hybrid vehicles. If they fail to meet their individual fleet targets, they face fines in the millions. For each gram over the limit, they will have to pay 95 euros per vehicle.
Volkswagen has already experienced this: in 2020, the company narrowly missed the EU climate targets, and the fine was around 100 million euros, less than feared. For comparison, Volkswagen's annual profit in the same year was nine billion euros. "We're not dealing with an industry that is struggling or lacking available funds for investment," says mobility expert Bock. "European car manufacturers made over 130 billion euros in profit in the last two years."
Once again, complaints about the tightening of limits are being heard. The goal cannot be achieved, and more time is needed, some in the auto industry argue. Otherwise, job losses in the millions and even plant closures may occur. In a leaked internal position paper, the European Automobile Manufacturers' Association (ACEA) proposes to the EU Commission to shift the fleet targets by two years using a crisis clause.
However, manufacturers have had years to prepare for the transition to electric mobility, criticizes the transportation association T&E. In fact, at least some of the industry is quite well-positioned just before the new rules take effect, an analysis shows.
Data from the first half of 2024 suggests that most manufacturers will meet their requirements next year. However, there are significant differences. Volvo, for example, has already surpassed the 2025 targets this year, according to T&E. Kia and Stellantis, the parent company of Opel, are close to reaching their goals. BMW is also optimistic and has good chances of achieving its already high fleet share of alternative drives. Ford and Volkswagen, however, will need to make an effort to avoid potential fines. Especially Volkswagen is relying on boosting the sale of both fully electric and low-emission hybrid vehicles.
On another note, EU regulations provide multiple avenues for manufacturers to dodge fines. Firms can establish what's known as "pools" and offset their CO2 emissions. In 2022, brands like Honda, Jaguar, and Land Rover managed to surpass the average fleet balance due to this, having partnered with Tesla. As Bock explains, "Tesla, of course, charges for this service."
At the last minute: Manufacturers shift their tactics
It's more cost-effective for firms to hit the fleet targets independently. In fact, numerous manufacturers have started altering their vehicle models and pricing strategies to comply with the new environmental regulations, notes mobility expert Bock. By 2025, he anticipates substantial price drops and an abundance of electric vehicles - including budget-friendly models under 25,000 euros. This could potentially boost the share of electric vehicles in overall sales to a substantial 20-24%. According to T&E, this forecast might come true.
It's quite remarkable how long this trend reversal took, considering China's situation. EV costs there have halved since 2021, largely due to lowered battery prices. However, in Europe, EVs have become 33% more expensive over the same period, primarily catering to the luxury market segment. But with EU climate fines looming, this market approach seems less attractive. Consumers can expect cut-throat competition in the EV market as a result.
Despite the EU's plan to achieve zero emissions by 2035, many European car manufacturers, such as Volkswagen, have been prioritizing profitable gas-guzzling SUVs over affordable electric vehicles. This strategy has led to a rise in CO2 emissions in newly registered passenger cars in Germany for the second year in a row.
In an effort to meet the tighter CO2 fleet limits set for 2025, car manufacturers will need to significantly increase the sale of battery-powered and low-emission hybrid vehicles. If they fail to meet their individual fleet targets, they will face fines in the millions of euros.
