EViF newsletter: Support grows for EU emissions targets tweaks, but so does frustration at legacy OEM lobbying
Concerted effort is now being applied by automakers with large non-EV European passenger car sales to water down the EU’s tightened CO2 emissions reduction targets due in force from January, both in Brussels and at national level.
But, while lobbying efforts have won support from the centre-right Czech and far-right Italian governments — and possibly now also from Germany and, outside the EU, the UK — there is pushback from climate thinktanks, trade unions and even from OEMs confident of hitting their individual targets.
And, in some quarters, frustration is palpable at carping from an industry that ransacked its customers during a post-pandemic supply squeeze and showered the proceeds on its shareholders, rather than investing them in ensuring they had more affordable BEVs ready on schedule for 1 January 2025, if not before.
The Czech and Italian governments have prepared a joint non-paper — a term for an informal document put forward in closed negotiations within EU institutions, most often the Council of Ministers, seeking agreement on a contentious procedural or policy issue — “calling for a renewed European automotive policy that balances competitiveness with climate goals”, Czech transport minister Martin Kupka told a Brussels forum organised by lobby group the European Automobile Manufacturers’ Association, or Acea, earlier this month.
Czech mate of the industry
“The European Commission should urgently address the potential threat of penalties by either postponing them or seeking alternative solutions to avoid further burdening the European car industry. Furthermore, the Commission should accelerate the review of CO2 emission regulations to 2025 rather than waiting until 2026. This adjustment is necessary to reflect current market conditions and provide the automotive sector with sufficient time to adopt without jeopardising its global standing,” Kupka said.
And, as if the politician could not have signalled any clearer that he’d been captured by lobbying by the continent’s legacy automakers, he repeatedly went on to call for “technological neutrality”. In other words, taxpayer money for the nonsense of FCEVs as a vehicle passenger solution and/or e-fuels to try to keep ICE expertise on life support for a little bit longer.
Kupka says that Bulgaria, Romania, Austria, Croatia and Slovakia are all supportive of the position put forward by Italy and his country. Ironically, both sponsor countries have seen their BEV sales grow year-on-year in the first ten months of this year — with a 60pc+ year-on-year jump in Czech sales making something of a mockery of Kupka’s statement that “people in the Czech Republic are afraid of e-vehicles because of the really high cost of e-vehicles”. That said, all-electric’s share of both countries’ overall sales mix remains below 5pc (see Fig.1).
Other supportive nations either have tiny year-to-date BEV sales below 2,000 units or, in the cases of Romania and Austria, larger volumes of all-electric sales but lower on an annual basis thus far in 2024. But the two sponsor countries may have caught a much bigger fish.
German wobble?
German newspaper Die Zeit is reporting that the country’s current leader and deputy leader, both left-leaning politicians, are supportive of postponing the levying of any fines for missed CO2 emissions limits compliance for 2025 — after the latter, economy minister and Green Party leader Robert Habeck, met his Italian counterpart in Berlin. Having Germany’s clout in the Council of Ministers behind any proposed changes favourable to legacy automakers would be a powerful tool for those pushing for a relaxation of the rules, and indeed the OEMs lobbying them on the issue.
The question is how effective current German ministers will be at influencing in Brussels, given that their government is currently a dead-duck administration. Habeck and his boss, Olaf Scholz, will also be distracted by politicking ahead of next year’s elections. That said, if OEMs with German manufacturing can persuade any party leaders that protecting the country’s automotive industry is a vote winner, the election campaign could potentially be turned to their advantage.
More generally, lobbying is definitely being ramped up as end of year approaches. Acea has put out no fewer than three releases:
since mid-September predicting doom for European car making if rules all OEMs have known about for years come into force as written, the most recent on Wednesday morning.
Individual OEMs are also weighing in. Earlier this month, the CEO of the Volkswagen brand laid out its troubles to German politicians (link here in German Stellungnahme VW).
And Ford announced that it would lay off 4,000 positions, mainly in Germany and the UK, blaming an “industry shift to electrified vehicles and new competition [that] has been highly disruptive”. It will also reduce planned production for its new Explorer and Capri BEVs, resulting in additional shortened working days at its Cologne plant in the first quarter of 2025.
“What we lack in Europe and Germany is an unmistakable, clear policy agenda to advance e-mobility, such as public investments in charging infrastructure, meaningful incentives to help, consumers make the shift to electrified vehicles, improving cost competitiveness for manufacturers, and greater flexibility in meeting CO2 compliance targets,” says Ford CFO John Lawler.
That is basically the legacy OEM argument in a nutshell — it is everyone else’s fault that BEV sales growth has underperformed and that is going to make 2025 challenging. Nothing to do with them failing to bring lower-cost models to market earlier, marketing campaigns that have continued to push higher-margin ICE and mild hybrid products and made little effort to tackle BEV concerns among their customer bases and, for those that have their own or joint venture charging arms, little enthusiasm to lead the pack in rolling out more chargers.
Market changes
The other question is whether there really has been any material change in market conditions that requires last-minute changes to be made to 2025 targets, or if this is pure opportunism by the legacy automotive industry. One slightly inconvenient statistic for those advocating for more delays is that there has not actually been any material drop in European BEV sales this year.
Yes, EU all-electric sales over the first ten months of 2024 are down by almost 5pc, with the big drop in German sales and a fall-off in Swedish demand significant headwinds, partially offset by continuing heavy growth in appetite from Belgium and Denmark (see Fig.2). But, while EU BEV volumes are down by 60,000 units year-on-year, across the wider 31-country EU+Efta+UK bloc, that figure more than halves to under 30,000 units, or a barely material 1.7pc drop (see Fig.3).
A small drop is, admittedly, still not the year-on-year growth momentum seen in previous years and expected to continue going into the new 2025 rules. But the majority of the difference between the EU and wider European data is a jump in BEV sales in the UK, which is already in the first year of its new restrictions on selling polluting cars, the ZEV Mandate — suggesting that stricter criteria work in incentivising BEV sales, rather than needing watered down because they look daunting prior to their introduction.
After a relatively slow start to the year, with UK year-on-year increases in all-electric sales failing to hit double-figure percentages in three of the first six months of 2024, growth rates have strengthened significantly in recent months (see Fig.4).
The end of last year also saw a marked deceleration in UK BEV growth momentum across its last four months, as manufacturers delayed sales into the new year to aid mandate compliance, likely contributing to the healthy year-on-year increases seen in January and February this year. OEMs in the EU are almost certainly doing something similar at present — VW has admitted as much — further depressing both data and sentiment around continental Europe’s BEV sales as we head towards year-end.
The UK’s acceleration has seen it move some 37,000 all-electric units ahead of where it stood last year (see Fig.5), albeit a BEV passenger car market share of 18pc year-to-date still puts it below the headline 22pc required in the ZEV Mandate’s first year. Consultancy Cox Automotive expects increasing outperformance in the final two months of the year, forecasting UK BEV sales to hit almost 415,000 units — up by almost 100,000 units and a 32pc year-on-year jump.
And it predicts that the ZEV Mandate will keep delivering, with UK all-electric volumes set to increase each year to hit c.735,000 BEVs sold in 2027 (see Fig.6). But, despite the current and predicted growth in a market where, thus far this year, sales of pure gasoline and diesel vehicles have slumped by 11.6pc and 22.3pc respectively, UK sellers are not happy.
Acea’s equivalent lobby group the Society of Motor Manufacturers and Traders (SMMT) has this week released its own version of its Brussels counterpart’s demand for changes to be made to the UK scheme, having also spent the last three months caveating positive BEV sales figures with dire warnings about “heavy”, “massive” and finally “unsustainable” discounting delivering the increases. SMMT chief Mike Hawes says his organisation now expects to see 116,000 fewer BEVs sold in the UK this year than previous forecasts on which the mandate was based, meaning a £6bn ($7.6bn) cost to sellers in 2024 alone.
A relatively new UK government — under pressure after several real and perceived economic missteps — has proven willing to listen. Its business minister is concerned that the ZEV Mandate is “not operating as intended” and has announced a review of the framework, albeit his party is sticking by the longer-term aim of no new ICE sales from 2030.
OEMs have also been ratcheting up the pressure for changes to the vehicle emissions trading schemes (Vets). “Current market challenges are making the Vets scheme unworkable,” says Lisa Brankin, managing director of Ford UK. “We welcome today’s reports suggesting that there will be a fast-track review of the scheme.
“Current demand for electric vehicles is lower than expected and not in line with the mandated trajectory. For manufacturers like Ford who have invested billions into new technologies and advanced manufacturing, there needs to be greater flexibility built into the scheme and government-backed incentives to help encourage customers to make the switch,” she continues.
End of the line in Luton
Confirmation a long-threatened closure of a van plant in Luton, just north of London, by Stellantis has also increased the temperature in the UK. What is interesting is that much of the media coverage of the news has been around the firm blaming the ZEV Mandate for the decision — perhaps unsurprisingly, given that Stellantis CEO Carlos Tavares has previously explicitly threatened that, if the mandate was not watered down, Stellantis could offer no guarantees about the future of either its UK facilities at Luton or at Ellesmere Port in northwest England.
But Luton does not yet make any electric vans and, according to UK industry eminence grise Andy Palmer, exports around three-quarters of the ICE vans made there. So it is difficult to see exactly how the closure and UK regulations on increasing EV sales are linked. Indeed, Stellantis has in parallel to the Luton announcement confirmed an additional £50mn, on top of a £100mn investment in electrification in 2021, towards “strengthening Ellesmere Port as its sustainable LCV hub in the UK”.
The firm will now make an additional the medium-sized e-van in its K0 range there, rather than at Luton, as it aims to “remain the UK market leader in electric LCVs”. Stellantis can boast 32,000+ all-electric vans sold in the UK thus far.
None of this sounds like the ZEV Mandate has drastically altered the firm’s thinking; more that a rational consolidation of operations has taken place.
And indeed Stellantis’ press release is noticeably coy about any linkage, simply acknowledging that the regulations are “stringent” and that the decision has been taken “within the context of the UK’s ZEV Mandate”. That this constitutes ‘blaming’ the new targets for Luton’s closure seems quite the leap.
It is also worth noting that, when Acea came out with the second of its doomsday prophecies on the impact of the new EU rules, Stellantis chose exactly the same day to put out its own statement that it is on track to meet next year’s requirements. “Our strong growth in key electric segments and standout performance across several markets demonstrate our commitment to meet EU regulations,” said Jean-Philippe Imparato, Stellantis’ chief operating officer, Enlarged Europe.
The firm’s direct contradiction of the Acea view might stem from the same animus that saw it decide to quit the group in 2022 in what it called a shift away from lobbying. But it nonetheless serves as a reminder that not all European OEMs are on the same page about the need to water down the EU’s plans.
Need for tinkering
Similarly, there remains disagreement from analysts on just how onerous the scheme will be. Perhaps unsurprisingly, environmental NGOs suggest that the continent’s vehicle sellers face challenges that are surmountable and regulations should remain as are. Equally predictably, an analysis from consultancy S&P Global Mobility, but commissioned by Acea, concludes the opposite.
A study by the International Council on Clean Transportation (ICCT) in October concluded that achieving the 2025 CO2 targets is “within reach, considering historical CO2 reductions, regulatory flexibilities, and powertrain types and technology availability”. It does, though, acknowledge that all but Volvo of the 10 largest European manufacturers will need to lower their CO2 emissions to meet 2025 targets.
Manufacturers will need to raise the share of BEVs in their sales mix at most by an average of 12 percentage points, from 16pc in 2023 to about 28pc by 2025 (see Fig.7), it concludes. But this rather daunting figure is required only if OEMs did nothing else to bring down emissions, such as selling no more hybrids or more efficient ICEs, or did not pool with automakers that have credits to spare.
Less dauntingly, the ICCT found that average CO2 reductions needed between 2023 figures and 2025 targets is c.12pc, only about half the 23pc fleet-average CO2 reduction observed between 2019 and 2021. And the increase in BEV market share required should OEMs pool in a logical way is only c.1–1.5 times as high as the 2019-21 jump, which was achieved in more challenging circumstances. “This ramp-up of BEV sales from 2019 to 2021 occurred despite limited BEV model variety and fewer charging stations at the time,” it says.
And it also expects CO2e reductions could accelerate more rapidly as soon as we get to 2025, making targets more achievable. While emissions rose by 1pc annually from 2015 to 2019, they fell by 1pc monthly from 2019 to 2021, after stricter targets were introduced, it notes.
Brussels-based thinktank Transport & Environment (T&E) has a similar view. “As with past car CO₂ targets, carmakers are expected to close their compliance gap in the target year, rather than ahead of time (see Fig.8),” it suggested in September, noting that — between 2019 and a new target in 2020 — carmakers furthest away from their targets improved their CO₂ performance by 20 gCO₂/km.
In the first half of 2024, most carmakers are closer than that to the improvements required to meet their 2025 target, with gaps ranging from 10-17 gCO₂/km, T&E finds. It calculates Volkswagen and Ford — as we have seen, two of the most vocal individual OEMs for changes to next year’s targets — are the furthest behind with gaps of 28-29 gCO₂/km (see Fig.9).
“It is crucial to stress that the 2025 target is not an electric car mandate and, technically, no mandatory EV sales share is necessary,” T&E says, showing acute awareness that critics of the new regulation are using them as a stick with which to beat BEVs. “The target, proposed back in 2017 and unchanged since then, is a CO₂ average: selling more efficient petrol cars (or fewer SUVs) helps as much as selling electrics.”
Nonetheless, T&E’s central scenario does see BEVs in the EU rising to a 24pc market share in 2025, up from 14pc in the first half of 2024 (see Fig.10). But that figure would have to rise only to 20pc “if all carmakers focus on improving their ICE efficiency, selling more hybrids and reducing the sales of the polluting SUVs”, the thinktank suggests.
A crucial part of that growth is expected to come from the ramp-up of BEVs launched this year and the arrival of further new models next year when the stricter regime comes into force, most of them lower cost and targeted more at the mass market. T&E expects seven affordable models with prices starting below €25,000 ($26,400) to be available in 2025 (see Fig.11), as part of 26 new BEV launches in total across Europe’s largest OEMs.
S&P paints a much less rosy picture. At the start of the year, it was forecasting BEV sales to reach close to 11mn/yr in 2036 as all-electric reached 100pc of the sales mix by 2035 as mandated, the firm’s research and analysis associate director Xavier Demeulenaere told Acea’s Brussels event.
Since then, it has reduced its projections all the way out to the middle of next decade, taking a cumulative 19mn all-electric units out of its forecast. It now expects 2025 BEV market share to rise only to 21pc.
“In our previous forecast, we had emissions… reducing steadily,” Demeulenaere says. “For the whole EU market, it was expected that the targets could be reached in 2025, 2030 and 2035. Of course, this is an EU average, so in practice it does not mean that every single OEM is able to achieve their individual targets. But at least it means that the regulator can be satisfied that the legislation reached its overall objective, and OEMs have the opportunity to use pooling to completely avoid financial penalties.”
But the revisions to S&P’s forecasts mean that, on average, 2025 emissions will be 7gCO₂/km higher than previously expected, meaning an increase of potential financial penalties to non-compliant OEMs, without pooling, from €4.9bn to €11.9bn. “Let's keep in mind that pooling remains an option to mitigate these penalties to an extent, and so these numbers can be seen as an upper boundary,” Demeulenaere cautions.
But the new forecast “does mean that, even with extensive use of pooling, there won't be necessarily pooling opportunities for everyone”, he suggests. And that conclusion — unexpectedly slower BEV sales mean higher-than-expected exposure to liabilities — conveniently tallies well with S&P’s client Acea’s worldview.
Even then, the consultancy sees possible solutions to ameliorate the position. “For the short term, the obvious challenge for most OEMs is to sell more EVs next year. This can be promoted through discounting and… the second lever is to delay deliveries of EVs until January,” Demeulenaere continues. “So any slump in EV registrations during Q4 could be seen as a positive, or at least as a kind of strategic planning by OEMs to mitigate the impact next year.”
Pooling will also have a material impact. “There is a financial cost associated with pooling, for sure, but lower than the fines. So, there is no reason that this flexibility won't be used to the largest extent possible. Again, that's a way to mitigate, to reduce drastically these numbers I've shown. This is kind of an upper boundary of the financial risk,” he admits.
Grounds for agreement, plenty of differences
There is, in fact, many areas where the automotive industry and those pushing the environmental imperative to continue and accelerate the switch to BEVs agree. An EU industrial strategy on how to access more competitively the raw and processed battery materials required to build EVs in Europe in volume; huge expansion of the continent’s generating capacity to both provide cheaper energy for this manufacturing and feed a grid that will need to support an upsurge in EV charging demand (among many competing increases in appetite for power); and continuing incentives to stimulate buying interest at national level are all areas where there is consensus among a breadth of stakeholders.
But there is, at times bitter, disagreement that offering relief from potential non-compliance with tightened CO2 restrictions is part of that toolkit. And those arguing against change are frustrated by what they see as weasel words about threatened investment from a European automotive industry that has prioritised shareholder returns over R&D spend in recent years — as well as the argument that decisions on changing the framework should be taken before we get to 2025 and see how things might play out.
“We wouldn't call it a crisis, even though I agree it's a very difficult situation, but more of a painful but necessary transition,” Julia Poliscanova, senior director, vehicles & e-mobility at T&E told Acea's Brussels event. “I think it's important to maybe also ask ourselves why. It's not because of the CO2 standards that this is happening.
“Some of it is self-inflicted. We have been slow to innovate and transition to the technologies that are now just taking over the automotive markets globally.”
This innovation will quicken as we get into 2025. And that is exactly why T&E advocates waiting to see what plays out, rather than making changes in advance.
“It's really wrong to analyse what will happen in 2025 based on the first half of 2024 — it's not representative,” Poliscanova argues. “The slow 2024 EV market was always predicted. Yes, Germany adding their decision [to cancel subsidies in December last year] of course added more woes, but it was always there.
“2025 is a different game. At least 12 affordable EV models are coming to the market by European manufacturers because of the 2025 target. If we remove that, it's really game over in Europe, because we'll just never catch up,” she continues.
“There is almost no European electric car model under €25,000. It doesn't exist. But they are all coming, they are all literally being planned, as we speak, at the end of this year, to coincide with the target next year. And this is not a coincidence. They are being put there because the manufacturers need to increase the sales, and this is the way to go to the mass market (see Fig.12).
“I'm not saying, ‘oh, you bring that model, everything will be rosy.’ But let's first see how those European affordable models actually do. Everything we've seen so far, following the EV market, points to if cheaper EVs were there, people will start buying them. Let's bring them to the market, see how they are doing, before already putting a cross on it saying it will never work,” Poliscanova requests.
“The answer… is not a simple, ‘oh, let's just delay the target by two years.’ Frankly, it won't change much. We will only be further behind,” she concludes.
And she stresses that the report prepared by former Italian prime minister Mario Draghi on the bloc’s competitiveness, which has been much quoted in EU circles this year, concluded that CO2 reduction “targets are not the problem”. “He's not asking to remove the targets, so let's actually just take this on board and focus on the plan, as opposed to reducing the targets or frameworks,” Poliscanova suggests.
Perhaps unsurprisingly, Sigrid de Vries, director general at Acea, disagrees with this wait-and-see approach. “We're really in a tough spot, in a way tougher spot than I think any of us expected two, three years ago. And that is a problem,” she argues.
“I'm... happy with the support that we see [from EU] member states —the Commission, I think, needs to listen carefully to that. We're seeing promising signs also in the European Parliament and now is the time; now it needs to happen,” de Vries says.
She also denies that 2025 is a facsimile of 2020, with OEMs sitting on their hands until the rules change, then reacting. “This is not history repeating itself. We're in a very different situation.
“Why? Because we're moving from a market of early adopters — the first 10-20pc of people making that change to electrification — to a mass market adoption of this new technology. shifting one engine for another in a car,” de Vries says.
“It needs a mentality shift for the consumer, it needs the charging infrastructure to be in place, it needs market stimulus and market encouragement. And all of that is not in place, or at least not to the extent it should be there. So being now at hardly above 10pc in terms of EV market share — in a depressed market, so fewer vehicles sold — and having to go to 20pc within a year's time is really not comparable to before.”
Nor is she convinced that the arrival of more affordable BEVs will be a magic bullet. “Vehicles are not the bottleneck, they are available. But, unfortunately, many other factors in this equation don't add up in the way they should to accelerate,” the Acea chief laments.
“What we really need to get to is this self-propelling market. And it's not just delivered by putting affordable vehicles on the market. That's one part of the equation. And it is happening and we're proud that that's happening.
“But in order to make profitably smaller cars in Europe, we need the volumes to be taken up, which is a difficult way of saying that there need to be people and drivers buying these vehicles. And we're missing the numbers there. That's not entirely strange. It's always a bit [of] new technology start[ing] in smaller volumes,” de Vries concludes.
Shareholder bounty
What is a more controversial issue is whether OEMs are justified in warning that having to potentially pay more in penalties from next year puts at risk the investments they are making into electrification. Certainly, the well-lobbied Czech minister is convinced. “To bring penalties, instead of opportunities to invest, is definitely a mistake for the future,” Kupka asserts.
But others are much less amenable to this argument. “If we look at what has actually happened over the past few years, in terms of European OEMs, what we've seen is profit maximisation strategies,” Judith Kirton-Darling, deputy general secretary of Industriall Europe, a trade union group representing manufacturing, mining and energy workers, told the Brussels event.
“If you look at global dividends, Europe is leading the world in terms of dividends and shareholder returns — €46bn given to shareholders in the last report... by an independent agency. The automotive sector is one, alongside pharmaceuticals, that is leading that shareholder value approach. So I'm all for calling for an agenda which is about recognising the investment in R&D — we also know the automotive sector is leading in R&D.
“But there has been this enormous extraction of investment,” Kirton-Darling argues. “There are some very big players in the European automotive sector who are very explicit about their profit maximisation strategy and are proud of it.”
And she says that represents “asset stripping” by legacy OEMs. While the trade unionist acknowledges that there are missing elements in EV policy framework and in terms of demand stimulation, there are “also bad corporate decisions on the other side”.
“What we've seen post-Covid is great for shareholders,” agrees T&E’s Poliscanova. But she warns that while value-over-volume strategies may have “doubled the profit margins per vehicle for manufacturers”, it has also “meant that they look at the products differently”.
T&E research finds that OEMs can already bring to market sub-€25,000 BEVs made in Europe with LFP batteries at a 5pc profit margin. But Poliscanova suggests that this is “not attractive to them given the strategy they're following”. “They are bringing those [sub-€25,000 models] next year because they have to, because of the European CO2 targets,” she continues, rather than because they are enthusiastic about their profitability.
Acea is obviously highly sensitive to the idea that it is a bit rich to be complaining about possible fines next year damaging investment when its members have lavished cash on dividends and share buybacks in recent years. But it does not have a particularly compelling counterargument.
“This industry is indeed leading in R&D investments. It's also leading in highly skilled jobs. It's also leading in paying high salaries to its workers and making for high quality jobs and work circumstances. So there is a lot to be said in favour of this industry,” de Vries offers.
“Yes, they may be leading in shareholder policies as well. But I think that's part of the equation. You need to make profits; you need to pay shareholders that are willing to take risk in order to support you going forward and make the sustainable investment in innovation and in mobility and transport going forward.”
