Despite huge focus on plug-in alternatives, average emissions from new passenger cars are heading in the wrong direction. After a big reduction of 22 grammes of CO2 per kilometre since 2008, averages have since risen back to 2014 levels and are still going up. This is the worst possible news for car makers as new rules come into force at the turn of the year requiring EU vehicle fleet averages to be less than 95g/kM. In response, car makers are introducing contingencies that fix the market supply of larger more polluting ICE models.
Potential fines are crippling. Every gramme over the target incurs a penalty of €95, multiplied by the number of cars sold in Europe. For leading groups such as Volkswagen or PSA, the bill could easily run to ten figures. Collectively car makers face fines of over €25 billion. Progress has been blown off course by a perfect but reasonable predictable storm. There are cries of moving goal posts from car makers, who claim that technologies introduced since emission targets were introduced in 2008 would have easily delivered.
A large gap in the market unnecessarily created by the demonisation of diesel engines has been filled by sales of petrol vehicles that on average emit 20 per cent more C02. London has excluded most older diesel cars using a charging zone, while Bristol will ban all diesel cars in some central areas. Several German cities including Hamburg, Berlin and Stuttgart — the home of Porsche and Mercedes — have imposed limited bans. Even though many bans still permit the use of the very latest diesel models, many confused motorists are now reluctant to buy for fear of market managed obsolescence.
Bigger (more profitable), gas guzzling SUVs have become a hugely popular vehicle design of choice, increasing market share to around 35 per cent. Since 2013, SUVs’ sales impact on CO2 emissions is ten times that of the decline in diesel.
Electric vehicle take up has been too slow. Still less than 3 per cent in the strongest EU markets, despite years of generous Government incentives. Poor charging infrastructure is also blamed.
So, still much to do. And car makers are planning radical steps, which include limiting supply of popular models.
The impact of adhering to the new emissions standards is significant. For Europe’s carmakers, an industry that supports close to 14 million jobs, the change has deep business implications. The huge capital injection required for electric vehicles means they make less profit at low volumes than their mass market cousins - leaving less money to funnel into new models.
Carmakers could meet the regulations simply by withdrawing the most polluting models and selling battery cars at huge discounts. The net profit effect being broadly similar. There is some slight latitude. During 2020, only 95 per cent of vehicle sales are included. This window closes the following year, when all sales will count.
As a result Ford plans to axe 7,000 jobs, Daimler 10,000 and Volkswagen’s Audi another 10,000. As well as selling less profitable cars, carmakers are also seeing a reduction in their total sales, forecast to be a 4 per cent decline next year.
All this leads carmakers to consider how they can manage the targets while keeping a profitable sales line-up intact. PSA has reorganised its dealer bonus scheme from the number of cars sold to one based on the carbon impact of those vehicles. For years, Nissan dealers were incentivised not to sell its Leaf electric car — the model was the only car in the line-up that did not feed into their bonus targets. That deterrent is set to be dropped in the new year.
German manufacturers are expected by many dealers to cut production of the most polluting models. For instance the Mercedes AMG range is likely to see a reduction of 75 per cent in the availability of some models. Even among its mainstream line-up, the company is expected to restrict sales of 3-litre engines in its smaller and medium-sized vehicles, pushing consumers towards less powerful models. It has also delayed the US launch of its new electric SUV, the EQC, to help focus on European sales next year.
Mazda, which is already pooled with Toyota, plans to axe some versions of its MX-5 sports car, while telling retailers to expect a 20 per cent reduction in sales in 2020.
Another group playing catch-up is Ford, which is not due to begin selling any fully electric models in Europe until the end of next year. Instead, it is installing small 48v batteries in its cars to turn them into “mild hybrid” vehicles that can make fuel savings of about 10 per cent, for significantly less cost than turning them into fully fledged electric vehicles, says Stuart Rowley, Ford’s European president.
It is reported (by the Financial Times) that Kia is telling expectant electric vehicle customers they can’t fulfil orders until the turn of the year, when vehicles will count towards emissions targets.