Changing European vehicle mix ‘vital to meet 2020-21 EU emissions goals’ – Scope

Europe’s car makers are mostly on track to meet more stringent 2020-21 EU carbon emission targets, helped by a subsidy-fuelled boom in electric vehicle sales, pooled carbon-dioxide emissions credits and incremental gains in conventional engine technology.

European credit ratings agency Scope Ratings says that the chances of any of original equipment manufacturers incurring heavy fines for missing the EU’s carbon-dioxide target of 95g/km for 2020-21 are low, even though not all OEMs will meet the regulatory threshold for average fleet emissions.

“Management is far more likely to sacrifice profitability than reputation,” says Werner Stäblein, analyst at Scope. “If push comes to shove, the OEMs will prioritise getting as many low-emission vehicles out of the showrooms as possible this year and next to hit the emissions targets and avoid penalties,” he says. “The OEMs will prefer a ‘selling expense’ to a ‘fine’ which, after all, have an identical impact on the bottom line,” says Stäblein.

The OEMs have invested in low-emission technology – mostly plug-in hybrid electric vehicles (PHEVs) rather than battery-electric vehicles (BEVs) – so that the share of BEVs/PHEVs in the sales mix this year and next should be enough to avoid potential EU fines.

“The car makers have also taken advantage of the flexibility built into the EU regulations offering indirect ways of reaching the targets such as pooling emissions performance and gaining credits from approved emissions-reducing innovations,” says Stäblein.

BMW AG is the least at risk of missing the EU’s targets among Germany’s big three auto makers. Daimler AG and Volkswagen AG have some work to do yet, according to analysis by European association Transport & Environment.

Daimler, for example, may top up government subsidies for electric vehicles with its own incentives to ensure sales ramp up in the fourth quarter to ensure all but a minimal fine. “Even if the 2020 target was missed by 1 g/km or 2g/km, any penalty would not be relevant from a credit perspective,” says Stäblein.

Volkswagen is relying on sales of recently introduced BEVs – such as the VW ID.3 and ID.4, Skoda ENYAQ, and Seat el-Born – to bridge the gap of about 5 g/km, estimated by T&E, by the end of the year. Volkswagen also has a back-up plan through an emissions pooling agreement with MG Motor, a unit of its Chinese joint-venture partner SAIC Motor, to ensure it hits the EU target. Fiat Chrysler Automobiles has a similar agreement with Tesla Inc. as does Toyota Motor Corp. with Mazda Motor Co.

The mid-year introduction of new subsidies for buyers of low-emission vehicles in France, Germany and other countries may prove to be the biggest help to OEMs as governments try to help cushion the industry from the worst economic effects of the Covid-19 pandemic.

“Europe has the world’s hottest EV market right now thanks to new government incentives which coincide with the availability of a wider range of models,” says Stäblein. Sales of electrified vehicles boomed in the first half, representing 8 per cent of all vehicles sold in the European Economic Area – EU member states, European Free Trade Association members and the UK – a tripling in volumes from the same period in 2019.