6 February 2020
Neil King, Autovista Group’s Senior Data Journalist considers the fines facing carmakers as the new regulations on emissions come into force. In this second part, King highlights the magnitude of the challenge that OEMs face in meeting their respective targets.
From 2021, the average emissions target is set at 95g/km CO2. For every 1g/km of CO2 that a manufacturer exceeds its average emissions target by, it will be fined €95 multiplied by its volume of new-car registrations in the preceding year.
However, the highest-polluting 5% of new cars registered in 2020 are excluded from the 2021 fines calculations, which serves as a transitional phase for carmakers. Based on analysis of data distribution, Autovista Group calculates that this would reduce CO2 emissions figures by about 7%. From 2022 onwards, full compliance of all new cars is required (i.e. new cars registered in 2021 onwards).
Nevertheless, car manufacturers in the EU are not expected to meet the new 95g/km target and could face fines amounting to more than €20 billion in both 2021 and 2022. All major carmakers are expected to miss their respective emissions targets under this new regime. The rise in CO2 emissions again in 2019 does not bode well for carmakers and failure to meet their targets would also put them at a major disadvantage in reaching the 2025 and 2030 CO2 targets agreed in December 2018.
The chart below indicates the total fines that would be imposed for exceeding the 95g/km CO2 target in 2021 and 2022, based on 15 million new-car registrations. Autovista Group has used this figure, which is supported by the ACEA forecast of a 2% decline in new-car registrations in 2020, to calculate the total fines by emission level.
Fines for exceeding the 95g/km EU CO2 target in 2021 and 2022, emissions range 95g to 125g, 15 million new-car registrations
Push for electrification
Manufacturers are therefore pushing ahead with electric vehicle (EV) plans to meet, or come as close as possible to, their respective emissions targets. Additionally, carmakers are expected to offer healthy discounts on EVs and are also expected to pre-register them, especially towards the end of the year. This would, however, have a detrimental impact on their residual values.
The number of EVs on sale in Europe is set to more than triple to at least 200 by 2021, according to a recent report published by Transport and Environment (T&E). It remains uncertain, however, whether consumer demand for EVs will increase to meet supply given both the lack of sufficiently enticing tax incentives and concerns over both the charging infrastructure and charging times.
Nevertheless, average emissions should reduce from this year onwards. Assuming they return to the 2017 level of 118g/km in 2020, Autovista Group estimates that this would equate to about 110g/km when the 95% compliance rule is factored in. At this level, carmakers would face total fines of €20.3 billion in 2021, based upon 14.25 million new-car registrations (95% of the 15 million registrations forecast for 2020).
Even if EU-wide average emissions further reduced from 118g/km in 2020 to 110g/km in 2021, full compliance applies and so the fines would actually rise to €21.4 billion in 2022 in this scenario.
The chart below shows the fleet average emissions of 10 leading OEMs in Europe in 2017 and their 2021 emissions targets. Full details of how the emissions targets are calculated for each manufacturer are provided in “Annex 1” of EU regulation 2019/631, released on 17 April 2019.
For example, Toyota would only have to reduce their average fleet emissions by 9g CO2/km (9%) from their 2017 level to meet their new target. However, FCA Group would need to lower their emissions by 29g (24%). This largely explains why FCA is paying US EV manufacturer Tesla to pool its emissions figures in Europe. The move would bring FCA’s average CO2 emissions down by offsetting the company’s petrol and diesel vehicles from Fiat, Jeep, Alfa Romeo and Maserati against the zero-emission outputs of Tesla’s EVs.
2017 emissions and 2021 emissions targets by OEM
Assuming again that carmakers reduce their average emissions back to the 2017 level in 2020, including super-credit multipliers1 and eco-innovation credit2, and gain the same market share as in 2019, Autovista Group has calculated the fines major carmakers would face for missing their respective emissions targets.
The total bill for the 10 carmakers featured above, based on 2017 emissions levels but factoring in the 95% compliance rule, would amount to almost €17.1 billion in 2021, In this scenario, Volkswagen Group (VW) faces the largest fine (over €5 billion) and Toyota the lowest (€121 million). This tallies with a recent survey conducted by Autovista Group, in which respondents voted overwhelmingly for Toyota as the favourite to avoid a fine or pay the least amount should it breach its CO2 target.
Assuming manufacturers lower their emissions by 7% in 2021, in line with the EU-wide reduction from 118g in 2020 to 110g in 2021 outlined above, the total bill for the 10 carmakers, applying to all new-car registrations, would amount to €18 billion in 2022.
Indicative fines for exceeding emissions targets, major carmakers, € billions, 2021 and 2022
Source: Autovista Group based on ICCT and ACEA data
Given the magnitude of the fines, carmakers are embarking on numerous initiatives to reduce their CO2 emissions and, ultimately, lower the fines payable if they do not meet their targets.
- VW will create a number of joint ventures and help to finance battery production in its aggressive push for mass electric-vehicle manufacturing. The company is now focusing entirely on battery-electric vehicles (BEVs) and not on hybrids. This is a completely new strategy for an OEM and one that not all OEMs are adopting, for various reasons.
- PSA Group announced its plans to produce electrified vehicles back in January 2018 as the market adapted to future mobility trends. CEO Carlos Tavares stated that the French group plans to bring electrified options to its full-car and light-truck line-up by 2025. In total, 40 electric or hybrid models will be on offer across its five brands.
- Fiat Chrysler Automobiles (FCA) is paying EV manufacturer Tesla to pool its emissions figures in Europe. FCA aims not to have to pay fines for failing to comply with the CO2 targets set by the EU for 2019 and 2020. The company will also launch plug-in hybrid (PHEV) versions of its Jeep Compass, Renegade and Wrangler models and is planning to refresh its model line-up in Europe with a focus on two of its biggest sellers, the 500 and Panda.
- Renault is to reduce its diesel range in Europe as it looks to expand its hybrid presence in the region. Renault will launch PHEV variants of its Megane and Captur models, as well as a hybrid version of its Clio, starting from 2020. The diesel powertrain offer at Renault will be cut in half in the coming years.
- Nissan will discontinue diesel sales in Europe from 2021 and has pledged to launch eight new EVs and hit annual sales of one million electrfied vehicles by 2022.
- Kia is hoping that it can rely on sales of BEVs to meet 2020 and 2021 emissions targets but is exploring contingency plans should this leverage of BEVs not suffice.
- Ford and VW have announced details on their joint development of both electric and autonomous vehicles. Ford expects to deliver more than 600,000 vehicles using VW’s electric MEB platform over six years.
- Daimler, in the wake of rising emissions levels, is pushing forward more aggressively with its electrification plans and has highlighted the importance of PHEV models on the road to zero-emission driving.
- BMW has announced plans to advance its rollout of EVs in a bid to convince investors that it can catch its rivals in the race to be a market leader. The carmaker has confirmed that Oliver Zipse will replace Harald Krüger as its CEO. One of the believed reasons for Krüger’s downfall is BMW’s current position with EVs.
- Jaguar Land Rover (JLR) has confirmed investment of millions of pounds to build EVs in the UK. The carmaker will reportedly aim to offer an electrified option to all its models from 2020, the majority of which will be built at its Castle Bromwich plant. CEO Ralf Speth, who has recently announced he is stepping down, has said the price of batteries for EVs will not come down for up to five years.
- Toyota has brought forward its goal of selling 5.5 million electrified vehicles by five years to 2025. This includes petrol-electric hybrids, PHEVs, BEVs and hydrogen-fuel-cell vehicles (FCVs). BEVs are expected to make up nearly one million of these sales.
This analysis highlights the phenomenal challenge that OEMs are facing in Europe in order to avoid paying fines amounting to billions of euros. Above all, OEMs are very serious about pushing electrification into their portfolios and they are certainly not just paying ‘lip service.’ The volume of new cars they register in 2020 and 2021, and the powertrain mix, will be critical for the future reduction of emissions.
1 Super-credit multipliers increase the weighting of cars that emit less than 50g CO2/km in the calculation of a manufacturer’s average CO2 emissions. These low-emission cars will count as two cars in 2020, 1.67 in 2021, and 1.33 in 2022.
2 Eco-innovation credits reward innovative technologies that produce real-world CO2 savings and these savings also count towards manufacturers’ CO2 targets.