Only massive electrification can save OEMs from monster fines

The European Union will fine car makers a total of €14 billion in 2021 if they fail to intensify their CO₂ reduction efforts. That is the conclusion of a report published by consultancy IHS Markit.

For a few years, European consumers have been turning their back on diesel, while at the same time switching to SUVs and crossovers. That makes life very hard for OEMs, who need to get their fleet’s weighted average CO₂ emissions down to 95 g/km.  

For every gram above this limit, car makers are fined €95 per vehicle sold. If an OEM’s fleet average amounts to 97 g/km, for instance, and it sells 600,000 cars in the EU, it will have to pay €114 million.  

WLTP not helping

There is another element at play: WLTP. On September 1st 2018, WLTP becomes the type-approval procedure for all new cars sold in the EU. It is more realistic and therefore translates into higher official CO₂ ratings.

To counter this artificial inflation, Europe has developed a back-translation method called CO2MPAS. WLTP values are turned into correlated NEDC values to keep the game fair. However, Jato data show that on average, the correlated NEDC values are 10 g/km higher than the old (‘true’) NEDC ones.

This number is likely to rise, says Jato, because of the limited sample. Only 20 percent of all new car models and versions (in terms of volumle) have been WLTP-rehomologated, and the sample has a large proportion of small cars (A and B segment) in it.

FCA in trouble, Daimler on target

The report states that 25 manufacturers are on course to meet the target, and 27 aren’t. FCA seems to be in the least favourable position, based on data published by Citi Equity Research. It is lagging behind in new powertrain development and has no hybrids or electric vehicles available in its European line-up. It needs to get its CO₂ emissions down by 6 percent.

Daimler has the best outlook: 3 percent suffices to avoid a fine. Its micro car subsidiary will become entirely electric next year, and it will be launching its electric sub brand EQ by the end of the year. BMW, Renault and PSA are close to that figure, according to the Citi Equity Research, while VW needs to step up its game by 4 percent. They too are launching an electric sub brand, I.D., next year.

2020, the electrifying year

There is a good reason for car makers to not go all-out on electric before the end of 2019: from 2020 onwards, low-CO₂ vehicles are granted super credits.

Under the EU Cars Regulation, each low-emitting car (<50 g/km) is counted as 2 vehicles in 2020. This number becomes 1.67 in 2021, 1.33 in 2022 and 1 from 2023 onwards. There is a cap, though: 7.5 g/km per manufacturer over the three years.  

OEMs can pool together to achieve the target, incidentally. Smart, for instance, should help offset the high emissions of Mercedes' luxury SUVs.

Picture copyright: Shutterstock, 2018