Tesla is ready for European emissions standards, is anyone else?
A green tsunami is about to engulf Europe’s auto industry. New European Union emissions standards requiring a fleet average of 95 grams of CO2 per kilometer took effect at the beginning of this year. Automakers that fail to meet the new targets will face substantial fines. According to Automotive News Europe, every gram over the limit, per vehicle, will cost automakers 95 euros.
Above: Tesla's Model 3 (Image: Casey Murphy, EVANNEX)
In 2018, the EU’s fleet average figure was 120 g/km, so the auto industry as a whole will need to reduce emissions by 21 percent to avoid fines. That sounds like a heavy lift, but most automakers are confident they can meet the new standards, or claim to be.
In interviews with Automotive News Europe, several execs said they weren’t expecting their companies to be hit with any fines, even as they admitted to doubts about how the overall industry would meet the targets.
Most of the automakers plan to make electric vehicles a big part of their strategies. Autocar listed over 20 new EVs scheduled to go on sale in the UK in 2020, and Transport & Environment says EU carmakers will be offering 214 electrified models in 2021 (sadly, only a handful of these will be coming to the US any time soon). However, even as automakers bring a wave of new EVs to market, it’s obvious that they’re skeptical about demand.
“We are preparing to supply electric vehicles in sufficient volume and to deliver them without long delivery times to our customers,” Hyundai’s European head, Thomas Schmidt, told Automotive News Europe. “However, everyone has to sell many more battery-electric vehicles. That raises some questions: Does the European market have that many customers who want to buy a full-electric car? How long will it take for the national governments to put in place a strategy to roll out a sufficient number of charging stations?”
The PSA Group, which includes Peugeot, Citroen, Opel and DS, won’t be paying any emissions fines, if CEO Carlos Tavares has anything to say about it. “For us, it’s an ethical and not just a financial matter,” he told ANE. However, he didn’t explain how the group would meet its ambitious target of making plug-in vehicles 7 percent of sales. “We have a very precise process - I can’t say a lot about it because it’s highly competitive - that involves our production, our order book, and making our dealers actors in what we are doing, not just followers.”
Ironically, the company that is furthest along with electrification sounded a less confident note. Michael Jost, Chief Strategist at the Volkswagen Group, said, “Next year and 2021 might be challenging, since we will be ramping up our EV models. We will work hard to be CO2 compliant, and we are pretty sure we will reach all the goals set for the passenger cars.”
Above: A look at how automakers, like BMW, are dealing with the issues surrounding Europe's emissions standards (YouTube: EURACTIV)
The Volkswagen ID.3, which is to go on sale in Europe this summer, may prove to be the trendsetter for the new wave of EVs - it’s the first of several models VW plans to build on the new all-electric MEB platform, and it’s the same size and form factor as Europe’s best-selling car, the phenomenally successful VW Golf. “The ID.3 is going to be kind of pivotal,” said Jonathon Poskitt of automotive market analysis firm LMC Automotive. “If it doesn’t hit the sales it’s supposed to, then maybe that’s a signal that the market is just not there yet.”
What happens in Europe in 2020 may prove to be a tipping point for the auto industry, or a disappointing setback. The brands are building EVs, but will consumers come? The answer will depend on motivation. Automakers that really, really don’t want to electrify will keep singing the same song they’ve been singing stateside: produce EVs, refuse to market them, then use the low sales figures as ammunition to lobby politicians to roll back emissions standards.
However, Tesla is one player in the automotive game who’s going to have no trouble meeting the emissions targets, and with this player on the field, the “build ‘em and don’t sell ‘em” strategy could prove to be a suicidal one. One of the new models that will hit the market in 2020 is Model Y, and if the past is any guide, it will soon eat into the Euro-brands’ crossover sales, just as Model 3 has been doing in the sedan segment.
Meanwhile, other automakers may resort to financial legerdemain to “achieve compliance” - aggressively exploiting loopholes in the regulations, fighting fines (e.g. Honda), pumping up sales figures by self-registering EVs, offering sweetheart lease deals to employees, etc.
At least one automaker isn’t even going to bother trying to meet the new requirements. Companies that can’t meet sales targets are allowed to buy credits from others that do (a similar arrangement in California has earned Tesla millions over the years). Fiat Chrysler has already agreed to pay Tesla up to $2 billion for European emission credits (to be fair, the company also plans to launch a new version of its Fiat 500 EV this year, along with three Jeep plug-in hybrid models).
According to Ben Kallo, an industry analyst with Robert W. Baird, the Fiat Chrysler deal is in effect funding Tesla’s planned German Gigafactory. Said factory, which will be built near Berlin, is expected to begin producing Model 3 and Model Y starting in 2021.