The EU is tightening the CO2 emission targets for car manufacturers from 2025. Non-compliance with the limits will result in heavy fines. According to Dataforce, it will be particularly difficult for Volkswagen and Ford.
The tightening of CO2 targets for carmakers will stir up the European market for passenger cars and light commercial vehicles in 2025.
Damian Gretka / stock.adobe.com
In 2025, the European Union (EU) will significantly tighten the CO2 targets for automobile manufacturers. For passenger cars, the average emissions of new vehicles sold must fall from 116 g/km in 2024 to below 93.6 g/km – a reduction of 19 %. For light commercial vehicles up to 3.5 tons, the targets will be reduced from 185 to 154 g/km, a reduction of 17 %. Exceeding CO2 limits can result in significant fines. These are calculated as 95 euros multiplied by the CO2 excess in g/km and the volume of new registrations. For large OEM groups, this can result in penalties of several hundred million euros.
What does this tightening mean for OEMs and how can the CO2 limits be met? An analysis by the market research institute Dataforce provides answers. To achieve the new targets, sales of battery electric vehicles (BEVs) and plug-in hybrids (PHEVs) would have to increase significantly in the face of subsidy cuts and market skepticism. In addition, OEMs should focus on strategies such as CO2 pooling, price adjustments and increased CO2 monitoring.
Minimal CO2 Progress
However, the e-car market in the EU is currently losing significant momentum. According to the Dataforce analysis, progress in reducing CO2 has been minimal this year despite ambitious targets. In the first six months of 2024, emissions were higher than in the whole of 2023. BEVs and PHEVs offer the greatest potential for reduction, according to Dataforce, but subsidy cuts have hindered their transition to the mass market.
From January to June 2024, the European passenger car market (EU-27 + IS + NO) grew by almost 243,000 new registrations (+4.3%), according to Dataforce, while registrations of BEV and PHEV fell by 9,000 units. More than half of the increase was due to full hybrids, which, although more fuel-efficient, still produce emissions that are higher than the average for passenger cars.
Reduction Feasible for Toyota and BMW, Difficult for VW and Ford
According to the analysis, the OEMs have already made efforts to meet the current targets and have been quite successful in doing so. In 2023, all major OEM groups had reduced their average emissions below their individual, weight-adjusted targets. The targets for 2024 were also within reach. Seven of the 10 largest groups are already below their targets. The VW Group, Renault-Nissan-Mitsubishi and Ford are slightly above target, but should be able to achieve the 1-2 g/km reduction still required in the second half of the year.
However, according to Dataforce, the situation for 2025 is completely different. Of all the manufacturers with combustion engines in their model range, only Geely (Volvo, Polestar, etc.) and the SAIC Group (MG) would be below the threshold of 93.6 g/km. According to them, Toyota (105 g/km) and BMW (106 g/km) would have to reduce comparatively moderately, but all the others will have to make considerable efforts. This applies in particular to the Volkswagen Group and Ford. "Given the above-average weight of their vehicles, their individual targets for 2024 have been raised to 121 and 124 g/km respectively, which offers some leeway. However, this weight adjustment will no longer apply in 2025, as the weight factor in the equation will become negative", says Dataforce.
A study by the environmental organization Transport & Environment (T&E) comes to a similar conclusion: According to T&E's estimate, Volvo had already achieved its 2025 targets in 2023, while Mercedes-Benz, Volkswagen and Ford were far from doing so. They would therefore have to achieve 24 % of their sales through BEVs in the coming year. In addition to introducing new BEV models, carmakers could also sell more hybrids or downsize the most polluting models. In this case, the average BEV sales share could be reduced to 18 % to meet the 2025 targets.
That's How Many Electric Cars will be Needed in 2025
For Dataforce, it boils down to the OEMs relying on greater vehicle electrification. Dataforce calculates: "Based on current fuel-type-specific emissions, an OEM without full hybrids in its portfolio needs a 37 percent share of BEVs and PHEVs in its sales mix. With full hybrids, the task seems easier. In a scenario with a 55 percent HEV share, the necessary BEV/PHEV share is reduced to 23 percent. However, OEMs with a strong focus on HEVs typically sell fewer BEVs. That being said, the EU regulation allows BEV registrations to be weighted higher if the vehicles are sold in markets with a comparatively low level of electrification."
Renaissance of CO2 Pooling
Another option for complying with CO2 regulations is CO2 pooling. "In the last two years, there was no great need for pooling, but in 2021, the former FCA group joined forces with Tesla and Honda to lower its CO2 average", according to Dataforce. The analysts expect a revival of the instrument in the coming year, in which manufacturers of pure electric vehicles can sell emission certificates to other corporations. T&E also mentions pooling as another option for achieving emissions targets. If carmakers like VW, Ford and Mercedes-Benz teamed up with leaders like Tesla and Volvo Cars, they would have to sell 36 % fewer BEVs, T&E calculates.
To strategically ensure targets and as part of market analysis, Dataforce also brings CO2 monitoring into play. CO2 targets should be an important part of annual targets, along with sales targets, explains Dataforce. By monitoring emissions on a monthly basis, OEMs could identify the markets or segments with the greatest positive or negative impact, thus guiding the sales strategy towards CO2 compliance, allowing sufficient time to react.
Change in Price Structure
In view of the stricter limits, Dataforce analysts expect a significant price adjustment – electric vehicles are likely to become cheaper, while vehicles with combustion engines will become more expensive. "The current decline in lithium and battery prices is enabling some price reductions in the supply chain, but OEMs will also have to reduce costs elsewhere to remain profitable. Increasing production and replacing expensive NMC batteries with LFP batteries may be alternative options,", says Dataforce. According to the analysts, OEMs will ‘likely discontinue discounting for combustion vehicles and focus on BEVs’. Last but not least, smaller and more affordable models should help to achieve the transition to the mass market.
This is a partly automated translation of this German article.
