Car-makers face more than £12bn of fines for failing to hit tough new European rules on emissions.
The world’s automotive giants have until next year to meet the stringent European Commission rules on exhaust emissions, but most are expected to miss this deadline and be forced to pay huge fines, according to research from PA Consulting. Car-makers are expected to cut sales of big vehicles, instead focusing on selling smaller models, to limit the damage.
Europe has taken a lead on cleaning up emissions, putting huge strain on its auto-makers. Germany’s industrial base, which relies heavily on the likes of Volkswagen, BMW and Daimler, has been particularly hard hit, with thousands of jobs being slashed and billions pumped into switching from combustion engines to electric motors. The emissions-rigging scandal at VW, uncovered in 2015, has intensified that pressure. Increasing numbers of cities are limiting or banning petrol and diesel cars to tackle air pollution, with Oxford and York the latest to impose tough new rules.
The regulations force car-makers to cut emissions to 95g of carbon dioxide per kilometre. That will be based on every car sold in the EU in 2021, as averaged out across each car-maker’s fleet. The rules will also apply in the UK.
Despite the looming deadline, however, emissions have actually increased recently, as drivers switch from diesels to more carbon-intensive petrol models. The popularity of sports utility vehicles has also pushed up carbon emissions. “All manufacturers are now set to miss their 2021 targets,” said Michael Schweikl, author of the PA Consulting report. He warned that in some cases the fines will be high enough to have a “material impact on their profitability and reputation”.
Among the car-makers expected to be worst hit are VW, which faces a potential fine of €4.5bn (£3.8bn). VW is launching its new ID.3 car later this year, part of a €60bn spending spree on electric vehicles. Jaguar Land Rover is expected to be fined €93m and BMW €754m, the report said. Cumulatively, the car giants are expected to face €14.7bn worth of fines.
The emissions purge has forced a wave of mergers, with Peugeot maker PSA joining forces with Fiat Chrysler Automobiles, and Jaguar Land Rover courting rivals for a technology tie-up.
PA’s experts reckon the fines will also force car-makers to discount electric vehicles — on which few manufacturers make any money — and also squeeze out bigger vehicles. “They will optimise their sales portfolios, limiting high powered or big cars, and push sales of lower-emission ones. This could lead to smaller sales numbers but reduce the fines,” said Schweikl.
Tim Lawrence, an automotive expert at PA Consulting, said: “There’s a big transition to go through from the existing combustion engines to the new technology. That’s going to cost money and that’s why they are all looking at partnering to share the [research and development] costs. They are very concerned about consumer adoption of electric vehicles.”