Starting in 2025, it will be much harder for automakers to reach the target
Ever wondered why car manufacturers in Europe are so focused on hybrids and electric vehicles? Sure, they want to help protect the environment by lowering emissions, but there are also big financial stakes involved. For every gram over the EU’s fleet emissions target, automakers face a €95 ($105) fine.
That may not seem like much for automotive giants like Volkswagen Group or Stellantis, but the fines add up fast since they’re applied to every car sold. This can lead to massive penalties, reaching hundreds of millions of euros if they don’t sell enough hybrids and EVs to offset their sales of gas-powered cars.
This is also one of the reasons why downsizing is in full swing and three-cylinder engines are becoming the norm rather than the exception in Europe. The proliferation of smaller, electrified engines has a global impact because Europe is one of the most important regions for the car industry. Automakers have to adapt to stringent regulations in the EU, and that influences the development of new cars and engines.
The current fleet average target of 115.1 g/km (based on the WLTP cycle) will drop by about 19% to 93.6 g/km in 2025, putting many automakers at risk. Dataforce’s research suggests a challenging future for many companies selling cars in Europe. As of June 2024, only Tesla and Geely met the upcoming 2025 emissions target.
The European Commission sets individual targets for each automaker based on the average weight of their fleet. Companies selling more SUVs have higher targets than those with smaller vehicles. In 2020, car manufacturers paid around €510 million for missing their CO2 emissions targets, which were less strict at that time.
Automakers are at a critical juncture: continue producing internal combustion engines or fully commit to electric vehicles? While the latter seems tempting, reduced or eliminated government subsidies have impacted customer demand. In the first half of the year, electric cars had only a 12.5% market share in the EU, down slightly from 12.9% in the first half of 2023, according to the European Automobile Manufacturers’ Association.
Plug-in hybrids also saw a decline in market share, from 7.4% to 6.9%. Meanwhile, regular hybrids increased from 25% to 29.2%, according to ACEA. Dataforce’s analysis shows a similar trend, indicating that gas-powered cars still dominate in Europe.
ACEA’s analysis indicates that even “dirty” diesel engines still have a slight edge over electric vehicles (EVs) in the first half of the year, with a market share of 12.9% compared to 12.5% for EVs. However, diesel’s market share has decreased from 14.5% during January-June 2023.
With the 2025 fleet emissions target approaching, we can expect more hybrids and EVs from automakers competing in Europe. The situation will become even more challenging for car companies from 2030 when the emissions limit will drop further, from 93.6 g/km to 49.5 g/km.
Automakers have some flexibility as they can “act jointly to meet their emissions targets,” but this does not extend to agreements between car and van manufacturers, as the European Commission prohibits such deals. Automotive News Europe reviewed the Commission’s records and found no new major agreements between companies for 2025.
Looking ahead, the EU plans to ban the sale of new cars with emissions from 2035, although synthetic fuels may help keep combustion engines in use.
