Automotive industry and CO2: major manufacturers under threat of European sanctions

Car manufacturers must respect an annual average of emissions per car sold in Europe. This so-called CAFE (Corporate Average Fuel Economy) standard requires them to gradually sell less and less polluting vehicles.

It has been generally respected so far and most of the European giants in the sector have confirmed that they will remain on track in 2024.

But the CAFE must reach a new level from January 2025, at 93.6 grams of CO2/km on average (a basic thermal Renault Clio emits 120 for example, a hybrid Clio 95 and an electric Mégane zero).

«If electric cars remain at 14% (market share), there are two solutions: either you pay penalties, or you cut (car sales) thermal», Explained Josep Maria Recasens, the operational director of Renault’s electrical subsidiary, Ampere, on Wednesday.

«This means that (at the industry level) we will have to produce 2.5 million fewer cars (per year), close 7 or 8 factories in Europe» among those which manufacture thermal vehicles, explained Recasens from the Ampere factory in Douai (northern France).

Finance the enemies

Sales of electric cars have started to slow down in Europe since the end of 2023. They represented 13.1% of new cars sold between January and September 2024.

And Chinese manufacturers could complicate the situation by taking market share from Europeans on electric vehicles, despite customs barriers.

The CAFE could thus become bitter for manufacturers: if sales of electric models do not accelerate quickly and strongly, they could risk around 50 billion euros in penalties over the period 2025-2029, according to calculations by the firm Alix Partners.

Another option would be to buy emissions credits from less polluting manufacturers like Tesla or Volvo, as Honda or Jaguar have done in the past. But “that would amount to financing my enemies“, a Renault manager lamented on Wednesday.

Read also: Automotive: application of the “Euro 6” environmental standard should be postponed for two years

«The main lever will be to improve the (environmental) performance of thermal vehicles», for example by replacing the manual gearbox with an automatic one, underlined Alexandre Marian of Alix Partners.

Manufacturers will also be able to increase the price of thermal engines to compensate for the gap with electric vehicles that are still very expensive to purchase, which will de facto reduce their production volumes, underlines Marian.

Cut prices

Renault is counting on a renewed electric offer (R4, R5) and offered from 25,000 euros to boost its sales in this segment where it is currently at its lowest, while its hybrid cars are selling very well.

The German Volkswagen group (Skoda, Seat, Porsche, etc.) “is working intensively to close the gap that could form with the slower-than-expected growth in electric sales, particularly in Germany“, underlined a spokesperson at theAFP. «Every euro invested in potential penalties would be very poorly invested.»

In difficulty, the European No. 1 has already panicked its employees by threatening to close three of its German factories.

At the same time, it is cutting prices on its first generation of electric models (ID.3 and 4) and is counting on numerous electric launches, such as the small Skoda Elroq, but also on a new generation of plug-in hybrids.

Volkswagen is asking Brussels, like Renault and other manufacturers, to review these CO2 emissions targets from 2025.

But the European No. 2, Stellantis, is opposed to it. The group, whose sales have slowed significantly in 2024, is also banking on a new plethora of vehicles, to be manufactured in electric or hybrid versions according to market needs.

«We have been preparing for several years» to these standards, “they didn’t appear overnight», Underlined Thursday the financial director of Stellantis, Doug Ostermann. “We are ready to fight, take our market share in this transition“, he stressed during a press conference.