A tough road ahead in Europe for cars

As nearly every industry can attest to, one of the biggest issues a company faces is not how to attract more clients, nor even how to streamline operations and become more efficient. Rather, it’s how to comply with regulations imposed by governmental bodies. No one in his or her right mind would argue that a lawless society is preferable. We need laws for several things – to keep order, to maintain a transparent playing field, and to not fall into utter chaos. But some regulations are more onerous than others, and the European Union (EU) CO2 emissions policy might just be one (depending on who you ask).

The CO2 policy stipulates carmakers must raise their average fuel efficiency from roughly 57 miles per U.S. gallon (mpg) to 92 mpg by 2030. To provide some context, in 2015 the defined number was 41.9 mpg and in 2025 the figure will rise another 15%, all in route to nearly doubling by 2030. Manufacturers rightly point out that at these levels, battery-only cars will need to be produced by 2030. Looking at 2025, a mix of hybrids and gas engine vehicles will also have a tough time meeting that target.

Morgan Stanley projects global sales of battery-only electric vehicles (BEVs) will reach, if lucky, 24% of all cars sold by 2030. Last year BEVs were 2% and in 2025 could hit 11%. VW is planning on spending $36 billion through 2024 on a new line of electric cars and they are expecting this fleet to represent 25% of their global sales. At these numbers, with approximately 75% of the rest of cars being traditional gas-powered vehicles, meeting these emission targets are a pure pipe dream, plain and simple.

The conventional thought is Europe’s top 13 automakers will miss the 2021 CO2 mandates. This will result in fines of $16 billion, a nice addition to many government coffers. BEVs are still expensive, not practical for those driving long distances, and not great peace of mind for those who don’t want to constantly be thinking of what might happen if they get stranded somewhere without a place to juice up in an emergency. As we’ve written on prior, the rollout of charging stations has not occurred, and this, more than the cost, is what’s keeping folks on the sidelines and not buying as quickly as many would want.   

Don’t expect European governments to budge on this one, more mergers in the auto sector are likely to result and we’ll all survive. But with coronavirus and now this, it’s been a tough start to 2021.

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