BMW, VW Could Face Big Fuel Economy Fines-Report

BMW, VW Could Face Big Fuel Economy Fines-Report.

But Bank Says BMW Product Pipeline Will Be Adequate

“BMW, Audi, Volkswagen will need 25 per cent of their European sales with alternative engines in 2021”

BMW and Volkswagen are most at risk from incurring massive fines of up $1 billion for possibly flouting E.U rules on fuel economy, according to a report from PA Consulting.

Other manufacturers exposed to big fines include Jaguar Land Rover and Hyundai of Korea and its Kia affiliate. Opel-Vauxhall and Fiat are ahead of the game, according to the report. Ford Europe is on plan currently, but might find it hard to meet final reductions to meet 2021 targets, the report said.

All automotive manufacturers operating in Europe will have to sharply raise the amount of electric and plug-in hybrid vehicles in their fleets. At the moment these vehicles barely feature on European roads.

“If the German manufacturers are to meet their targets they will need to look at bold measures to increase the number of electric, hybrid and plug-in hybrids (PHEVs) vehicles in their fleets. We calculate that to meet the targets, BMW, Audi and Volkswagen will need 25 per cent of their European registrations (sales) to be of cars with alternative engines in 2021,” the report said.

A further complicating factor could be fall-out from the Volkswagen “dieselgate” gate scandal. This could mean that E.U. regulators make it more difficult and expensive to sell diesels which are 20 to 30 per cent more fuel efficient than petrol engines.

All the major manufacturers are spending huge amounts of capital trying to produce more fuel efficient engines, driven by these looming new regulations.

The E.U. demands average vehicle emissions of 130 grammes per kilometre of carbon dioxide (CO2) – that’s the equivalent of about 50 miles per gallon by this year, largely achieved. This will tighten to 95 g/km by 2020 and 2021 or nearly 70 mpg.

On target
Mercedes, Peugeot-Citroen, Volvo and the Renault-Nissan alliance are said to be on target.

Hyundai, according to the report, is poorly positioned, the only company with a worsening position between 2013 and 2015.

“As as result they were the only one to move from being close to meet the 2021 target to being forecast to miss it by some margin,” the report said. Their gasoline and diesel engines are not as efficient as competitors and they have no hybrids or plug-in hybrids, although these will start to be produced in 2016.

“The other carmaker facing real challenges is BMW. It has seen a reduction in its CO2 emissions since 2013, but is still forecast to miss its 2021 target,” the report said. Its vehicles are getting heavier. Hybrids accounted for only 0.1 per cent of sales in 2014, PHEVs 0.2 per cent and electric vehicles 1.3 per cent.

Volkswagen also remains on a trajectory that will miss the 2021 fuel economy target.

“The stakes are high for the losers. Manufacturers risk penalties of €95 for every gram of CO2 above the limit, multiplied by the number of cars they sell in 2020. These could range from around €100 million for BMW and up to €1 billion for Volkswagen,” the report said.

BMW drawing board
Investment bank Barclays Equity Research said BMW may look behind in the race now, but it is spending frantically and cars on the drawing board will do the job eventually.

“We think that BMW is the leading (manufacturer) in terms of spending on CO2 emissions standards but that the phasing of their product cycle has masked that advantage until now,” Barclays said in a report.

And Volkswagen and its Audi and Porsche subsidiaries already have plenty of electric and plug-in hybrid vehicles on the road or in the planning stage.

The E.U. is planning to adopt new rules for 2017 which will force car makers to review their current fuel consumption system which is heavily tied to the laboratory and computers and make it conform to real world driving conditions. PA Consulting said this could raise current outcomes by up to 10 per cent.

If this is coupled with new regulations to clean-up diesels, all bets will be off as the 2021 targets will be harder to reach. This could lead to massive fines all around and a political confrontation between the industry and the E.U.