Electric Cars Threaten Finances; Environmentalists Disagree.
“European manufacturers are moving in the wrong direction. There is this assumption that green equals electric, but there are lots of other solutions which are as least as green and in the short-term more viable”
The European Union (EU), despite vehement claims to the contrary, will have to postpone or dilute its harsh rules on car and SUV fuel consumption, or risk debilitating financial harm and massive unemployment in its crucial automotive industry.
The EU should also reconsider its policy on environmentally friendly vehicles which concentrates on electrification, and push the merits of natural gas, which would be just as green as battery electric but would be much cheaper for manufacturers to achieve and more affordable for consumers.
That’s the view of automotive industry expert Stefano Aversa, chairman of consultants Alix Partner’s European operation, in an interview.
“European manufacturers are moving in the wrong direction. There is this assumption that green equals electric, but there are lots of other solutions which are as least as green and in the short-term more viable,” Aversa said.
“Biogas, which can be produced out of waste that would be going into the atmosphere anyway, is a good option. Gas is more efficient and you don’t have to change much mechanical in the car, it is at least as green and much more profitable for manufacturers and much less costly for consumers,” Aversa said.
But politicians across Europe don’t seem to perceive there is a problem to be faced, and environmental advocacy groups like Brussels-based Transport & Environment (T&E) are dismissive.
EU compliance at risk
“The compliance with EU standards is not at risk, and many carmakers were already compliant in early 2020 as the target is fleet-average and not impacted by sales volumes. Carmakers are rolling out dozens of affordable and well performing electric models, planning to produce at least 3.5 million of EVs in 2020/21 alone,” said Julia Poliscanova, T&E’s senior director for Vehicles and Emobility.
The EU’s current regulations mandate car and SUV makers raise average fuel efficiency from the equivalent of about 57 miles per U.S. gallon in 2020/2021, up from 41.9 mpg in 2015, and rising again by 15% in 2025, hitting 92 mpg by 2030.
Rather than discussing mitigation of the possibly malign impact of these rules, the EU has been talking about making them tougher in 2030.
Aversa said the arguments surrounding these rules have become irrational, and the EU should consider delaying them.
Moment of truth
In a report, Alix Partners said the European auto industry and European regulators faced a “moment of truth”.
“A 21% gap exists between current European Union automotive targets for carbon-dioxide emissions and the industry’s anticipated performance through year-end 2020 – issues that might well require a political solution, or else companies will face fines of 10 to 14 billion euros ($11.2 billion to $15.7 billion) in 2021 if nothing changes,” the report said.
Some experts have said the current coronavirus-induced weakness in the European car market will make it easier for manufacturers to reach electric car targets because the percentage market share required will be made easier because sales of internal combustion engine (ICE) vehicles have tanked. But when markets surge back to life, that advantage will be removed.
Diesels out of favor
The EU rules are calibrated in grams per kilometer, with 95 g/km mandated for 2021, 81 g/km in 2025 and 50 g/km in 2030. The problem is that the average for European manufacturers was making a steady decline from 136 g/km in 2011 to 119 in 2017, but has since been on the rise again as diesels fell out of favor because of the VW-led emissions scandal. The public’s desire for bigger vehicles in the form of SUVs has also raised overall fuel consumption.
The long-term impact of the regulations is to force manufacturers to electrify their fleets, and by 2030 most new cars are likely to be all-electric, if the rules are maintained. The trouble is, electric cars are much more expensive than regular ICE vehicles. VW, which is leading the way in Europe with its electric car investments, has said it will be uneconomical for it to make cheap, entry level ICE vehicles like the little Up and Polo by 2030.
Alix Partners’ Aversa said politicians who have been adamant in their insistence that this vigorous charge for an electric solution, need to face reality.
Time to adapt
“Postponing or diluting the standards is required. This is what rationality will dictate; sometimes rationality is not the main driver of the political decision. They should delay the application of the limits so that both manufacturers and consumers will have time to adapt,” Aversa said.
Choose the lesser evil
“Charging the manufacturers fines will create even more problems, and let’s not forget the auto industry is one of Europe’s largest employers. The politicians will have to choose the lesser evil,” he said.
According to the European Automobile Manufacturers Association, 13.8 million Europeans work in the auto industry, directly and indirectly, accounting for 6.1% of all EU jobs. 11.4% of EU manufacturing jobs – some 3.5 million – are in the automotive sector.
Most of the big manufacturers will find it hard to breakeven in 2020 because of the coronavirus fallout, and having to pay huge fines will make a bad situation worse. Daimler and Renault are said to most at risk from EU fines. VW is in the electric car driving seat.
While politicians have so far shown no inclination to give the industry some relief from CO2 rules, analysts and investment banks have been fighting what looks like a losing battle for some help.
Back in March, Norddeutsche Landesbank Girozentrale analyst Frank Schwope said it’s time for these rules to be looked at again if the industry is to be rescued from this crisis. Guido Nelissen, Economic Advisor with the IndustriAll-European Trade Union also called for some understanding from the EU.
Distraction from climate goals
This is all a distraction from the important business of meeting climate change goals, says T&E’s Poliscanova.
“At the time when most cities and major vehicle markets are turning towards emission free cars, the only “debilitating financial harm” to the EU car industry would be to slow down the transition. Investments today mean jobs tomorrow. Throwing money at yesterday’s legacy combustion engines will only set back Europe’s climate and industrial goals,” Poliscanova said.
The proof of the pudding will be in the eating. The arguments suggest a stark choice; a year from now, Europe’s most important automotive manufacturers could either be sailing on serenely, or facing financial ruin and firing workers. As ever though a more rational outcome is likely to emerge.