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Fuel Economy Failure Could Cost Companies $16 Billion+

Fuel Economy Failure Could Cost Companies $16 Billion+

“fines for those not complying could reach $722 per vehicle at the end of 2020, with a further $220 increase in 2021”

Europe’s automakers face fines of more than $16 billion in 2021 if they fail to meet tightening fuel economy rules, according to a report from IHS Markit.

Hopes are fading that an upsurge in electric car buying will bail the industry out, business information provider IHS Markit said in the report. The industry’s struggle to meet the regulations has been made more difficult because of once popular diesel’s demise, and new rules forcing more honest fuel economy claims.

The E.U. rules call for average European fleets to reach fuel efficiency of about 57.4 miles per U.S. gallon by 2021. Manufacturers failing to reach that figure face swingeing fines.

The report didn’t point the finger at any individual manufacturer, saying that 25 manufacturers are currently on course to meet these targets, out of a total of 52.

But data published today by Citi Equity Research said Fiat Chrysler Automobiles (FCA) is in the worst position, needing to improve its average fuel efficiency by nearly 6% by 2021. Daimler is best placed, requiring only a 3% improvement, with BMW, Renault, and PSA Group close to that figure. VW requires a more than 4% improvement. FCA also lags as having made the slowest improvement between 2012 and 2016.

The race to meet these tighter regulations was always going to be difficult and expensive, but until recently, diesel technology was going to lead the way. But now that diesels have become pariahs in Germany and France in particular on health grounds, the route to fuel efficiency has become much more difficult.

Another hurdle
The quest for fuel efficiency has another hurdle to climb. The European Union has new rules which kick in next month to stop vehicle makers using inflated fuel efficiency data which they generate using computers and recreating perfect conditions. In September new rules insist fuel efficiency claims must be much more closely related to on the road performance and this will make a dent of around 30% in the current fuel economy claims of European carmakers. This has big personal tax implications too, because company cars’ tax liability are rated on fuel economy

Last week JATO Dynamics published a report underlining the problems for manufacturers.

This (the tighter rules) comes at a time when the carbon footprint of Europe is likely to further increase. Firstly, there’s a significant shift away from diesel to gasoline vehicles across the E.U. member states, with registrations in H1 2018 showing gasoline vehicles increasing their market share by 7 percentage points to now account for 57% of the market. In stark contrast, diesels have suffered a significant decline, with their share of market falling by 9 percentage points to 37% – the lowest for diesel vehicles this century,” JATO Dynamics said.

JATO describes itself as a global leader in automotive intelligence.

Electric vehicles were supposed to help plug the efficiency gap, but the public is still wary of buying them. 

“Finally, and perhaps more crucially, despite Alternative Fuel Vehicles (mainly battery electric, plug in hybrid and regular hybrids) increasing registrations by 30% in volume year on year, they still only account for 6% of the market,” JATO Dynamics said.

In fact the industry is going backwards in its fight to raise fuel efficiency. According to JATO, the average fuel efficiency will worsen to to 130 g/km or about 42 miles per U.S. gallon in 2019 compared with the current 118 g/km or 46.2 miles per gallon.

IHS Markit reckons that the European industry by 2021 will still only be at around an average 44.4 mpg, not the required 57.4 and this will generate fines of more than 14 billion euros (over $16 billion).

By 2021, IHS Market said only a “seismic shift” to battery and plug-in hybrids will allow the industry to meet the regulations, but that seems unlikely, according to IHS analyst Vijay Subramanian.

The seismic shift is essential, as it’s too late for the car manufacturers to add fuel efficient technologies into their existing engines and vehicles to meet the target for 2020 and 2021. This option is quite narrow now, as the time line is too short. So the only option left is a serious consideration to electrification strategies like BEV and PHEV to existing and new vehicle sales nameplates. However, this is also constrained in Europe due to (charging) infrastructure, which is not as mature as expected,” Subramanian said, in an email response to questions.

Non compliance cost
In the report Subramanian estimates the cost per vehicle of none-compliance.

“If they are unable to meet compliance targets in time, IHS Markit forecasts that average fines for those not complying could reach €624 ($722) per vehicle at the end of 2020, with a further €190 ($220) increase in 2021 as a function of the shift to WLTP,” said Subramanian.

WLTP refers to the new real-world rules that take effect next month.   


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One Response to Fuel Economy Failure Could Cost Companies $16 Billion+

  1. Mike Smitka January 11, 2020 at 11:35 pm #

    Just at a mini-conference at CCFA yesterday, sponsored by the GERPISA (academic) research consortium. A student of Heike Proff of Duisburg presented spreadsheets for the German makers, and they alone comes close to these numbers. Others, not surprising given the location, could provide the French side. We had lengthy discussion of why there was not open panic, divergent thoughts on political economy.and on what will give, companies simply stopping production of small cars, and then a walk-back of the regulatory framework by the EU. What is clear is that something has to give sooner rather than later, but in the half-year since your article, nothing has. Now diesel will come rumbling back, hybrids will increase, but the credit scheme for EVs effectively asks for something that doesn’t exist, even if battery chemistry / cost had cooperated, the value chain plus the sheer scale of production means it’s impossible to shift quickly enough. Keep following and reporting!!

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