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Tougher EU Emissions Controls Threaten Profits; May Boost EVs

Tougher EU Emissions Controls Threaten Profits; May Boost EVs.

“Obviously, lowering CO2 from 95 g/km towards less than 60 g/km requires strong powertrain simplification and electrification”

The European Union’s plans to cut automotive carbon dioxide emissions (CO2) another 35 per cent by 2030 might undermine the finances of the mass carmakers but could also be a not so subtle hint for them to accelerate the production of electric cars.

Last week the EU agreed to force carmakers to slash CO2 emissions by 35% from the already harsh 95 grammes per kilometer (G/km) for 2021, and this produced a chorus of predictable reaction.

Environmental groups said the cut was nowhere near enough, while automotive industry representatives cried foul. The industry had hoped for a 30% cut while green groups sought 40%.

“Job security is lessened and Germany as an industrial location has been weakened. (the plan) missed the chance to shape CO2 regulation for the times after 2021 in an economic and technologically realistic manner,” said the president of the German auto industry association Bernard Mattes.

German Green party spokesman Anton Hofreiter thought differently.

“A 35 per cent cut is nothing like enough for the challenges of tomorrow. The government must take its foot off the brake in climate matters,” Hofreiter said.

The deal needs to be ratified by the European Parliament.

Bad news
Volkswagen Group CEO Herbert Diess said the new EU target would be  bad news for the auto industry. The 40 per cent cut would have resulted in the loss of about 25 per cent of VW’s jobs in Germany, while the agreed figure of 35 per cent didn’t look much better, Diess told the newspaper Sueddeutsche Zeitung.

Investment bank Morgan Stanley said the move might boost electric car sales as governments across Europe make it impossible for buyers to consider diesels as the go-to choice for those seeking fuel economy.

“EU Environment ministers recently agreed to target a decline of light vehicle CO2 emissions to 35 per cent by 2030. From a very tough 95 g/km limit for (2021), any of the suggested further reductions are tantamount to a mandated level of BEV (battery electric vehicle) penetration of at least 30 per cent in Europe,” Morgan Stanley analyst Adam Jonas said.

“Our European auto team believes that despite the cost and industrial disruption, we do not think (manufacturers) have a choice. European city bans on diesel cars in Frankfurt and Berlin further force the hands of (manufacturers) into BEVs, especially as more EU governments end incentives for hybrids. There is significant momentum in the EU against cars with any tailpipe emissions – including plug-in hybrids,” Jonas said.

But action last week from Britain went slightly contrary to this when it announced it will cut the current subsidy for BEVs and plug-in hybrid vehicles with 70 miles of battery range to £3,500 from £4,500, and removed the £2,500 subsidy for all other plug-in hybrids.

Good thing on balance
Investment researcher Evercore ISI wondered if this made sense.

“Politicians across Europe continue to talk tough when it comes to diesel and, in government, support aggressive CO2 targets as has been discussed all week. But the financial support for EVs seems to be waning. Time for a change in strategy, we ask,” said Evercore ISI analyst Arndt Ellinghorst.

But Evercore ISI believed the EU targets would on balance be good for the European industry, while China and the U.S. move towards extremes.

“Obviously, lowering CO2 from 95 g/km towards less than 60 g/km requires strong powertrain simplification and electrification. But we are convinced that the EU’s target will help the industry to finally accept that combustion engines and platforms need to be standardized and globalized. Complexity needs to be reduced. There will be an increasing divide between EU/China with its tight emission targets, and electrification and the U.S, with less ambitions CO2 targets, and relying on the internal combustion engine,” Ellinghorst said. 


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