European sales of internal combustion engine vehicles and electric ones too are stagnating. That usually would mean investors patiently waiting out the economic cycle for normal service to be resumed. But the European Union has imposed sales quotas on EVs and if they aren’t met, the industry could suffer fines of up to €15 billion ($16.6 billion). Automakers want relief.
Investors are wondering if electric vehicle sales will accelerate again. If they do, will China devour the European competition? If European EV sales can’t keep pace with European Union commands will the EU dilute the rules and bailout its domestic industry, even though this will undermine its CO2 emissions strategy designed to combat the threat of climate change?
EV sales are certain to lift off again soon, simply because the regulations insist they increasingly replace sales of ICE vehicles. But the question is being asked with more urgency; can this drive to ban the sale of all new ICE vehicles by 2035 in the name of climate change be seriously contemplated if it cripples Europe’s flagship industry?
‘The EU insists EVs account for nearly 20% of sales this year, rising sharply to about 80% by 2030 and 100% by 2035. The indirect threat is that if Europeans can’t meet the EV sales quotas, the Chinese almost certainly can, and European profitability will be destroyed.
Industry leaders and politicians are sounding the alarm.
Renault CEO and European Automobile Manufacturers Association (ACEA) president Luca de Meo said the auto industry could face fines of €15 billion if EV sales remain at current levels.
“The speed of the electric ramp-up is half of what we would need to achieve the objectives that would allow us not to pay fines,” de Meo said, according to Automotive News Europe.
Volkswagen chairman Hans Dieter Poetsch wants the EU to give the auto industry more time to meet the CO2 targets.
According to ACEA, sales of EVs in the EU in July fell 10.8% to 103,000, with market share slipping to 12.1% from 13.5% a year before. From January to July, 815,000 new EVs were sold for a 12.5% market share.
Italian government officials have called for the CO2 emissions rules to be changed. They want the review scheduled for 2026 brought forward to next year, when a big hurdle needs to be met. Next year’s target is especially troubling for Volkswagen.
Italian Industry Minister Adolfo Urso has said the European industry will collapse without action.
ACEA wants a 2-year delay in 2025’s tightened CO2 target. ACEA, according to a report by Bloomberg, said if the rules aren’t changed about 2 million cars won’t be produced, or the industry will face fines of up to €13 billion ($14.4 billion).
Brussels-based green lobby group Transport & Environment said the EU must reject “absurd demands of car manufacturers” to delay emissions targets.
Investment researcher Jefferies doesn’t think meaningful changes in the EU rules are likely and that could lead to problems.
“The scope for regulatory lenience is low, which could lead to restructuring,” Jefferies said in a report.
Berenberg Bank of Germany summed up the problems like this.
“The confirmed slowdown in electric vehicle momentum, a firmly reversed price tailwind, softening demand and persisting challenges from China are adding to the macro, political (trade tensions) and regulatory (CO2 emission) uncertainties, Berenberg Bank said.
GlobalData has been relentlessly cutting its sales forecast for Western Europe. Four months ago it was forecasting just under 5% growth. Its latest forecast says there will be a slight contraction with sales falling 0.4% compared with last year, as the total peaks out at 11.51 million.
Western Europe includes the five biggest markets Germany, France, Britain, Italy and Spain.
As the European market becomes tougher, analysts are pointing to the most vulnerable manufacturers and those best equipped to ride out the storm.
Jefferies said Stellantis is the best positioned and VW the worst, even though it concedes judgement is premature at this stage given the large number of variable and tactical levers that will be pulled in 2025.
“VW is the most challenged on emissions, with risk compounded by its size in the event of fines. Stellantis and Renault benefit from new rules on mass calculation while Mercedes and Porsche face the biggest hurdles. Changes in mass calculation are probably not enough to derail BMW’s early and steady efforts on CO2 reduction. Toyota’s full hybrid strategy may reach its limits, with a need to step up penetration of plug- in vehicles,” Jefferies said.
Berenberg Bank, which said CO2 rules pose clear risks for VW, said a lack of affordable EVs in Europe is holding back sales.
“This should gradually improve with numerous options priced below €25,000 ($27,700) set to hit the market by the end of this year and into 2025. The EV market in Europe may need an eight to 12 percentage point penetration increase in 2025 to avoid CO2-related penalties,” Berenberg Bank said.
“We think EV prices may face further pressure in 2025. BMW’s better relative EV sales momentum and Renault’s well-timed affordable EV launches make them relatively better positioned,” the bank said.
The gap between EU ambition and manufacturer reality looks too big to bridge and requires the emergence of truly affordable EVs priced closer to €10,000 ($11,100) than €25,000. Renault’s made-in-China Dacia Spring comes closest to this, while in China the BYD Seagull and Wuling Bingo show the concept can work.
The Financial Times’ Lex column can’t see much reason for optimism.
“Cheap European EVs, meanwhile, remain a far-off dream. This limbo affects consumers, too, who may be putting off buying a new car until the fog clears. It is hard to see how European carmakers can thrive while the market is in a muddle. And when EVs do finally resume their growth path – as seems inevitable – they will have to grapple with margin dilutive sales and fierce competition. The sector’s path looks anything but smooth,” Lex said.