European automakers have long struggled with the influx of low-cost Chinese electric vehicles (EVs), but their challenges are intensifying. Now, they face the dual pressure of stringent new carbon dioxide (CO2) emissions targets imposed by the European Union (EU) and retaliatory actions from China in response to EU trade restrictions.
The new EU fleet-wide CO2 target for passenger cars in 2025 is 93.6 grams per kilometer (g/km), down from the current 110.1 g/km. The new target will be applied through 2029. Car manufacturers will be fined EUR 95 (US$102) per excess CO2 g/km for each vehicle sold that exceeds CO2 limits.
Obstacles to carbon reductions
Increasing the sales of new energy vehicles (NEVs) is the most effective way to meet the EU's new emissions target. However, Europe the path to the target poses numerous obstacles.
First, high prices, insufficient charging stations, and range anxiety continue to make it hard for carmakers to win over European consumers with EVs. As a result, sales of European EVs in Europe have been weak.
Second, the shortcut to reducing costs has been blocked. The EU's tax on EVs manufactured in China also includes European cars that are made in China to be shipped back to Europe for sale. This makes it difficult for most European carmakers to benefit from China's economies of scale and low costs.
Lastly, Europe views plug-in hybrid EVs (PHEV) as one of the best solutions for achieving the new CO2 emissions targets set for 2025. Previously, PHEV sales plummeted after subsidies were removed, mainly due to insufficient charging stations, which ultimately did not provide the desired reduction in CO2 emissions. However, PHEVs are now a solution that must be taken into consideration.
Pooling CO2 emissions to meet standards
Another solution involves the "pooling" of CO2 emissions among different automakers. Essentially, pooling is an arrangement between companies where those that have effectively reduced emissions partner with those that have been less successful. This partnership allows them to be considered as a single entity when calculating CO2 emissions. Pooling agreements are a cheaper alternative for lower-performing automakers compared to paying fines. However, there are still lingering questions about pooling, such as which combinations are the most effective, how much it can reduce costs, and whether it affects a company's competitiveness.
Foreign media pointed out that in the past, most car manufacturers participated in an "open" pool, but most members have left by 2024. For 2025, only Ford Motor and Mercedes-Benz are still registered. Only Mercedes-Benz is registered for 2026.
According to a study by the International Council on Clean Transportation (ICCT), Volkswagen, a large CO2 emitter, had to reduce its carbon emissions by 21% in 2023. However, if it pooled with Tesla, it would have only needed to reduce emissions by 12%. If it had allied with Volvo, it would have only needed to reduce by 6%.
In 2020, European automakers paid a total of EUR510 million as a penalty for not meeting emission reduction standards. Among them, Volkswagen paid more than EUR100 million, and Jaguar paid EUR40 million. Consequently, there are reports that Volkswagen is actively seeking a green partner. However, meeting EU standards will continue to be challenging.
Because brand recognition deeply affects European consumer purchases, low-priced Chinese EVs may not pose an immediate threat to European automakers. But the expanding Europe-China trade war, coupled with the arrival of new emissions standards, has created hurdles for European car manufacturers.
The final option is to actively negotiate with the EU to postpone the new emissions targets. Aside from Stellantis, which has publicly opposed a postponement, the majority of European carmakers favor a postponement, but a concrete answer has yet to be given.
Article translated by Eifeh Strom
