PARIS: Automakers failing to cut greenhouse gas emissions risk writing a big check to the European Union.
Manufacturers ranging from Renault SA to Mercedes-Benz maker Daimler AG are on the hook for total fines in excess of 14 billion euros (US$16 billion), should they fail to comply with tighter emission regulation phased in from 2020 and in full force the next year, an analysis by IHS Markit shows.
Only a “seismic shift” in demand for electrified vehicles would completely remove the forecast excessive emissions, the forecaster said Monday in a report. Earlier, analysts at Exane BNP Paribas singled out French automakers PSA Group and Renault SA as most exposed to any payments, with breaches causing such a hit to automaking profits that failing the new rules was “not an option.”
Carmakers have known for years about the coming change in EU policy, yet many are struggling to drive down average fleet emissions of climate-changing carbon dioxide. In 2017, CO2 fleet emissions rose for the first time in years after buyers deserted diesel cars, relatively fuel-efficient, in favour of gasoline vehicles in the wake of Volkswagen AG’s emissions cheating. Consumers also bought more gas guzzling sport utility vehicles.
Concerns about how carmakers will navigate the unprecedented shift to electric vehicles are weighing on share prices. VW’s deliberate cheating to circumvent emissions regulation has added to the drag, upending strategies that bet on diesel — which use about a fifth less fuel than equivalent gasoline engines — as consumers fret over cities banning diesel cars.
Renault rose 1.3% at 9:09 a.m. in local trading, lifting losses so far this year to 13%. Daimler, rising 1.4%, has declined 17% this year.
IHS said its forecast indicated an average EU fleet emission level of 122.9 grams of CO2 per kilometre, 8 grams higher than an adjusted target. Carmakers’ plans to offer all-new electric vehicles like the Mercedes EQ C crossover, as well as fine-tuning existing engine-technology, is setting many carmakers on course to meet the tough targets, they said.
Europe’s rising car emissions box BMW and Daimler into a tight corner
“As we continue to follow carmaker technology developments and any regulatory adjustments, our forecasts may be adjusted accordingly,” IHS said.