Have you ever wondered why automakers operating in Europe insist on all kinds of hybrid and electric vehicles? Of course, they want to protect our fragile world by reducing emissions, but there are also big economic consequences to not reduce gas-guzzling cars. For every gram that exceeds the EU vehicle emission target, automakers pay a fine of 95 euros (105 dollars).
Sure, that doesn't seem like much to hugely cashed auto giants like Volkswagen Group and Stellantis, but because the fines apply to every car sold, they add up quickly. If a company can't sell hybrid or electric vehicles to offset sales of internal combustion engines, the fines could amount to hundreds of millions of euros.
This is also one of the reasons why downsizing is in full swing and 3-cylinder engines are becoming the norm rather than the exception in Europe. As Europe is one of the most important regions for the automotive industry, the spread of small electric engines will have global implications. Car manufacturers will have to adapt to strict EU regulations, which will affect the development of new cars and engines.
The current vehicle average target of 115.1 g/km (based on the WLTP cycle) will fall by around 19% to 93.6 g/km in 2025, putting most automakers at risk. A survey conducted by analyst firm Dataforce predicts a worrying future for many companies selling cars in Europe. As of June 2024, only Tesla and Geely were below their 2025 vehicle emissions targets.
According to the European Commission, each automaker has its own target, calculated based on the average weight of its vehicles. In other words, companies that sell a lot of SUVs have higher targets than those that sell smaller cars. In 2020, automakers paid out around 510 million euros for failing to meet what were then looser CO2 emission reduction targets.
Automakers are now at a crossroads: keep producing internal combustion engines or go all-in on EVs. While the latter scenario is appealing, government subsidies across Europe have been drastically cut or eliminated altogether, hitting customer demand. According to figures released by the European Automobile Manufacturers Association, electric vehicles had a market share of just 12.5% in the EU in the first half of this year. This is slightly worse than the first half of 2023, when EVs accounted for 12.9% of total deliveries.
The same can be said for plug-in hybrids, whose market share dropped from 7.4% to 6.9%, while regular hybrids rose from 25% to 29.2%, according to ACEA. Dataforce cites slightly different percentages in the chart below, but their analysis comes to the same conclusion: gasoline cars still dominate in Europe.
Even “dirty” diesel cars outnumbered EVs in the first half of the year, with a market share of 12.9% compared with EVs' 12.5%, according to ACEA analysis. That said, the share of petroleum-fuelled cars, which accounted for 14.5% of new car sales in Europe in the first six months of 2023, is falling.
With the 2025 vehicle emissions target fast approaching, we will undoubtedly see more hybrids and EVs from automakers competing in Europe, and in 2030 the limit will fall again to 49.5g/km, down from 93.6g/km next year, making it even harder for automakers to avoid heavy fines.
Car makers have some leeway because they can “act jointly to reach their emissions targets.” The European Commission does not allow this type of deal between car and van makers. Automotive News Europe looked through EC records but could not find any major new deals between companies for 2025.
Looking further ahead, synthetic fuels may help the internal combustion engine survive when the EU effectively bans the sale of new cars that comply with emissions standards from 2035.
