JATO Dynamics study says incoming CO2 targets can be seen as the apocalypse of the car industry in Europe. The VW Group would have to pay the largest fine of almost 2,525 euros (Rs 195,000) for every car sold.
06 May 2019 | 10442 Views | By Autocar Professional Bureau
Come 2021, automakers in Europe would have to pay an excess emissions premium of 33.6 billion euros (Rs 260,770 crore) in penalty, says a study by JATO Dynamics, the London-based data analyst company. This conclusion is based on last year’s averages and the fines set by the European Commission from 2019. If ...
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Come 2021, automakers in Europe would have to pay an excess emissions premium of 33.6 billion euros (Rs 260,770 crore) in penalty, says a study by JATO Dynamics, the London-based data analyst company. This conclusion is based on last year’s averages and the fines set by the European Commission from 2019. If nothing changes in the next three years – be it good or bad – the top automakers will face trouble as none of them are currently on track to meet the target.
According to the study, the incoming CO2 targets can be seen as the apocalypse of the car industry in Europe. The authorities have made it clear that by 2021, and phased in from 2020, the fleet average that all new cars must meet is 95 grams of CO2 per kilometre, which is 24.7 g/km more than the recorded average for the 11 manufacturers selling more than 300,000 units in 2018.
Increasing gap between CO2 targets and reality
The analysis found that last year the average emissions of the Volkswagen Group, PSA Group, Renault Group, Nissan Group, BMW Group, Hyundai-Kia, Ford Motor, FCA, Daimler, Toyota Motor and Volvo gave a combined total of 119.7 g/km (volume weighted). The average increased by 2.4 g/km compared to 2017, with only Toyota recording a decrease.
According to JATO's data on annual results by brand released earlier this year, the trend confirms that the target is becoming increasingly difficult to achieve when taking into account the decreasing demand for diesel demand and more SUVs. Based on these numbers, the situation is quite disconcerting.
Looking at all of the automakers operating in Europe (excluding the smallest ones), only four out of 18 posted an improvement last year. The sales of four manufacturers – Honda, Suzuki, Toyota and GM – accounted for only 7 percent of the total in Europe-23. On the other hand, the four worst performers were all premium makers (Daimler, JLR, BMW Group and Volvo), accounting for 16 percent of total registrations.
Tough road for Volkswagen Group and PSA
JATO says if the 2021 conditions were applied today (2018 results by sales and average CO2 emissions), and excluding any kind of eco-innovation credits to offset the total emissions, many car makers operating in Europe would be facing a very difficult situation. Based on the companies' analysis and the latest FY2018 financial results, the total amount of penalties would account for almost half of their combined net profits.
The Volkswagen Group would have to pay the largest fine of almost 2,525 euros (Rs 195,000) for every car sold, which would translate to around 9.2 billion euros (Rs 71,401 crore). Last year, the company posted earnings, after tax, of 12.15 billion euros (Rs 94,296 crore). JATO says, in other words, the penalty would be equivalent to three quarters of its (Volkswagen Group) latest annual global earnings.
For the PSA Group, the situation is a bit more complicated. The company, run by Carlos Tavares, is 23.1 g/km away from the 2021 target. Consequently, it would be obligated to pay a fine of 2,194 euros (Rs 170,000) per car sold. Based on its sales volume last year, the PSA Group would need to pay a penalty of 5.4 billion euros (Rs 41,909 crore) – more than half the fine of Volkswagen. Interestingly, the company posted a net income of 2.83 billion euros (Rs 21,963 crore) last year.
On the positive side, JATO says Toyota Motor is operating at an advantage for two main reasons. Firstly, it’s the biggest car maker with the lowest average CO2 emissions, mostly thanks to its hybrid range, and secondly, Toyota relies on Europe less than most of its competitors. Last year, the region accounted for only 8.5 percent of its global sales (excluding Russia and Turkey). Thus, its total fine would be 550 million euros (Rs 4,268 crore), or 3 percent of its global net income of the period between April 2017–March 2018.
How the penalty can be reduced
The study's conclusion is based on the worst-case scenario for manufacturers, and it assumes that nothing would change from now until 2021, and unfairly excluding the plans for electrification. JATO notes that effectively, OEMs can claim up to 7.5 g/km of CO2 from 2020 to 2022 to offset their total CO2 number for vehicles that meet the eco-innovation criteria.
Moreover, it foresees that definitely many models will be dropped where investment to reduce their averages is larger than the profits generated. This will include the axing of more combustion engines, large and heavy cars, or those slow-selling models. To sum up, the manufacturers may have the technology to launch cleaner cars and alternatives to reduce the fines – their only limitation is time.