Maintaining the 2035 target: Ensuring a viable future for Europe’s automotive industry
In the run up to the publication of the European Commission’s proposals for an automotive package on 10 December, car manufactures have stepped up the calls to relax the CO2 standards and the 2035 phase-out of new combustion-engine vehicles by including some flexibilities. They highlight the challenges the industry has faced in recent years, growing competitive pressure from China, and insufficient demand for electric vehicles in Europe as reasons for the sector needing more time for the transition required to meet the targets.
I4CE‘s latest blogposts on the road transport sector, published this week, looks into the figures behind the challenges experienced by the automotive sector, both at the French and EU levels.
The numbers show that the drops in sales volumes are largely the results of French and EU car manufacturer’s own strategic choice to prioritise large, more profitable models, particularly SUVs. Despite lower sales volumes, their operating margins have increased. This premiumisation trend is not new, but it has accelerated in recent years, to the point of backfiring, with manufacturers now facing a sharp drop in sales and factories standing idle.
Rolling back the EU’s 2035 targets won’t solve the problem. Rather, it could trigger even greater economic consequences for the industry and for consumers. Introducing flexibilities for other vehicle types such as Plug-in Electric Vehicles or e-fuels in the regulation offers no economic or environmental benefit for consumers. On the contrary, it would cost significantly more over the vehicle’s lifetime, compared to Battery Electric Vehicles. A roll-back also jeopardise many of the investments already made in the electrification of the whole sector’s value chain, and send strong negative signals to potential investors, creating uncertainty about the EU’s determination to stay on track with its decarbonisation targets.
EU automakers should be mindful of the Kodak effect: failing to grasp the strategic significance of a major shift, with disastrous consequences. The future of the automotive sector will be electric. When the EU car industry continues to prioritise highly profitable combustion-engine models, they risk being overtaken by international competitors, particularly China. Once this happens, catching up on electric vehicles may prove extremely difficult, potentially putting the future of Europe’s automotive industry at risk for good.
