Firms face severe fines if they fail to comply with rigorous EU regulations arriving in 2021

Three years from now, Europe’s car makers will face perhaps their toughest test for many decades when EU law requires them to meet very rigorous fuel economy laws.

However, according to two auto industry consultants, the combination of new testing legislation, the effects of Dieselgate and the market shift towards SUVs could make it near impossible for car makers to meet the laws. Failing to do so would result in manufacturers facing fines of hundreds of millions of euros.

Under the regulations, each car maker has a CO2 output target, which is averaged over its whole range of cars. So while the targeted average across the whole industry is just 95g/km of CO2, the individual requirement varies, via a complex calculation, depending on the weight and size of vehicles built and how many of them the manufacturer sells each year.

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Jaguar Land Rover, for instance, has a fleet CO2 target of 132g/km because it sells fewer than 300,000 vehicles in the EU each year and makes larger-than-average vehicles. Fiat Chrysler Automobiles,by contrast, has a fleet target of 91.1g/km. In reality, the 95g/km average means an average real-world economy of around 78mpg across a car maker’s entire fleet. And that is a huge technological hurdle. If that doesn’t sound difficult enough, the EU has decided to introduce a new, and much more rigorous, way to measure fuel economy. When the original regulations were set back in 2012, the standard EU fuel economy test was the New European Driving Cycle (NEDC). This, however, has since been dropped and replaced by the Worldwide Harmonised Light Vehicle Test Procedure (WLTP).

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WLTP is a much more ‘real-world’ test for fuel consumption and tailpipe pollution. Unsurprisingly, auto industry consultancy JATO Dynamics says that the introduction of WLTP for fuel economy calculations alone will be enough to make it “exceptionally difficult” to meet the 2021 95g/km figure.

According to a recent report by JATO, a sample of vehicles re-tested under the new WLTP regime showed that official fuel economy figures increased by anything between 9% and 17% compared with NEDC testing.One of the first current production cars to be tested under WLTP was the 114bhp Volkswagen Up GTI. According to reports from Germany, the car was rated at 110g/km under the NEDC test but at 127-129g/km by WLTP, a rise of around 16%. If a city car with a moderately powerful petrol engine is that far from the 95g/ km target, what hope for larger, more powerful vehicles?

If that wasn’t bad enough for car makers, the last 12 months have brought even worse news: collapsing sales of diesel vehicles. In October 2015, around the time Dieselgate broke, diesel cars accounted for about 52% of the new car market across Europe. In November 2017, that share had slumped to just 42% in western Europe, according to reports.

But there’s another issue flagged up by JATO that will be a third drag on the efforts to meet the EU laws: the rise of the SUV. In 2016, says JATO, SUVs accounted for 3.8 million sales in Europe, which is a 26% market share. It forecasts these figures will reach six million and 33% by 2020. There’s no doubt that a market shift to taller, bluffer vehicles will further push up average fuel economy.

In a detailed report released last autumn, PA Consulting Group stated that it expected just four of the 11 big car makers – Volvo, JLR, Toyota and Renault-Nissan – to meet their individual CO2 requirements. PA predicted that VW, FCA, PSA Group, Ford, BMW, Hyundai-Kia and Daimler will all miss their targets.

It claims fines in 2021 (levied at 95 per gram over the limit for each vehicle sold) could range from a massive 1.36 billion for VW to 307 million for Ford and 126m for Daimler. Officially, the car makers are telling a very different story. According to the banking analysts at Evercore, senior executives at VW, BMW, Daimler and PSA all say they are confident of meeting the 2021 CO2 targets. While recognising that diesel sales were falling markedly, BMW chief executive Harald Krüger told Evercore that he wanted to see sales of the marque’s electrified vehicles ‘ramped up’ over the next three years.

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VW group sales boss Fred Kappler hinted, as did Daimler chief financial officer Bodo Uebber, that the arrival of 48V mild hybrids could yet spring some of the manufacturers from the risk of significant fines. Evercore analysts say 48V systems can improve the economy of a typical compact turbocharged petrol engine by as much as 20% and will be cheaper to manufacture than a modern diesel unit.

While that may yet solve the diesel conundrum by restricting oil-burning engines to the biggest vehicles, Evercore estimates that 48V systems will only account for 10% of new cars sales in Europe by 2021 and sales of electric vehicles across Europe are predicted by many analysts to reach just 4% by 2022.

Despite the confident public face of European car makers, meeting these EU laws by 2021 is clearly going to be an extremely tight squeeze.

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Comments
23

13 March 2018

Yet VW mooted dropping the Up! class which is difficult to upgrade when looking at margins in favour of more Panamera Hybrids where the margins are heroic. What is the incentive for makers to keep producing small/light cars when the associated costs and legislation seem to indicate that bigger is better. How the 2-tonne Hybrids fare in the new tests will have a big impact on those potential fines. Get ready for precisely controlled hybrid powertrains mapped to minimise CO2 output during the new test cycle. Have legislators learned nothing? We can see why VW is in no hurry to sell electric vehicles until the prospect of fines become a reality. Meanwhile French car sales in the UK have taken a nose dive. Perhaps fine-free pricing will turn the tables in favour of the French. Depsite the travails of the VW empire and their still unwinding emissions scandle many of the French marques have been abandoned in favour of Seats and Skodas, cheered on by the press.

13 March 2018
Interesting facts and figures about how the industry is working towards meeting the up-scaled CO2 targets. The much hyped but yet-to-be-seen 48V petrol hybrid appears to be the answer to this conundrum. If it does improve CO2 emissions by 20% then problem sorted. So where is it?

13 March 2018

Hopefully by 2121, we in the UK can forget the EU's driver-hating regulations and maybe work on the same playing field as other right-hand drive markets such as Australia and Australia. The EU isn't going to be around forever.

13 March 2018
SmokingCoal wrote:

Hopefully by 2121, we in the UK can forget the EU's driver-hating regulations.

Yes, let's get back control of poisoning our air and damaging the health of our children.

SmokingCoal wrote:

The EU isn't going to be around forever.

Brexiteer wet dream.

13 March 2018
The Government has said time and time again that EU environmental laws will be carried over.

You most likely knew that anyway.

13 March 2018
Andrew1 wrote:

SmokingCoal wrote:

Hopefully by 2121, we in the UK can forget the EU's driver-hating regulations.

Yes, let's get back control of poisoning our air and damaging the health of our children.

SmokingCoal wrote:

The EU isn't going to be around forever.

Brexiteer wet dream.

CO2 does not damage the health of anyone. These regulations are all about meeting CO2 limits which are going to be almost impossible to achieve by ditching diesel, and even with diesel engines they will be very hard to achieve. Hybrids of some sort are the only way to get ICE vehicles to be able to meet the tests as they will produce lower emissions for the duration of a test drive. Obviusly if they had to test a long continus drive, hybrids would be no good at all. Politicians make the rules, and engineers have to try and find a way to meet them. The new test regime will be no more realistic than the current one, unless everyone only ever drives 20 miles in a hybrid and can avoid running the main engine most of the time.

13 March 2018

 I read somewhere recently, and for the life of me I can’t remember where, saying that a new way of manufacturing Hydrogen was on the cards in the next few years, so, Hydrogen might be the saviour yet......,

Peter Cavellini.

13 March 2018

The title is misleading. The article is mostly about how difficultly it will be for car manufacturers to meet emission targets in 2021 rather than how they will successfully achieve these tougher targets.

13 March 2018

Hi...PA consulting's analysis is incomplete, and based on current vehicles and volumes with minimal accurate futuring or accounting for new vehicle lines.

It assumes a predictable "business as usual" cadence of launches and powertrain updates. Most carmakers who have spoken with them have chosen not to use their services. 

In 2020 JLR intend to break the 300,000 unit limit of their current derogation, meaning this target in the article is innacurate and they will either pay fines or sell lossmaking PHEVs/BEVs to get through.

A cleverer path for them would be to temporarily limit volume to 300,000 in the EU and shift to a more profitable mix until they can prepare a suitable product offensive to significantly increase above 300k...at the moment they will stumble just over 300, stay there for a number of years while their profits take it in the arse as they scramble to meet a ridiculous new lower compliance target.

13 March 2018

The trouble is that consumers have no incentive to choose cleaner cars because the penalty for driving an SUV that pollutes more is not a real disincentive. If you can afford an SUV, you can eaily afford the higher rate of tax. Easily. It isn't even a consideration for most buyers. So it needs to be more savage. And on top of that, car makers will have to do what they're perfectly capable of and reduce emissions again and again. It's only shareholders and profits and greed that stops them. 

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