The leaders of the European automobile manufacturers’ and automotive suppliers’ associations indicated that European Union targets to cut carbon dioxide emissions from vehicles, including a 100% reduction for cars by 2035, are no longer feasible due to supply chain issues, cost, and infrastructure challenges. EU manufacturers face near-total dependency on Asia for batteries among other challenges, including uneven charging infrastructure, higher manufacturing costs, and U.S. tariffs on vehicles. They indicate that the rigid targets set for 2030 and 2035 cannot be met and that new targets are needed for cars, vans, heavy-duty trucks, and buses that are inclusive of plug-in hybrid, hydrogen, efficient combustion engine, and alternative fuel vehicles. European automakers are still committed to the EU’s 2050 carbon-neutral target, but indicate that legal mandates and penalties cannot drive the transition.

The EU currently requires a 55% reduction in carbon dioxide emissions for new cars and 50% for new vans by 2030 and a 100% reduction by 2035, which would effectively ban combustion engines. Thus, from 2035, only new cars without emissions would be allowed for sale in the EU. Furthermore, starting this year, average carbon dioxide emissions from new cars and vans for the entire EU fleet must be 15% lower compared to 2021 values or automakers would face fines. In March, however, the European Parliament agreed to give automakers some relief and limit their fines by averaging carmakers’ performance over a three-year period rather than directly imposing the new limits. Electric vehicles (EVs) in the EU currently account for about 15% of new car sales and 9% of new van sales.

Manufacturers also want the so-called “utility factor” to be dropped for plug-in hybrids. Existing rules for plug-in hybrids indicate that they must be able to travel a certain distance on electric power alone. According to manufacturers, these rules are counterproductive because they see hybrids as the only way to stop Chinese competitors from gaining an advantage over local models. They also want the EU to expand purchase incentives and cut red tape, while also supporting investments in the battery, semiconductor, and critical raw materials supply chains.

European Commission President Ursula von der Leyen will host automotive sector executives on September 12 to discuss the future of the sector’s emissions reductions. Members of von der Leyen’s center-right group have also called for the EU to withdraw its 2035 ban on combustion engines.

Europe Lags China in EV Battery and Auto Manufacturing

Europe had its hopes dashed for a homegrown EV battery industry by the bankruptcy filing of Northvolt, an EV battery maker based in Sweden. The Northvolt EV battery company filed for bankruptcy despite a $5 billion loan from the EU as it faced numerous challenges, including rising capital costs, geopolitical instability, supply chain disruptions, and shifts in market demand. In Europe, 11 out of 16 planned battery factories have been delayed or canceled as EV demand has waned and manufacturers are struggling to master the technology with China way ahead of its competitors.

As a result, Europe had to increase its import reliance on China, which has 80% of the world’s lithium-ion battery market. China’s CATL and BYD have had a years-long head start in the technology and are selling batteries at very competitive prices. According to Bloomberg, CATL, which became the world’s largest battery maker in 2021, employs 21,000 engineers in research and development, and BYD introduced its first electric car in 2008 — almost 20 years ago. China’s focus on electric vehicles is partly driven by its limited domestic oil and gas resources, which it must import, and its massive fleet of coal-fired power plants, which provide inexpensive energy to its manufacturing sector. China’s leadership in manufacturing “green technologies” has come from burning more coal than the rest of the world combined every year, and the country is still building more coal plants, while the West is retiring them and replacing them with intermittent solar and wind power.

Analysis

It’s no surprise that European automakers are struggling to meet the EU’s emissions mandates when considering slowing demand and China’s hold on the industry. Despite years of subsidies and incentives, EVs are still an expensive choice for consumers — especially as electricity costs remain elevated in Europe — while also posing issues with range and depreciation. With China crowding out European EVs, it’s logical that manufacturers would move towards hybrids and other vehicles to gain a competitive advantage in the market while still complying with long-term emissions goals.

However, instead of begging the EU for more subsidies to compete with China in making the industry “green,” European auto manufacturers are better served focusing on growing their stake in the internal combustion engine market and working with von der Leyen to eliminate all future emissions standards.

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