Volkswagen ID.3 GTX FIRE+ICE (Source: Volkswagen)
European automakers are slashing prices on EVs while raising prices on their ICE models, all in hopes of avoiding hefty fines as the European Union's new emissions rules take effect in early 2025.
On January 1, the EU will drastically lower its CO2 emissions standards, meaning that at least 20% of all car companies' sales must be electric models to avoid huge fines, Reuters reports. This year, 13% of all new cars sold in the region are electric, according to ACEA.
“The gap is really big,” Marc Mortureux, the director of the PFA for French cars, told Reuters. He added that companies are now tasked with selling more EVs “at a time when political and economic uncertainty and declining EV subsidies are hindering sales.”
The truth of the matter is that automakers could be forced to pay billions in fines – up to $16.4 billion – if emissions limits are not met. BMW and Mercedes are on track to meet those goals this year, but Volkswagen, Stellantis, and Renault are at risk of falling short, according to a Bloomberg survey. Of course, Tesla has its own debt issuance to help cover those fines.
In 2023, EU countries approved a landmark law requiring all new cars to have zero CO2 emissions from 2035. From April 2023, new cars sold in the EU have a CO2 emission limit of 95 grams, while vans must not exceed 147 grams. CO2/km. The rules will tighten again in 2025, with new cars limited to 93.5 g CO2/km and vans to 153.9 g CO2/km. In 2030, the restrictions will tighten, leading to a ban on CO2 emissions from new cars and vans sold in the EU from 2035. So, as we get closer to that date, the panic among legacy car manufacturers begins.
Meanwhile, VW, Stellantis, and Renault Group have reduced the prices of ICE models by several hundred euros in the past two months, according to Reuters, in an effort to make the expensive EV models more attractive.
Last month, the Peugeot brand of Stellantis also increased the prices of its ICE model by 500 euros, while Renault charged 300 euros on the gas-powered Clio SCE 65, but kept the prices of hybrid models unchanged. VW has reduced the price of its ID3 in several markets, dropping the price to under €30,000 in Germany.
However, a source told Reuters that this approach could backfire. Increasing ICE prices can close the gap with expensive EVs, but may not generate enough EV sales overall. “In reality, raising the prices of hot cars means reducing production,” the source said, “and all value chains and suppliers will face this.”
European automakers are also facing excess capacity due to sluggish sales and pressure from Chinese automakers introducing lower-priced models in the region. In an indication of how bad things are, the CEO of Stellantis, Carlos Tavares, abruptly resigned this month, while Volkswagen continues to face budget cuts as it faces labor strikes in Germany. However, it is estimated that VW will have to pay very large fines, but the legal group Transport & Environment has said that the total fines are likely to be much less than the feared €15-plus billion and closer to €1 billion.
Photo credit: Volkswagen Group
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