Europe's automakers face new CO2 emissions headache

European automakers, already battered by the region’s economic downturn, face a fresh financial headache if the European Union implements, as planned, a new way of testing CO2 emissions from cars starting in 2017. The EU wants to replace the New European Drive Cycle (NEDC) test, which measures CO2 emissions and fuel economy of new vehicles, by a more accurate United Nations-sponsored test cycle called the World Light Vehicle Test Procedure (WLTP).

The move means that automakers will have to invest more heavily in solutions to boost fuel efficiency to meet tougher EU emissions limits, but it could also boost electric car sales and bring new business to suppliers, industry watchers say. Exane BNP Paribas estimates that using the WLTP standard could add nearly 1,000 euros to the cost of buying a car, a blow to mass-market automakers that already often resort to heavy discounting to encourage recession-hit consumers to buy new vehicles.

Carmakers want the test’s implementation delayed until 2020, BMW CEO Norbert Reithofer said when presenting the company’s 2013 financial results in March. The EU goal of introducing the test by 2017 is “incredibly ambitious,” Erik Jonnaert, ACEA secretary general, told Automotive News Europe. Jonnaert said automakers will pass on to car buyers the cost of implementing the test. Additional costs will vary depending on manufacturers and their own processes and vehicle types, he said.

The WLTP test reflects modern driving conditions better than the NEDC procedure that was introduced in the 1970s to measure smog-causing nitrogen oxide (NOx) emissions, with CO2 and fuel consumption tests added later. The technical and driving pattern assumptions made at the time are outdated today and emissions results from real-world driving may be 20 percent to 30 percent higher than results from the NEDC test, Exane BNP Paribas estimated in an April 7 report. Brussels-based environmental lobby group Transport & Environment says independent driving tests show that CO2 emissions and fuel consumption are an average of 23 percent higher than the official figures reported by carmakers. Automakers selling cars in Europe already face the challenge of reducing CO2 emissions to an industrywide average of 95 grams per kilometer by 2021 from about 130g/km now. They claim the new test will make the target harder to achieve.

The WLTP test results will be used to set emissions levels and therefore determine the annual progress of automakers in reducing their emissions to meet the EU target. Carmakers are on track, to varying degrees, to meet the 95g/km target using the NEDC test after spending billions of euros to develop new technology such as stop-start, more-efficient engines and electric cars.

The WLTP test, however, would in effect move the goal posts. Exane BNP Paribas analyst Stuart Pearson said introducing the WLTP test could double the CO2 reduction required by many automakers and cost the industry billions. “Should the new test cycle lead to emissions say 20 percent above that on NEDC, then assuming a 30 euro per gram cost of CO2 technology, the incremental cost for the EU industry would be around 11 billion euros” (assuming 14.3 million cars are sold in 2020), Pearson wrote in the April 7 report. That breaks down to about 800 euros per car, which is “a huge sum for an any OEM, but particularly mass makers that typically make only 500 euros per car in a good year,” Pearson said.

Automakers such as Renault, PSA/Peugeot-Citroen and Fiat, which already have margins well below the likely incremental cost of compliance, will be hurt more than German automakers, Pearson said. But there will be winners. Suppliers of parts that make cars more fuel efficient, such as Continental, Plastic Omnium and Faurecia, will gain business, Exane BNP Paribas said. Sales of electric and plug-in hybrid cars may also accelerate but diesel sales may suffer as NOx output also rises under the new testcars may also accelerate but diesel sales may suffer as NOx output also rises under the new test.