VW, Ford could face fines for missing EU's 2025 CO2 goals amid EV market slowdown

Automakers will have to sharply increase sales of full-electric and hybrid cars despite "market skepticism" for EVs to meet 2025 European Union CO2 emissions targets, according to a report from analyst company Dataforce.

The 2025 fleet average for new cars sold in the EU will be 93.6 grams of CO2 per km, compared with the 116 g/km limit that went into effect in 2021.

Each automaker has its own target based on average mass of its fleet, which means that brands such as Mercedes-Benz and BMW that sell large SUVs have higher targets than brands that sell mostly smaller cars with smaller engines and lower CO2 emissions, such as Dacia or Citroen.

The EU will fine brands that miss their goal €95 per car per gram over the target. Automakers paid a total of €550 million for missing the 2021 targets, although nearly all brands achieved their goals on time, Dataforce said. 

Of the major automotive groups in Europe, only Geely and Tesla are already below their 2025 targets. Tesla has no problem meeting its target because it sells only zero-emission full-electric cars while Geely is helped by its Volvo brand, which sells high numbers of full-electric models.

Toyota, which sells low numbers of full-electric cars but a large number of low emission full-hybrids, is the closest to its 2025 target. Ford and Volkswagen Group face the biggest gap, Dataforce said (see chart, below).

VW Group CEO Oliver Blume said earlier this year that the EU should adjust the CO2 targets because of the slowdown in sales of zero emissions full-electric cars. He also said that VW could join an emissions pool with a more-efficient automaker to lower its fleet emissions.

BMW CEO Oliver Zipse has also called for a review of the targets, as has Renault Group CEO Luca de Meo in an open letter to regulators.

No major new pooling agreements between automakers have yet been announced for 2025, according to European Commission records reviewed Aug. 21 by Automotive News Europe.

The fastest route to compliance would be to increase sales of full-electric cars, but the EV market has cooled substantially this year following the withdrawal of incentives in big markets, especially Germany, and consumer resistance to pay higher prices for electric cars. 

The market share of BEVs in Europe has fallen to 13.3 percent in the first half of this year from 13.8 percent in the same period in 2023, Dataforce said in an Aug. 21 report.

Automakers have also been preparing for the targets by increasing sales of full-hybrid cars, as well as continuing to push PHEVs, which have held onto most of their market share this year despite being seen as a costly transition technology. 

In the first half of this year, the overall European market was up by 4.3 percent (or 234,000 sales), with half of the new volume coming from full hybrids, Dataforce said.

"BEVs and PHEVs offer the greatest reduction potential, but subsidy cuts have hindered their transition to the volume market," Dataforce said in the report. 

PHEV sales are expected to cool sharply, especially as the EU pushes greater scrutiny of the utility factor, or the percentage of time a plug-in hybrid operates in full electric mode. Onboard real-life monitoring has found that PHEVs run on the combustion engine much more than emissions certification tests predict.

An analysis in April by the environmental advocacy group Transport & Environment found that based on 2023 sales mix, automakers would need to increase EV market share to 24 percent; increased sales of hybrids could drop that figure to about 18 percent, T&E said.

Dataforce said that an automaker without full hybrids in their portfolio would need to sell 37 percent BEVs and PHEVs; but an automaker selling 55 percent full hybrids could reduce that figure to 23 percent.

Aside from manipulating their own powertrain offerings (for example, by pulling high-emissions cars from the market), automakers can focus on lowering the entry cost of EVs through inexpensive LFP battery technology and scaling up production. This task has been made more complicated with the EU’s extra tariffs on Chinese-built EVs, but a number of EVs built in Europe with a base price of €25,000 or less are launching this year, including the Renault 5 and the Citroen E-C3. 

That will have an impact on the cost of internal-combustion cars, Dataforce analyst Benjamin Kibies said in the report. "Car buyers must prepare for price hikes on petrol and diesel cars, while BEVs will become more affordable with the introduction of new models," he said.