VW wants EU to soften CO2 emissions targets it likely will miss

Volkswagen Group wants European regulators to walk back CO2 emissions targets that are set to kick in next year and expose the automaker to hefty fines.

VW needs to reduce emissions by about 15 percent next year, according to market researcher JATO Dynamics, just as EV demand in Europe is taking a hit. From 2025, automakers in the EU have to lower the amount of CO2 emitted across new vehicle fleets, a task that will be even tougher because of a new measuring standard more closely aligned with actual driving conditions.

"It doesn't make sense that the industry has to pay penalties when the framework conditions for the EV ramp up aren't in place," VW Group CEO Oliver Blume said during the company's annual results presentation on Wednesday.

"Depending on the framework we have in the different markets, it's important to adjust the CO2 targets, and to think what is realistic," Blume said.

Automakers are feeling the strain from the cooling EV shift with new buyers getting harder to win over as incentives fall away and vehicle prices remain high. Stellantis CEO Carlos Tavares in January warned the rush to offer affordable electric vehicles will end in a "bloodbath" because of high production costs.

VW on Wednesday revealed plans to roll out 30 new and upgraded models across the group this year to add sales momentum, many of which will be all-electric in cluding the Porsche Macan Electric, Audi Q6 E-tron and VW ID7.

But shifting EVs is tougher with consumers holding back in light of high interest rates and a sluggish economy. In Germany, Europe's biggest market, battery-car sales have plummeted after the government cut subsidies altogether.

European carmakers' average-fleet CO2 emissions will be subject to tougher Worldwide Harmonised Light Vehicle Test Procedure (WLTP) regulations from 2025, replacing New European Driving Cycle (NEDC) rules.

Automakers operating in Europe will have to reduce average fleet new car CO2 emissions to 93.6 g/km in 2025, based on the WLTP cycle, from the 2021 standard of 95 g/km, on the NEDC cycle. To meet its share of the reduction, VW needs to lower its 2025 emissions by about 15 percent, based on analysis from JATO.

Bloomberg Intelligence's Michael Dean said the task has been made harder by falling government subsidies and increased competition from China.

Failure to comply with the new rules will trigger a €95 fine for every vehicle registered in the EU, multiplied on an annual basis by each CO2 g/km above the target.

While Europe's EV sales are still rising, the trajectory of the shift has veered off course, spreading uncertainty for buyers as well as an industry that has sunk billions of euros into the shift.

For next year, VW and other automakers can pool their fleet with battery-only carmakers such as Tesla to help reach their target, though that is costly too. Tesla has earned almost $9 billion since 2009 from automakers needing help to meet emissions standards.

Blume said pooling was an option for VW to avoid the CO2 payments the automaker would face. Incentives to sell more lower emissions cars is another option VW could use to lower its average fleet emissions.

Citigroup downgraded expectations for the EU after the share of EVs of total deliveries shrank last month. For this year, EVs are set to make up 15.5 percent of sales, down from 18 percent, according to analyst Harald Hendrikse. Citi also cut its 2025 forecast by three percentage points to 18 percent.

The EU plans to phase out new sales of fuel-burning cars by 2035, with some caveats for synthetic fuels. In 2026, policymakers will assess the pace of transition and its feasibility for consumers.

Charging infrastructure gaps and high vehicle prices remain the key hurdles for the ambitious climate-friendly policy that is remaking the business case for the region's automakers including Renault, BMW and Mercedes.

"The EV transition was always going to be cyclical and not a straight line," Blume told journalists on Wednesday, adding he wants the EU to stick with ending combustion-engine car sales by 2035. "We need planning certainty — it's not helpful to have discussions to change course just when there's a bit of headwind."