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Carmakers to pay €14.5B in EU emissions fines in 2021, says study

Automakers will collectively pay about €14.5 billion in fines to the European Union for excessive tailpipe emissions in 2021, according to a study published Jan. 14 by PA Consulting, representing perhaps the single largest threat to their balance sheets over the next two years.

As Europe's largest mass-market automaker, Volkswagen AG could be on the hook for a 2021 fine of €4.5 billion, according to the management consultancy. Ford Motor Co. runs the risk of a €1.46 billion fine, the Renault SA-Nissan Motor Co. Ltd.-Mitsubishi Motors Corp. alliance a fine of €1.06 billion, and Peugeot SA, which includes the Citroen, Opel and Vauxhall brands, a fine of €938 million.

Japan's Mazda Motor Corp. is projected to face an €877 million fine and Korea's Hyundai Motor Co. and Kia Motors Corp. a combined €797 million. Germany's premium carmakers, Mercedes-Benz parent Daimler AG and Bayerische Motoren Werke AG, are set to face fines of an estimated €997 million and €754 million, respectively.

Toyota Motor Corp. looks poised to come closest to meeting its target, with a projected fine of just €18 million, PA Consulting found.

"We expect all manufacturers to miss their target and face significant fines. ... Even those that were previously on track to meet their targets, such as Renault-Nissan-Mitsubishi and Volvo, look set to fall short. This means the scale of fines for many will be enough to affect their profitability," the study said.

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From 2021, automakers selling cars in the EU need to cut CO2 emissions to a collective average of 95 grams per kilometer, with individual targets for each manufacturer according to the typical type and weight of cars it produces. Fines for noncompliance will be €95 for each gram by which the average CO2 of the cars sold by a manufacturer exceeds the specified target, multiplied by the number of cars sold.

The policy will be "phased in" for the duration of 2020, during which time the same rules and fines will apply to 95% of the carmakers' fleet. Though this allows them to avoid counting the most polluting 5% of their vehicles, they still face significant fines this calendar year as production of hybrid and electric cars ramps up.

Electric cars and hybrid vehicles emitting less than 50 grams of CO2 per kilometer will be double-counted into the average in 2020. These cars will continue to be over-weighted in subsequent years but to a lesser extent.

An EU spokesperson told S&P Global Market Intelligence that fines for 2020 emissions will be calculated by October 2021 at the latest.

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Announced in 2009, the new rules do not take automakers by surprise. But experts say the cuts to emissions they impose can no longer be achieved with piecemeal improvements to internal combustion engines and will need at least partial electrification with hybrid powertrains. A shift in consumer tastes toward larger SUVs has stalled a long run of steady declines in CO2 emissions produced by vehicles.

While Fiat Chrysler Automobiles NV's forecast CO2 emissions would lead to fines totaling €2.46 billion, the company will pay electric-car maker Tesla Inc. a reported $2 billion to "pool" their sales, essentially becoming one company in EU statistical calculations and thereby diluting its own emissions. With battery-electric powertrains and no tailpipe, Tesla's figure is zero grams of CO2.

Volkswagen announced it sees its future as electric and has already begun taking orders for a Golf-sized ID.3 hatchback, but deliveries will not start until the middle of 2020 at the earliest, limiting the number of electric cars it can add to the yearly fleet CO2 calculation. Groupe PSA is preparing to launch battery-electric variants of two of its high-volume models, the Peugeot 208 and the Opel/Vauxhall Corsa, while Renault will add a hybrid option to its popular Clio hatchback, models that are some of Europe's most familiar and popular.