trending Market Intelligence /marketintelligence/en/news-insights/trending/lzwehpynxzfagjg2m6wbha2 content esgSubNav
In This List

EU 2030 carbon emissions target should accelerate electric-car development

Video

S&P Capital IQ Pro | Powered by Expert Insights

Blog

Q&A: Streamlining Analytics for TCFD Reporting

Blog

Evergrande and the wider impact: a sentiment analytics based perspective

Blog

Insights Weekly: Midstream sector gains; loan growth momentum; insurance M&A on the rise


EU 2030 carbon emissions target should accelerate electric-car development

The automotive industry will have to make huge investments to comply with a proposed EU-wide reduction in carbon dioxide emissions from cars of more than one-third by 2030, but the regulatory burden could inject new urgency into the development of still-fledgling electric vehicle technology.

Germany, Europe's automotive powerhouse, found itself overruled by a majority of environment ministers of the 28-country bloc who on Oct. 9 backed submitting to parliamentary vote a 35% cut to CO2 emissions versus 2021 levels, as policymakers contend with pressure to tackle urban pollution and global warming. Germany had favored a 30% target.

European industry lobby the ACEA, which had said a cut of 20% would be "achievable at a high, but manageable, cost," welcomed the focus on reducing CO2 emissions but reiterated that the more aggressive targets could make it harder to compete in regions with more lax regulations and threaten some of the European car industry's 3.4 million jobs. But it did not question the target's technical feasibility. With electric-car prices still stubbornly high, the main obstacle now looks to be economic.

"To get to 35% you do need mass electrification, which we assume will happen. You will have to invest massively in this technology but there is no guarantee that demand will exist," said Al Bedwell, analyst at UK-based consultancy LMC Automotive.

Tax incentives and subsidies are a key factor in creating this demand and persuading consumers to make the switch to more costly hybrid and electric vehicles. China's government was reminded of that after the withdrawal of subsidies in Hong Kong saw sales of Tesla Inc. cars plummet last year, while a U.K. parliamentary committee on Oct. 19 criticized the government's plans to remove grants for hybrid vehicles.

"Look at Norway," said Kia Motors Corp. COO Emilio Herrera, after presenting the company's forthcoming Niro EV at the Paris Motor Show on Oct. 2, referring to the one European country where subsidies have pushed electric-car sales to nearly 1 in 2. "We did some research, and consumers there are not more ecologically friendly than anyone else. It's just the price."

Sinking EU sales of diesel cars since the Volkswagen AG emissions-cheating scandal of 2015 are in fact working against efforts to meet the new targets as the slack is being taken up by gas-powered cars, which emit on average 3.7 grams more CO2 per kilometer, according to the European Environmental Agency. Diesel sales have fallen to about 36.5% of the EU total, down from 50% or more until 2016, nudging average emissions back upwards in 2017 by 0.4 gram per kilometer, the agency found.

Although battery electric and hybrid powertrain sales are gaining momentum, some major carmakers, including Toyota Motor Corp., Honda Motor Co. Ltd. and Hyundai Motor Co., are still hedging their bets, putting a handful of hydrogen-powered cars on the market. A breakthrough in battery technology could jolt manufacturers into further action if a more affordable chemistry type can be found, and preferably one that is safer, more durable, faster-to-charge and free of Congolese cobalt, which NGOs say can have links to child labor. Although still unproven, the industry's biggest players say solid-state batteries show the most potential.

With interim CO2 targets of 95 grams per kilometer by 2021 as measured by outgoing New European Driving Cycle emissions tests, and a further 15% reduction on that by 2025, most automakers have revealed plans for a significant electrified presence in their model lineup by early in the next decade. Volkswagen has unveiled a five-year efficiency drive to help generate the capital that it will require.

The International Energy Agency has forecast that cumulative global electric car sales by 2030 will total about 125 million under a business-as-usual scenario that includes current government-backed incentives. But more aggressive support could push sales to 220 million, it says.

Analysts concur that regulation has proven a reliable means of improving the automotive industry's products. Tightening restrictions again on carbon emissions will throw up hurdles, they say, but may help Europe's innovation-driven car industry maintain its technological lead on China, whose electric fleet dwarves that of every other country.

"We did a study of what 30 years of regulation have done to the price of a car and the answer is nothing. ... The industry has the ability to massively cut costs while pushing technology forward," said Peter Wells, professor of business and sustainability at Cardiff Business School.

Wells added: "The key thing isn't that the industry lacks the vision, but how to get there from here."