Menu

New Risks for the EU Auto Market: Climate, China, the US, and Russia’s Threat

By
Photo: The crisis in European car manufacturing is already underway: Volkswagen workers join a protest during a pre-emptive strike on 6 November 2024 in Osnabrück, Germany, disputing workforce and wage cuts. Source: Getty Images
Photo: The crisis in European car manufacturing is already underway: Volkswagen workers join a protest during a pre-emptive strike on 6 November 2024 in Osnabrück, Germany, disputing workforce and wage cuts. Source: Getty Images

If we believe that China poses the greatest threat to European car manufacturing, we may have lost sight of the climate-related dangers. More specifically, we face fines that will begin to affect European automakers from January 2025. Yes, we are only a month and a half away from the moment when the EU will start penalising automakers for failing to meet interim benchmarks. Car companies are, of course, dismayed and are demanding that these penalties be delayed. In such cases, one might argue that automakers should have prepared more thoroughly for these latest environmental checkpoints. However, they are only partially to blame. They were unable to accumulate sufficient resources due to the severe economic fallout from the COVID-19 pandemic, followed by a surge of subsidised Chinese electric car exports to the EU that has left European automakers struggling. So, while the threat from Chinese carmakers is very real and significant, it operates within a wider set of challenges. These include the potential for the US to impose tariffs on vehicle imports, which could impact European cars as well. Tariffs on Chinese vehicles have already been implemented in the US. Added to this are the risks arising from Russia’s war against Ukraine in Eastern Europe.


French carmakers are in a bind as they approach yet another deadline for the CAFE (Corporate Average Fuel Economy) standard, which dictates the annual average emissions limit per car sold in Europe. This involves the latest checkpoint for reducing carbon dioxide emissions. This deadline is set for January 2025, but many European manufacturers are falling behind. The consequence of this delay will be fines.


Environmental fines, Chinese competition, American tariffs – all against European cars. Car manufacturers are stuck in a deadlock, and 2025 will be particularly challenging for them.


France’s Economy Minister, Antoine Armand, who took office on 21 September, has expressed his intent to postpone the imposition of penalties. He believes that penalties will severely damage the competitiveness of European manufacturers in their struggle with Asian rivals for the European market. Armand stated in an interview with the economic newspaper Les Échos: “If we have to impose huge fines on automakers because they haven’t progressed quickly enough, the immediate consequence will be a reduction in investment, giving a boost to our Asian competitors.”


All of this comes as the EU has imposed fairly high tariffs on imports of Chinese electric vehicles for the next five years as of late October. But is it too late the EU has set these tariffs?


Brussels to Penalise European Automakers for its Own Miscalculations


Is Armand simply lobbying for Renault and Stellantis? Recall that Stellantis includes the former PSA Group, encompassing Peugeot, Citroën, DS, Opel, Vauxhall, and Fiat. Renault is currently the third-largest car brand by sales in Europe and number one in France. Stellantis ranks second in European sales, and the Volkswagen Group holds the top position (all figures refer to the first nine months of 2024).


In reality, this issue concerns more than just the French government. As of January, emissions limits for cars will be reduced by nearly a fifth, to around 94 grams per kilometre, under current legislation. EU policymakers argue that these tougher standards, including further reductions in emissions limits, will drive sales of zero- and low-emission vehicles.

However, the leading European car manufacturers association, ACEA, already called in September for an urgent review of these regulations and a two-year delay in the implementation of aggressive CO2 sanctions, warning that these measures could further stifle the competitiveness of Europe’s electric vehicle sector.


The state of the automotive industry is crucial for the EU – it accounts for 7% of EU GDP


In September, ACEA noted that the EU’s car manufacturing competitiveness is declining and outlined the reasons behind this. European manufacturers have already invested billions of euros in battery and hybrid vehicle production. However, they face excessive demands without the other necessary components for a low-emission transition. ACEA argues that this lack of infrastructure is making the move towards zero emissions especially difficult for European manufacturers. Consequently, it will be challenging to achieve CO2 reduction targets for passenger vehicles by 2025.


So, on one side, there is a strict emissions reduction schedule, while on the other, the EU has not yet established the right conditions. ACEA cites the weak infrastructure for charging electric vehicles and fueling with hydrogen, the lack of a competitive manufacturing environment, accessible green energy, consumer and tax incentives, as well as a reliable supply of raw materials for hydrogen and battery production.


The Issue of Finances, Which Could Fall Short Due to Fines

Where does this tough rhetoric and desire to postpone emissions regulations and CO2 fines come from? The issue seems to be that Chinese competitors have hindered European automakers in recent years. European battery electric vehicle (BEV) manufacturers have struggled to keep pace with those heavily supported by the Chinese government, leading to delays in placing EU products on European roads.


Now, if European automakers are forced to pay hefty fines for delays in increasing BEV and hybrid sales, they will have to cut back on investments to transition to such vehicles. This is a vicious cycle that European car corporations are trying to break. At the same time, they do not dispute the ultimate goal of phasing out internal combustion engine vehicles by 2035. They are calling for a more balanced approach to ensure that the “green transition” does not disrupt the industry in the process.


In addition to the risks for green transition investment plans, excessively strict regulations pose another danger. Ukraine’s experience during the full-scale invasion highlighted a significant threat: a rapid shift to electric vehicles leaves a country’s infrastructure highly vulnerable. Russia has persistently attacked Ukrainian energy infrastructure, creating enormous risks for individuals and businesses relying on electric vehicles. Power outages threatened to render commercial transport, urban transport, and personal vehicles inoperative. Ukraine was somewhat protected by its slower pace of green transition compared to Western Europe.


Security threats must also be considered when determining the pace of the green transition. An overly rapid shift away from internal combustion engines makes Europe’s economy and infrastructure fragile in the face of military threats from Russia.


And all of this is happening as the EU introduced protective tariffs against Chinese electric vehicle imports only in early July, with these measures finalised in late October 2024 for the next five years. This leaves a gap of less than half a year between implementing protective measures against aggressive Chinese car exports to the EU and imposing fines for insufficient growth in BEV production by European companies.


This situation thus appears as follows:

  • Conditions for the widespread use of CO2-free or low-emission vehicles have not been established.
  • Protective measures to support European manufacturers were introduced too late for them to accelerate their transition to zero- or low-emission vehicles.
  • The Russian threat questions the current green transition timeline, as a hasty shift makes the EU’s infrastructure and economy vulnerable to this danger.


And all this is happening against the backdrop of a genuine crisis in European car manufacturing. The most notable example is Volkswagen Group’s decision to close at least three factories in Germany and cut tens of thousands of jobs. Furthermore, the group’s factories will see an 18% reduction in salaries, affecting all VW facilities in Germany.


Without Volkswagen’s current struggles, one might consider the calls by the French minister and ACEA as mere attempts to save shareholders’ funds. However, given the real external threats from subsidised Chinese exports and Russia’s invasion of a neighbouring country bordering the EU, the situation presents a serious challenge that Brussels must address urgently.

Similar articles

We use cookies to personalize content and ads, to provide social media features and to analyze our traffic. We also share information about your use of our site with our social media, advertising and analytics partners who may combine it with other information that you've provided to them. Cookie Policy

Outdated Browser
Для комфортної роботи в Мережі потрібен сучасний браузер. Тут можна знайти останні версії.
Outdated Browser
Цей сайт призначений для комп'ютерів, але
ви можете вільно користуватися ним.
67.15%
людей використовує
цей браузер
Google Chrome
Доступно для
  • Windows
  • Mac OS
  • Linux
9.6%
людей використовує
цей браузер
Mozilla Firefox
Доступно для
  • Windows
  • Mac OS
  • Linux
4.5%
людей використовує
цей браузер
Microsoft Edge
Доступно для
  • Windows
  • Mac OS
3.15%
людей використовує
цей браузер
Доступно для
  • Windows
  • Mac OS
  • Linux