RENAULT Group CEO Luca de Meo has warned that Europe’s car manufacturing industry could be fined up to €15 billion (A24.7b) because of slowing demand for BEVs that could lead to crippling fines or a cut in production of around 2.5 million cars. 

If car makers do not sell enough EVs with low enough carbon output to meet the mandated levels, huge financial penalties kick in; just like the NVES system in Australia that starts in January.

The weakening EV market would affect the balance between internal-combustion engine (ICE) vehicle sales and EV sales leading to car makers paying the fines or taking an alternative approach of cutting their ICE production to restore the mandated balance. Mr de Meo, speaking in an interview with Automotive News, said: “If electric vehicles remain at today’s level, the European industry may have to pay €15 billion in fines or give up the production of more than 2.5 million ICE vehicles.

Car makers are clear that they need to continue to sell ICE vehicles in quantities which are profitable in order to fund the transition to EVs which are presently sold at a loss. 

The warning comes at a time when the vehicle leasing industry in Britain has warned that a 50 per cent loss of value in EVs in just two years is becoming the norm and they will have to raise vehicle repayments to cover the huge loss of value in the cars they lease.

They predict that this will put the brakes on demand and result in lost vehicle sales of 300,000 units by 2027 in Britain alone.

In Germany, Volkswagen has broken a 30-year agreement with unions that prevented compulsory redundancies in its German plants as Wolfsburg considered closing some of its German plants as demand falls – especially for EVs.

There are increasing warnings that loading car makers with massive penalties because EV sales are not meeting expectations only weakens car makers and makes the job of the EV transition even more perilous than it already is and has the potential to do serious damage to the economies of Europe.

For example, VW is the biggest employer in Germany and the car industry accounts for five per cent of GDP.

The nature of VW’s problems in Germany, where we are told the VW “roof is on fire”, is highlighted in a Wall Street Journal report which pointed out that Germany accounts for 57 per cent of VW’s assets, 44 per cent of its employees but only 19 per cent of revenue. 

Renault Group CEO Luca de Meo

This contrasts with Toyota where Japan accounts for 27 per cent of Toyota’s assets, 18 per cent of its employees and 23 per cent of its revenues. 

The Journal said that the labour rate in Germany is 62 Euros an hour compared with 29 Euros an hour in Spain.

On top of that, the market for cars in Europe and Britain in the first half of this year is 18 per cent lower than in 2019 pre-Covid – more than a million cars a year lost.

The UK trade publication Automotive Management is reporting that the British Vehicle Rental and Leasing Association (BVRLA) is calling for “immediate government action to prevent further instability in the used electric vehicle market which is undermining confidence in the transition to electric cars and driving up the cost of new EVs”.

It said that over the past 24 months, used EV values have plummeted by 50 per cent and “without intervention, this decline could continue, impacting the financial health of leasing companies and dealers who are already struggling with the rapid depreciation of EVs.

The BVRLA said that the uncertainty surrounding used EV performance is causing finance companies to raise monthly lease rates for new EVs in order to offset potential losses, “creating a negative feedback loop that could worsen in the coming years”, AM reported.

“The market is facing a growing surplus of second-hand EVs, with demand not keeping pace. This imbalance is already affecting demand for new electric cars,” the AM report said.

BVRLA chief executive Gerry Keaney, stressed the urgency of the situation.

“Vehicles naturally depreciate, especially in their first few years. But what we are seeing now is unprecedented and unsustainable. Used EV values have dropped by 50 per cent over the past two years and further declines are expected.”

AM said that Mr Keaney warned that leasing companies and fleet operators, “which have been instrumental in promoting zero-emission vehicles, cannot continue absorbing these losses”.

Meanwhile, starting in 2025, the EU will reduce the cap on average CO2 emissions from new vehicle sales, lowering it from 116 grams per kilometre in 2024 to 94 g/km.

Failure to meet this target could lead to penalties of €95 ($A157) for each excess gram of CO2 per kilometre, multiplied by the number of vehicles sold.

Europe currently has Euro 6 emission regulations.

The European Commission (EC) is maintaining a hard-line on the matter. It is negotiating Euro 7 proposals this year on tighter limits for car emissions – for diesel cars, but not petrol – and for heavy-duty trucks and buses, including nitrogen oxide and carbon monoxide.

The EC’s proposal widens real-driving emissions (RDE) testing and adds continuous testing  of emissions via an on-board monitoring system. 

Euro 7 would take effect in mid-2025 for cars and in mid-2027 for trucks and buses. The rules would also cover tyre and brake emissions.

Mr de Meo, who said that the automotive industry was currently “struggling” to meet the upcoming EU deadlines, said: “The speed of the electric ramp-up is half of what we would need to achieve the objectives that would allow us not to pay fines.”

“Everyone is talking about 2035, in 10 years, but we should be talking about 2025 because we are already struggling,” he said.Mr de Meo, who is also the president of the European Automobile Manufacturers Association (ACEA), urged the EU to provide “a little flexibility”.

He said that “setting deadlines and fines without being able to make that more flexible is very, very dangerous.”

Reuters has reported that the EU car-makers have been revving up complaints against the new emission proposals. Transport accounts for nearly a quarter of EU emissions.

The issue is ongoing. EU countries’ energy ministers are set to give final approval to the bloc’s law to end sales of new CO2-emitting cars in 2035, after Germany won an exemption for cars running on e-fuels. 

The European Commission recently struck a deal with Germany by offering assurances that ICE vehicles that only run on e-fuels will be exempted from the 2035 ban. 

Porsche and Ferrari are among the supporters of e-fuels, which they see as a way to avoid their vehicles being weighed down by heavy batteries.

Other carmakers including Volkswagen, Mercedes-Benz and Ford are betting on battery-electric vehicles to decarbonise.

Protests earlier this year from car-makers and some European countries have succeeded in weakening upcoming emissions standards for new cars in Europe, which were previously tipped to effectively kill affordable, petrol-powered city cars.

The European Parliament has agreed to new Euro 7 emissions regulations which are far less stringent than the original version of the standards proposed in 2022 — and come into effect for cars five years later, in 2030 rather than 2025.

While there will be stricter pollution caps for buses and trucks, the tailpipe emissions limits for passenger vehicles and vans will be unchanged from the current Euro 6 standards.

It follows backlash to earlier versions of the proposal from various car makers, which argued stricter emissions rules from 2025 would distract their engineering resources from developing electric cars to meet Europe’s 2035 ban on new petrol and diesel car sales.

Car makers said the original Euro 7 proposal would have required additional anti-pollution equipment that would drive up the price of cars – and make it infeasible to sell petrol-powered city cars at a low price while still making a profit.