Car Companies Risk Huge Fines in Europe for Exceeding Emissions

Have you ever wondered why car manufacturers active in Europe are obsessed with all sorts of hybrids and electric vehicles? Sure, they too want to protect our fragile world by reducing emissions, but there are also major financial ramifications if they don't cut down on gas-guzzling cars. For each gram over the fleet emissions target established by the EU, automakers pay a €95 ($105) fine.

Okay, that doesn't sound like much when you're an automotive juggernaut with huge pockets such as the Volkswagen Group or Stellantis. However, those fines quickly add up because the penalty is applied to each and every car sold. That can translate into massive fines amounting to hundreds of millions of euros if the company doesn't sell enough hybrids and EVs to compensate for its ICE sales.

This is also one of the reasons why downsizing is in full swing and three-cylinder engines are becoming the norm rather than the exception in Europe. The proliferation of smaller, electrified engines has a global impact because Europe is one of the most important regions for the car industry. Automakers have to adapt to stringent regulations in the EU, and that influences the development of new cars and engines.

The current fleet average target of 115.1 g/km (based on the WLTP cycle) will decrease by around 19% in 2025 to 93.6 g/km, putting at risk most automakers. Research conducted by analyst company Dataforce previews a worrying future for many companies that sell cars in Europe. Through June 2024, only Tesla and Geely were below the upcoming 2025 fleet emissions target.

According to the European Commission, each automaker has its own target, calculated based on the average mass of its fleet. In other words, companies that sell more SUVs have higher targets than those with smaller vehicles. In 2020, car manufacturers paid approximately €510 million for missing their CO2 emissions reduction targets, which were more relaxed back then.

Automakers are at a crossroads right now. Keep pumping out ICEs or go all in on EVs? The temptation is for the latter scenario but subsidies from the governments across Europe have either been greatly reduced or wiped out entirely, taking their toll on customer demand. In the first six months of the year, purely electric cars had only a 12.5% market share in the EU, according to numbers published by the European Automobile Manufacturers' Association. That's actually slightly worse than the first half of 2023 when EVs accounted for 12.9% of total shipments.

It's the same story with plug-in hybrids since their market share went down from 7.4% to 6.9%. On the flip side, regular hybrids rose from 25% to 29.2%, according to ACEA. Dataforce lists slightly different percentages in the graphic below but their analysis leads to the same conclusion–gas cars still reign supreme in Europe.

ACEA's analysis shows even the "dirty" diesel is still ahead of EVs in the first six months of the year, with a market share of 12.9% vs 12.5% for EVs. That said, oil-burners are down compared to January-June 2023 when they accounted for 14.5% of new car sales in Europe.

We'll certainly be seeing more hybrids and EVs from automakers that compete in Europe given the upcoming 2025 fleet emissions target. It'll get even tougher for car companies to avoid hefty fines from 2030 when the limit will be lowered again, from next year's 93.6 g/km to 49.5 g/km.

There is some leeway for automakers as they can "act jointly to meet their emissions target." The European Commission doesn't allow this sort of deal between car and van manufacturers. Automotive News Europe had a look at EC's records and they weren't able to discover any new major deals between companies for 2025.

Looking further ahead, the EU will effectively ban sales of new cars with emissions from 2035, but synthetic fuels could keep the combustion engine alive.