CAFE: Automakers Request a Delay in Meeting European CO2 Requirements

European automakers are under pressure due to the tightening of the CAFE (Corporate Average Fuel Economy) standard, which imposes strict limits on CO2 emissions from new vehicles. Set to take effect in 2025, this regulation could lead to up to €16 billion in fines if the thresholds are not met. In response to this threat, some automakers are asking the European Union to delay the implementation of these stricter rules by two years, according to an informal document cited by Bloomberg and Le Monde.

A Stagnating Electric Vehicle Market

Until now, the CAFE standard has been largely adhered to, thanks to the rise in electric vehicle sales and improvements in combustion engine and hybrid vehicles. However, since the end of 2023, electric vehicle sales have begun to decline, making up only 12.5% of new car sales in Europe since the beginning of the year. Several factors are hindering the growth of electric vehicles: the removal of purchase incentives in Germany, buyer concerns about limited driving range, and insufficient charging infrastructure.

A Call for Flexibility

The informal document, attributed to Luca de Meo, CEO of Renault and president of the European Automobile Manufacturers' Association (ACEA), calls for a two-year postponement of the CAFE standard’s tightening. The aim is to push back the stricter regulation from 2025 to 2027. To achieve this, the text suggests using a little-known provision of the European Union, Article 122.1 of the Treaty on the Functioning of the European Union (TFEU), which allows for the delay of a regulation's application in emergencies.

De Meo advocates for greater flexibility, arguing that imposing deadlines and fines without room for adaptation is risky for the industry. The European electric vehicle market is stagnating, and automakers may be forced to drastically reduce sales of more profitable combustion-engine cars or significantly lower the prices of their electric models to avoid massive fines.

Potential Scenarios

Several scenarios are being considered to avoid these heavy penalties:

• Reduction of combustion vehicle production: Automakers would need to cut production of combustion-engine vehicles by over two million units and reduce utility vehicle production by 700,000 units. This would equate to the closure of more than eight European factories, with associated job losses.

• Purchasing carbon credits: Automakers could buy CO2 emission credits from less-polluting companies, such as Tesla or Volvo. This practice essentially subsidizes non-European competitors and may not be enough to avoid fines.

• Increasing subsidies: The last option involves increasing subsidies for electric vehicle purchases or lowering the prices of these vehicles to reach a 22% market share. However, member states are generally reducing these subsidies, making this option less viable.

Divergence Among Automakers

Some automakers, like Stellantis, oppose the request for a delay. Stellantis CEO Carlos Tavares argues that everyone has known the rules for a long time, and it’s now too late to change them. He highlights that his group, which includes 15 brands, is ready to meet the standards without purchasing credits. Meanwhile, Volkswagen, Europe’s largest automaker, continues working to meet the CO2 targets despite challenges with its electric models.

WOT Analysis: A Critical View on Timing and Execution

At WOT, we have always believed that the shift towards electric vehicles should have begun much earlier. This would have given automakers the time to adapt gradually and better prepare the market for this transition. Currently, despite regulatory incentives, electric vehicles remain expensive, their range is still limited, and charging infrastructure is insufficient to meet the mobility needs of many users.

The tightening of CAFE standards is commendable from an environmental standpoint, but its implementation risks suffocating the European automotive industry. China, by developing affordable electric vehicles, is taking advantage of the situation, while European manufacturers struggle to meet regulatory demands and remain competitive at the same time.

In conclusion, the CAFE standard highlights a complex challenge for the European automotive industry. The transition to electric vehicles is inevitable, but the pace imposed by the new regulations is too fast. At WOT, we believe that a more gradual approach would have allowed for a more realistic achievement of the goals, without sacrificing the industry and the jobs that depend on it.