Relief from penalties for cars and vans in 2025: understanding the implications and the stakes involved

In the automotive industry, the approaching years of 2025 and 2026 are shaping up to be a critical period. The European Commission has confirmed that carmakers have been selling battery electric vehicles (BEVs) at a loss, and there are concerns that proposed regulations could lower the GHG savings ambition.

Without flexibility, the regulatory cliff-edge for carmakers could lead to significant challenges. The penalties due after 2025 would require financial settlements, preventing reinvestment into manufacturing and jobs. These penalties could amount to around €16 billion for the industry, according to estimates.

The affected automobile manufacturers, including Volkswagen, Stellantis, BMW, and Mercedes-Benz, have proposed flexibilizations in the EU CO2 target values for 2025-2029. They are advocating for a phase-in of 90% for 2025 and 95% for 2026, or an average compliance mechanism for 2025-2029. This phase-in of targets is a further measure to avoid disproportionate costs for manufacturers.

Currently, there are 370 BEV models available on the EU market, but the market share for BEVs in 2024 was below 14%. The BEV market growth must be significantly higher in order to reach foreseen 2030 targets. The industry expects much more BEVs to be sold in the years 2027-2029.

The share of petrol/diesel cars has been consistently declining since 2023. However, the demand for BEVs over the past years has remained largely stable and failed to reach the 25-30% market share forecasted several years ago. This has raised concerns about the viability of the current mechanisms in driving the necessary shift towards zero-emission vehicles.

The current mechanisms may lead to factory closures and unemployment due to limits on ICE car and van production. The assumption that manufacturers would produce a new ICE vehicle for every missing BEV is flawed, as they produce to meet market demand, not quotas for each technology.

Moreover, decisions on penalties, pooling, production cuts, or selling vehicles at a loss need to be taken now, not later. Companies may be required to pool with other manufacturers, potentially leading to payments to competitors. Manufacturers may sell ZEVs below market price, distorting the second-hand market and undermining profitability.

To alleviate these disproportionate costs, the EU should ramp up measures to support demand for zero-emission vehicles. This could include incentives for BEV purchases, infrastructure development, and research and development funding for battery technology. By taking these steps, the EU can ensure a smooth transition towards a more sustainable future for the automotive industry.

Relief from penalties for cars and vans in 2025: understanding the implications and the stakes involved