The European Auto Industry Is Racing To Ditch Diesel
As if the downturn due to a trade-war-induced slowdown in China were not enough, the European automotive industry is facing the challenge of a rapid switch from diesel to petrol engines that has been gathering pace for the last two years. At the same time, the industry has also had to deal with the implementation of new legislation designed to reduce car makers’ overall fleet emission levels.
An article in the Financial Times explains the impact of the new legislation on Europe’s automakers, an industry that supports some 14 million workers across the continent.
Quoting Max Warburton, an auto analyst at Bernstein, the article says each carmaker faces its own CO2 target based on the weight of its vehicles. A business selling smaller cars, such as PSA, therefore has a lower CO2 target than a company with a heavier average vehicle, such as Mercedes-Benz owner Daimler.
The targets for each company vary from around 91 g/km to just over 100 g/km. Some carmakers, like PSA, have already made good progress, switching less fuel-efficient, four-cylinder GM engines in their new Astra range to new three-cylinder PSA engines has improved efficiency by some 21 percent.
However, carmakers like PSA do not have a lot of luxury saloons and SUVs in their lineup. Daimler, BMW and JLR do, and the situation is made worse by a rise in sales of such vehicles in recent years.
Europe — once the home of the small, fuel-efficient compact — has fallen in love with the SUV. Some 40 percent of cars sold in the E.U. are now SUVs and automotive carbon emissions have, as a result, risen for the first time in a decade.
Potential fines for missing these new fleet emission limits are punishing, the FT states. Every gram over the target incurs a penalty of €95 — multiplied by the number of cars sold by the carmaker, the costs could be crippling. “It’s just stunning how much is going to have to be achieved in the next 18 to 24 months,” Warburton is quoted as saying.
If the industry sold exactly the same mix of vehicles in 2021 as it did last year, carmakers together would face penalties of €25 billion, the Financial Times reports.
This comes on the back of 17 months of slowing car sales in China, Germany’s biggest auto export market, and the losses being sustained on the sale of every electric vehicle (EV) sold, such as they are. EV sales in Europe have stalled without heavy subsidies: the buying public is, well, not buying.
Relatively higher prices and range anxiety, exacerbated by inadequate charging infrastructure and long charging times, are putting off buyers despite boosters suggesting the EV market is on the cusp of take-off.
European carmakers are already reining back sales of luxury gas guzzlers like Mercedes AMG range in order to help meet the new targets, but those are by far the most profitable part of their range — putting overall company profitability under pressure.
Job losses, even in highly protected job markets like Germany where an axed position is estimated to cost the employer around €100,000, are likely over the next 2-3 years. A separate Financial Times article states in the next decade almost a quarter of a million auto jobs will be lost in the country, quoting Ferdinand Dudenhöffer, the director of the Center for Automotive Research at the University of Duisburg-Essen.
The article goes on to report German automakers and part suppliers, from Daimler and Audi to suppliers including Continental and Bosch, have already announced around 50,000 jobs will be lost or are at risk so far this year, as their traditional businesses become less profitable. This comes at a time of potentially crippling investment demands in the switch to EV production and development of the supply chain such as battery plants.
The Financial Times estimates the German car industry alone, which directly employs 830,000 people and supports a further 2 million in the wider economy, will be forced to plow some €40 billion into battery-powered technologies over the next three years. Job losses so far have been limited by automakers’ relative healthy profits this decade.
From 2020 onwards, however, the situation is set to deteriorate as overall profitability suffers. “No one will survive in the form they exist today,” Ralf Kalmbach of consultancy Bain & Co, who has spent 32 years advising German carmakers, is quoted as predicting.
The E.U. is making some concessions to limit the damage. Carmakers will be measured on only 95 percent of their fleet in 2020, giving them a little breathing space to continue selling their most-polluting — and often most-profitable — vehicles longer.
But unlike the U.S., European firms cannot buy and sell credits, they can only pool overall fleet results with competitors, which naturally carries a cost.
Ultimately, legislators and the industry will have to find solutions to redress the imbalance between what consumers want to buy and what manufacturers want to sell them. That will require a combination of penalties, incentives, investment and rapid technological innovation – a challenging and heady combination of demands to be met in the first half of the coming decade.
https://ift.tt/37fHlaq
from ZeroHedge News https://ift.tt/37fHlaq
via IFTTT
0 comments
Post a Comment