Preliminary assessment of the EU Light Vehicle CO2 roadmap changes
In our view the changes to the 2030 target are perhaps the most relevant to the industry today. The extension of the full compliance date for the 2025 target implied a brief time in which to meet the 2030 target in its original form – this can be seen in the chart on the left above. This would be especially true for those OEMS who remain some distance from meeting the 2025 target as this year closes and so would be relying heavily on their 2026 and even 2027 performance to comply, leaving little time to make the next step by 2030. And it’s a big step – more than a 40gm/km reduction in average tailpipe emissions. The relaxed 2030 target for the LCV segment will also come as a welcome relief – year-to-date 2025 BEV share of LCV sales in the region is just 9%, with non-electrified diesel still accounting for 83% of all LCV sales.
For 2025, the EU passenger car segment will achieve a BEV share of just over 17% according to the latest data and our forecasts. The range by market is considerable as is shown in the chart below. Adding the EU+ markets and the UK raises the share to just over 19%, with the UK, by dint of its fairly aggressive transition to ZEV and its resulting BEV market size, making a significant difference. Norway, at well over 90% BEV share, also drives up the figure. Compared with 2024, BEV sales in 2025 are 32% higher but of course, 2024 was a very poor year for electrification expansion and so YoY growth in 2025 is flattering.
The new requirements for fleets to hit ZEV and low emission targets solidifies a trend that we already see. To date in 2025 business registrations accounted for 60% of all BEV registrations in the region. The proposed removal of company car benefits for non-ZEVs should help maintain momentum in that sector assuming all other things to be equal. But it is the private sector where BEV take up has proven to be challenging. The advantages of switching from ICE/hybrid to BEV may be difficult to identify for private buyers. Where cost of ownership between the two options may be similar but BEVs require significant (sometimes challenging) behaviour change, BEVs will probably lose out. A clear fiscal advantage, as seen in the business user case, makes the decision to switch to BEV far easier.
The lack of private buyer participation in the BEV market is a key player in the poor BEV shares seen for many markets in Europe in the chart below. The spikes in share are normally associated with strong incentives and maturing charging facilities, with Scandinavia leading the way.
This may be part of the rationale for introducing a new class of BEV that will be attractive to many OEMs due to the supercredits it will provide and to prospective buyers as it may benefit from a special fiscal support package. Already we are seeing much activity in the small BEV market and presumably these cars, such as VW’s ID.Polo, are the ones that will fall into the new category. The acquisition cost of them versus comparable traditional alternatives has been closing – we estimate it to be in the region of €4k at the current time, with BEVs remaining more expensive. Supercredits for this type of vehicle allow OEMs to continue to make good profits on more ICE sales for longer and counter these with the high CO2 credit performance of small BEVs.
The measures around 2030 seem well thought out and in the round, should enable the industry to comply, with few casualties facing major penalty payments. This assumes that EU support for the industry, as outlined in the recent EU proposals and in the past, is forthcoming and that a level playing field vis-à-vis Chinese brands can be delivered. However, OEMs should not see the changes as a reason to slow down in their drive towards electrification. Rather, it is an opportunity to maximise technical advancement in the e-mobility sector while being able, if appropriate, to continue to make good profits on non-ZEVs that will, in turn, fund the shift to plug-ins.
As for 2035, the flexibilities, on the face of things, appear less generous. Yes, only 90% of the overall 2021 to 2035 reduction needs to be achieved by sales of ZEVs, but of the remaining 10% only 3% can come from combustion cars, and these would need to operate on net-zero fuels. For many OEMs we believe this represents a de facto ban on ICE propulsion. Economies of scale dictate that for mass market OEMs and most premium ones, maintaining a small ICE fleet would not be cost effective, especially if the powertrains need to be adapted to run on specialist fuels. These fuels are likely to carry a premium at the pumps and may very well not be widely available. In our view, this allowance really only applies to small volume specialist high luxury sporty brands and will be of little help to others.
Other methods of meeting CO2 reduction such as ‘green’ steel (steel whose manufacturing process releases less CO2 than conventional steel) need more clarification before an assessment of its helpfulness can be carried out. However, we would expect green steel to be more expensive than alternatives, and so it may not be attractive to all OEMs.
No, ICE won’t be banned at the start of 2035, but the conditions for its survival in the proposal as we know it, are such that we would expect its volume to be extremely low. A better solution may have been to alter the 2035 target in the same way as 2025 and 2030. The target remains, but the added flexibility would ensure that natural demand for ZEVs (in reality BEVs) aligns with the industry’s ability to economically deliver it. The 90% CO2 reduction (versus 2021) could remain as the 2035 target with full compliance by 2037. This leaves 13 years for the car parc to become zero emission which puts the 2050 net zero target at some risk, but it would be positive for the long-term survival of the European car industry.
To summarise, this is not a US-style liberalisation of the light vehicle propulsion sector. The overarching requirement to transition to a zero-tailpipe vehicle fleet remains in place. The changes are significant but not profound in our view and our current forecasts reflect what is likely to happen, with the caveat that the situation from 2035 needs to be more clearly understood. For the most part, it aligns with what the domestic industry in Europe should be able to achieve, though we have questions around the treatment of the existing 2035 target.
With this in mind, and the progress being made by the Europe’s car industry and importers in being able to offer attractive cars at prices heading towards those of ICE, the major hurdle to greater BEV expansion is shifting from cost to ease of ownership – will the charging infrastructure expand quickly enough to support the required growth in BEV ownership?
Al Bedwell, Director, Global Powertrain
"Preliminary assessment of the EU Light Vehicle CO2 roadmap changes" was originally created and published by Just Auto, a GlobalData owned brand.
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