Published 05. Dec. 2018

Driving Into a Low Emissions Future – Looking beyond 2021

Michael Schweikl, Automotive Expert, PA Consulting

Minds are increasingly focused on the European Union (EU) 2021 CO₂ emissions targets. That means car makers face some difficult choices about their future direction. As PA Consulting’s (PA) latest analysis shows, some car makers have got their strategy right and will meet their targets easily, but others have woken up too late and will struggle. While many of these late risers have plans for new low emission models, it will be hard for them to implement their plans fast enough in the next three years to make a real difference in meeting their targets. Those companies at risk of missing their targets will need to prioritise the selling, marketing and pricing of these vehicles to counter negative perceptions in the market.

EU CO₂ emissions regulations are the most stringent in the world. Each car maker has a specific target for their registered car fleet in 2021. The aim is to have a European average of 95 grams of CO₂ per kilometre. Car makers face penalties of €95 for every gram of CO₂ they are above their limit, multiplied by the number of cars they registered in the EU in the previous year. The industry is also facing a range of other challenges such as the prospect of city bans for internal combustion engines, the dramatic decline of diesel and the boom in SUV sales.

This is the fourth year PA have assessed car makers’ performance and the likelihood that they will meet their 2021 targets. The reality is that given the proximity of the 2021 deadline, and the lead-time needed to implement technical changes, there’s little they can do in time. However, car makers are already at work on technical upgrades to meet the 2025 and 2030 targets. So, for now, they’re essentially running two parallel processes: working to build market share for new low emission models before 2021 while investing in the technology needed to meet future regulations until 2030.

This unique method of benchmarking by PA examines manufacturers’ performance against their specific targets and evaluates the gap car makers will need to close by 2021. Forecasts are made up of an assessment of each manufacturer’s capability to reduce average fleet weight as well as to enhance their electrified portfolio. PA also make forecasts of the number of registrations of each type of car (diesel, petrol, different types of hybrid and battery electric) to determine the extent of each manufacturer’s sales of lower emission vehicles. This year, we have looked at sales of these vehicles by vehicle segment (from small to luxury cars) which has helped us make our forecasts more accurate.

Source: PA Consulting research


This year’s rankings show eight out of the thirteen car markers forecasted to miss their targets, though some are getting closer by accelerating towards their 2021 targets relative to how fast they’ve gone in previous years. Toyota is now at the top of the table followed by Renault-Nissan-Mitsubishi and Volvo, Daimler and BMW have improved their performance and are getting closer to complying. What this means is that some companies are likely to face significant fines. Volkswagen faces a potential penalty of 1.4 billion Euros (10 per cent of its 2017 earnings), reflecting the high number of cars they sell in Europe. PSA (including Opel/Vauxhall) could see fines of 600 million Euros, amounting to 20 per cent of its earnings in 2017, and Ford and Fiat Chrysler (FCA) could see penalties of 10 per cent of their earnings in 2017.

Our results show that it’s too late for dramatic changes in technology or strategy to make a difference to manufacturers’ ability to meet the 2021 targets. This underlines that those manufacturers at risk of missing their targets need to focus on sales, marketing and price. Only by increasing their sales of low emission vehicles will they be able to move towards the target and reduce their fines. That means focusing and understanding their sales volumes by CO₂ emissions, underpinned by marketing that really pushes hybrids and fully electrified vehicles. There’s also the question of price. When it comes to electric vehicles, it will take until 2028 for them to cost the same as conventional petrol ones, so manufacturers may need to take the profit hit by providing price incentives to generate enough sales to make a difference. However, the car industry has always been a hugely innovative one that has been able to respond to challenges and with the right strategy it can prosper even in an uncertain future.

PA Consulting will be attending IndustryForum Automotive in Germany on the 4th and 5th of December 2018