Europe’s plan to boost electric car sales at the expense of traditional ones will price average buyers out of the market, according to an industry leader, but EU rules are likely to be diluted when it becomes apparent the automotive industry faces existential problems.
Carlos Tavares, CEO of Europe’s 2nd biggest vehicle manufacture Stellantis, said the European Union’s (EU) plan to force buyers into electric cars by making conventional vehicles cost about twice as much will end up pricing people on average earnings out of cars and on to public transport. By implication, this will shatter sales in the biggest, cheapest section of the market.
“I can’t imagine a democratic society where there is no freedom of mobility because it’s only for wealthy people and all the others will use public transport,” Tavares said in a speech Wednesday at a Financial Times conference.
Tavares also broke ranks with the European manufacturers’ passive acceptance of the CO2 rules, which will revolutionize the industry. Oliver Zipse, Chairman of BMW, is the President of ACEA in 2021.
But analysts believed it wasn’t too late to mitigate the situation.
EU CO2 rules insist sedan and SUV makers raise average fuel efficiency by curbing CO2 emissions from sedans and SUVs to the equivalent of about 57 miles per U.S. gallon in 2020/2021, up from 41.9 mpg in 2015, tightening again by 15% in 2025, and hitting 92 mpg by 2030. The rules from 2025 can probably be met by a combination of plug-in hybrids and electric cars but will require almost 100% battery-only by 2030. Britain has already decided that no new ICE cars will be sold from 2030. Other countries are thought to be pondering similar actions. The EU is expected to tighten the rules again after 2025.
Tavares complained that the regulations on CO2 emissions had been political and were not designed by the industry. He said it would have been better to have approached the problem with a less radical approach and gradually replaced ICE vehicles with electric ones.
“I think we could have been more efficient with multiple technologies, not one single technology,” said Tavares at the Financial Times Future of the Car summit.
Tavares said this rush to electrify might be counter-productive because the vehicles are often much heavier than conventional ICE vehicles and need more power to move them.
“The shift we’re bringing is solutions to protect future mobility. They need to be clean and safe, but we shouldn’t forget affordability,” Tavares said.
Cost parity between ICE cars and EVs could be possible in the future, said Tavares, but less certain is the ability to protect the profit margins on those cars. If profitability is harmed the industry will suffer and there could be plant closures and job losses.
“If we can’t protect margins on each EV we sell versus today, there will be consequences,” he said. “If we can’t protect margins, there will be restructuring and there will be social consequences,” Tavares said.
Felipe Munoz, global automotive analyst at JATO Dynamics, agreed about the impact of current EU rules, but reckons it will change them when it sees the dire consequences.
“I’m afraid that if the legislation doesn’t change, many people won’t be able to buy a brand-new car anymore. But this is a scenario that the European economy can’t afford, as many plants around Europe would not be necessary anymore. Is that what the European Commission wants? I doubt it. Therefore, I’m sure the (manufacturers) and the regulators will find a solution, considering the big losses that Europe as a society can have if nothing changes,” Munoz said.
“So far, the legislation has been made as if the (manufacturers) were the enemy, and very few remember that the auto industry is one of the most important in the region. The approach must change, because it is useless to breath clean air when you can’t eat,” Munoz said.
The European auto industry has been largely passive, at least in public, as the EU cranked up plans to cut CO2 from cars and trucks. The industry reaction has been led by Volkswagen, which has bet the ranch on electric cars, and expects 25% of European sales to be all electric in 2025, and 50% by 2030. Its €30 billion ($36 billion) electric car plan promises 50 different models by 2025. Other big manufacturers also have massive spending plans to meet the need for electric cars, including Stellantis, but all have kept their doubts quiet. Tavares has ended that apparent unanimity.
His remarks will also worry the British government, which has decreed there will no sales of new gasoline or diesel vehicles after 2030. Stellantis is also in negotiations with the British government about the future of its Vauxhall plant in England, which was set to be making ICE vehicles after 2030.
Stellantis was formed by a merger of Groupe PSA and Fiat Chrysler Automobiles earlier this year and comprises brands including Peugeot, Citroen, Opel, Vauxhall, Fiat, Chrysler, and Alfa Romeo. Stellantis brands accounted for 23.6% of Europe’s car sales in the 1st quarter, behind market leader Volkswagen’s 25.4%, according to the European Automotive Manufacturers Association.
Tavares said manufacturers will meet the goals outlined by the EU, but prices of the cheapest electric vehicles will rocket compared with their ICE equivalent. Tavares cited the little Vauxhall Corsa, which starts at £16,000 ($22,500), but the cheapest version costs £26,400 ($37,500) powered by a battery.
“How can we protect freedom of mobility for the middle class, who might not be able to afford £30,000 ($42,000) for a battery electric vehicle when today they pay half that for the same product with a conventional engine,” Tavares said.
Tavares remarks suggest severe implications for car manufacturers in Europe if mass market vehicles are no longer affordable.
According to data provider IHS Markit