European auto makers desperately need to at least maintain sales of electric and electrified vehicles to avoid fines, but the coronavirus looks like disrupting that plan and throwing a few more hurdles in the way too, according to a report.
Mercedes parent Daimler, BMW, Renault and Fiat Chrysler Automobiles (FCA) at most at risk from EU fines, the report said.
One of the first casualties of the coronavirus crisis was forecasts of new car sales in Western Europe, which currently now center around a fall of about 20% for all of 2020. Battery-electric sales, although a bit weaker than expected, were likely to hold up relatively strongly, not least because manufacturers were wary of offending against the new European Union rules on carbon dioxide emissions.
Not so, said Fitch Ratings in a report. Sales growth of electric and electrified vehicles including plug-in hybrids (PHEV) vehicles is at risk, and European manufacturers might incur heavy fines. Fitch didn’t offer a sales forecast of its own.
But a couple of weeks ago LMC Automotive cut its 2020 battery electric vehicle (BEV) Europe sales forecast to 625,000, from its previous forecast of 650,000, still 75% up on 2019. Berlin-based auto analyst Matt Schmidt (www.schmidtmatthias.de) scaled back his Western Europe forecast of 700,000 BEVs to 556,000, which would still be an increase of 58% over 2019, and for a market share of 5%. Schmidt said Western European sales of BEVs rose 56% to 126,000 in the first quarter for a market share of 4.6%, while in March, market share rose to a record 6.5%.
According to the report, the coronavirus pandemic will disrupt production and delay launches of electric cars, weaken demand, and failure to meet the EU regulations will reflect poorly on manufacturers’ reputations.
The thin charging infrastructure and higher prices are well known impediments to electric car sales, but the financial crisis generated by the coronavirus shutdown, will inhibit government attempts to improve the charging system, while government subsidies to boost sales of these vehicles will have to be cutback because of overspend on more crucial social measures as unemployment reaches unprecedented highs and economies grind to a halt, the report said. And falling gasoline and diesel prices won’t help electric sales either.
There are a couple of bright spots. Diesel sales have stabilized at around 30%, while the fact overall sales are falling in Europe means that manufacturers need to sell fewer electric cars to meet their quotas. But the CO2 targets are still tough, and the EU might postpone deadlines, although Fitch doesn’t expect any overall dilution of the targets.
The EU Carbon Dioxide (CO2) regime insists sedan and SUV makers raise average fuel efficiency from the equivalent of about 57 miles per U.S. gallon in 2020/2021, up from 41.9 mpg in 2015, and rising again by 15% in 2025, hitting 92 mpg by 2030. That compares with current U.S. draft legislation calling for a 40.5 mpg fleet average by 2030.
According to a report from investment researcher Jefferies last year, if the auto industry made no progress from 2018 towards meeting the EU’s 2020/21 regulations, it faces fines totalling about $36 billion, twice its estimated profits. The European Car Manufacturers Association has said 2018 CO2 emissions actually rose 1.6%, as sales of diesel-powered vehicles slid, and demand for bigger gas-guzzling SUVs spiked.
European carmakers are spending huge sums to electrify their vehicles. VW plans to spend $36 billion through 2024 on a family of electric cars right across its mass market brands. But electric car sales forecasts suggest a big shortfall from targets. VW has said by 2025, at least 25% of its global sales will be BEVs. But Morgan Stanley MS expects BEV sales to rise from about 2% globally last year, to only 11% by 2025, which is around where most other forecasters sit. IHS Markit INFO predicts a BEV market share of 14% in Europe for 2025, implying a much lower total for global sales.
“Among European manufacturers, we believe that Daimler, BMW, Renault and FCA are most at risk given their distance to 2020/2021 targets and reliance on EVs to avoid penalties. However, FCA's agreement with Tesla TSLA to pool vehicle fleets in Europe offsets this risk,” the report said.
FCA has agreed to pay Tesla hundreds of millions of dollars to allow it to offset CO2 emissions from its cars against Tesla’s, lowering its average figure to a permissible level.
“Renault's EV sales have been strong since the start of the year, but its PHEVs sales are still lagging. Flexibility in Daimler's and Renault's ratings has increased following their recent downgrades. FCA's ratings also have modest headroom. A moderate increase in expected fines could exert credit pressures, but is unlikely to trigger downgrades by itself,” the report said.
VW is expected to launch its new electric car, the ID.3, in August, if reported software problems can be solved. If that launch is delayed much past August, European electric car sales for 2020 will be in a sorry state.
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