EU Carmakers Gather in Brussels to Tackle Emissions and Chinese Rivalry

The automotive industry in Europe is facing a critical juncture as it grapples with emerging challenges from climate regulations and competitive pressures from China. This week, top executives from the continent’s largest car manufacturers are gathering in Brussels to discuss strategic solutions alongside European Union officials.

This summit marks the first meeting of a new initiative led by EU chief Ursula von der Leyen, aiming to address the industry’s hurdles. The European Commission has expressed its “ambition” to find ways to support this “core engine for European prosperity,” which currently employs over 13 million individuals and contributes approximately seven percent to the EU’s GDP.

The dialogue, referred to as a “strategic dialogue,” seeks to enhance competitiveness within the auto sector. However, discussions have predominantly centered around the looming emission fines set for 2025, which many manufacturers are eager to avoid.

As part of the EU’s robust climate change strategy, stringent emissions reduction targets have been established, with the aim of phasing out fossil fuel-powered vehicles by 2035. According to advocacy group T&E, car exhausts are responsible for about 16 percent of Europe’s CO2 emissions.

Starting this year, carmakers are required to reduce the average CO2 emissions of newly sold vehicles by 15 percent compared to 2021 levels or face penalties. These targets are pushing companies to increase the sale of electric vehicles (EVs), hybrids, and smaller cars.

However, some manufacturers are struggling with this transition as consumer interest in EVs remains tepid due to higher initial costs and a lack of a well-established used EV market.

According to the European Automobile Manufacturers’ Association (ACEA), electric vehicle sales in Europe declined by 1.3 percent last year, making up only 13.6 percent of total car sales. The potential financial impact of emission fines, estimated to be up to 15 billion euros, has exacerbated concerns within an industry already contending with high production costs and competition from subsidised Chinese companies.

Volkswagen, a major German automotive company, is considering factory closures in its home country, a decision reflecting broader cost-cutting efforts across the sector.

“The risk of paying heavy penalties… would divert necessary funds from R&D and other investments,” warned Ola Kallenius, head of the ACEA and CEO of Mercedes, in a letter to the commission.

The current EU regulation allows manufacturers to offset their emissions by purchasing credits from less polluting competitors, a practice that has faced criticism. Italy’s Industry Minister Adolfo Urso recently described this system as a “perfect storm,” fearing it might enable companies to circumvent fines by buying credits from overseas EV producers.

– Slow Europe, fast China –

Some stakeholders, including carmakers and countries like France and Italy, advocate for the removal of these penalties. However, the EU argues that doing so could disadvantage manufacturers who have already invested in compliance measures and would undermine the push for electrification, especially as Chinese manufacturers gain traction.

“Effectively, this is rolling out the red carpet to Chinese competition,” Lucien Mathieu of T&E remarked, emphasizing the urgency for European manufacturers to expedite their transition to electric vehicles.

A recent study by T&E revealed that only Volvo has met its 2025 emissions target, with Ford and Volkswagen trailing behind. Nonetheless, similar challenges were faced when previous targets were introduced in 2021, and manufacturers managed to meet them in time, Mathieu noted.

Several new, more affordable European EV models are expected to launch this year, potentially boosting sales. Additionally, the EU could support the sector by offering incentives for businesses to purchase electric vehicles, as company fleets represent a significant portion of new car purchases in Europe.

Improvements to the charging infrastructure, modernization of power grids, reduction in energy costs, and easing of regulations are among other measures proposed to aid the industry. However, concerns remain about the pace of implementing these reforms, especially as the dialogue involves a wide array of stakeholders, including trade unions, civil society groups, and experts.

“They’re moving very slow and the Chinese are going very fast,” observed Felipe Munoz, an analyst with Jato Dynamics, underscoring the urgency of the situation.