VW, Stellantis Are Biggest Winners From EU Relaxing CO2 Rules

(Bloomberg) — Car executives who’ve walked back their electric vehicle ambitions are breathing sighs of relief after the European Commission proposed easing emissions rules that were supposed to get stricter this year.

By allowing automakers to exceed tougher targets in 2025 and avoid fines, President Ursula von der Leyen is bowing to months of pressure from an industry that already was wavering on electrification. Volkswagen AG and Stellantis NV, in particular, have recalibrated product plans after ousting chief executives who bet aggressively on EVs that consumers weren’t yet ready to buy.

VW, Stellantis and Renault SA are positioned for the biggest boost from the policy change, which still needs to be approved by member states and the European Parliament. The three combined sell more than half the new vehicles registered in the European Union, and Bloomberg Intelligence was expecting each of them to struggle with CO2 compliance this year.

Removing the emissions burden could lift the companies’ earnings by almost €3 billion ($3.2 billion), BI senior industry analyst Michael Dean estimates.

“The key principle here is balance,” von der Leyen said when first announcing the proposal earlier this week. “On the one hand, we need predictability and balance for the first movers, those that did their homework successfully.”

“On the other hand,” she said, “we need to listen to voices and the stakeholders that asked for more pragmatism in these difficult times.”

Not everybody’s convinced the commission is striking the balance it seeks. Volvo Car AB, which was in position to be compensated by Mercedes-Benz Group AG for helping the German luxury-car maker with CO2 compliance, opposes the action on the grounds that the industry was given years of time to prepare for the stricter standards.

Tesla Inc. also was in line to be paid by rivals wanting to pool their fleets with the EV maker, while BI was expecting BMW AG to hit its emissions target.

The combination of trade war threats and economic difficulties bolstered manufacturers’ case for regulatory flexibility, says William Todts, executive director of advocacy group Transport & Environment. Nevertheless, he criticized the proposal as unnecessary and unjust.

“I don’t think you should change the rules of the game in the middle of the game,” he said.

VW began walking back from an EVs-or-bust strategy after pushing out former CEO Herbert Diess in 2022 and replacing him with Oliver Blume, who’d been betting on alternatives including carbon-neutral fuel development as the top executive at Porsche.

Roughly a year after taking over, Blume scrapped plans to build a new €2 billion EV factory in VW’s hometown of Wolfsburg, Germany. The company’s namesake brand then laid plans to introduce more hybrid models as demand for fully electric cars started to slow. While VW is still developing EVs in Europe and China, it doesn’t have a new electric car coming in 2025, with key products pushed back amid delays developing software.

Around this time last year, Blume called for the commission to soften its CO2 targets. “It doesn’t make sense that the industry has to pay penalties when the framework conditions for the EV ramp up aren’t in place,” he said during the company’s presentation of annual results.

Stellantis has similarly backpedaled since former CEO Carlos Tavares resigned in December after falling out with Chairman John Elkann and the board. 

Tavares had vowed to comply with Europe’s emissions standards by leveraging the company’s breadth of brands ranging from Peugeot, Fiat and Opel, to Alfa Romeo and Maserati. In the wake of his departure, the manufacturer has been rushing to expand its lineup of hybrids.

Late last year, Maserati informed unions and dealers that it had abandoned plans for an all-electric supercar, saying that its customers were still keen to drive high-performance models powered by beefy combustion engines.

The commission sees its proposed three-year window to meet emissions standards as a way of offering carmakers some leeway while keeping its climate goals largely intact. Companies that miss their target for 2025 can make up for it with over-compliance in the following two years.

Regulators also will begin a review this year of the overall goal of selling only emissions-free new cars in Europe from 2035 onward. They’ve already said that they will provide a carve-out for so-called e-fuels, which resemble conventional gasoline but are made using renewable electricity and CO2 captured from the atmosphere.

“In the end, the benefit for the climate will be the same, but we avoid penalties at this particular time,” said Peter Liese, a lawmaker from the center-right EPP group, the largest in the parliament. “Car companies will now focus on their strategy to achieve the target next year and in 2027.”

Transport accounts for over a quarter of the EU’s emissions, with road transport the biggest contributor. Unlike other sectors, little progress has been made in reducing pollution and it remains the only one where emissions have risen since 1990.

Climate groups are now concerned that more exemptions and flexibilities could be added to CO2 targets in the future, including for the 2035 goal for a 100% reduction in emissions. If the commission’s rules are no longer seen by manufacturers as credible, it could undermine the EU’s goal to reach climate neutrality by 2050.

“It’s up to the commission and the EU to restore the confidence of investors in the market in the credibility of the Europe strategy to go electric,” T&E’s Todts said. “How certain can we be that the 2035 target is rock-solid?”

–With assistance from Monica Raymunt, Albertina Torsoli and Rafaela Lindeberg.

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