Recent stance from high-profile individuals suggest that the EU Commission could suspend the 2025 targets, amendment of the law may take until the end of the year to complete
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Stéphane Séjourné, EU Commission’s vice president for Prosperity and Industrial Strategy said last month that he was opposing fining automakers for failing to meet the CO2 target.
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EU Commission president, Ursula von der Leyen told automotive representatives last month, that the industry is her top priority, adding that a plan to support it will be released on March 5. She added that although the system ought to be fair since some automakers have invested in meeting the targets, Europe also needs “the necessary degree of flexibility and pragmatism.”
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European countries are mostly against the fines. For instance, Italy, Czech, Austria, Bulgaria, Romania and Slovakia have expressed their concerns.
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The European Automobile Manufacturers’ Association (ACEA) has suggested a “phase in” the 2025 target, where automakers will be held accountable to 90% compliance in 2025 with full compliance in 2026 or an average compliance over 2025-2029, arguing sluggish demand for EVs.
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The EU Commission could propose an amendment to the CO2 regulation, but the proposal could take months to over a year to be passed. However, given the support it could be passed by the end of the year (according to GPT Deep Research). The commission could also provide a grace period for automakers, where fines will be calculated but not fined. Scholz pointed out that finding a way against paying the fines is not “straightforward”.
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Yesterday, EU Commission vice-president Teresa Ribera vowed to loosen rules for companies.
“Competitiveness is the focus right now because it’s simply a crisis. We are achieving decarbonisation in Europe through deindustrialisation.”
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Election of Merz, a proponent of suspending the CO2 fines will add to this new stance.
Assessment
Considering the change in CO2 stance, I think the possibility of changing the regulation to favor automakers this year is highly likely.
Since, politicians have hinted that urgent measures need to be taken to support automakers, I expect the EU commission to give automakers the way forward on Wednesday. Since automakers have already made plans on electromobility and the EU Commission will want to support automakers without deviating much on its Green goals, it’s highly unlikely that the CO2 regulation will abolished. Therefore, I expect either elimination of the 2025 penalty at the end of the year (after amendments to the regulation are made) or average compliance between 2025 and 2029 combined with grace period on the penalties (mostly likely). If the later is used, the average penalty will be paid in 2029.
Eliminating the 2025 penalty at the end of the year will not help Volkswagen much since it will have incurred an headwind from EV price reduction.
Given the new stance, I arrived at a weighted headwind of 635 million euros in 2025, which is significantly lower than the 1.5 billion euros guided by the management.
Given the change in Volkswagen’s strategy to continue producing ICEs longer than planned, it’s highly unlikely that the average compliance between 2025 and 2029 will benefit it since it will likely continue to miss on the targets.