On 29 June 2021, the European Environment Agency released provisional data showing that average new car CO₂ emissions in the EU (plus UK, Iceland and Norway) in 2020 fell by 14.5 g/km to 107.8 g/km NEDC (130.3 g/km WLTP). This was the biggest annual drop in the history of the EU CO₂ measurement era, which began in 2010.
Progress was sufficient for most OEMs to avoid fines that would have been incurred had the interim target been missed, although several were obliged to pay substantial, but not crippling, amounts. So, despite market disruption (perhaps partly because of it), 2020 was not a bad year from a compliance standpoint.
But as the CO₂ performance chart shows, the 12% reduction in CO₂ achieved last year needs to be replicated this year for compliance with the fully phased-in target of 95 gm/km (the NEDC figure to which WLTP lab results will be correlated). In other words, the pressure remains firmly on.
To get there, the industry is pinning its hopes on continued strongly growing sales of plug-in cars (battery electric plus plug-in hybrid). Their contribution will be aided by growth in the conventional hybrid sector (full hybrids and 48V mild hybrids), plus ongoing CO₂ emission improvement in the non-electrified ICE segment and background inputs from vehicle materials, tyres, aerodynamic aspects and the deletion of low-selling, high-CO₂ models. However, those latter inputs pale into insignificance when compared with the burden on the plug-in sector.
We think that translating the required CO₂ reduction this year into expanded plug-in sales implies figures of at least 1.2 million BEV sales and 1.0 million PHEV sales, both 60% up on 2020’s achievement. While growth from 2019 to 2020 for those technologies was 100% and 215%, respectively, we think that volume growth this year needs to be greater than last year. Latest data, to May, show plug-in growth at more than 100% over a pandemic-hit first half of 2020, but at only 30% of our full-year CO₂-compliant forecast for this year.
The plug-in selling rate needs to pick up significantly. We anticipate steadily building sales in the third quarter and then a frenetic end to the year for BEV and PHEV sales as the CO₂ deadline looms at the end of December. As with the end of 2020, sales from Q1 2022 are likely to be pulled into December 2021, assuming that the right cars are, in fact, available for delivery.
Compliance may be tougher than it was last year for some OEMs by virtue of weaker super-credits, lower plug-in incentives, inclusion of all vehicle sales in the calculation, and the fact that Tesla is holding on to its market share remarkably well. The market leader lost only two percentage points off its share of the European BEV market over the last year, despite the competition growing at a significant rate. As well as not having to worry about CO₂ targets (they are effectively money in the bank via pooling revenue), Tesla also appears to have handled the chip shortage rather well, with minimal impact on deliveries so far.
Others are not so lucky and are being forced into making difficult decisions about which models to prioritise as the chip shortage rumbles on. We tend to think that prioritising output of plug-in models and low-emission models in general will continue to be the preferred strategy for many. Not only would a big miss on CO₂ be very costly but it would also be damaging to image, handing an advantage to the competition as customers look for who has the best offer, as well as the fastest delivery times for BEV and PHEV models.