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Powertrain market analysis for revised EU fleet emissions scenarios

13 July 2021 Ian Fletcher Tim Urquhart

As part of the European Green Deal initiative, tomorrow (14 July) the European Commission will unveil its 'Fit for 55' package of legislation aimed at slashing greenhouse gas emissions across the European Union by 55% by 2030, which will have potentially massive implications for Europe's automotive industry.

Outlook: The component that will govern the future passenger car emissions regulations is expected to increase from the proposed current fleet CO2 reduction of 37.5% by 2030, to 50% or even a stretch goal of 65%. This will of course mean a significant acceleration of the pace of light-vehicle electrification across the bloc.

The European Commission is set to unveil its 'Fit for 55' legislative agenda tomorrow (14 July), which is aimed at reducing European Union-wide greenhouse gas emissions by 55% from 1990 levels by 2030. This will include a component called 'Amendment of the Regulation setting CO2 emission standards for cars and vans' which will have potentially huge implications for the European automotive industry. IHS Markit expects that the announcement regarding the future emissions framework for light vehicles will go a lot further than the existing proposal, which was to target a 37.5% reduction in passenger car carbon dioxide (CO2) emissions from 2021 target levels. Now, IHS Markit expects that target will be raised by anything from between 50% to as much as 65%. The higher target is now more likely given the fact that the European Commission is expected to set out a proposal for a 100% CO2 reduction for the passenger car and LCV fleet by 2035.

This will have massive implications for the electrification strategies of the major OEMs operating in the EU market. It is clear that if these stretch goals are implemented as solid proposals to be voted into legislation, that OEMs that have been bolder and invested heavily earlier on in electrification will have a significant advantage. Below, we present data on what each scenario could mean for passenger car powertrain type market share in EU by 2030.

The data highlight the far greater emphasis on battery electric vehicles (BEVs) under these two scenarios. A 39.4% BEV share was forecast to be required to meet the 37.5% reduction in CO2 by 2030 in the EU; under a 50% reduction scenario this share is expected to reach 51.5%, while in a 65% reduction scenario, BEVs would need to reach a 62.9% share. This will be to the detriment of other powertrain types that have been more commonplace up to now, including plug-in hybrid (PHEV), which has been seen as a transitioning technology for some customers towards BEVs.

This acceleration of electrification across the EU will not only affect OEMs. The market for lithium-ion batteries in the EU (for passenger cars) would evolve, as the demand in 2030 would be pushed from 354 GWh for the current 37.5% reduction target to 438 GWh for the 50% reduction target and 528 GWh for the 65% reduction target.

Such scenarios will also have a marked impact on some Tier 1 supplier business strategies as the demand for components for traditional internal combustion engine (ICE) powertrains will of course drop off at faster rate than anticipated under the original 37.5% reduction target. Indeed, rather than 60.3% of passenger car registrations in the EU still using ICE by 2030, only 48% would use them under the 50% reduction scenario and 36.6% under the 65% reduction.

Outlook and implications

There has been fair warning of the plans for more aggressive emissions targets, after the European Commission put forward its 'Sustainable and Smart Mobility late last year. This proposal included an aim to have 30 million zero-emission light vehicles on EU roads by 2030, as well as provide "a clear pathway from 2025 onwards towards zero-emission mobility."

More recently, as this shift became unavoidable, there has been a clear indication that OEMs are hoping to be well prepared for this shift, as they unveiled accelerated long-term plans for electrification transition. Almost all light-vehicle manufacturers in the region disclosed revised strategies during the last six months, notably including the three largest volume makers Renault-Nissan, Stellantis and the Volkswagen (VW) Group, which is making an announcement later today. These plans include the launch of vehicles to meet these new targets, as well as revised brand strategies, with some of them even becoming BEV-only such as Volvo, Ford, Mini, Jaguar, and Opel. In addition, they have also announced investments in technology and relationships to secure enough components to meet the expected demand. Although there may be some rumblings of discontent about the severity of these new targets, it seems unlikely that it will present any shocks or knee-jerk responses, given that this has been the broad direction of travel for the industry for some time.

It should also be noted that these will not be the final targets released on Wednesday and there is likely to be plenty of discussion as it is passed between the European Parliament and European Council in the months to come, as part of the process of it becoming EU law. This certainly was the case before the 2025 and 2030 targets were agreed in April 2019. However, there appears to be more and more political momentum from the environmental lobby and from politicians of a progressive nature, recognizing that previously imposed targets have not gone far enough and that there needs to be a far more aggressive target in place if the automotive industry is going to meet the 'Fit for 55' targets.

This announcement is also likely to have a profound effect on BEV charging infrastructure. Any further shift away from ICE passenger cars will require a corresponding massive increase in investment in public charging infrastructure. Individual countries within the bloc have made separate announcements about charging infrastructure investment and last year the European Commission published the 'Sustainable and Smart Mobility Strategy', which pledged to have 1 million recharging points completed by 2025, and 3 million forecast at that point to be required by 2030. However, a pan-EU push towards BEV by 2035 is likely to mean this plan will need to be revisited and draft documents seen by Bloomberg indicate that that the accelerated reduction in CO2 emissions for light vehicles will be supported by regulations that will require EU member states to ensure that public charging points are installed every 60km along major highways.

IHS Markit will continue to track the announcement and will provide additional analysis as it becomes available.


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