European carmakers led by Volkswagen may be forced to pay hundreds of millions of euros to Chinese electric car rivals to buy carbon credits, as the industry tries to avoid potential fines for failing to meet 2025 pollution rules set by Brussels.
Under European Union rules requiring carmakers to cut emissions, manufacturers lagging behind in the electric transition face the choice of paying billions of euros in fines, boosting sales of electric vehicles with steep price cuts or buying credits from less polluting rivals.
Europe is the fastest-warming continent on Earth, estimated to be twice as fast as the global average since the 1980s, in large part because of its proximity to a melting Arctic, exacerbated by exposed dark ground. kind of influence.
The European Commission plans to impose a fine of 95 euros on car manufacturers whose emissions exceed a limit of 93.6 grams of carbon dioxide per kilometer, based on the average emissions of the company's car sales in 2025.
Many carmakers in the EU are looking to use a "pooling" option, which would see manufacturers average the greenhouse gas emissions of their fleets with those of other companies selling in the EU.
Analysts estimate that some European groups may be forced to buy hundreds of millions of euros worth of carbon credits from Chinese rivals such as BYD, one of the biggest sellers of carbon credits due to high sales of electric cars in the EU.
Tesla is expected to share credit lines with companies including Stellantis, Ford and Toyota, according to recent filings with the European Union. The U.S. electric carmaker made more than $2 billion in the first nine months of last year by selling credits into global emissions pool systems. In another pool, Mercedes-Benz partners with China's Geely-owned Polestar and Volvo.
Geely founder Li Shufu holds about 10% of Mercedes, while BAIC Motor Group holds another 10%.
Mercedes said it will continue to "invest billions of dollars in electric vehicles." "However, the pace of our industry's transformation is determined by market conditions and our customers," it added.
Analysts say Volkswagen and Renault appear to be struggling to hit targets through their own sales, leaving them with few alternatives to Chinese manufacturers SAIC Motor and BYD. Renault may also join forces with strategic partners Nissan and Mitsubishi.
Pooling is controversial. Some executives warned that the arrangement would make the European industry less competitive by empowering Chinese rivals at a time when Brussels is imposing higher tariffs on Chinese electric vehicles to protect the continent's automakers.
Jens Gieseke, a center-right member of the European Parliament, said the EU made a "mistake" by allowing U.S. and Chinese carmakers to join forces because it could benefit European carmakers' rivals.
Industry players are reluctant to publicly release figures for expected payments as automakers conduct deals behind closed doors based on a network of alliances tied to their equity stakes and brand partnerships.
UBS analyst Patrick Hummel said the German state of Lower Saxony holds a 20% stake in Volkswagen, while Renault is 15% owned by the government, putting the groups in line with Chinese automakers. The merger of merchants has become a politically sensitive topic.
He added that if VW chooses to merge, it may need to partner with multiple Chinese companies because BYD's electric car sales in Europe may not be enough to fill the gap for the German group alone.
UBS said the German group would need to nearly double its electric car sales in just a year if it was to meet EU targets on its own. The company has no plans to launch new Volkswagen-style electric cars in 2025. Renault hopes to boost sales of its electric cars by launching a 25,000-euro model.
VW said it aimed to avoid penalties "through its own efforts" and pointed to the launch of a range of all-electric models last year.
"Only in the second step, other measures such as unions will come into play, naturally weighing costs and benefits," the company said. "Every euro invested in possible penalties will be a euro poorly invested."
Renault said it was too early to decide on a joint venture, but added that an arrangement with the Chinese manufacturer could further weaken the European auto industry.
Brussels has come under pressure from the industry to create more flexible emissions rules as sales of electric vehicles fell after the German and French governments last year scrapped purchase subsidies for electric vehicles.
EU climate commissioner Wopke Hoekstra met car industry representatives on Wednesday, with a "strategic dialogue" between officials and the industry set to begin this month.
Additional reporting by Ian Johnston and Patricia Nelson