Fearing stricter emissions rules in the EU next year, car manufacturers are busy "discounting electric vehicles and raising prices on fuel vehicles".

The European Union is set to release stricter emissions regulations that will significantly lower the carbon dioxide emissions limit for cars starting on January 1st next year. This means that most car companies will have to have at least one-fifth of their sales be electric vehicles to avoid hefty fines. European car manufacturers are raising prices of gasoline cars and preparing to offer discounts on electric cars to meet this daunting challenge, which could further squeeze the struggling industry's profits. However, data from the lobbying group European Automobile Manufacturers Association (ACEA) shows that only 13% of all cars sold in the region this year have been electric vehicles. Marc Mortureux, head of the French car lobbying group PFA, said, "The gap is really huge." Due to weak sales and increased competition from China, the European car industry is facing issues of overcapacity. In recent months, companies like Volkswagen, Stellantis, and others have issued profit warnings. Mortureux stated that these companies now need to sell more electric cars, but the manufacturing costs of electric cars are higher than traditional cars. The current political and economic uncertainty, along with reduced subsidies for electric cars, are hindering consumption. Stellantis CEO Carlos Tavares resigned suddenly this month, partly due to disagreements with the board on how to address this issue, indicating growing concerns about these regulations. Target-driven demand With only a few weeks left, European political figures are urging the EU to reconsider these targets. But ACEA President Luca de Meo said car manufacturers are taking action, with the primary goal being to avoid fines that could amount to as much as 15 billion euros based on current sales figures. Volkswagen, Stellantis, and Renault have raised prices of fuel cars by several hundred euros in the past two months, a move analysts say is to suppress demand for higher-emission models and make more expensive electric models more appealing. Beatrix Keim of the Center for Automotive Research said, "Car manufacturers are starting to set pricing strategies to drive demand for battery electric vehicles to reach carbon dioxide emission targets and avoid potential fines." Last month, Peugeot, a subsidiary of Stellantis, raised prices by 500 euros for all models except fully electric cars in France. Renault increased prices for some pure gasoline models, such as raising the price of the Clio SCE 65 by 300 euros (1.6%), but prices for hybrid models remained the same. Peugeot described the new pricing as "economic" while Renault said that the price increase is "normal" over the lifespan of the vehicle. However, this strategy may backfire. One source said that raising gasoline car prices is expected to help narrow the gap with more expensive electric cars, but given the weak market growth, it may not generate enough sales of electric cars. The region's sales have dropped by around one-fifth compared to pre-pandemic levels. The source added, "In reality, increasing the price of internal combustion engine vehicles means a decrease in production... all value chains and suppliers will be affected." Discounts and combined emissions S&P Global analyst Denis Schemoul said that the price hikes will help fund future discounts on electric cars, effectively providing an "indirect subsidy" from internal combustion engine buyers to electric car buyers, but may hurt profit margins. Volkswagen has already lowered the price of its ID.3 electric compact car in several markets in recent months, bringing its price below 30,000 euros in Germany. Given Volkswagen's high sales volume, the new target guidelines are expected to have the biggest impact on them. Alistair Bedwell of GlobalData Powertrain Forecasting said, "This is something that is very likely to happen next year." He predicts that by 2025, electric car sales in Europe, including the EU, UK, Iceland, Liechtenstein, Norway, and Switzerland, will increase by 41% compared to this year, reaching 3.1 million units. However, offering discounts comes at a cost. In the UK, the automotive industry warned that the electric car targets would cause manufacturers to lose 6 billion pounds (7.6 billion USD) this year, including about 4 billion pounds in discounts. Barclays analysts said that "pooling" emissions, or purchasing emission credits from companies with a larger share of the electric car market, to lower average emissions, may be cheaper. A spokesperson said that Japanese automaker Suzuki agreed in October to share emissions with Volvo, a subsidiary of Geely, by 2025. Charles Lester, data manager at battery consultancy Rho Motion, said that given Volvo's large number of electric cars, this arrangement will almost entirely eliminate any threat of fines faced by Suzuki. However, all options will erode already thin industry profits, and the industry hopes that the EU can relax its targets. PFA Chairman Luc Chatel said in an interview in October, "It's been enough to a certain extent. If I can't sell enough electric cars, my gasoline cars will be penalized. What do they want me to do, drive a horse and carriage?"