Electromobility Breakthrough in Europe is Imminent

Dear Friends & Shareholders,

In the case of electric cars, the music has so far clearly played in China. With the exception of Norway, no Western government has pushed electric mobility as hard, leveraging bans of combustion engines on the one hand and subsidies on the other. This is now set to change as other European countries will also take big steps towards electromobility in the near future.

The catalyst for this is the imminent implementation of upper limits for carbon dioxide (“CO2”) emissions. In just six months’ time, the average emissions of an automaker’s fleet may only amount to 95 grams of CO2 per kilometre. This corresponds to a consumption of 4.1 litres (1.1 gallons) of petrol or 3.6 litres of diesel (just under 1 gallon) per 100 kilometres. If this upper limit is exceeded, harsh fines in the billions of euros will be levied with every gram of CO2 over the limit costing the company 95€. Based on current sales figures and emission values, ten-digit amounts can quickly be expected. Although the fines are not due until 2021, most car manufacturers are expected to still significantly exceed the upper limits.

Of the 50 largest car brands, only Tesla and Toyota currently meet the requirements from Brussels. Tesla is the largest company that exclusively builds electric cars. Toyota is the leader in plug-in hybrids, which like Stromer are favoured in the calculation of fleet emissions. For the other manufacturers it looks gloomy, to say the least – in some cases even pitch black.

Car manufacturers are selling more and more of the popular but fuel-guzzling SUVs. At the same time, sales of the controversial, but at least halfway low CO2 diesel vehicles are falling. Their share of new registrations in the EU has recently fallen from 36% to 31%. More and more SUVs and fewer and fewer cars with diesel engines mean that the fleet CO2 output of various manufacturers is no longer falling but has even risen again.

Miles Away from Upper Limits

At the peak, the average fleet CO2 output of car manufacturers is up to two thirds above the limit value permitted from next year or the year after next. According to calculations by Jato Dynamics, a consulting agency, all car manufacturers would have to pay fines totaling 34€ billion today. Shockingly, this figure approximates their profit. The French producers, which sell a majority of their vehicles in Europe, will be amongst the hardest hit manufacturers. The German car manufacturers, on the other hand, do a large part of their business in the USA and China. However, the People’s Republic, in particular, is focusing even more on the trend towards electromobility than Europe. To a certain extent, there is no escape.

In view of these financial risks, it is foreseeable that manufacturers in Europe will make massive progress in selling electric vehicles, or at least cars with hybrid drive, in the coming months. It is not so much about convictions as about money. This is even more true in view of the fact that the upper limits for CO2 emissions in Europe will be reduced by a further 37.5% between 2020 and 2030.

Lucrative Earning Opportunities

The upper limits for CO2 emissions, however, should not only be seen as a risk by car companies, but also as an opportunity. Manufacturers such as Tesla or Toyota can form an emissions pool with other producers who exceed the limits, thereby reducing average CO2 fleet emissions and avoiding the threat of fines in part or even in full. Tesla already operates a similar business model in the USA.

In Europe, Tesla now wants to join forces with Fiat Chrysler Automobiles (“FCA”) on CO2 emissions. To this end, both companies have registered with the European Commission. FCA could thus possibly comply with the upper limit from 2021 or at least not deviate as seriously from it. For Tesla there should be attractive payments for this. Comparable pools also exist between Toyota and Mazda and between PSA and Opel. However, this will hardly change anything about the breakthrough of electric mobility.