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European auto makers in the slow lane on electric vehicle take-up - investors must accelerate action

To achieve global ambitions of net zero emissions the transport sector must be addressed, but despite a flurry of climate announcements by car manufacturers the sector is still falling short.

By Jana Hock, Senior Research Officer, ShareAction

Transport is responsible for over 24 per cent of global CO2 emissions. Up to three quarters of this is from road vehicles.

In Europe, where transport is the biggest source of emissions (28 per cent), it is the only sector where emissions have risen since 1990.

To achieve global ambitions of net zero emissions it's clear we need to address the transport sector. But despite a flurry of climate announcements by car manufacturers, European auto makers are still falling short.

Investors are well-positioned to accelerate progress, and ensure their portfolio holdings are aligned with the EU’s climate targets ahead of upcoming regulation.

European standards could force a race to the top

Under the EU Green Deal, the European Union has set its own targets to reduce emissions to net zero by 2050. To achieve this, it's looking closely at the transport sector, with aims to review and likely tighten carbon dioxide standards for passenger cars in June this year.

Car manufacturers need to show true climate leadership to get ahead of this regulation - those failing to align with the EU Green Deal could face significant fines.

Take Volkswagen, for example. For failing 2020 carbon targets by a small margin, it's now facing a predicted fine of 240 million euros.

As standards are tightened, more manufacturers are at risk of such heavy charges if they do not step up their ambitions in time.

Meanwhile, the political tides in Germany and France are moving ever more towards electric vehicles.

A phase out of the internal combustion engine (ICE) looms – with a potential end to all European sales of non-electric cars by 2035, and therefore the car manufacturers’ traditional business.

Where can regulation go from here?

To reach net zero by 2050 in the most cost-effective way, models by Transport & Environment give insights as to how regulation might develop.

The main objectives include:

  • A phase out of the internal combustion engine by 2030, or 2035 at the latest;
  • A reduction in passenger car emissions by 25 per cent by 2025; 40 per cent by 2027; 65 per cent by 2030; and 100 per cent for 2035.

How aligned are European car manufacturers?

While most German or French car manufacturers’ climate targets compare poorly against the potential tightening of CO2 standards in line with net zero by 2050, some companies are performing better than others (Figure 1).

Renault leads the group. It has an ambitious EV sales strategy and has announced its plan to phase out internal combustion engines by 2035.

Acclaimed German electrification leader Volkswagen is still playing catch-up.

Daimler, BMW and Groupe PSA (Peugeot) severely lag behind their rivals, seemingly asleep at the wheel on climate change.

Figure 1: Ranking of German and French car manufacturers against climate performance standards

If these laggards cannot mobilise quickly enough, they might follow the same fate as the likes of Nokia and Blackberry when the telecommunications industry was disrupted.

They may find themselves displaced by competitors better positioned for the transition to zero-emissions transport.

Investor recommendations

Despite an increase in climate announcements by these car manufacturers, investors should hold back from applauding too soon.

Investors are well-positioned to use the opportunity to engage with their portfolio holdings, to ensure climate alignment ahead of new risks arising from potentially tightened CO2 standards.

Key engagement questions could include:

1. Does the car manufacturer have a plausible net zero commitment for emissions from vehicles in use by 2050, including short- to medium-term targets?

Best practice: The company has an emission reduction target for vehicles in use of minimum 25 per cent by 2025, 40 per cent by 2027, 65 per cent by 2030, and 100 per cent by 2035.

2. Does the car manufacturer have electric vehicle sales targets aligned with its emission reduction commitments?

Best practice: The car manufacturer has sales targets corresponding to a minimum share of 20 per cent fully electric vehicle sales by 2025, 35 per cent by 2027, 55 per cent by 2030, and 100 per cent fully electric vehicle sales by 2035.

3. Does the car manufacturer have a commitment to stop selling internal combustion (ICE) engine cars?

Best practice: The company has an ICE phase out date commitment for 2035 the latest.

4. Does the car manufacturer have plans to transition away from hybrids and towards fully electric vehicles, in light of a required ICE phase out by 2035 for net zero in 2050? What is its thinking around alternative and synthetic fuels for passenger cars?

Best practice: The company has a clear hybrid phase out date by 2035 at the latest, and hybrids make up less than 35 per cent of its electric sales targets by 2020 and less than 25 per cent by 2030. Alternative fuels also require combustion engines, meaning they need to face a similar phase out in passenger cars by 2035.

Read the report >> European Auto Makers: Still in the slow lane?

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