European automakers slash EV prices while raising ICE models

European automakers are reducing prices on EVs while raising prices on their ICE models, all in hopes of avoiding hefty fines as the European Union’s new emissions rules tighten at the beginning of 2025.

On January 1, the EU will drastically lower its cap on automotive CO2 emissions, meaning at least 20% of all sales from most car companies must be electric models to avoid heavy fines, Reuters reports. This year, 13% of all new cars sold in the region have been electric, according to the ACEA.

“The gap is really big,” Marc Mortureux, the director of French car lobby PFA, told Reuters. He added that companies are now tasked with selling more EVs “at a time when political and economic uncertainties and declining EV subsidies are deterring sales.”  

The fact of the matter is that automakers could be potentially forced to pay billions in fines – as much as $16.4 billion – if emission limits aren’t reached. BMW and Mercedes are on track to meet those targets this year, but Volkswagen, Stellantis, and Renault are at risk of coming up short, according to Bloomberg analysis. Of course, Tesla has its emissions credits up for grabs to help work around those fines.

In 2023, EU countries approved a landmark law that requires all new cars to have zero CO2 emissions from 2035. As of April 2023, new car fleets sold in the EU have a CO2 emission limit of 95 grams, while vans must not exceed 147 grams CO2/km. Rules will tighten again in 2025, as new cars are limited to 93.5 g CO2/km and vans at 153.9 g CO2/km. In 2030, limits will get stricter, leading to a ban on CO2 emissions on new cars and vans sold in the EU from 2035. Hence, as we get closer to that date, panic among legacy automakers is setting in.

Meanwhile, VW, Stellantis, and Renault Group have bumped prices of ICE models by a few hundred euros in the last two months, according to Reuters, in an effort to make the pricier EV models that much more appealing.

Last month, Stellantis’s Peugeot brand also increased prices of its ICE model by as much as €500, and Renault is tacking on €300 to the gas-powered Clio SCE 65, but kept prices of hybrid versions unchanged. VW slashed the price of its ID3 in several markets, dropping the price to below €30,000 in Germany.

Still, a source told Reuters that this approach could backfire. Increasing ICE prices could close the gap with pricier EVs, but may not generate enough EV sales overall. “In reality, increasing the price of thermal engine cars means cutting production,” the source said, “and all the value chain and suppliers will suffer from this.”

European automakers are also dealing with excess capacity due to slower sales and pressure from Chinese automakers launching low-priced models in the region. In a sign of just how bad things are, Stellantis’s CEO Carlos Tavares abruptly stepped down this month, and Volkswagen is plowing ahead with budget cuts as it faces worker strikes in Germany. Still, it’s estimated that VW will have to pay the biggest fines, but advocacy group Transport & Environment has stated that overall the fines are likely to be much lower than the feared €15-plus billion and closer to €1 billion.

Photo credit: Volkswagen Group

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