Europe’s automakers are adjusting pricing strategies ahead of stricter EU emissions rules set to take effect on January 1, raising prices on petrol cars while offering discounts on electric vehicles (EVs) to close the sales gap and avoid significant fines.
Looming Challenges: New Emission Targets
The European Union will impose lower carbon dioxide (CO₂) emission caps next year, requiring at least 20% of automakers’ sales to be EVs. This marks a sharp increase, as EVs currently account for just 13% of all vehicle sales in the region, according to data from the European Automobile Manufacturers’ Association (ACEA).
The stricter rules arrive at a difficult time for the industry, with carmakers battling overcapacity, stagnant demand, and rising competition from Chinese automakers. Executives have raised alarms over the impact on profits. Stellantis CEO Carlos Tavares‘s recent resignation partially stemmed from disagreements about managing these challenges.
Automaker Response: Price Hikes and Discounts
Volkswagen, Stellantis, and Renault have increased the prices of petrol engine vehicles in recent months while keeping electric models stable or discounted. Analysts suggest this move aims to nudge consumers toward EVs to meet CO₂ targets and avoid billions in potential fines.
For instance:
- Stellantis’s Peugeot raised prices on non-EV models in France by up to 500 euros.
- Renault added 300 euros to some petrol models, such as the Clio SCE 65, while keeping hybrid prices unchanged.
- Volkswagen lowered the price of its ID.3 compact EV in multiple markets, bringing it below 30,000 euros in Germany.
While this strategy may steer demand, industry insiders warn it could backfire. Raising petrol car prices could reduce production volumes, further straining suppliers and the value chain without guaranteeing sufficient EV sales growth.
Profit Pressure and Discounts
The price hikes are expected to indirectly fund EV discounts, which are seen as critical to boosting adoption but will erode automaker margins. Analysts at S&P Global note that combustion-engine buyers effectively subsidize EV buyers through these pricing shifts.
In the UK alone, automakers anticipate EV-related targets will cost around £6 billion this year, with £4 billion attributed to discounts alone.
Pooling Emissions to Avoid Fines
To sidestep fines, some carmakers are turning to “pooling” strategies, where companies with high emissions buy credits from brands with stronger EV portfolios.
- For example, Japan’s Suzuki partnered with Geely-owned Volvo to meet 2025 targets, significantly lowering Suzuki’s exposure to penalties.
This approach, while less costly than heavy discounts, remains another strain on profits.
Industry Pushback
Amid these mounting pressures, automakers are urging EU policymakers to reconsider the aggressive targets. Luc Chatel, president of French car lobby PFA, expressed frustration: “I can’t sell enough electric vehicles and I’m going to be penalized on my thermal vehicles. What do they want me to make, horse-drawn carriages?”
Looking Ahead
While EU regulators show little sign of easing rules, EV sales are forecast to climb significantly. GlobalData projects a 41% jump in EV sales across Europe next year, reaching 3.1 million units in 2025. Still, automakers face a balancing act of steering consumer demand, protecting margins, and avoiding fines.