VW’s $34 Billion E-Car Budget Won’t Cover Tighter EU Rules

December 18, 2018 Updated: December 18, 2018

Volkswagen AG has to rejig its record 30 billion-euro ($34 billion) spending plan on electric cars after the European Union tightened the rules of the game.

EU negotiators agreed on Dec. 17 to reduce carbon-dioxide emissions by an additional 37.5 percent by 2030. The new guidelines are more aggressive than initial goals of a 30 percent cut and would mean that more than 40 percent of Volkswagen’s European deliveries need to be electric, Chief Executive Officer Herbert Diess said Dec. 18 in an emailed statement.

“That means our existing overhaul program isn’t enough yet,” Diess said, adding that spending plans will be revised next fall. Accelerating the shift toward battery-powered cars would trigger a faster phaseout of conventional models, prompt a revamp of production plans and require additional battery capacity, he said.

While regulators are putting enormous pressure on automakers to combat climate change, Diess said it remains “completely unclear” how the energy to power such a large fleet of electric cars can be generated in an environmentally-friendly way and where the charging infrastructure will come from.

A more aggressive electric-car shift represents a particular challenge for Volkswagen. The models require fewer working hours to assemble compared with conventional models, meaning an accelerated ramp-up could cause friction with the company’s powerful labor leaders.

Meanwhile, consumers have shown little appetite for electric vehicles, with many instead opting for roomy sport utility vehicles. That adds complications to planning for the technology shift.

‘No Buyers’

The new regulation effectively imposes a quota for electric vehicles, according to Elmar Degenhart, CEO of Continental AG, the world’s second-biggest parts supplier. He said the auto industry should be allowed more leeway on technologies to reduce emissions because battery-electric vehicles will remain too costly for carmakers to offer them at affordable prices.

“Without affordable solutions, there will be no buyers,” said Degenhart. “There will not be the desired effects in terms of environmental protection.”

Mercedes-Benz parent Daimler AG still aims to meet the CO2 limits in Europe, but it anticipates fleet emissions to edge higher this year and next as customer opt for larger and more powerful cars, the Stuttgart, Germany-based manufacturer said in a statement. Mercedes introduced the EQC in September. It plans a gradual rollout of hybrid and purely battery-powered cars in coming years.

German Economy Minister Peter Altmaier warned against overburdening the auto industry, while emphasizing the need to move gradually toward “emissions-free mobility.”

“The compromise on carbon-dioxide caps pushes against the limits of what is technically and economically viable,” Altmaier said in an interview with Handelsblatt newspaper.


By Christoph Rauwald

From Bloomberg