• Stagnating EV sales in Europe this year have put several automakers at risk of incurring heavy fines for their inability to meet Euro 7 emission norms. 
• OEMs have baked in EV sales contribution as the key to lowering their fleet average emissions.
• Automakers need to address consumer perceptions of high EV prices, related insurance premiums and poor charging experience to improve EV sales.

Europe’s established automobile OEMs, already facing the onslaught of Chinese EVs, are likely to find themselves caught in another headwind, which may potentially translate into billions of euros in fines. The latest challenge comes from the Euro 7 emission norms, which come into effect in July 2025. Under these norms, the fleet average emissions of new cars should drop from the present 116 to 93 grams of CO2 per kilometer. Exceeding this limit will result in a fine of €95 for every excess gram of CO2 emitted per kilometer and for every new vehicle registered.    Source: International Council on Clean Transportation How EVs solve the Euro 7 problem  In their preparations to meet the Euro 7 emission norms, OEMs have baked in EV sales contribution as the key to lowering their fleet average emissions. To this end, OEMs have announced record investments of €70 billion in Europe for the development and manufacturing of new EV platforms, products and batteries.   Driven by lucrative incentives, tax benefits and new EV launches, the sales of EVs in Europe grew from 1% of overall vehicle sales in 2018 to 15% in 2023. For Europe’s automakers, the promise of an over 50% CAGR in EV sales with a solid ~20% growth in 2023 meant the challenge of meeting Euro 7 emission norms was seemingly a non-issue.  But there’s a problem!   However, the withdrawal of EV incentives by Germany in 2023 and negative consumer sentiments related to EV ownership have meant stagnating EV sales in Europe. They are likely to underperform the overall passenger vehicle market in 2024 for the first time. All this has led several OEMs to pare back their electrification ambitions. There is now a clear danger that some OEMs may miss the Euro 7 implementation deadline, with prospects of millions, or even billions, of Euros in fines.    In such circumstances, the OEMs are likely to resort to the following approaches: 

• Join CO2 pools: Manufacturers can enter pools where OEMs with higher emissions and those with lower emissions combine forces to comply with norms. This can be done either by combining multiple sub-brands, like the Volkswagen group, or across carmakers, like Tesla, Honda and Jaguar Land Rover coming together in a single pool.
• Lobbying European Commission: Some OEMs like Renault and Volkswagen are already voicing concerns about the emission targets and their inability to meet them. Given the current economic climate in Europe and the recent announcement by Volkswagen about German factory closures, there are chances the industry would succeed in convincing the European Commission to either tone down or postpone the emission regulations, or non-compliance fines temporarily.
• Refocusing on EVs: Some observers believe that this year OEMs have deliberately held back sales of EVs or pushed low-volume premium-price EV and ICE sales to maximize profits just before the new emission regulations come into effect. The higher-priced EVs have created a perception of EVs being more expensive than ICE vehicles, muting consumer adoption. But this may change if OEMs refocus and push sales of affordable EVs.

Analyst takes 

• Joining CO2 pools or lobbying for emission target relaxations is a short-term fix.
• OEMs will need to focus on more fundamental course corrections and sustainable actions to address consumers’ three main negative perceptions of EVs that directly impact sales:

1.Affordable EVs: Many consumers in Europe have turned away from EV purchases due to the perceived higher prices when compared to ICE vehicles. A number of OEMs have lined up new EV launches in the A and B segments in 2025 and 2026. They will need to ensure their prices are on par with ICE vehicles to record good sales.

2.Charging concerns: Many first-time EV users face range anxiety, to tackle which OEMs provide a larger battery capacity, adding weight and costs. A well-served charging network can alleviate range anxiety. Besides Tesla, which owns and manages its own charging network, all other OEMs use third-party-owned/managed infrastructure. It is not unknown for non-Tesla EV owners to experience dysfunctional, preoccupied or tedious-to-operate chargers with high prices. Some OEMs have partnered with Tesla to expand their charging networks. However, OEMs should also pursue deeper involvement with third-party charging service providers to resolve the various consumer pain points.

3.Insurance premium costs: The higher purchase costs of EVs also translate to higher repair/replacement costs during insurance claims. Further, the shortage of EV repairers leads to lengthier repair times, and additional costs for safely storing damaged EVs. Automotive OEMs can improve matters by providing affordable pricing for spare parts and speeding up repairer training. Working with insurance companies to lower EV repair costs can positively impact insurance premium costs.