Europe Tries to Buy Time for Car Industry Stuck in the Present

Europe’s embattled automakers are set to get a breather as they struggle with the transition to emission-free driving, a critical moment that will shape the future of the continent’s transport sector for better or worse.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Europe’s embattled automakers are set to get a breather as they struggle with the transition to emission-free driving, a critical moment that will shape the future of the continent’s transport sector for better or worse. Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.The European Union is preparing to soften ambitious rules that would have effectively banned new combustion-engine vehicles from 2035. While the situation is fluid, loopholes are under discussion that could lead to a five-year extension, but other scenarios are being considered, including taking a ban off the table, according to people familiar with the discussions. “We will only be able to do something for climate protection if we have a competitive manufacturing sector,” German Chancellor Friedrich Merz said at a press briefing in Heidelberg alongside Manfred Weber, who heads the conservative bloc in the European Parliament. “We need to correct the conditions in Europe as quickly as possible so that this industry in Europe has a future.”Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.The stepback — set to be unveiled on Tuesday — is the result of intense lobbying from companies such as Stellantis NV and Mercedes-Benz Group AG, who sought to ease the risk of fines that could have exceeded €1 billion ($1.2 billion) in the coming years. Major auto-producing countries including Germany — home of Mercedes, Volkswagen AG and BMW AG — also pushed for changes to defuse political tensions and threats of job losses. While the breathing room might be welcome for an industry that accounts for about €1 trillion ($1.2 trillion) of economic output, it harbors risks. Too much flexibility threatens to slow development and increase the technology gap to Tesla Inc. and Chinese rivals such as BYD Co. That could result in the EU becoming a bastion for yesterday’s technology and doing little to bolster the sector’s flagging competitiveness. “What’s happening now is a wake up call for the industry,” said Jos Delbeke, professor at the European University Institute in Florence and a former senior EU climate official. “Some flexibility may be needed for all good reasons, but it should be temporary; otherwise we will risk missing the climate targets and losing the technology race.”Loosening the deadline could also be a chance for Europe’s leaders to regroup and make the transition more palatable for consumers. Up to now, the burden was on producers to make good on the EU’s EV ambitions, with many national governments doing little to implement policy to make the technology more appealing.Although there is now time for policymakers to change course, incentives for buying or operating electric vehicles cost money and fiscal headroom is unlikely to increase in the coming years. The EU already outlined plans earlier this year to support the industry. In an action plan unveiled in March, the bloc’s executive arm pledged measures to make local battery cells and components cost-competitive. To boost the uptake of zero-emission vehicles, it also vowed to work with member states on formulating effective EV policies. Still, Brussels has limited say over how member states design local taxation and subsidies. The cost of the green transition is a highly sensitive issue for governments in the face of rising populism. Their concerns were on display earlier this month, when the EU clinched a preliminary deal on a new climate target for 2040, while simultaneously delaying the introduction of carbon prices at the pump by a year to 2028. While that would make driving combustion-engine vehicles more expensive and in the process make EVs more attractive, politicians fear the move could trigger another backlash from voters.“The EU’s climate ambition demands that every sector delivers, yet emissions reductions from road transport are lagging,” said Ingo Ramming, head of carbon markets at Banco Bilbao Vizcaya Argentaria SA in Madrid. The success of the new fuel pricing system “will depend on political and social concerns that are only heightened in today’s challenging environment.”For manufacturers, the delay offers a brief window to rework investment plans that have been knocked off course by rising costs and uncertain EV demand. Carmakers have already slowed or scaled back several battery-plant projects, while suppliers — which employ the bulk of the industry’s workforce — are under acute pressure as combustion-engine orders shrink faster than electric volumes ramp up. Industry groups warn that without a transition better aligned with market reality, thousands of smaller parts makers would face a cliff edge, raising the risk of deeper job losses and supply-chain disruptions across the bloc.“Europe’s industrial base is under pressure as electrification and global competition shift value to Asia,” said Archibald Poty, trade and market affairs manager at CLEPA, the European supplier association. “In a less favorable business environment, strategic policies are vital.”Under pressure from climate-skeptic populist parties, green policies have been cast as a threat to prosperity, and governments have leaned toward safeguarding legacy manufacturing sectors to avoid stoking political tensions.Despite the backsliding, environmental commitments are still in place and the coming months will test whether policymakers can strike a balance that keeps Europe’s car industry globally competitive without derailing efforts to eliminate net emissions of climate-warming gases in 25 years. For automakers, it’s far from clear the extra time will deliver the jobs boost they claim. Many executives argue that shifting the deadline won’t fix the industry’s deeper problems — ranging from high energy prices to sluggish permitting and a lack of local battery production. Without progress on those fronts, they warn, Europe risks merely postponing the pain rather than improving its chances in the global race for electric cars.Some fear the reprieve could even entrench hesitation. By easing the pressure, critics say the EU may inadvertently encourage companies to stick with profitable conventional technologies rather than accelerate the pivot to EVs — a move that could leave the region further behind as China presses ahead. The risk, they argue, is that Europe spends valuable years in a holding pattern.Weaker rules could also breathe life into interim solutions such as range extenders and hybrid systems. Like most current EV batteries, many of the key components are sourced from China, meaning any short-term uplift for Europe’s suppliers could be modest. Local-content requirements could help, but German automakers have pushed back against such mandates over concerns of higher costs and added bureaucracy.“The danger is creating confusion about the direction of travel,” said William Todts, executive director of Transport & Environment, an advocacy group focused on clean transport policy in Europe. “There’s a big risk we waste another couple of years debating what the industry of the future should look like.”—With assistance from Jinshan Hong and Iain Rogers.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.