Rarely have the new models presented at the Paris Motor Show (14-20 October) been of such strategic importance. The success of the new electric vehicles of European manufacturers directly depends on what they will pay from 2025 onwards in penalties linked to the European CAFE standards. According to estimates by AlixPartners, they are expected to cost 50 billion euros cumulatively by 2030, and would rise to 75 billion in the worst-case scenario.
Paris, October 10 – On the eve of the entry into force of the Corporate Average Fuel Economy (CAFE) standards throughout Europe, the growth of the electric vehicle (EV) market, a major lever for manufacturers to avoid penalties, seems to no longer be responding to the importance of the pandemic. Despite a product offensive by manufacturers, uncertainty remains about the penetration of EVs by 2030.
Above all, and this was not foreseen in the scenarios that presided over the establishment of these standards in 2016, Chinese manufacturers are taking a significant share of the emerging electric market, reducing the outlets for European manufacturers by the same amount... and the possibility of improving the energy mix of new vehicle fleets.
Electric vehicles: a slowing European market under pressure from new Chinese manufacturers
Forecasts for car sales (all engines combined) in Europe indicate an increase of 2% for 2024, then a plateau of 1% per year on average until 2030, driven by Eastern Europe. In 2024, sales of light vehicles on the continent are estimated at 18.4 million units, and are expected to reach 19.4 million in 2030. By this time, the market share of electric vehicles (including plug-in hybrid engines) should reach 46%, compared to 20% at present.
"Several fundamental problems remain to be solved for the electric vehicle to become a real popular success, starting with the price. The entry fee is too high, and this is even more true since many European states have revised their subsidy policy downwards. This is the main explanation for the slowdown in growth that we are seeing at the moment," explains Alexandre Marian, Partners and Managing Director of AlixPartners' Paris office.
For European manufacturers, this is all the more of a problem as they are under pressure from new electric vehicles from Chinese manufacturers. The latter should be awarded
a significant share of the EV market in the coming years. In 2023, Chinese brands accounted for 12% of EV sales in Europe (3.4 million units in total). By 2030, they are expected to reach 25% of a market of 8.8 million vehicles.
CAFE penalties would limit the effects of new tariffs
The entry into force of the CAFE (Corporate Average Fuel Economy) standards in 2025, which impose strict average CO2 emission thresholds per vehicle on pain of financial penalties, are at the heart of the concerns. Designed to encourage the transition to electric fleets, they require CO2 emission thresholds to be reduced to less than 94 grams per kilometre travelled, compared to 116 g/km in 2024. This average emission is calculated on all new vehicles sold (light, commercial and electric vehicles).
The slower-than-expected adoption of electric vehicles in Europe, and increasing competition from Chinese brands, make these goals very difficult for European manufacturers to achieve. Knowing that the penalties will be 95 euros per gram per excess kilometer and per vehicle sold, they promise to be counted in billions of euros.
According to the median scenario calculated by AlixPartners, they would reach €50 billion cumulatively for the period 2025-2029. In the best case, with a real surge in electric vehicle sales and a slowdown in Chinese competition, this amount would be €28 billion. But in the worst-case scenario, we would have to count on 75 billion euros.
In addition to depriving these manufacturers of significant financial margins, these standards would limit the effect of the new customs barriers imposed on foreign electric vehicles, led by China, whose impact is estimated at 25 billion euros by 2030.
"The CAFE standards are a major financial challenge for European manufacturers," says Sophie D'Herbomez, Senior Vice President at AlixPartners. With insufficient demand for electric vehicles and the rise of Chinese manufacturers, European players find themselves in a race against time to adapt their sales mix, or face heavy fines. They must balance regulatory compliance with maintaining competitiveness in the face of pressing international competition. »
Perverse effects are conceivable. As Chinese manufacturers gain market share in the EV sector, European manufacturers will struggle to improve their energy mix, exposing them even more to the sanctions of CAFE standards. And to compensate for these fines, they could be forced to increase the prices of internal combustion vehicles, reducing volumes, and ultimately penalising consumers.
Partnerships as a solution to overcome these challenges
As part of the shift to electric vehicles, even market leaders are considering collaborations to stay competitive. Since 2016, the number of collaborations in the electric vehicle sector has increased significantly, from 41 to 114 in 2023. But these are not the only strategic issues. While 62% of partnerships are directly related to electric vehicles, 27% are related to embedded software. The success of these alliances depends on the ability of stakeholders to define clear and shared objectives internally and with the partner.
"Strategic partnerships offer an opportunity to accelerate the development of electrical skills, even market leaders are now using them," explains Alexandre Marian, Partner and Managing Director at AlixPartners. These collaborations make it possible to share technical skills related to the development of new technologies, and to accelerate by optimizing costs, and facilitating geographical expansion. »
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