European OEM Strategies for Passenger Car CO2 Emissions Compliance Towards 2030

The Tipping Point for OEMs to Move to Zero-emissions Driving as a Means for Compliance is Fast Approaching

Industry-wide fleet average CO2 emission targets for 2025 have been set to be 15% lower than 2020 levels, while 2030 levels will be 37.5% lower than 2020 levels. These targets are more stringent and are for cars only (separate targets are set for LCVs).

Once the focus area for emission reduction, developments in IC engines no longer play an integral role in emissions compliance. Though investment in IC engine development is still beneficial, it is not the primary road to compliance. The availability of flexibilities played a critical role in most OEMs’ compliance in 2020. However, these flexibilities reduce year-on-year, with only eco-innovations continuing to be active while moving towards ZLEV mandates of 15% from 2025 and 35% from 2030.

Most European and American OEMs have increased the sale of PHEVs and BEVs for compliance but Asian OEMs have been late in adopting electric powertrains due to the strong focus on hybridisation. Electrification is fast becoming the de-facto requirement for compliance. All OEMs accelerating electrification, which is showing a higher return on investment from a compliance perspective and will shortly do so from the revenue perspective as well.

Europe has been at the forefront of engine downsizing, which is evident from the high share of direct-injected, turbocharged gasoline engines. Alternate combustion cycles, Atkinson and Miller, are also expected to find increased adoption, with Atkinson Cycle being adopted by OEMs with full hybrids.

With the adoption of diesel powertrains declining in Europe since the dieselgate scandal, mHEVs and FHEVs have stepped up to meet the demand. In the short term, mHEVs are projected to be the leading xEV type and post the highest growth rates. The primary driver for increased xEV adoption was to meet the targets for 2020.

The adoption of xEVs however, varies between OEMs, with BMW, Mercedes-Benz and Volvo prioritising PHEVs, while Kia, Renault-Nissan, and Volkswagen focus more on BEVs. Asian OEMs, meanwhile, focus on hybridisation and overall efficiency improvement. With OEMs meeting the targets for 2020 and 2021, it is now clear that maintaining the xEV ratio will suffice until the next set of targets come into effect.