"Car manufacturers are facing nothing less than the reinvention of their industry," PA Consulting's report said, citing increased anti-pollution regulations, disruptive technologies such as autonomous driving, and political pressure following the VW Group diesel-cheating scandal.
In response, carmakers are rolling out plans to increase sales of hybrid and electric vehicles, which are "beginning have a small impact on sales," the consultancy said.
Nonetheless, "very few are likely to be able to change the makeup of their fleets fast enough to meet the immediate challenge of the 2021 EU CO2 emission reduction targets, and avoid the significant fines for missing them," PA Consulting said.
Companies will do "everything humanly possible to avoid paying the fines," said Thomas Goettle, the author of the report and lead automotive analyst at PA Consulting. "It's on the top of the agenda at the OEMs," he said.
"The huge issue," he added, "which you cannot overestimate, is the damage to your brand" by missing the targets in the wake of the VW scandal.
- Download PA CO2 Emissions Report 2017, above right.
As the 2021 standard approaches, momentum toward reaching it appears to have slowed. The EU reported that last year's CO2 reduction to 118g/km was the smallest annual gains in a decade, falling 1.4g/km. The EU is seeking to reduce CO2 emissions which are blamed for contributing to climate change. It says cars are responsible for around 12 percent of total CO2 emissions in Europe.
Goettle said one reason is that the VW diesel-emissions scandal, first revealed in 2015, threw automakers' plans into disarray. Before, the assumption was that diesel would continue to play an important role in meeting standards. However, the share of diesel sales in Europe has fallen to below 50 percent, a trend that is likely to continue as cities including London and Paris take steps to ban diesels. In the longer term, France, Britain and Norway are among European countries who have said they will end sales of all internal-combustion engines in the next few decades.
"It came out of the blue," Goettle said of the VW cheating revelations. "During the scandal, the OEMs were not sure how it was going to play out, and so they did a little bit in various different powertrains, but not a whole lot, just to make sure they are not losing too much time."
Still, he said, the fallout from the scandal has made it clear that electrification is the best way to meet tightening emissions standards. "At the Frankfurt show this year, there were a lot of people more positive about electric cars," he said. "The future is much clearer now, much more focused. Everyone is getting on the boat now."
Apart from full battery electric vehicles, which still make up a tiny fraction of sales, the most sensible solution is to add 48-volt mild hybrid systems to gasoline engines, Goettle said. VW, Volvo, PSA and Daimler plan to introduce the technology across their lineup.
Within the 95g/km standard, each of the 11 major producers has an individual target based on the average weight of new vehicles registered, ranging from 91.1g/km for Fiat-Chrysler to 103.5 for Volvo. Jaguar-Land Rover's target of 130g/km is higher because it sells fewer than 300,000 vehicles a year in Europe; PA consulting says it will meet that standard.
Several companies have been penalized for missing targets in recent years, an EU spokeswoman said. In 2013, Ferrari was fined 1 million euros and AvtoVAZ 20,000 euros for exceeding their CO2 targets, she said. Ferrari and Aston-Martin were fined for exceeding emissions in 2015.
The year's biggest gainer was Volvo, which moved up six places from last year's ranking and is forecast to improve CO2 levels to 73g/km by 2021 from 119 in 2016.
"Volvo, from our point of view, is the biggest positive,” said Thomas Goettle, automotive lead analyst at PA Consulting in Germany. Volvo's announcement that it would offer some kind of electric powertrain on all models after 2019 means that it is likely to have few problems meeting its target of 103.5g/km, he said.
Last year's leader, PSA Group, slipped to fifth place and is forecast to miss its target by 3g/km. Two factors contributed to that, Goettle said: a decision to discontinue its hybrid diesel program and its purchase of GM Europe's Opel and Vauxhall brands, with their heavier and less-efficient vehicles.
"What they need to do right now is to compare the different engine portfolios between Opel and PSA and cut out any inefficient engines," he said. "Going into the future, you don't need two different engine development platforms."
Toyota and Renault-Nissan remained in second and third places, respectively. Toyota should easily meet its CO2 goal of 94.3g/km from 105.5g/km in 2016 -- now the lowest in Europe -- through its strategy of focusing on hybrid powertrains. The Renault-Nissan alliance, which has invested billions in EV technology in the last decade and has the two best-selling electric vehicles in Europe with the Renault Zoe and Nissan Leaf, is also well positioned, he said.
Goettle said that while Toyota won't have difficulty meeting the 2021 target, it may need to reassess its long-term zero emissions bet on costly fuel cell vehicles over battery-electric powertrains. "Hybrid is probably not going to be enough to meet the CO2 targets in 2025," he said. "They need to think about adding electric cars."
Among other carmakers, the report found:
- Ford, in sixth place, will "struggle" to meet its target, with almost no electric vehicles in its lineup.
- VW Group climbed to seventh from ninth, and has announced a major investment into electric vehicles. Offsetting that in the short term will be a push to sell profitable SUV and crossover models, which are heavier and less efficient, Goettle said.
- FCA, in eighth place, "is likely to miss its targets by the highest margin of all the carmakers," about 10g/km, the report said, citing "a lack of alternative powertrain options and strategy."
- Daimler sits in ninth place, but is "moving fast," announcing its EQ line of electric vehicles and positioning Smart as an electric brand.
- BMW, in 10th, was an early EV mover with the i subbrand, but sales numbers "have not been sufficient to significantly decrease CO2 fleet emissions," the report found.