Ursula von der Leyen Persuaded to Protect ICE Cash Cows — How to Make the Most of This

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Ursula von der Leyen proudly announced last week that she would help the EU car industry to comply with the EU’s CAFE regulations in a more lenient way. They could take three years to reach compliance with the regulation’s new CO2 limits, rather than doing so this year. Without this leniency, they were facing over €8b in fines. At least, that is what financial and automotive insiders were telegraphing to the press. In reality, there are enough ways to comply without paying any fines. But all those ways require selling a lot more BEVs and even fewer vehicles with a tailpipe.

The current generation of ICE-powered vehicles is the last of its kind. Long, long, long ago, when I was taught the basic principles of business administration, we were made aware of a funny, very profitable situation. When a product reached technical EOL but was still popular in the market, it became a cash-cow. No more expenses for improvements or the next generation of the product. No more investments to keep the production lines up to date. Keep selling it until either the production lines or the market collapse.

Petrol-powered cars have never had the profit margin they have now. Of course, OEMs would like to keep selling them as long as possible. One of their tools is not bringing better BEVs to market and keeping the price of them as high and uncompetitive as possible.

As I understand the proposal made by Ursula von der Leyen, the industry gets a reference period of three years to comply. I translate it as, for example, first year reaching 80% of target, next reaching 100%, third year compensating first year by reaching 120%. This means the industry must sell the same number of electric cars to comply, they are only given a longer period to do so.

If that assumption is correct, it is acceptable to me IF, for the rest of this 5-year period, the company’s target is the highest yearly percentage in this three-year period. Forcing laggards to perform.

This leniency has pros and cons.

• A pro for the industry would be a short benefit in profits.
• Another pro could be for less need to buy credits from Tesla. (Yes, I am anti-Tesla now with Musk attacking the USA economy and the safety of Ukraine.)
• The most important pro for the industry is not paying fines or having to buy credits from competitors.
• A con for the EU industry is losing market share to the Chinese car industry.
• Another con would be slower development of modern small BEVs at competitive prices.
• Further, there’s the con that the market is growing slower. Though, while the industry does not like it, the market will grow each year. There will be more demand than the regulation’s quota requires.
• There is no con for the EU of missed fines because the industry was never going to pay fines. They have enough capacity to sell enough, or nearly enough and in the worst cases buy credits.

Infinitely better would be to switch to increasing CO2 targets yearly for the last two years of this period. The increase should be based on the difference between the 2025 target and the 2030 target. In 2028, the target should be increased by one third of the difference; the 2029 target by two thirds of the difference. This would create the constant shift to emission-free driving that is the goal of the regulation.

This would be a deal I could be behind. The industry must understand that There Ain’t No Such Thing As A Free Lunch, aka TANSTAAFL. The price for leniency now is better performance later.

P.S. This is part of a package to strengthen the EU automotive sector, push local battery production, and overall localize the supply chains. And I am a supporter of Ursula von der Leyen. The EU needs a strong leader with all the turbulence in Europe, someone who is not the leader of one of the member states. As foreign diplomats and heads of government used to say: “Who do I call when I need Europe?” It was for over a decade Angela Merkel. Now this role is claimed by Ursula. She is in competition with the UK’s Keir Starmer, France’s Emmanuel Macron, and possibly Germany’s Friedrich Merz. Some see Volodymyr Zelenskyy in this role, but that is for when Ukraine is an EU member state and he succeeds Ursula as head of the commission.