San Francisco Frontiers - EU holds auto talks to revive embattled car sector

The European Union is under pressure to help a sector that employs 13 million people and accounts for about seven percent of the bloc's GDP, as it seeks to revamp the continent's lagging competitiveness.

Chaired by EU chief Ursula von der Leyen, the so-called "strategic dialogue" will bring together carmakers, suppliers, civil society groups and others.

"The EU Commission recognises the urgency and severity of the situation, and the need for decisive action," the EU's executive body said in a note.

The get-together comes as the commission is in the midst of a pro-business shift, with firms complaining that its recent focus on climate and business ethics resulted in excessive regulations.

On Wednesday, it unveiled a blueprint to revamp the bloc's economic model, amid worries that low productivity, high energy prices, weak investments and other ills are leaving the EU behind the United States and China.

The car industry in particular has been plunged into crisis by high manufacturing costs, a stuttering switch to electric vehicles (EV) and increased competition from China.

As a sign of goodwill, carmakers have been calling for "flexibility" on the steep emission fines they could face in 2025 -- something the bloc's new growth blueprint said should be on the cards.

"I would personally find it strange to penalise players that we are otherwise trying to help for the benefit of competitors who do not have the same constraints, particularly Chinese," the commissioner for industrial strategy, Stephane Sejourne, told France's Le Figaro newspaper.

Under ambitious efforts to combat climate change, the EU introduced a set of emission-reduction targets that should lead to the sale of fossil fuel-burning cars being phased out by 2035.

About 16 percent of the planet-warming carbon dioxide (CO2) gas released into the atmosphere in Europe comes from cars' exhaust pipes, the EU says.

As of this year carmakers have to lower the average CO2 emitted by all newly sold vehicles by 15 percent from 2021 levels or pay a penalty -- with tougher cuts further down the road, according to clean transport advocacy group T&E.

The idea is to incentivise firms to increase the share of EVs, hybrids and small vehicles they sell compared to, for instance, diesel-guzzling SUVs.

But some manufacturers complain that is proving harder than expected as consumers have yet to warm to EVs, which have higher upfront costs and lack an established used-vehicle market.

"We want to stick to the objective... but we can smoothen the way," von der Leyen said on Wednesday.

- Sales and tariffs -

Sales of electric cars slid 1.3 percent in Europe last year, accounting for 13.6 percent of all sales, according to the European Automobile Manufacturers' Association (ACEA), an industry group.

Announcements of possible job cuts have multiplied. Volkswagen reached an agreement with unions in December to slash 35,000 positions across its German locations by 2030.

Meanwhile the market share of Chinese electric cars has ballooned in the EU in recent years, reaching 14 percent in the second quarter of 2024, up from less than two percent in 2020.

Yet, critics say lifting the fines would unfairly penalise producers who have invested in order to comply.

It would also remove a key incentive for firms to speed up their electric transition at a time when Chinese manufacturers have raced ahead.

"It's sending a signal to European carmakers that they can slow down even though they are already late," said Lucien Mathieu of T&E.

Fines aside, there are other ways Brussels could support the sector.

A senior EU official said incentives for businesses to buy electric are an option.

"Company fleets" account for more than half of new cars purchased in Europe, the official said.

The 27-nation bloc could also seek to improve a patchy charging network, modernise grids to allow for faster charging, bring down energy costs, cut regulations and loosen China's grip on battery production, analysts say.

Brussels has already imposed extra import tariffs on China-made electric vehicles of up to 35.3 percent after an anti-subsidy investigation concluded Beijing's state support was unfairly undercutting European automakers.

But in a sign of the lack of unanimity on the best course of action, the move, which was opposed by Germany and other EU members, is the object of a lawsuit by BMW, Tesla and several Chinese automakers.

The German car giant, which produces certain models in China, said the surcharges harmed "globally active companies" and "do not strengthen the competitiveness of European manufacturers".

I.Sanders--SFF