Weird But True: Strict Emission Regulations Threaten To Wipe Out European Small Cars

As many developed markets trend towards even stricter exhaust emission regulations and safety standards, minicars and compact cars will be the collateral damage as the cost comply to the new regulations will be too high for many budget small cars. As counter-intuitive as it may sounds, it is larger and more polluting cars that will survive the European Union’s bid to reduce fleet-wide CO2 emissions to 95 g/km by 2021 – a target that many manufacturers say is not realistic. Failure to meet the target will be costly, as manufacturers risk paying billions of Euros in fines.

The simple reason is because in order to bring down emissions any further, manufacturers will have to add more costly technologies, which the already thin margins of compact and minicars simply can’t absorb.

In an even more counter-intuitive move, the 95 g/km target doesn’t apply equally to all manufacturers. The exact target given to each manufacturer operating in the EU is calculated based on the company’s product portfolio’s average weight. A manufacturer like Fiat and Peugeot for example, which makes a lot compact cars, is given an even more challenging target of 89.8 g/km and 91.1 g/km respectively, versus BMW’s 99.6 g/km.

European minicars like smart fortwo or Volkswagen Up or even Renault Twingo are almost certain to not survive the cull, while slightly larger compact cars like the Volkswagen Polo or the Ford Fiesta are also at risk.

Daimler is already winding down investments in smart, which by the next model generation, will no longer be produced in Europe but in China with its joint-venture partner Geely. Volkswagen is reportedly planning the market the next generation Up! as an electric-only model range.

On top of stricter exhaust emission regulations, European safety standards will also be revised in 2021 to require new cars to come equipped with a raft of camera-based driving aids including autonomous emergency braking. All of which will certainly bump up the prices of these cars.

According to a report by Automotive News Europe, Ford estimates that meeting these new standards will add 2,000 Euros to the car’s price, while other analysts estimates that electrifying the drivetrain with 48V mild hybrid will add 600 – 1,000 Euros while a full-hybrid option will add 2,000 Euros.

A Volkswagen Up! starts from 10,750 Euros while a larger Polo starts at 14,285 Euros.  

Thomas Ulbrich, VW brand’s board member for e-mobility told Automotive News Europe, “Minicar customers are paying 12,000 to 14,000 euros but in the future, when they are electrified, it will be 18,000 to 20,000 euros. This will be a problem.”

Automakers have plans to replace these entry-level models with fully electric ones but the economics of EVs still don’t make any business sense, and the majority of EV sales at the moment are driven by government subsidy or incentives.

“The 10,000 Euro car is going to be very difficult,” Ford of Europe sales boss Roelant de Waard said. On electric vehicles replacing cheap minicars cars, Roelant said battery cost is still a big hurdle. “Even if you reach USD100 per kWh you still need 40 kWh as a minimum so that’s still USD4,000 (3,554 Euros)” he said.

Next year, Honda will launch the fully-electric Honda E while Mazda will be introducing its first EV. Volkswagen will also be rolling out its fully electric ID.3. While these models will be considered affordable by EV standards, none are expected to be priced below 20,000 Euros.

Consulting firm LMC Automotive predicts that the market for compact cars in Europe will drop from 3.16 million units last year to about 3 million next year, and is expected to maintain that volume until 2023. As for minicars, volumes will shrink from 1.1 million units last year to 900,000 in 2021.