Tariffs on Chinese electric vehicles and emissions fines have caught Martorell’s attention

The situation in the European automotive industry is truly difficult. If we extend the picture a decade, the European Union has proposed almost completely eliminating internal combustion engines from the market. At the same time, it is pushing manufacturers to switch to electric vehicles earlier, with two key dates: 2025 and 2030. In between, it’s about the emergence of Chinese electric vehicles (cheaper ones) and an industry in crisis.

All this has turned the market into a pressure cooker, which also includes Seat, Cupra and Martorell.

2035. To understand everything that awaits us ahead, let’s take the most distant date as a starting point. The European Union was determined to ban the sale of internal combustion engine cars from that date. The decision, however, was postponed, but also determined.

In one of the last votes, Germany and Italy stood up. They wouldn’t vote yes if using fuel. This forced the European Union to change the wording of its ban. Internal combustion engines that are not carbon neutral will be banned, a subtle but crucial change from previous language that sought to ban the sale of engines that were not “emissions neutral.”

This leaves a loophole for the use of synthetic fuel engines, which are carbon neutral but emit NOx particles (very harmful to humans) or hydrogen, as Toyota intends.

2030. Although it has gone unnoticed, 2030 is almost as important a date as the aforementioned 2035. This year the European Union intends to fulfill its obligations. Fit55a project that aims to reduce pollutant emissions by 55% compared to vehicle emissions in 2021.

This means that it will be impossible to sell a combustion engine vehicle that is not highly electrified without a possible fine. Unless we want to exceed the CO2 level of 42.75 g/km, which will be the new limit in 2030, the car will not be able to consume more than 1.81 l/100 km of petrol.

This is only possible with plug-in hybrids, given the specifics of their consumption permits. Is it possible to sell cars with internal combustion engines? Yes, but there will be fewer and fewer of them as they will have to sell a lot of EVs to split the emissions so that the average stays below that 42.75g/km CO2. Therefore, brands will be less and less interested in using this technology.

2025. The next date is just around the corner. From 1 January next year, g/km of CO2 will begin to be added to the emissions balance for each manufacturer. A balance that cannot exceed 93.6 g/km of CO2 emissions on average in the fleet sold. If you exceed the mark, you will receive a fine of 95 euros for each gram per km/CO2 of the average exceeded and the vehicle sold.

For example, the Volkswagen Group’s average emissions in 2023 were 120 g/km CO2. Rounded up, this means the conglomerate will pay just over €2,470 in fines for the car sold in Europe. If 3.8 million cars were sold on the continent last year, we are talking about a fine of approximately 9.4 billion euros.

What does this all mean? Two things. First, the European Union is interested in selling electric vehicles to comply with the emissions limits it has imposed on itself. It’s not just a matter of selling them, it’s a matter of increasing your market share. The calculations will work if in 2030 16% of the vehicle fleet of the entire European Union uses alternative fuels (electricity or hydrogen).

Second, manufacturers will have to sell a very high percentage of electric and hybrid vehicles compared to current levels if they want to avoid billions of dollars in fines. At the moment, all major manufacturers, except those that sell only all-electric models (like Tesla), face painful fines or the obligation to buy emissions credits from companies that fall short of the 93.6g/km CO2 limit.

Cheap electric ones.. The big problem for manufacturers, the European Union and customers is simple: cheap electric cars have yet to catch on. At the moment there are no electric vehicles that can offer the same as a petrol car for less than 20,000 euros. Buying such a vehicle means taking on certain inconveniences on long trips.

Tariffs. This is where tariffs on electric vehicles coming from China come into play. The Asian country has managed to dominate the supply chain and, in the eyes of the European Union, has helped its manufacturers compete on European soil by offering electric vehicles cheaper than local companies and gaining market share.

But these tariffs also apply to electric vehicles coming from China. Thanks to individual manufacturer-specific tariffs, Tesla will receive an additional tariff of 7.8% on top of the 10% that already applies to vehicle imports from outside the European Union. But the Volkswagen Group, historically linked to SAIC, is one of the hardest hit as its cars are subject to an additional 35.3% tax, which applies in particular to the Cupra Tavascan.

His influence on Seat. Wayne Griffiths has made it very clear what this means for Seat. On LinkedIn, the company’s CEO sent a blunt message: “The auto industry is in danger. And Seat too.”

Cutting CUPRA Tavascan volumes would jeopardize SEAT SA’s ability to meet European CO2 reduction targets as it would face unaffordable fines. This will mean a quarter of the planned production of internal combustion engine vehicles at Martorell will have to be cut.

Griffiths says Seat has two options to get out of the 2024 deadline by paying the minimum possible future fine. Firstly, sell all possible electric and plug-in hybrids together with Cupra, offsetting the emissions of Seat cars, since in the eyes of legislators both companies are part of Seat SA.

The second is the reduction in Seat car production, which will directly affect Martorell. If the company fails to bring highly electrified vehicles to market at a very high price, it will have to compensate by producing fewer internal combustion engine vehicles, offsetting the resulting CO2 emissions. According to Griffiths, this could mean a reduction in the amount of work carried out at Martorell by 25%.

Seat before the abyss. Volkswagen’s strategy leads Seat to a dead end. For two years now he has been betting on Cupra, which Griffiths has identified as the brand of the future. At this time, there are rumors that the company may choose a new direction in the field of micromobility.

This seems to be a short term solution. Keep Seat in the dark until it can sell electric cars at a price that suits the target audience the company is looking for. With only the Seat Tarraco offering a plug-in hybrid version, selling the Seat Arona and Ibiza could be a burden for the company as these are cars with CO2 emissions ranging from 117g/km to 128g/km depending on equipment and engine. selected. These are the two best-selling cars in Spain.

Industry in crisis. Seat’s situation is not new to an industry in crisis. The Volkswagen group itself has proposed saving 10 billion euros between 2024 and 2027 to switch to electric vehicles. Along the way, the company is threatening to close three plants, and Seat is already warning of a significant reduction in production in Martorell.

From Stellantis they warned that they would take the same path. If they are unable to bring enough electric vehicles to market, they will have to cut production of internal combustion engine vehicles and therefore also reduce work at their European factories.

At the same time, China has already warned its manufacturers not to invest in countries that have supported tariffs on electric vehicles, according to Reuters. We don’t know how this might affect Spain, which initially supported them and then abstained under pressure from China. At this point, we already know that Omoda’s Barcelona plans have also been put on hold.

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