Some automakers won’t be able to afford the engineering costs needed to meet the European Union’s 2021 vehicle emissions reduction goal, according to a new report from ISI Automotive, an Austria-based global manufacturer of vehicle safety equipment. The company says most of the “low-hanging fruit” in engineering more-efficient cars – such as building smaller engines and reducing vehicle weight so they use less gasoline – has already been largely implemented.
In order to meet the EU’s 2021 target of 95 grams of carbon dioxide emissions per kilometer traveled, the industry will require a staggering $16 billion in engineering investment over the next eight years from the various automakers selling cars in Europe, a price some struggling European car companies might not be able to afford. It will also make cars significantly more expensive, the report claims. Currently, the average vehicle in Europe emits about 130 grams per kilometer.
“Having studied reports from the European Environment Agency, the International Council on Clean Transport and the European Commission, we think that these [new generation] cars will require an extra $1,350 in [engineering] content,” the ISI’s report reads, according to Automotive Purchasing. ISI estimates the typical mass-production mainstream passenger car gives up about $450 in profit per sale after all the costs of designing, building, delivering and marketing the vehicle are recouped.
Larger, less efficient vehicles like trucks and SUVs, as well as big-engine luxury sports cars, typically provide the largest profit margins, but they’re also the most polluting vehicles in a company’s product line. In order to meet the average emission target, smaller mass-production cars will have to emit much less than 95g/km if companies want to continue to sell the more profitable wheels. These cost concerns are partly why the EU has already delayed emissions targets three times.
The estimate comes as Europe’s auto market sits in the doldrums and European automakers like Renault and Fiat are struggling to raise capital just to remain viable and competitive.
According to IHS Automotive, introducing a new model current costs between $1 billion and $6 billion, depending on how much of the vehicle is completely new vs. carried over from other existing models. This is why car companies prefer to build cars on shared platforms.