Friday, May 27

Combustion Engine Car Factories Are ‘Stranded Assets’ in the Age of Electricity | Automotive industry

Increasingly, automakers will find themselves in a race to close, switch or sell factories that produce internal combustion engine vehicles to avoid being left with “stranded assets” as regulators set the course for a decade of electrification to reduce drastically carbon dioxide emissions.

Traditional automakers are currently playing a “zero-sum game” as electric car sales growth eats away at the value of internal combustion engine factories, which “are effectively stranded assets,” warned a prominent analyst.

Philippe Houchois, an analyst at Jefferies, an investment bank, said auto manufacturers’ share prices will largely depend on their ability to avoid losses in fossil fuel assets. “If you want to be a higher-valued automaker, you have to find a way to reduce your assets faster than a gradual transition to electric vehicles would suggest,” he said.

The industry has already moved significantly away from fossil fuels. The year 2020 will be considered key for electric cars due to new EU regulations that impose average emissions of 95g of carbon dioxide on all cars sold. The UK has committed to keeping its emissions regime at or above the equivalent level after the Brexit transition period ends on January 1.

The regulations have sparked a rapid spike in electric car sales as automakers scrambled to avoid fines worth hundreds of millions of euros, though Volkswagen has already admitted it won’t meet its 2020 target, incurring a fine. estimated at around 270 million euros.

More than 560,000 battery-electric cars were sold in the year through November in Western Europe, according to figures from Matthias Schmidt, a Berlin-based automotive analyst. Battery electric vehicles accounted for 8.7% of total car sales in November, up from 2.7% the previous year. Despite falling short of its emissions target, Volkswagen’s ID.3 became the most popular BEV in Europe, with 10,500 sold in October, although that still accounted for around a third of sales of the internal combustion bestseller, the Volkswagen Golf.

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EU regulations will get a bit tighter during 2021, but automakers already have two key milestones in their sights in the next decade. Automakers will need to cut carbon emissions by 15% between 2021 and 2025, and by 37.5% from 2030, a requirement that will lead to the rapid decline of mass market internal combustion engines.

However, stricter rules are expected as the EU aims to produce net zero carbon dioxide emissions by 2050. In autumn, EU officials proposed cutting emissions from cars in half within a decade.

Transport & Environment, a Brussels-based campaign group, has called for a 2035 end date for the sale of all fossil fuel cars in the EU, a move that would coincide with the UK ban. T&E forecasts suggest that current targets allow automakers to slow down their launch of electric cars, which the group says would represent a missed opportunity for Europe to maintain its lead over rivals, including China.

“The current electric drive is at risk of dying out as early as 2022 unless stricter CO2 rules are put in place,” said Julia Poliscanova, senior director of vehicles at T&E.

David Bailey, a professor of business economics at the University of Birmingham, said the likelihood of even stricter regulations increased the risks of immobilized assets, particularly for German automakers, who were paying the price for taking the “wrong path” of Invest heavily in diesel engines. The diesel industry was then rocked by costly emissions trap scandals, albeit involving harmful nitrogen oxides rather than carbon dioxide.

“You will see massive investment from German manufacturers in electric vehicles, but they have a huge sunk asset in diesel engines,” he said. “They are trying to make some kind of profit from their existing line while investing in new technologies.”

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Bailey added that the “big problem” for the auto industry and workers will be in the supply chain, among companies that do not have the flexibility to stop making parts for internal combustion engines.

The transition is also likely to trigger a painful industry reshaping for automotive workers, including in the UK. Union leaders emphasize the need for government support to shift production in factories that make internal combustion engines to electric technologies, or risk losing thousands of jobs when internal combustion engine technologies are no longer viable.

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