The automotive industry giant, Volkswagen Group, which has been in the industry for decades now, is at a crossroads yet again. Since the Dieselgate scandal appears to be behind Volkswagen, the automotive company could be heading toward the financial precipice as a result of the entertainment giant association. On the horizon are the European Union’s 2025 emission standards that may lead to the VW Group being slapped with a record penalty. This article considers the given situation, therefore highlighting its effects on the company as well as affecting the automotive industry.
Table of Contents
The European Union’s Revised Emissions Reduction Goals
Automotive industries of the European Union seek to minimize carbon emissions and that is why have established concrete goals and objectives in line with the EU goals. In 2025, the CO2 targets will be cut by around 15% below the 2021 target. This, in turn, means that the automakers have to come up with innovations that make their cars meet these high standards. For every gram in excess of the threshold beyond 95 grams of CO2 per kilometer, manufacturers are fined €95 ($98). This penalty, though seemingly small, is adjusted on a per-vehicle basis and is a large burden for a car maker as large as Volkswagen.
The Financial Restrancing of Volkswagen
Volkswagen Group is gearing up for what could be a big loss financially. According to Rolf Woller, Head of Volkswagen’s Group Treasury and Investor Relations, analysts have been told to prepare for the car manufacturer to be set an astronomical fine for emissions limits. The Group projects that as much as €1.5 ($1.56 billion) in fines could be claimed. This is far below the €31.3 billion ($32.7 billion) Volkswagen had spent in fines and associated costs by Dieselgate by the year 2020 but it is a hefty amount that is still capable of affecting the company’s existence.
Measures to Escape the Fine
To avoid these possible fines, Volkswagen and the affiliated companies, Skoda, Audi, Porsche, and others will have to consider more environmentally friendly automobiles. Furthermore, achieving higher economies of scale is another feasible approach to the challenge of improving plug-in hybrid and pure EV production and sales. They can be used to reduce the amounts of emissions fleet from ICE cars and in turn, bring down the total emissions cars.
Other players in the automotive industry such as Stellantis are now seeking unique approaches in an effort to minimize the production of vehicles running on gasoline and diesel alike. It might also assist them in achieving the set emissions goals for the EU faster. Nevertheless, it has to be realized in advance how efficient these measures will be in the future.
Industry-Wide Implications
The implications of the decision are not only for Volkswagen but represent a threat to the whole automotive industry, a sector active within the EU. In the previous year, Renault’s CEO, Luca de Meo said that penalties amounted to a possible €15 billion ($15.6 billion) for automakers. According to Barclays Bank, the penalties will however fall below this but will be more than €10 billion or $ 10.4 billion. These figures show how much pressure is put on automakers regarding the new regulations.
Many firms have tried to influence the EU to ease these strict emission standards for 2025 but to no avail. The EU remains steadfast in its commitment to environmental sustainability, signaling a clear message to the industry: From another perspective, people have to adapt to different changes or suffer serious consequences.
The Road Ahead
Further on to the year 2025, the EU has more ambitious targets for the 2030-2034 period of incorporating increasing levels of percentage of RES in final consumption while aiming to have zero emissions by 2035. This trajectory achieves the complete elimination of sales of combustion engine vehicles within the EU in just only a decade. There could be exceptions for synthetic fuels, but the chances of e-fuels making significant inroads within this timeframe can’t be said for certainty.
Moving to zero emissions is a challenge and a threat to car makers but also has several opportunities to do the same. It is predicted that automobile manufacturers that are able to bring forth unique solutions and continuously evolve will survive and possibly become dominant; those that fail to do so may not survive. With its structure and knowledge, Volkswagen is capable of initiating this change if it will only invest and shift its strategy accordingly.
End Note
Having followed the automotive industry, it is straightforward to sit and realize that Volkswagen’s current situation is something that can wake all car makers. Now, it is not only about regulatory focuses but about how cars are designed, manufactured, and advertised. As such, firms are likely to have to place emphasis on both innovation and sustainability in the competitive business environment that is now rapidly changing.
What VW has done to beef up its EVs and/or plug-in hybrids is actually in the right direction. However, the company also needs to work on issues such as charging infrastructure and range and charging time concerns of the consumers. These challenges can only be met and resolved if auto manufacturers like Volkswagen can prepare for and shape the market to create a ready acceptance of zero-emission cars.
Nonetheless, the problem of the approaching emissions fine can be considered the greater challenge for Volkswagen, along with the option to strengthen its position as a member of the automotive market. This way, Volkswagen can not only escape large fines but also become a trendsetter for other auto manufacturers to become sustainable too. The path is rough, yes, but if managed properly, if Volkswagen is willing to make the appropriate investments necessary, this is simply an opportunity for growth.
