Comply or die: car makers must stop selling cars to keep selling cars

Tightening emissions rules on the continent are set to follow blueprint of the UK's ZEV mandate

Stellantis has throttled sales of combustion-engined cars in the UK in a bid to hit government-mandated sales targets for electric cars this year and avoid paying fines.

That's according to the company’s new head of Europe Jean-Philippe Imparato, who added that the strategy will continue until the end of this year.

The UK’s ZEV mandate, which imposes a minimum of 22% electric car sales on manufacturers this year, is becoming a template for what will happen across the European Union next year, when tightening rules on average CO2 levels will force car makers to sell more EVs.

“You have to be compliant. If you are not compliant you're dead,” Imparato told journalists at the sidelines of the Paris motor show last week.

Stellantis is one of the closest among the big car makers to hitting the ZEV mandate targets for 2024, with EV sales running at around 20% after nine months, according to EV-focused analyst firm New AutoMotive.

Imparato confirmed that the target was achieved by reducing sales of combustion engines. “We lost three points of market share but we protected the profitability and we will be compliant,” he said.

The Stellantis brand most badly hit was Vauxhall, which saw sales fall 17% through September. That equates to around 12,500 cars, according to figures from automotive body the SMMT. The brand’s best-selling model, the Corsa, was down 31% in the first nine months, while sales of the Mokka small SUV fell 25%.

Stellantis has criticised the ZEV mandate for forcing car makers to sell EVs ahead of demand. “When you push 20% in the mouth of the consumer and the natural demand is 10%, it has a huge economic impact,” Stellantis CEO Carlos Tavares said at the Paris show.

Tavares promised a “correction” in the next few weeks to boost profits within the UK, without being specific. One option is to carry out a previous threat to close one of the company’s two van plants in the UK.

“When you are fighting for survival, you have to consider that everything is on the table and nothing should be excluded,” he said.

The UK has jumped the gun on European Union policy from 2025, when tough new CO2 limits are essentially mandating that car makers sell EVs totalling between one fifth and one quarter of all car sales. 

Stellantis, for example, has calculated that the EU’s call for a 19% reduction in the average CO2 figure to 93.6g/km will mean 24% of all its EU car sales will have to be electric in 2024, matching the UK requirement for next year.

“If you compare the curve of the ZEV mandate with the curve of CO2 in Europe, the UK anticipates what is written for Europe,” Fabrice Cambolive, CEO of the Renault brand, told journalists in Paris. “It's very interesting for us to see the same trajectory and to see what are the behaviours of the consumers, the companies and our competitors.”

The penalty for falling below the target is very high, with fines potentially reaching €13 billion (£11bn) if the car industry can’t find a way to move forward from its average figure in 2023, according to calculations from the bank Jefferies. 

The bank assumes industry CO2 figures for this year will be roughly similar to 2023, given the targets are the same. “The incentive this year is not to improve but to prepare to be compliant from the start of 2025,” said Jefferies analyst Philippe Houchois.

Currently the Volkswagen Group is the most exposed with a potential €7.3bn (£6.1bn) fine if it makes no improvement to 2023 figures, reducing to €2.6bn if its EV/plug-in hybrid mix rises above 30%, according to Jefferies calculations. Buying credits or pooling with other manufacturers, mostly likely Tesla, could address VW’s shortfall.

The UK’s decision to split from the EU and mandate a fixed amount of EVs this year has been a massive irritation for car companies, which haven’t been able to deploy planned cheaper models designed to appeal more to retail buyers. 

Instead, car makers have been forced to push through sales of the more expensive electric models they already have, resulting in big discounts and – in Stellantis's case - holding back sales of combustion-engined cars.

Some car makers, including Volkswagen, have called for a softening of the 2025 EU targets, and there’s still uncertainty whether the European Commission will respond. “Should BEV demand not show any signs of revival despite growing price discounts, we would not rule out a potential intervention by the EU to limit the financial burden on an industry that is already challenged on several fronts,” UBS analyst Patrick Hummel wrote in a recent note.

The potential watering down of the regulations has drawn the ire of Stellantis, which says it is ready despite the potential hit to company profits. “I don't have a real clear view on the regulation that will be applied in January 2025,” Imparato said in frustration. “On paper nothing changed, but in the corridors everybody is discussing. In November I have to lock January production.”

Stellantis has launched cheaper EVs, including the Citroën e-C3 and Fiat Grande Panda on the Smart Car platform, both of which would cost under €25,000 (£21,000) in EV form and which use the cheaper lithium-iron-phosphate (LFP) battery chemistry.

“We have the technology, we have the platforms, we have the products, we have the capacities," Tavares said. "We are ready to support. I don't ask for any kind of delay. We just ask for the stability of the rules.”