James Patmore Global Vehicle Procurement Director, LeasePlan

For several years, it has been known that 2020 would be a year of change for the European automotive industry. Why? The EU introduced legislation which requires vehicle manufacturers (OEMs) to achieve progressively lower CO₂ targets, starting in 2020, otherwise they would face substantial fines.

Despite the challenges which COVID-19 has presented, the industry appears to be on track to achieve the overall 2020 CO₂ target; the half year estimates show the industry at +2 g/km CO₂ versus the target. However, as you can see below some OEMs are closer to achieving their CO₂ targets than others.

We will soon see how OEMs performed against their 2020 target. Some OEMs have communicated in their Q3 results that they are reserving hundreds of millions of euros in anticipation of missing their target. Some OEMs have adopted a different strategy to avoid potential CO₂ fines and negative publicity by creating CO₂ pools with another OEM. The most recent example was between Ford and Volvo.

CO₂ pools reward an OEM who is able to sell CO₂ credits for over-achieving its CO₂ target to another OEM who would otherwise fall short of their targets. The value of these credits should not be underestimated. For example, Elon Musk recently acknowledged that TESLA’s sustained run of profitability is attributed to TESLA successfully selling CO₂ credits to other OEMs.

In my opinion, CO₂ pooling represents more than a mechanism for OEMs to manage their CO₂ targets. I see CO₂ pooling as a signal of the collaboration and consolidation trends which we have started to witness across the automotive industry. Why? OEMs can't absorb the extensive and expensive list of investment costs of developing new fuel technologies, new platforms and autonomous driving technologies on their own. The creation of Stellantis (PSA and FCA merger) is heavily motivated by sharing/ reducing development costs across the multiple brands. In 2021/22 we will start to see the first products coming from the Ford and Volkswagen partnership. In 2021 we will also start to see new business models; Fisker will outsource production to Magna Steyr and buy platforms from Volkswagen.

To reduce costs and improve margins, OEMs are also reinventing their sales and distribution models. Newcomers such as TESLA and Polestar have proven that a new direct digital sales model is possible and traditional OEMs have had digital success in response to COVID-19. As we close 2020, one of the hottest debates is “what role will dealers play in this direct and digital sales model?”. I personally believe dealers will continue to have an important role to play in the sales and distribution model for OEMs, which is why I believe we will see dealers shifting towards an “agency” model.

As “necessity is the mother of all inventions” we will continue to witness the automotive industry respond to further reductions in CO₂ targets, sustained investment costs to achieve these targets and threats from new entrants. What does this mean for you and I? We will all have access to a much wider range of increasingly cost effective electrified models and OEMs.