McKinsey: EU CO2 Regs Are a Death Sentence to Car Makers -- But There's a Solution

Consultants McKinsey in Germany says there is only one way for car makers to reach the EU's ambituous CO2 targets: by selling lots of electric cars.

Published: 03-Sep-2009

The problem: the European Union has set extremely ambitious targets for automotive fleet averages for the year 2020. The EU rules stipulate a fleet average of 98 grams of CO2 per KM by the year 2020. That is equivalent to only 3.7 Liters of Diesel per 100 KM, or 63.57 MPG (US).

There is no way, says Christian Malorny of the German branch of McKinsey and Co (a consultancy), that car makers can at the same time reach this average and make money. Malorny calculates that meeting this target would translate into additional costs of Euro 1,900 per vehicle, even when productivity gains are factored in. Or putting it differently, developing new low-CO2 cars will cost German car makers 114 billion Euros by 2020. Due to intense competition in the automotive field, manufacturers will not be able to pass this on to consumers. Thus, predict McKinsey, from the present time until the year 2020, German car makers will not be able to earn their capital costs in any single year.

The solution: EVs (electric vehicles). Car makers should develop and sell EVs. And governments should adapt CO2 rules to provide an incentive to the wide-scale introduction of EVs.

And McKinsey proposes a no-cost incentive: when calculating fleet averages, the EU should allocate triple weighting to EVs.

Malorny says this means: If German car makers sold 600,000 EVs per year by 2020, the additional costs in reducing CO2 fleet average would go from 1,900 down to 1,200 Euros per car.

Nonetheless, McKinsey has doubts whether German car makers can adapt to EV technology. At the present time, says Malorny, they are just "fiddling around" in an uncoordinated fashion. McKinsey proposes establishing a "model region" to coordinate car makers, suppliers and electric utilities in developing both products and services. Such a model region should be able to produce at least 100,000 EVs per year.

In terms of jobs, it would be worth it: while 46,000 jobs in conventional car factories are at risk of being displaced world-wide, McKinsey sees a potential for 140,000 new jobs in developing and manufacturing batteries, electric engines, electronics and cables for EVs.

Written by: Martin Schwoerer

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