• Euro 7: Carmakers’ record profits made at expense of human health

    A new T&E report debunks manufacturers’ claims that Euro 7 air pollution rules are too expensive.

    Air pollution from road transport continues to be a serious problem for air quality across Europe, causing 70,000 premature deaths each year and a multitude of diseases including cancer, stroke and cardiovascular disease. To tackle the problem the European Commission proposed a new pollutant emission standard for cars, vans, buses and trucks known as Euro 7 in November 2022.  

    Independent analysis by experts showed that significantly lower emission limits are feasible and affordable, but due to industry lobbying the final proposals require carmakers to do little to reduce the toxic pollution coming from sales of new internal combustion engine cars. Yet carmakers continue to fiercely oppose even the current weak Euro 7 proposals, claiming that  compliance with Euro 7 is too expensive and will result in fewer car sales, damaging the European automotive industry at a time when the industry is already struggling due to supply chain issues and rising costs. Yet, European carmakers have a long history of exaggerating the cost of less polluting cars, using scaremongering tactics on policymakers to weaken environmental regulation ever since the Euro standards in the 1990s.  

    To check the veracity of carmakers’ claims, T&E has looked into the financial data of Europe’s five biggest carmakers: VW, Stellantis, BMW, Mercedes and Renault. The data shows that while carmakers’ sales, earnings and profits mainly decreased in 2020 due to the covid crisis, profits rapidly rebounded in 2021, to largely reach record highs: 

    • BMW increased 2021 profits 250% compared to 2019, from €4.9 billion to €12.4 billion. In  2022, profits increased again by another almost 50% to €17.9 billion.
    • Mercedes 2021 profits stood at €23 billion, almost ten times 2019 profits (€2.4 billion), 2022 profits were €14.5 billion, 600% higher than 2019.
    • Renault, which had not made a profit since 2018, made €890 million in profit in 2021, however due to the disposal of the Renault factory in Russia, the carmaker failed to return a profit in 2022. Without the disposal Renault would have almost doubled its profit to €1.6 billion.
    • Stellantis more than doubled profits from €6.6 billion in 2019 to €14.3 billion in 2021, and in 2022 increased profits by a further €2.5 billion to €16.8 billion.
    • VW increased profits 11% compared to 2019, from €13.9 billion to €15.4 billion in 2021, and in 2022 maintained record high profits of €15.4 billion.

    Together the five carmakers’ 2022 profits (€64 billion) were more than double 2019’s (€28 billion), despite selling 25% fewer cars than before covid and rising inflation. While supply chain issues are blamed for lower car production volumes, carmakers have been vocal about their shift in strategy away from selling as many mass market cars as possible towards selling fewer but larger, premium cars with higher profit margins. This includes scrapping production of popular, more affordable, small cars such as the Fiat Punto, VW Beetle and Citroën Picasso. Due to a lack of supply and strong demand, carmakers have also been increasing prices. This shift in strategy has resulted in: 

    • BMW’s profit margin almost trippled from 4.6% in 2019 to 12.6% in 2022.
    • Mercedes’ profit margin increased from 6.8% in 2019 to 9.5% in 2022.
    • Renault’s profit margin increased from 0.4% in 2019 to 4.8% in 2022.
    • Stellantis’s profit margin more than doubled from 4.0% in 2019 to 9.9% in 2022. 
    • VW’s profit margin increased from 5.6% in 2019 to 5.9% in 2022.

    The increase in profit margins shows that carmakers are making more money on every car sold than prior to the covid crisis. This accounts for inflation, meaning that it is not due to increases in the costs of raw materials, energy or production but due to, for example, carmakers increasing prices above inflation or selling a higher share of premium cars with higher profit margins. Despite lower car sales, the increase in profit margins is resulting in higher profits than when vehicle sales were higher before the covid crisis. 

    Carmakers are engaged in a disinformation campaign to frighten policy makers, simultaneously claiming that Euro 7 will make cars unaffordable for consumers, while hiking prices and scrapping smaller models in favour of higher profits on larger, more expensive premium models. The true cost of these business decisions will be paid by millions of Europeans who have to breathe unnecessarily high levels of toxic pollution.

    Carmakers are spending their profits on dividends and stock buybacks

    Carmakers claim that they cannot afford to invest in pollution control upgrades to meet even the weak European Commission proposal for Euro 7, claiming this will syphon investments away from  the transition to e-mobility. While it’s true that carmakers are investing in retooling factories and producing electric models, carmakers are also spending large sums on dividends for shareholders and stock buybacks aimed at boosting their share price. All five carmakers will be paying out dividends on their 2022 earnings, totalling €19.7 billion, more than the GDP of Malta. BMW, Stellantis and Mercedes are spending another €7.5 billion billion on stock buybacks. At the same time CEO pay has increased 50% since 2019. 

    A more ambitious Euro 7 is affordable for carmakers

    The European Commission’s Euro 7 Impact Assessment finds a more ambitious Euro 7 (than proposed by the Commision) as the optimal policy option for reducing pollution from cars. This includes reducing the limit for toxic NOx pollution from 60 to 30 mg/km and for dangerous particles from 6×1011/km to  1×1011/km.  

    The total cost of such a Euro 7, over the entire lifetime of the regulation, for the two biggest carmakers is €5.7 billion and €5.1 billion each. For VW this would be 37% of 2022 profits, 30% more than the €4.4 billion which VW plans to pay out in dividends this year. For Stellantis this would be 30% of 2022 profits, or less than the €5.7 billion that the carmaker plans to spend on dividends and stock buybacks. For smaller carmakers the total cost of Euro 7 is much lower at €0.5 to €2.7 billion, as fewer cars are impacted. In the worst case, for BMW the cost would be 15% of 2022 profits and 19% for Mercedes, or around half of this year’s dividend. As the 5th biggest carmaker in Europe, Renault’s costs are likely to be lower than those of BMW or Mercedes.

    Carmakers’ high profits and large spend on dividends and share buybacks this year, which in many cases exceed the total lifetime cost of the Euro 7 regulation, casts doubt on claims that they cannot invest in the minimal upgrades (mostly better exhaust emission control and calibration, not new engines) needed to make the almost 100 million ICE cars expected to be sold before 2035 less polluting. The technology to do so is cheap and available, at €90-€150 per vehicle for the Commission’s Euro 7 proposal and €300 for greater ambition in line with the findings of the Euro 7 Impact Assessment. Euro 7 will cost carmakers just a fraction of 2022 profits over the entire lifetime of the regulation, even if the stringency of the standard was increased beyond the Commission’s Euro 7 proposal. 

    Europe’s biggest carmakers can afford to make cars less polluting. Instead they prefer to put profit before people’s health. The potential allowance of the sale of e-fuel ICE powered cars after 2035 – subject to upcoming legislative debate – means that Europe may no longer be on a trajectory to completely eliminate tailpipe pollution from new cars by 2035.  European policymakers need to put air quality and public health first, and adopt a Euro 7 standard which delivers ambitious reductions in air pollution so that every citizen in Europe can breathe cleaner air.

    To find out more, download the briefing.