Investing.com -- The European Commission is set to announce its automotive industry action plan on 5 March. In a note this week, Bank of America (NYSE:BAC) analysts outlined key expectations, including changes to CO2 regulations, coordinated EV subsidies, and supply chain localization efforts.
BofA sees three possible scenarios for modifying the 2025 CO2 targets, with the most likely being a shift from a strict 15% reduction target to a three- to five-year average target.
“This means OEMs can compensate a potential shortfall with higher savings in 26/27,” BofA analysts noted.
The bank adds that the second scenario would phase in CO2 targets, calculating emissions based on 90% of car sales in 2025 and 95% in 2026, a mechanism used in 2020/21.
The least likely scenario is said to be delaying fine payments, which would provide financial relief but not resolve compliance issues.
“VW guides for a CO2 burden of €1.5bn (c0.5% op margin), Renault (EPA:RENA) for a burden of c1% of group sales and Mercedes for a few hundred million EUR in 2025. All these burdens will certainly not completely disappear but could end up lower than expected,” added BofA.
A surprise element, according to the bank, is the potential for additional EV subsidies. “The EU could for example use up to €200bn post-Covid recovery funds to provide funding to the member states for EV subsidies.”
The German government has also discussed new BEV subsidies, potentially reaching €3,600 per vehicle.
The EU is also expected to push for localized supply chains, potentially mandating local content for batteries and suppliers. “This would push investments in localized supply chains, pushing Chinese OEMs and suppliers to produce in Europe.” However, BofA expects this initiative to take time to materialize.
