COVID-19 could derail EV uptake, increasing OEM emissions and fines

12 March 2020

12 March 2020

In this final part of Autovista Group's impact analysis of the coronavirus (COVID-19) on the automotive industry, senior data journalist Neil King considers the implications for manufacturers and electric vehicles, especially if supply is not restored by the end of the year.

With China being the coronavirus epicentre, we will very likely see delays in vehicle production around the world as most, if not all, manufacturers have a regular parts supply coming from the country and so are potentially exposed to shortages. The top priority in China is to stop the coronavirus from spreading, and workers are therefore staying at home, resulting in a lack of parts.

Manufacturers can look to other sources for components. However, this will probably incur higher costs and recertification is required for many components – a process that can take several months.

Outside of China, Italy and South Korea are the countries most adversely affected by COVID-19. It stands to reason, therefore, that the supply of cars from Fiat Chrysler Automobiles (FCA), Hyundai and Kia will be acutely disrupted. Hyundai was the first carmaker to announce a suspension of production outside of China due to the impact of the coronavirus.

Also, FCA is implementing temporary closures at some of its Italian plants. The affected plants are understood to be Pomigliano d’Arco, Melfi, Atessa and Cassino. Production will stop for two or three days between 11 March and 14 March. Italy’s largest dealer group, Autotorino, has also said it will close until 3 April.

The coronavirus also provides manufacturers with a reason to take dramatic longer-term actions, such as reducing production capacity by closing plants. COVID-19 could also give them a potential scapegoat for any EV-production problems they may encounter.

Constrained EV-battery supply

As China and South Korea are adversely affected by the coronavirus, this adds a peculiar dimension for carmakers. As electric-vehicle (EV) batteries are primarily sourced from Chinese and Korean suppliers such as CATL, Samsung HDI and LG Chem, their supply could be constrained and obtaining them from alternative sources is difficult. This is undoubtedly an acute concern for manufacturers in Europe as they push EVs to meet, or come as close as possible to, their respective emissions targets. However, the economic impact of COVID-19, falling oil prices and lower government subsidies may reduce EV demand in China itself as consumers favour petrol cars.

If COVID-19 is defeated within the next two to three months, we could swiftly move back to normal. However, if the virus is not contained quickly and takes hold over a longer period, the economic impact could be severe. If any short-term dips in productivity cannot be recovered quickly, companies will delay investments because of their uncertainty about the future and will ultimately need to lay people off. That would affect consumer confidence and expenditure, negatively affecting new-car sales but also used-car transactions and residual values.

Higher emissions and fines

People may become less willing to embark on the electrification ship given the higher price point of EVs, especially as oil prices are now falling. The longer the coronavirus prevails, the more it will inevitably disrupt EV-battery supply too. Aside from the direct impact on EV production, this does not leave manufacturers in Europe the option of registering cars tactically, especially at the end of the year, to reduce their liabilities for exceeding EU emissions targets. Consequently, we could see increased tactical registrations of diesel models in Europe as they have lower CO2 emissions than petrol cars. This was to be expected in 2020 but to a lesser degree.

In a protracted scenario, it seems inevitable that there will be higher CO2 emissions than if business had continued as usual in 2020. Carmakers would face even higher fines unless manufacturers can lobby for a relaxation of the rules. Whether the EU would reduce the fines they impose on carmakers, as the cleanest cars could not be supplied, is not known. The question may not even have been asked yet.

Autovista Group contributors to this article include: Christof Engelskirchen, Chief Economist, Autovista Group; Andreas GeilenbrÜgge, Head of Valuations and Insights, Schwacke (Germany); and Jayson Whittington, Chief Editor, Cars and Leisure Vehicles, Glass's (UK).

You can read part one of our coronavirus analysis here, and part two here.