A new report from CDP, analyzing 15 of the world’s largest automakers with combined market capitalization of US$846 billion, has found that tightening regulations on emissions are having a significant business impact in the wake of the Volkswagen scandal last fall.
According to the report, Volkswagen is not the only carmaker potentially facing significant penalties as regulations on fleet emissions tighten around the world. Seven other carmakers could also face up to US$4.8 billion in penalties (from the EU and US combined) for non-compliance on their fleet emissions. The report finds US car giant General Motors and Ford are the companies at most notable risk, with potential penalties equating to a combined US$1.8 billion (114% of EBIT) and US$1.2 billion (27% of EBIT), respectively.1
When asked for comment on the report’s findings, a spokesperson from Ford said, simply: “We will continue to meet all applicable emissions requirements.”
The report also identifies several automakers who have taken a lead on ‘advanced vehicles2’, putting them at a competitive advantage in light of developments such as the COP21 Agreement to limit emissions, reached in December 2015, and increasing measures to disadvantage diesel vehicles. Nissan, Renault and, interestingly, Volkswagen are the only carmakers to receive an ‘A’ grade from CDP in this area. Volkswagen launched five new models of advanced vehicles last year, contributing to a three-fold increase in advanced vehicles sales volume globally. There is explosive opportunity in China from advanced vehicles where some of the most stringent passenger vehicle fleet emissions targets combines with a booming market (CDP estimates China could have nearly two million advanced vehicle sales in 2020).
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CDP’s automotive ‘Super League Table (SLT)’ highlights those best prepared for climate regulation:
"It’s time for car makers to take climate change seriously. Six months on from the VW emissions scandal, today’s new investor research shows that too many companies still fall short in the light of stringent regulation and possible penalties on fleet emissions and that’s a significant risk for the sector as a whole,” said CDP CEO Paul Simpson. “By performing well in areas such as advanced vehicles and supporting low-carbon regulation, manufacturers such as Nissan, Renault, BMW and Toyota are putting themselves in the fast lane for future growth."
Collectively, the 15 companies in the report represent around 90% of the global auto market by sales volume. Other findings of the report include:
- Emission impossible? Passenger vehicle fleet emission targets are currently not aligned with International Energy Agency’s 2-degree pathway required for light-duty passenger vehicles, meaning we can expect tougher limits in the future.
- Manufacturing emissions: About 20% of the industry’s emissions come from the manufacturing stage. BMW, Volkswagen, Daimler and FCA were the only companies to receive an ‘A’ grade on management of emissions at this stage of the process.
- Leaders and laggards on carbon regulation: Around half of the automakers were found to be at least mildly supportive of low carbon regulation. Daimler, Hyundai and FCA were clear laggards with ‘E’ grades in this area.
- China gears up: China has some of the most stringent targets on fleet emissions, which could be a game changer that puts 5m electric vehicles on the road by 2020.
- Volkswagen downgraded: Volkswagen is ranked in eleventh place, compared to sixth place when CDP produced a similar report in Feb 2015. It receives an ‘E’ grade for fleet emissions following its emissions scandal; but on the positive side achieves ‘A’ grades in the advanced vehicles and manufacturing emissions criteria.
- Kia is the only non-discloser: Kia is the only one of the top 16 automakers globally that did not respond to CDP’s climate change questionnaire therefore is not included in the analysis. Investors should ask Kia why it is not providing sufficient transparency on its carbon emissions.
- The car in front is a Nissan: Nissan is the top-performing company in CDP’s rankings, consistent with CDP’s analysis in Feb 2015. It maintains its leadership in battery electric vehicles (BEV) as its LEAF is the best-selling BEV globally. Renault, BMW and Toyota are the other clear leaders in the overall ranking.
"Around the world, regulation on fleet emissions is tightening and this research shows investors which auto companies are responding well to this challenge, and which are driving into trouble,” said James Magness, CDP Head of Investor Research. “The research also shows that regulations need to tighten even more if global warming is to be limited to a two-degree rise, as agreed by world leaders in Paris last year. We also need more to be invested in advanced vehicle technologies, and it is clear from this research that some companies are capturing growth opportunities in this area much more effectively than others."
1 The potential penalties facing OEMs at risk of missing their targets are CDP estimates. They are based on the assumption that generous credits will not always be available to OEMs, as we believe global regulations need to become tighter in order to align with science-based targets to limit global warming to a 2-degree rise. The penalties are for illustrative purposes only.
2 Our definition of ‘advanced vehicles’ includes battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs) and fuel cell vehicles (FCVs).