EU rules to make electric cars more profitable than petrol, says VW executive

EU emissions rules due to come into force as soon as 2025 are likely to make petrol cars less profitable than electric models, marking a landmark moment for the auto industry, according to one of Volkswagen’s most senior executives.

VW, the world’s second-largest automaker, has set out plans to invest €35bn in electric vehicles as governments try to accelerate the transition to less polluting cars.

Thomas Ulbrich, head of development at the VW brand, said new engine standards, called Euro 7, would pose a “tremendous challenge” for petrol-based vehicles because they would need more expensive technology to ensure they are compliant.

“If you now ask when is the point for [profits] becoming equal to an internal combustion engine, you know that with Euro 7 there are tremendous challenges for the internal combustion engine world,” Ulbrich told the Financial Times.

The regulations, which are due to come into effect in about 2025, would require more “technical needs” such as expensive emissions reduction equipment in internal combustion engine cars, he added.

The forecast from Ulbrich is one of the starkest yet from an industry that, with some exceptions, still makes far more money selling traditional petrol engines than electric ones.

Peugeot owner Stellantis said last week that while margins on its electric cars were similar to those for petrol models, government subsidies for the former were likely to be unwound in the coming years. Renault said its electric cars had equal margins to some of its current petrol range.

Global carmakers are investing billions of dollars as they race to prepare for the demise of the ICE, as the internal combustion engine is known in the industry.

Smaller cars — such as the VW Polo and up! models — would be hardest hit because passing on the direct costs of new emissions systems would push the price up significantly, he said Ulbrich.

Germany’s car industry lobby, the VDA, has already voiced its concern over the Euro 7 rules, claiming they are five to 10 times harsher than the current standards.

“The proposals continue to move at the limits of what is technologically achievable,” Hildegard Müller, head of the VDA, said in April. “We must continue to be very vigilant that the internal combustion engine is not rendered impossible by Euro 7.”

A month later, the association warned that EU emissions regulations could lead to the loss of 215,000 jobs across the industry. VW expects that a third of its European sales will be electric by 2025, rising to 70 per cent by the end of the decade.

Its targets are less ambitious, however, than Ford or Vauxhall-Opel, which plan to end all petrol or hybrid car sales in the region by 2030 and 2028 respectively.

The European Commission will later this week lay out expected CO2 regulations for 2030, which will tighten existing requirements and require carmakers to significantly increase production of electric vehicles.