Auto giants face some painful choices in the race to avoid hefty emissions fines

Car manufacturers have a number of ways to mitigate the impact of the European Union's stricter emissions targets, although analysts say all options are likely to come at a significant cost.

The prospect of steep fines for failing to comply with the bloc's new emissions standards has sparked a heated debate within the car industry, particularly given that the sector is currently not on track to achieve this year's goal.

A perfect storm of challenges on the road to full electrification ensured major original equipment manufacturers (OEMs) endured a torrid time in 2024 — and few expect 2025 to be much better.

The European Union's cap on average emissions from new vehicles sales falls to 93.6 grams of carbon dioxide per kilometer (g/km) in 2025, reflecting a 15% decrease from a 2021 baseline of 110.1 g/km.

Exceeding those limits — which were agreed in 2019 and form part of the 27-nation bloc's ambition to reach climate neutrality by 2050 — can result in fines amounting to several billion euros.

"Everyone is in the dark around this question," Rico Luman, senior sector economist for transport and logistics at Dutch bank ING, told CNBC via video call.

"It is such a big deal because they are still struggling to make the shift and to restructure, as we have seen with all that is ongoing at VW over the last couple of weeks and months while adjusting the organization to the new world," Luman said.

"There is a long-term interest in terms of keeping up with competitors. I mean, the direction of travel is pretty clear. So, in the end, they will need to achieve it, but in the short run, it's not that attractive for them because it hurts them in many ways," he added.

Most of Europe's top car giants are currently far from reaching the EU's new