Ongoing COVID Sales Uncertainty in Europe, While Focus Turns to Opportunity for Green Recovery in the European Auto Industry

Foley & Lardner LLP

Foley & Lardner LLPLike much of the rest of the world, Europe continues to grapple with the coronavirus pandemic. This is true in the auto industry, which saw a surprise pop in September, followed by a drop in October as a new wave of cases started rising across the continent. However, the world is eyeing the post-pandemic future, with vaccines on the horizon and an economic recovery. And many are hoping that recovery, which dovetails with tighter emissions restrictions and new green finance rules in Europe, will be a boon for the green economy.

First, the bad news. Europe’s auto sales have tracked similar trends in other parts of the world.  In October, European countries began seeing a rise in cases and renewed restrictions. As the restrictions went into place, October new car sales fell 7% year over year.  Spain had the steepest slump, with 21% fewer sales year over year. Year to date, new car registrations fell nearly 27% in Europe. European analysts predict a 25% drop this year in overall sales, steeper than originally projected in the pandemic.

But as the world hopes to see the light at the end of the tunnel, the post-pandemic recovery is taking shape. Many around the world have pushed for stimulus measures, new rules, and a recovery focused on environmental impacts—a “green” recovery. The Carbon Brief put together a comprehensive tracker for these proposals throughout the world. Leaders in the auto industry have likewise spoken up in support of investment in a green recovery.

In Europe, the recovery will be coming at a time the auto industry is slated to see new restrictions on financing when the European Commission implements green finance rules at the end of 2021. Under the rules, “sustainable” investments may only maintain that marketing designation if they make a “substantial contribution” to combating (or adapting to) climate change. Under proposed rules recently unveiled by the European Commission, cars must emit less than 50g of carbon dioxide per kilometer to qualify as sustainable investments. Even stricter regulations would come into effect in 2026—when only zero emissions cars would qualify.

Some in the auto industry have sounded the alarm that the proposed green finance rules could delay or hamper financing in the industry when it will need it most.  The European Automobile Manufacturers Association is concerned the proposed regulations could erect obstacles to financing when the industry will need additional funding. However, the association supports investments needed by the auto industry to meet tightening emissions limits, such as a network of charging points.  Depending upon those incentive and investment measures, this could provide an opportunity to help the automakers achieve zero emissions goals set out by the European Commission, and stimulate the economic recovery.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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