CO2 Compliance: The High-Stakes Game for Europe’s Car Industry

• The European passenger car market is undergoing a strong shift in fuel types towards hybrids and battery electric cars.
• Electrification has accelerated substantially since January 2025, but it is still not sufficient to reach the ambitious emissions targets set by the EU CAFE rules.
• Despite that, Renault, BMW, Kia, and Toyota are some of the brands already on track for CO₂ compliance.
• By the end of 2027, the adjusted EU ruleset requires a BEV penetration of approximately 35% to compensate for excess emissions accumulated right now.

Introduction

In August 2024, Dataforce has highlighted the challenges and possible strategies for the European Automotive industry from the EU CO₂-regulation (CAFE). Since then, an intense discussion took place, with, on the one hand, a partial revision of the regulation being passed last Thursday (May 8th, 2025), and on the other hand, significant progress in EV market penetration. In other words, it is about time to look at the current state of play and perform an updated analysis of the implications of CAFÉ regulation.

Editorial Note: Dataforce regularly hosts free webinars focused on CO₂ reduction and the Road to Zero. Don’t miss our next session on June 5^th — click here to register.

Hybrid growth as the dominant trend in 2024

2024 was the last year under the 2021 CO₂ regulation with targets before individual weight adjustment around 116-118 g/km. Electrification showed moderate growth in most countries, but the overall development was negative after BEVs dropped sharply in Germany following the end of government incentives. The one fuel type standing out was full hybrid with an increase of more than 250,000 units in an otherwise stagnating market.

Is 2025 the expected cutoff point for electrification and CO₂-savings?

Looking at the first three months of 2025, the trend has changed completely. Petrol & Diesel registrations are in decline while BEVs are the fastest growing fuel type. The constant is the ongoing growth in full hybrid registrations.

Despite the growth in BEV volume, penetration has increased by just one percentage point when compared to the full year 2024. Admittedly, BEV shares are usually the lowest at the start of the year and rise towards the end of the year, but so far, the BEV growth is only about half of what would have been needed to bring CO₂ emissions in line with 2025 targets.

As of March 2025, CO₂ has decreased to 103 g/km, compared to 109 g/km back in March 2024. While the progress is clearly visible and Jan 2025 has been the expected cutoff point, the target line of 93.6 g/km (indicated as the black dotted line in the Chart) is still at a rather far distance.

The analysis of CO₂ emissions by fuel type indicates that scope for improvement in ICE powertrains is very limited. Only PHEVs are positioned to contribute to CO₂ reductions, thanks to their larger batteries. Ultimately, meaningful reductions in overall emissions can only be achieved through continued electrification. Automakers must accelerate efforts to shift consumer preference toward hybrid and battery electric vehicles (BEVs) over traditional petrol and diesel models.

CO₂ performance by brands

How do these general market trends break down for the individual brands? Here, EU legislation envisages individual targets for each car manufacturer. The basic rule is that brands with heavier cars face tighter targets (quite the opposite to the situation before 2025). In addition, manufacturers with high BEV/PHEV (ZLEV) shares can get up to 5% higher targets.

Comparing average CO₂ emissions by brands to calculated targets based on the EU-ruleset leads to the results shown in the following chart, where the grey bars indicate the situation in 2024 (with 2025 rules), while the green bars show remaining excess emissions in the first three months of 2025.

Compared to 2024, 8 of the top 10 brands could already narrow the gap to their targets. With a 13 g/km reduction, VW made the largest progress, but they are still only about half-way through and will need another 12 g/km reduction. On the other hand, Renault, BMW, Kia and Toyota have already made it to the finish line. Leaving out the OEM-group perspective, all they need to do now is maintain their current level of emissions.

Assessment of EU target flexibilization

However, for most automotive brands, meeting the required 2025 CO₂ reduction targets remains a significant challenge—despite the launch of numerous new models and substantial drops in EV prices, which have brought battery electric vehicles (BEVs) close to price parity with internal combustion engine (ICE) vehicles in the C-segment and above.

The bottom line is that buyers do not switch fast enough and this made the EU’s decision to stretch target compliance over the three-year period from 2025-2027, a necessary adjustment. It also tackles one of the main weaknesses of the EU-regulation: Huge steps down every five years with no progress in between – a challenge that is certain to resurface as the industry approaches the 2030 targets.

From Dataforce perspective, the core issue lies in the EU altering regulations midway through the transition—an action that undermines trust in long-term policy commitments and creates a sense of unpredictability, it is therefore crucial to close all revisions on 2030/2035 as fast as possible and with sufficient time before the tightenings are coming into effect.

Apart from that, the adjusted rules still set an ambitious framework for CO₂ reductions. Automakers cannot take a break. Every gram of excess CO₂ emissions they accumulate now must be compensated with emissions below the current target line.

Dataforce projection tool: Path to 2025-2027 CO₂ compliance

To illustrate this, let’s use two practical examples from Dataforce’s upcoming CO₂ projection tool. Looking at a brand that started into 2025 with average emissions of 107 g/km, the brand would have to reduce its emissions by more than 3 g/km every month, until it finally reaches CO₂ emissions of 78 g/km in December 2025. To put that into perspective, 78 g/km are equivalent to a 35% BEV share. Even if the brand could reach that level, BEV sales would most likely drop again in 2026, resulting in the same back-and-forth movement as seen over 2023/24.

Compared to that, the adjusted rules require an average monthly CO₂ reduction by 0.9 g/km (still ambitious compared to actual data), and lead to the same 78 g/km but this time in December 2027. Electrification will follow a steadier trend, helping to build greater consumer confidence that the market is steadily transitioning toward electrification.

In conclusion, while significant strides have been made in reducing CO₂ emissions and increasing BEV penetration, the journey towards full compliance with EU targets is far from over. Continuous innovation and consumer adoption of electric vehicles will be crucial in achieving these ambitious goals. The automotive industry must remain vigilant and proactive to ensure a sustainable future.

Statement

Benjamin Kibies, Senior Analyst at Dataforce
“January 2025 has become the turning point towards electrification that Dataforce predicted before. Price cuts kicked in from September 2024, right on time to boost deliveries in January 2025. However, despite the substantial progress made, the market is characterised by a certain inertia. Car buyers are only gradually switching to EVs, and the pace would not have been sufficient to avoid penalties based on the current regulations for 2025. Meeting the European CO₂ targets remains a challenging task for the industry, even with the new 2025-2027 averaging. Constant monitoring of the latest Road to Zero KPIs remains a key component to navigate the challenges.”

Methodology

This analysis uses new car registration data from the EU27 plus Iceland and Norway. Average CO₂ emissions are integrated from COC. Special Purpose Vehicle (SPV) registrations such as Mobile Homes or Ambulances are excluded from the data as they are exempt from CO₂ regulation. Dataforce calculates individual CO₂ targets based on the factors in REGULATION 2019/631.

Please find further information at: www.dataforce.de/en/road-to-zero/