The ban on the production of cars with internal combustion engines: when will it happen and how will it affect the market?

Members of the European Parliament from the Environmental Protection Committee propose a ban on the sale of new cars and minibuses with internal combustion engines in 2035. 28 well-known companies, including Ford and Volvo, appealed to the EU authorities with a request to adopt relevant laws that would oblige all new vehicles to have "zero" emissions. How this decision will affect the Ukrainian car market was determined by the experts of the Institute of Car Market Research.

Position of the European Parliament

On July 14, 2021, the European Commission presented a draft law proposing to oblige automakers to reduce average CO2 emissions from new cars and vans by 100 percent from 2035, compared to 2021. That is, to actually stop the production of cars with internal combustion engines.

The European Parliamentʼs Environment, Public Health and Food Safety (ENVI) committee this spring backed a position to amend CO2 emissions standards for new passenger cars and vans in the European Union. Deputies expressed their support for the European Commissionʼs proposal to achieve mobility with "zero" emissions in 2035. This is another step towards a de facto complete ban on the sale of internal combustion vehicles on the EU market and their replacement by electric vehicles.

The committeeʼs report should be adopted during the June plenary session and will become the position of the European Parliament in negotiations with EU governments regarding the final version of European legislation regulating the production of new cars. Finally, the law banning the manufacture of cars with internal combustion engines in the EU should be adopted in the fall.

The position of car manufacturers

28 companies have asked the European Union authorities to ensure that from 2035 all new cars and minibuses sold in Europe meet the "zero" emissions standard. Including Ford and Volvo. The signatories of the petition also call for the expansion of charging infrastructure for electric vehicles in Europe.

" At Ford of Europe, we believe that freedom of movement goes hand in hand with caring for our planet and each other. Thus, by 2035, all Ford vehicles will be zero-emissions. To successfully achieve this goal, EU legislators must also establish mandatory national goals for an efficient charging infrastructure to meet the growing demand for electric vehicles, " said Stuart Rowley, president of Ford of Europe.

In a letter sent to EU lawmakers, the signatories stress that reducing the number of diesel cars on the road is essential for Europe to reach its "zero" emissions target by 2050. A road map for car manufacturers and dealers should facilitate the transition of the market to electric cars.

Volvo plans to become a fully "electric car" company by 2030 and supports the end of sales of diesel cars in Europe by 2035. " The window through which we can avoid the worst effects of global warming is fast closing. At this critical moment, it is time for the EU to reaffirm its leadership in climate action ," says Jim Rowan, CEO of Volvo Cars.

Cars with internal combustion engines will not disappear immediately

It is obvious that electric cars are the future of the global automotive industry, the experts of the Institute of Car Market Research are convinced. However, we are talking about banning the production of cars with internal combustion engines. Classic petrol and diesel used cars will remain on the roads of the European Union and represent a significant part of the market for a long time to come.

However, their use may be limited at the local level, as, for example, in Germany, where depending on the "Euro" environmental class, entry to certain areas of populated areas is restricted. This will create inconvenience and contribute to the desire to replace such cars with more environmentally friendly ones. This is already happening with old diesel cars in Germany, the demand for which is significantly decreasing. Which in turn leads to lower prices for such cars in the country.

However, since the car market of the European Union is a large single economic zone, there are buyers for these cars from other European countries, where there are no strict environmental restrictions on the use of vehicles. For example, in Poland, the Czech Republic, Lithuania and Slovakia. Therefore, we should not expect a sharp collapse of car prices after the adoption of a ban on the manufacture of new cars with internal combustion engines.

The replacement of "classic" vehicles with electric vehicles in the EU will take place gradually, as the resource of internal combustion engines is naturally depleted, and they will be decommissioned or sold for export to third countries.

The process can be accelerated by local restrictions on the movement of cars with internal combustion engines in countries in combination with state programs of incentives and assistance in the purchase of new electric cars — affordable credit, compensations, other financial "bonuses" in the form of free parking, use of roads, etc. However, this directly depends on the level of economic development of each country and the purchasing power of the population. It is these factors that are decisive in the global transition to electric cars, the experts of the Institute of Car Market Research are sure.

How will it affect the Ukrainian car market

Although Ukraine is moving in the direction of joining the European Union, the implementation of the decisions of the European Parliament is not mandatory before the acquisition of membership. However, it will become so immediately after Ukraine is admitted to the EU. Therefore, most likely, in the case of the adoption of a relevant decision, the production of new cars with internal combustion engines in our country will also be prohibited from 2035.

Since there is no production of full-cycle cars in Ukraine, but only SKD (large-node assembly), the number of "Ukrainian" cars according to the results of 2021 was minimal, and the fate of many enterprises is under big question, "electric mobility" will affect importers and dealers of new cars the most. However, there will be no big changes in their activities — they will simply sell electric cars instead of cars with internal combustion engines.

The biggest obstacle in the "electric mobilization" of Ukraine is the low purchasing power of our citizens. According to statistics, the share of new cars in 2021 in the total number of car sales on the Ukrainian car market was only 6% (100 thousand units). After the start of the full-scale invasion of Russia, sales decreased tenfold. Instead, used cars worth up to $10,000 are in the greatest demand.

Used electric cars, the price of which, according to AUTO.RIA, starts at $5,000, cannot replace cars with internal combustion engines due to low mileage. The cheapest new electric car in Ukraine on the same resource costs $27,000.

In order to increase sales of electric cars, it is necessary not only to lower the cost of a new electric car, but also to grow the economy, increase the purchasing power of Ukrainians, as well as available financial lending and leasing programs. After all, Ukrainians will not get more money from the bans.

The infrastructure of electric charging stations is also an important factor. Electric cars will not be able to fully replace cars with internal combustion engines until their number is sufficient, and the charging process does not cause inconvenience and does not require a lot of time. A significant part of buyers, even if they have the means, choosing between a car with an internal combustion engine and an electric car, will give preference to classic cars, despite the remaining factors.

Therefore, on the one hand, banning the manufacture of new cars with internal combustion engines will partially contribute to the increase in the import of used cars with internal combustion engines to Ukraine, which will become cheaper abroad. On the other hand, the increase in the number of new electric cars in the EU will help to make them cheaper and increase their number on the secondary market. That is, used electric cars will become cheaper, and their range will increase as a result of technical improvements.

Mass transition to electric cars, and not only in Ukraine, is possible under the condition of a combination of a whole set of factors: an increase in the price of fuel, the development of the infrastructure of charging stations, a decrease in the price of electric cars and an expansion of the assortment, an increase in the purchasing power of citizens and the availability of financing programs. And also — improving the technical characteristics of the cars with an electric motor, namely — reducing the charging time and increasing the battery capacity. In the meantime, taking into account the realities of the next decade, it is necessary to replenish the Ukrainian car fleet with any cars, because the level of car ownership is twice as low as in the EU: we have 250 cars against 600+ in Europe.