It can be very hard being a CEO. In a company the size of BMW, harder than anything I have experienced. But does it explain a failure to “read the room”, or is there a degree of climate denial required?
This week there are headlines such as from Top Gear: BMW boss: July 2025 target for Euro 7 standard “entirely unfeasible” as Oliver Zipse complains about new rules for new fossil fuelled vehicles introduced from 2025.
Note that vehicles certified as compliant prior to 2025 remain compliant after 2025, and the rules do not “sunset” all previously issued compliances, so vehicles already on sale, can remain on sale, which is the normal nature of compliance rules. This is in contrast with the European effective ban on fossil-fuelled vehicles from 2035, which, if I understand correctly, means vehicles certified for sale prior to 2035 with CO2 emissions can only be sold up until 2035, which is why the for a ban that prohibit future sales provides an addition 10-year notice period compared to a rule for vehicle compliance.
It is also very likely why Euro 7 standards focus heavily on EVs, with requirements for battery life, brake system emissions and other factors less significant relative to combustion emissions. This would mean fossil fuelled vehicles introduced under Euro 7 would only be able to remain on sale for 10 years.
Given the normal 7-year model life required for a vehicle to be cost competitive with rivals, it would start to become difficult to introduce any new ICE vehicles in Europe after 2028, as vehicles introduce after 2028 would only have a reduced number of years on the market before the ban, most like resulting in reduced sales. Reduced total sales means design, certification, and production set up cost must be amortised over less vehicles, increasing cost per vehicle.
Most European brands are desperately scrambling to transition to EVs, and BMW is one of the few appearing to try and delay the process as long as possible.
How different brands responded.
Mercedes.
Rival Mercedes introduced what it declared to be its last new ICE vehicle in 2023, and already plans to introduce no more new ICE vehicles at all, so to Mercedes, only the EV compliance part of Euro 7 matters to Mercedes.
Stellantis.
“From an industry perspective, we don’t need EU7, as it will be drawing resources we should be spending on electrification. Spending money developing more one step for internal combustion for a 2028 enforcement… it doesn’t make sense. Why use scarce resources for something for a short period of time? The industry doesn’t need it, and it’s counterproductive”
Here’s Why Stellantis Boss Thinks Euro7 Emission Standards Should Be Dropped
BMW: failure to read the room?
BMW is already on record as seeming to prefer hydrogen to EVs, and looking to stall the EV transition, while interestingly still releasing some quite good EV products. One possible interpretation of the mixed messages is that BMW is doing all it can to transition to EVs but is not ready to take the share price hit that would follow from writing off assets related to internal combustion engines. BWM sales in China, which have been around 40% of their global sales, are under serious threat, from the rapid transition in China, and the impact from that on the share price is already enough to manage.
The question becomes, which will have the greatest negative impact:
- Promoting a full push into EVs and dealing with the implications on the internal combustion asset portfolio.
- Defending the asset portfolio with a stance that “ICE could still have many years yet”, but risk backlash from investors for lobbying against progress and a weak position on climate change and the future?
The statements by Zipse come within one month of Toyota facing a backlash from major asset manager shareholders pushing for more transparency on anti-climate lobbying and more progress with EVs and just over one month after the IPCC sixth report was released.
This is also within the same week the world meteorological organisation announced it was most likely the Earth would reach +1.5°C within the next few years, and in the same week the floods in Italy linked to climate change have created a disaster that has meant the Italian Formula One grand prix had to be cancelled. Grand Prix events have been cancelled 5 times before, but because of war, Covid-19, and the Arab spring uprising, but never before due to a natural disaster.
Share price & profitability: Is climate denial a requirement?
Boards and senior management have an obligation to pursue maximum profitability and share price on behalf of shareholders. Of course, in this pursuit they must obey the law and be honest. Lobbying for what the law should be is not illegal or dishonest, and as long as the law does not require the transition away from fossil fuels, then profitability and the share price is best protected by ensuring the law will not require the transition allowing potentially “stranded assets” of combustion engine designs and manufacturing facilities to avoid write-downs that would immediately hit profitability and the balance sheet.
The risk is that as events such as the floods in Germany in 2021 and now in Italy in 2023, the pressure on legislators in Europe and globally to stop heeding lobbying to stall climate action is only going to increase.
