2019 Key finding

The automotive industry is in the slow lane

All but one of the companies assessed realise over 90% of their sales from high emission vehicles. They need to set targets and plan the transition to low-carbon models.

Two crucial elements required for the automotive industry’s successful transition to a low-carbon economy are target-setting and low-carbon transition planning. The industry’s largest share of greenhouse gas emissions comes from conventional internal combustion engine vehicles’ fleet emissions – those emitted from cars while they are in use. However, these high-emitting vehicles still represent the vast majority of auto manufacturers’ sales. By establishing ambitious and timebound emissions reduction targets specifically aimed at reducing their fleet emissions, companies could better plan their own transition towards a low-carbon economy, as well as help decarbonise the industry and ultimately limit global warming to well below 2 degrees Celsius, as per the Paris Agreement.

However, most companies in the assessment do not perform well on either target-setting or low-carbon transition planning. Of the 25 companies assessed, 20 have either not set any fleet emissions reduction targets or have not set targets in a way that aligns with the low-carbon pathway – one that leads to a well below 2 degree outcome. Only 4 of the 25 companies – Groupe PSA, Ford, Renault and Mazda – have established fleet targets that are fully aligned with the pathway required for the low-carbon transition. Moreover, the time horizons for the fleet targets are often too limited to successfully drive medium and long-term decarbonisation actions. Only Mazda and Nissan have set long-term fleet targets that reach as far as 2050.

After setting targets to overhaul their high-emitting fleets, auto manufacturers need to map out their strategic repositioning. Establishing a low-carbon transition plan demonstrates a company’s commitment to decarbonisation and helps it prepare for a low-carbon economy. Ideally, a company’s low-carbon transition plan and business strategy are aligned, if not fully integrated. Groupe PSA is the only company in the assessment that has embedded its fleet emissions reduction targets into a publicly available low-carbon transition plan.

For all companies in the assessment, with the exception of Tesla, vehicles primarily using a fossil fuel internal combustion engine represent more than 90 percent of sales. For 16 of the companies, such vehicles represent over 99 percent of their sales. The Chinese companies included in the assessment are mapping out comprehensive strategies for increasing their low-carbon vehicle sales, as set out by national regulations. Since 2013, the Chinese government has been providing subsidies for the manufacturing of low-carbon – or ‘new energy’ – vehicles. BAIC and FAW have greatly benefited from this policy, which is evident from their higher shares of overall vehicles sales that come from low-carbon vehicles. Though many of the companies in the assessment aim to increase their number of electric vehicle models, a stronger commitment to electrification is required to align with the industry’s low-carbon pathway.

Companies must shift gears on scenario analysis.

Scenario analysis and stress testing are important tools to plan a company’s transition to a low-carbon economy. These tools have particular importance for auto manufacturers, who are likely to be considerably affected by this transition. Even where fleet targets are ambitious, a company may still struggle to meet them. Setting comprehensive targets and establishing a low-carbon transition plan that applies scenario analysis are important signals to build confidence among investors and other stakeholders that a company can succeed in a low-carbon economy.

Many of the companies in the assessment show an awareness of scenario analysis, with 12 companies reporting that they test their fleet targets against a climate change mitigation scenario with a 2 degree outcome. However, few of the companies have taken these scenario analyses beyond target setting, using the outcomes to account for shocks and stressors to safeguard their current and future business activities. For 14 of the 25 companies, there was not enough evidence to determine whether they practice low-carbon stress testing.

Transition planning and scenario analysis are still in the early stages among the automotive industry. As a result, companies in the industry have yet to instil high levels of confidence regarding their successful transition to a low-carbon economy.

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