New regulations in several countries could soon drive up the price of affordable cars to the point where they are no longer economically viable to produce.
Thomas Schäfer, the CEO of Volkswagen, recently commented on the upcoming EU7 emission restrictions that are set to take effect in Europe from 1 July 2025 and how it will change how the company proceeds going forward.
While estimations by the European Commission show that the new regulations would only increase the asking price of a new car by up to 304 euros (R5,500), Schäfer warned that the reality could be far different.
The reason for this is that several existing cars, especially smaller-engine models in the more affordable sector such as the VW Polo, would need to undergo a significant redesign in order to comply with the new restrictions.
These costs would likely entail the inclusion of mild-hybrid technology, as well as fitting new, stricter safety systems, and the end result is that many of the more affordable cars on the market could go up by anywhere from 3,000 euros (R54,500) to 5,000 euros (R91,000).
As such, Schäfer warned that there may be “no point carrying on” with small internal combustion engine (ICE) autos, as the price hike would likely make the segment unaffordable to the people shopping in it.
While VW is still assessing the impact of EU7 on car prices, the CEO stated that if its current estimations are proven to be true, then it will cease investing in ICE and will instead continue to explore its plans for electrification.
What this means for South Africa
It’s no secret that cars are very expensive in South Africa, with even the average hatchback asking for anywhere from R200,000 to R400,000 these days.
Vehicle prices have increased dramatically in the last few years owing to several factors ranging from the Covid-19 pandemic and related supply chain issues, to alarming inflation rates affecting many countries around the world.
The rise in the cost of new models has also led to similar price hikes on the pre-owned market as a result of widespread demand from local motorists seeking more affordable options.
Now, the changing vehicle climate in Europe could soon have a knock-on effect on car production around the world, which could limit the types of cars most South Africans are able to afford in addition to which models are brought into the country to begin with.
The EU7 regulations mean that several carmakers are now looking to accelerate their plans to shift towards new-energy platforms, particularly on their cheaper offerings, which could either result in dramatically-increased retail prices or the cancellation of specific ranges altogether.
VW has already stated it is considering ending sales of the Polo in Europe, and earlier this year Ford discontinued its Figo and Fiesta hatchbacks in South Africa.
Stellantis, the automotive corporation comprising Abarth, Alfa Romeo, Citroen, Fiat, Jeep, Opel, and Peugeot, is set to go 100% electric in Europe by 2030, and already offers battery-electric (BEV) versions of certain models, such as the Peugeot e-208 and Fiat 500-e, with further units like an Opel Corsa-e scheduled to release in 2024.
Given that electric cars are far more expensive compared to their ICE counterparts, particularly in South Africa where there are no government incentives for purchasing an EV and import tax on these vehicles is 7% higher than for ICEs, it’s possible that the country could soon find itself in a position where many affordable cars, especially imported ones, are either discontinued or fitted with new technology to comply with regulations that could raise the price by tens, if not hundreds of thousands of rands.
Keyword: Why the future is not looking good for affordable cars