8/13/2019

Renault’s Dacia Unit Faces Steep Emission Costs

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The costs of meeting the European Union’s tightening emission rules may soon dry up profits for Renault SA’s popular Dacia low-price brand.

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The costs of meeting the European Union’s tightening emission rules may soon dry up profits for Renault SA’s popular Dacia low-price brand, according to Bloomberg News.

EU rules will cut allowable carbon dioxide emissions for each carmaker to 95 grams per kilometer in 2021 from 120 g/km today. Even more stringent targets loom later in the decade. Failure to satisfy the requirements could result in fines of hundreds of millions of euros.

Dacia’s lowest-priced model sells for about €8,000 ($9,000) in Europe. Last year, the company’s sales rose 7%, as demand for Renault-brand cars fell 5%.

Analysts estimate that Dacia’s operating margin is greater than 10%, beating such high-end brands as BMW and Mercedes-Benz. But the unit offers no hybrid or all-electric models to help it meet the tighter EU standards.

Now, Bloomberg says, the company faces a tough choice: spend more to develop cleaner models or spend more to buy emission credits from carmakers that beat the standards.