By William Boston 

Auto makers in Europe eager to boost sales of their electric vehicles have a new strategy: Demanding higher taxes on conventional vehicles that burn gas and diesel fuel.

The top executives at several car and truck makers are calling on European governments to introduce the new taxes on carbon-dioxide emissions from gasoline- and diesel-powered cars and trucks as a way to help their EVs better compete. They say the levies should take the form of highway tolls or higher fuel taxes.

"We need to tax carbon at the pump," Markus Duesmann, chief executive of Audi AG, said in an interview.

Traditional auto makers face a dilemma. The bulk of their business is still building and selling cars with internal-combustion engines -- including family cars, big sport-utility vehicles and sports cars. Raising fuel taxes could hurt sales of those vehicles. But unless EVs can compete on price with conventional cars, it will be hard for auto makers to lure customers to them and recoup the vast investments manufacturers have made in the technology.

One avenue for the tax hikes is through carbon pricing -- a dollar price on carbon emissions that sets a base for levies and taxes on emissions -- which is one of the tools governments have deployed to fight greenhouse-gas emissions. Higher carbon pricing ultimately leads to higher prices for fossil fuels.

Herbert Diess, chief executive of Volkswagen AG, which owns Audi, has been calling for higher carbon-dioxide emissions for some time. He says the EUR25 price (about $29) Germany sets per ton of carbon emissions is too low and suggests Germany should price carbon more in line with Sweden, which sets the price at EUR100.

Taxing emissions from polluting vehicles, he and other executives say, would help ensure electric vehicles remain attractive for buyers after the expiration of subsidies that are now sustaining sales.

Germany's main automotive lobby, meanwhile, has called on the European Union to provide tax exemptions for vehicles that run on biofuels and EVs -- another way to use the tax system to nudge consumers toward low- and zero-emissions vehicles.

Particularly vocal in seeking an overhaul of fuel taxes have been European truck makers who are investing billions of euros in developing a new generation of battery electric and hydrogen-powered trucks and vans.

In December, the CEOs of Daimler Truck, MAN, Scania, DAF, Volvo and Ford's European truck unit published a joint appeal calling on European leaders to end support for diesel fuel. As long as the costs for operating diesel trucks don't reflect the full cost of carbon emissions, they will remain less expensive to operate than electric vehicles and discourage freight companies from switching, the executives said.

The truck companies called on the EU to include road transport in the bloc's emissions-trading system, base all tolls and fuel taxes in the future on CO2 emissions and to tax energy based on its carbon content.

Daimler Truck Chief Executive Martin Daum said that the best way to create a level playing field for electric and diesel trucks in long-haul freight would be to exempt electric trucks from road tolls while raising tolls on diesel trucks to reflect the cost of the impact of their carbon emissions.

"We need cost parity between hydrogen and diesel trucks," Mr. Daum said. "You have to switch to [charging for] CO2 and then you can play around with the rate."

The auto makers' push comes as the European Union is preparing to beef up its anti-emission rules. New EU rules to be proposed this summer are expected to restrict emissions for a swath of industries. A further reduction in greenhouse-gas emissions from passenger cars, trucks, buses, airplanes and other forms of transport is a central part of the bloc's emissions-reduction strategy.

The notion of using fuel taxes to spur a transition to EVs is unlikely to gain traction in the U.S. This month, President Biden rejected calls from the U.S. Chamber of Commerce to increase gasoline taxes instead of raising corporate taxes to help pay for his $2.3 trillion infrastructure plan, which includes a shift to alternative energy and support for EVs.

The Biden administration said raising fuel taxes would unfairly burden low-income households. Mr. Biden's plan also calls for replacing fossil-fuel tax subsidies with electric-vehicle incentives.

Calls for higher fuel taxes are surprising to some, considering that the industry still generates most of its revenues and profits from conventional cars. EVs remain a small part of the market for most car makers and make up less than 1% of sales for European truck makers. The most profitable consumer cars on the market are SUVs and high-end sedans, which could be threatened if fuel taxes rise too much.

Auto executives say those profitable vehicles would continue to generate the money they need to invest to develop electric vehicles. Daimler CEO Ola Källenius in March called the company's legacy business the "cash machine" that is financing the future.

In Europe, the fastest-growing SUV segment is that of smaller and more fuel-efficient SUVs. And European auto makers are rolling out electric and hybrid versions of their SUVs and high-end sedans. This week, Audi launched its Q4 e-tron, a fully electric SUV, and Mercedes-Benz rolled out its EQS, the all-electric version of its flagship S-class sedan.

Markus Schäfer, a Daimler board member in charge of technology, said the new sedan wouldn't be as profitable as its gas-burning cousin. But the company's EV margins were sufficient and would increase as the company drove down costs, he added.

"We will have a good starting point with profit margins," Mr. Schäfer told reporters on a call ahead of the EQS launch. "We believe the future is electric and aren't clinging to the past. We will work on getting the fixed costs down."

Some environmental lobbyists say auto executives want higher fuel taxes -- instead of, say, more onerous CO2 emission standards -- because they want consumers to foot the bill for the transition to EVs.

William Todts, an analyst with the Brussels-based environmental lobby group Transport & Environment, said fuel taxes might not be the best instrument to persuade consumers to switch to EVs.

To be effective, the taxes would have to be painfully high, and that could lead to a backlash among consumers -- like the yellow-vest protests in France in 2018 that were sparked by rising fuel prices, he said.

"The thing about setting emissions targets on the auto industry is that it works," he said. "Look at the impact on EV sales last year, they exploded."

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

April 16, 2021 07:14 ET (11:14 GMT)