Project portfolio planning under CO2 fleet emission restrictions in the automotive industry

Abstract

AbstractThis paper aims to identify financially and environmentally promising project portfolio decisions under CO2 fleet emission restrictions in the automotive industry. These decisions are particularly difficult due to uncertain demand, ever‐stricter CO2 fleet emission thresholds, and an increasing number of alternative powertrain technologies that can be integrated into different vehicle projects with high project‐specific investments and long product life cycles. We develop a mixed‐integer linear programming model that maximizes the net present value of car manufacturers’ project portfolios, so‐called cycle plans, by selecting specific vehicle projects and by determining the respective production quantities to comply with the given thresholds for the CO2 fleet emissions. By applying the model to an illustrative European car manufacturer, promising cycle plan decisions are determined and analyzed across six market demand scenarios. The results reveal that compliance with the European emission thresholds until 2035 is generally possible if electric vehicle demand gains momentum, but threshold exceedance and corresponding penalty payments can be financially advantageous in some situations. Long‐term compliance with CO2 regulation and financial success is supported by the fast market introduction of battery electric vehicles and the preparation of fuel cell electric vehicles for a later market introduction in large‐sized vehicles.