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Home›Volkswagen Electric›Car manufacturers need to balance green power with economic growth

Car manufacturers need to balance green power with economic growth

By Raymond J. Nowicki
June 14, 2021
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OEMs in Europe need to find ways to accelerate electrification efforts while remaining profitable, writes Felipe Munoz

The shift towards green forms of mobility was accompanied by a multitude of discussions and analyzes about how society should move away from fossil fuels. As environmental issues increase on global government agendas and politics are increasingly influenced by the global energy transition, the automotive industry is breaking new ground.

During the past century, global transport has been largely dominated by the internal combustion engine (internal combustion engine), and while it fueled economic development around the world, that formula is now more of a threat than a solution. Research has turned to the ways in which green alternatives can be used and the challenges facing the automotive industry in doing so.

Europe’s commitment to go green

The strict CO2 emissions regulation imposed by the European Commission is helping Europe become a stronghold for new green technologies. While Japan is pursuing a hybridization strategy, the US only recently reaffirmed its commitment to moving to low-carbon alternatives. Europe, on the other hand, has decided to follow the Chinese example of full electrification to reduce emissions. As a result, OEMs operating in Europe have changed their offerings significantly and placed electric vehicles at the forefront of their sales strategies.

Pure hybrids have helped Toyota achieve the lowest average emissions in Europe

With many electric, plug-in hybrid and hybrid models available, what is on offer for consumers in Europe is undoubtedly more environmentally friendly than it was ten years ago. While factors such as production processes, power generation and battery life cycle must be considered to understand the impact of moving to electric vehicles, the picture is encouraging.

Despite the growing popularity of SUVs – which are on average 18% heavier and generally more polluting than conventional models – the average CO2 emissions of a new car in Europe are 24% lower than ten years ago. In fact, in 2020 the European automotive industry had the lowest average emissions since 2007, when JATO first started collecting emissions data.

Toyota keeps the lead

Automakers who have effectively reduced their vehicles’ emissions are generally following similar strategies, either focusing on sales of low-emission models (including hybrids) or prioritizing small cars in their product lines.

Pure hybrids have continued to help Toyota maintain its leading position as the OEM with the lowest average emissions in Europe. Two out of three of the Toyota registered cars were powered by a hybrid engine that produced an average of just 89.5 g CO2 / km. The bet on hybrids pays off and, unlike its competitors, is not as expensive to implement as other electrification plans. This can also be seen in PSA (before Stellantis came about) which, due to its focus on more efficient gasoline engines, averages 97.8 g / km – only 0.3 g / km higher than Toyota – and a higher proportion of plug-in hybrids and pure electric cars.

OEMs use all viable alternatives to reduce emissions from their fleets

Other automobile manufacturers such as the three German OEMs – VW Group, Daimler and BMW Group – produce higher emissions due to their product mix. They sell a number of large sedans and SUVs, so they are moving quickly to bring more electric cars to market. The Volkswagen Group now offers 11 different electric models, the largest range of all automobile manufacturers.

Supercredit and green SUVs keep Europe on course

The huge drop in average emissions between 2019 and 2020 cannot be linked to the pandemic and its impact on demand alone. Rather, OEMs use all practicable alternatives to reduce the emissions of their fleets.

One powerful way is the European Commission’s supercredit policy. Through associations, so-called pools, brands that are ahead of emission targets or produce zero-emission cars (or those with emissions below 50 g / km) have their vehicles counted several times. This makes their calculation of the specific average emissions appear more favorable.

OEMs are also pushing to sell their recently launched low-emission cars, but according to research by JATO Dynamics, 71% of PHEV approvals in Q1 2021 were made by companies / fleets, including self-registrations. In other words, only 29% of PHEV approvals were made by private (retail) buyers, compared to 42% for cars with internal combustion engines.

Ford Edge SUV
SUVs remain a very popular segment. These large, heavy vehicles have been associated with high emissions in the past

Another important factor is the positive development of SUVs. These vehicles were developed to be large and robust and were previously considered expensive. Today, their popularity is based on an attractive design, a wide range of models and an elevated seating position. The average price of an SUV is 31% higher than the selling price of a conventional car such as a hatchback, sedan or city car, yet they make up around 40% of registrations.

Fortunately for the industry, CO2 emissions from SUVs continue to decrease due to the introduction of new powertrains and the introduction of smaller models. Their average was 114.7 g / km in 2020 compared to 130.9 g / km in the previous year. This means that they recorded the greatest decline of all segments, although their average of 96.9 g / km is still higher than that of normal cars.

Greener Cars at the Cost of Volume?

The European automotive industry faces a dilemma: how to balance clean mobility with economic growth. People have the right to clean air and access to quality jobs, and as emissions regulations tighten, some OEMs operating in Europe need to find ways to accelerate their electrification efforts while ensuring they remain profitable.

Automakers are pushing more electric models into the market, but they still see most of their volume in diesel and gasoline cars. Many cars are now also available with ICE and BEV options. For example, the Hyundai Kona is offered with gasoline, diesel or electric drive, as well as models such as Fiat 500, Peugeot 208, Opel Corsa and many others. On average, the electric versions made up 18% of the total registrations of these models – the highest proportion to date. However, this shows that many consumers still cannot afford these BEV versions and choose the ICE option instead.

The proportion of BEVs should continue to grow, but at current prices these cars have not yet reached the sales level of ICE vehicles. Prices should go down as battery costs go down, but the question is: Will the current OEM cost structures remain the same until we see cost parity between ICE and BEV models? And will factories continue to operate if the quantities drop sharply?


About the author: Felipe Munoz is a Senior Analyst at JATO Dynamics



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