Market Comment: Twists and turns on the road to electric vehicles

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There are twists and turns on the road to more environmentally friendly cars. As ABN AMRO sustainability expert, Esther van Munster, points out, not every electric car is “green” and newer diesel engines can be seen as ‘cleaner’ than gasoline, as they emit less carbon dioxide. In the end, however, consumer preference for greener solutions will prevail.

The tide is turning for diesel and gasoline-engine cars in favour of electric vehicles, as more manufacturers announce plans to reduce or eliminate diesel and, even gasoline, engine cars from production. But, according to Van Munster not all electric cars are running on “green” electricity and they still account for only a small portion of new car sales.

Van Munster notes that consumers think that electric cars are more environmentally friendly, but it really depends on the source of the electricity at vehicle charging stations. “If the electricity is coming from a fossil-fuelled power plant, then the pollution is not eliminated – just moved further away from the driver.” And, while there were fewer new diesel vehicles registered in 2017 in Europe, they can sometimes have lower carbon-dioxide emissions than gasoline-powered cars. But in general, they also release more particulate matter, which pollutes the environment via a mixture of solid and/or liquid particles suspended in the air. Carbon-dioxide emissions, however, are more frequently targeted by government pollution reduction initiatives.

New generation diesel engines, dubbed “clean diesel” are also not a likely first choice among environmentally-conscious consumers. “The diesel scandal of three years ago had a negative effect for diesel engines – not just on the environment – but also on the perception of diesel as a fuel source,” says Van Munster. “As of 2017, diesel is no longer the number one fuel choice in Europe – a position it gained in 2003.”

According to industry research company Jato, new registrations of diesel cars fell by 8% in Europe in 2017. Gasoline-fuelled car registrations rose by 11%, with an increase in market share to 50%, which put it in the number-one spot in terms of market share. While alternative fuel vehicles saw gains, the number sold in Europe remains at low levels. Alternative-fuel vehicle registrations reached around 740,000 in 2017, which represents a market share of just 5%. 

Lower emissions with clean diesel

“After ‘diesel-gate,’ consumers are distrustful of the claims of cleaner diesel engines,” says Van Munster. And diesel-gate continues to generate headlines. Last week, Volkswagen was fined EUR 1 billion in Germany (after a US fine of EUR 3.6 billion last year) and the CEO of its Audi branch was arrested for his role in the emissions scandal.

Distrust of diesel and its involvement at the centre of the diesel scandal, however, has not stopped Volkswagen, from believing that a comeback of sorts is possible for diesel vehicles in Europe. Volkswagen, which is Europe’s largest car manufacturer, appears to see cleaner diesel engines as the means to meet stricter carbon-dioxide emission standards in the time before electric vehicles become more widely accepted.

It is not a widely shared stance in Europe’s auto industry. “Unlike other manufacturers, such as Toyota and Fiat Chrysler, which plan to discontinue diesel-engines, Volkswagen believes clean diesel still has a role to play,” notes Van Munster. Toyota and Fiat Chrysler, for example, plan to discontinue diesel-engine production. Toyota in 2018 in Europe and Fiat Chrysler by 2022. Volkswagen itself has committed EUR 60 billion to battery and electric vehicle developments, which is likely an indicator of its longer-term goals. In the meantime, as German cities begin to ban diesel from city limits, Volkswagen has introduced an incentive programme to shift drivers of older diesel models to cleaner diesel alternatives.

Period of transition

“We are clearly in a period of transition toward more environmentally-friendly vehicles,” notes Van Munster. “This is evidenced  by the increasing technology investments in electric vehicles by the major car manufacturers and the rise of disruptors, such as Tesla.” Van Munster concludes that “in the end, the choice between diesel, gas or electric autos will be decided by consumers and regulators – and their preferences are already shifting toward vehicles using cleaner energy.”