Volkswagen scandal fuels fears over ‘death of diesel’
At crisis meetings in boardrooms across Europe, car industry executives have been pondering a chilling thought.
The scenario goes something like this. The Volkswagen scandal leads to greater scrutiny from regulators and tougher emissions tests, making it more expensive to produce “clean” diesel cars in a sector already contending with razor thin profit margins.
Meanwhile, public awareness of harmful diesel pollution rises, prompting consumers to shun the fuel. That adds to existing pressure on carmakers to find alternative technologies — mainly electric — to comply with stringent EU targets to cut carbon dioxide emissions from 2020.
If costs rise, either the car companies pay or the consumers do, says Adam Jonas, analyst at Morgan Stanley. “Given the highly competitive nature of the auto industry, we strongly suspect the consumer will get the better end of the deal,” he adds.
VW’s shares have fallen almost 40 per cent since revelations first emerged on September 18 about the German carmaker’s cheating in diesel vehicle emissions tests in the US. The shares of other European carmakers — BMW, Daimler, PSA Peugeot Citron and Renault — have also declined, albeit less dramatically, highlighting investors’ fears that the VW scandal will speed the decline of diesel.
Some of these companies have invested billions of euros in diesel-powered cars, and pushed up the vehicles’ market share to 53 per cent of western European sales. This partly reflects EU governments’ concerns at how petrol cars generate more carbon dioxide emissions than their diesel equivalents.
But in the wake of the VW scandal, LMC Automotive, an industry forecaster, now foresees diesel accounting for just 35 per cent of western European sales by 2022.
The demonisation of diesel, as it is known in the industry, was already well under way before the VW scandal broke.
Successive reports had shone a light on the harmful effects of nitrogen oxides and particulate matter — the pollutants from diesel vehicles that are known to cause respiratory problems and account for more than 52,000 premature deaths each year in the UK, according to a recent British government report.
Research groups — such as the International Council on Clean Transportation, which helped expose the VW scandal — have highlighted the high levels of nitrogen oxides emitted by diesel cars on the road despite their complying with the latest “Euro 6” regulations in laboratory tests.
The VW scandal has given diesel’s critics new resolve. The European Commission, which was already looking to toughen up an outdated monitoring regime, has been emboldened and will press to enforce new laboratory tests for petrol and diesel cars relating to emissions of both carbon dioxide and nitrogen oxides. There will also be a portable, on the road testing system for emissions of nitrogen oxides by 2017.
The cost for carmakers of using emissions reduction technology to comply with Euro 6 rules is now at as much as €1,300 per car, say analysts at Exane BNP Paribas. That could rise by €200 to €300 per car under new Euro 6c regulations due in 2017, add the analysts.
This all represents a big challenge for Fiat Chrysler Automobiles, Peugeot, Renault and the core VW brand. Premium peers such as BMW, Daimler and Audi have higher selling prices, and thus bigger margins on their large cars that can absorb the extra cost of expensive technology.
Some in the industry say that means the days of small diesel cars are numbered. “On a small car, you’ve got no margin at all,” says one executive at a European mass-market carmaker. “Small diesel engines will end up in a museum,” he adds, saying that this would mean a move to petrol cars.
The challenge would then be for European carmakers to convert production at engine plants from diesel to petrol. Peugeot says its petrol engine production capacity is “not fully utilised, therefore giving us the possibility to adjust production if need be between petrol and diesel”.
At crisis meetings in boardrooms across Europe, car industry executives have been pondering a chilling thought.
The scenario goes something like this. The Volkswagen scandal leads to greater scrutiny from regulators and tougher emissions tests, making it more expensive to produce “clean” diesel cars in a sector already contending with razor thin profit margins.
Meanwhile, public awareness of harmful diesel pollution rises, prompting consumers to shun the fuel. That adds to existing pressure on carmakers to find alternative technologies — mainly electric — to comply with stringent EU targets to cut carbon dioxide emissions from 2020.
If costs rise, either the car companies pay or the consumers do, says Adam Jonas, analyst at Morgan Stanley. “Given the highly competitive nature of the auto industry, we strongly suspect the consumer will get the better end of the deal,” he adds.
VW’s shares have fallen almost 40 per cent since revelations first emerged on September 18 about the German carmaker’s cheating in diesel vehicle emissions tests in the US. The shares of other European carmakers — BMW, Daimler, PSA Peugeot Citron and Renault — have also declined, albeit less dramatically, highlighting investors’ fears that the VW scandal will speed the decline of diesel.
Some of these companies have invested billions of euros in diesel-powered cars, and pushed up the vehicles’ market share to 53 per cent of western European sales. This partly reflects EU governments’ concerns at how petrol cars generate more carbon dioxide emissions than their diesel equivalents.
But in the wake of the VW scandal, LMC Automotive, an industry forecaster, now foresees diesel accounting for just 35 per cent of western European sales by 2022.
The demonisation of diesel, as it is known in the industry, was already well under way before the VW scandal broke.
Successive reports had shone a light on the harmful effects of nitrogen oxides and particulate matter — the pollutants from diesel vehicles that are known to cause respiratory problems and account for more than 52,000 premature deaths each year in the UK, according to a recent British government report.
Research groups — such as the International Council on Clean Transportation, which helped expose the VW scandal — have highlighted the high levels of nitrogen oxides emitted by diesel cars on the road despite their complying with the latest “Euro 6” regulations in laboratory tests.
The VW scandal has given diesel’s critics new resolve. The European Commission, which was already looking to toughen up an outdated monitoring regime, has been emboldened and will press to enforce new laboratory tests for petrol and diesel cars relating to emissions of both carbon dioxide and nitrogen oxides. There will also be a portable, on the road testing system for emissions of nitrogen oxides by 2017.
The cost for carmakers of using emissions reduction technology to comply with Euro 6 rules is now at as much as €1,300 per car, say analysts at Exane BNP Paribas. That could rise by €200 to €300 per car under new Euro 6c regulations due in 2017, add the analysts.
This all represents a big challenge for Fiat Chrysler Automobiles, Peugeot, Renault and the core VW brand. Premium peers such as BMW, Daimler and Audi have higher selling prices, and thus bigger margins on their large cars that can absorb the extra cost of expensive technology.
Some in the industry say that means the days of small diesel cars are numbered. “On a small car, you’ve got no margin at all,” says one executive at a European mass-market carmaker. “Small diesel engines will end up in a museum,” he adds, saying that this would mean a move to petrol cars.
The challenge would then be for European carmakers to convert production at engine plants from diesel to petrol. Peugeot says its petrol engine production capacity is “not fully utilised, therefore giving us the possibility to adjust production if need be between petrol and diesel”.
