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Is Diesel Death Imminent, Or Is Threat Short Term Jitters?

Is Diesel Death Imminent, Or Is Threat Short Term Jitters?

“Premium (manufacturers) have the highest diesel share today, but are also likely to enjoy the most rapid increase in mild-hybrid gasoline and BEV sales”

Diesel powered cars are on death row, condemned by worries about health, sales undermined by dieselgate publicity, and about to be squeezed by the rise of electric vehicles, according to a report, but one expert says don’t write them off just yet.

A report from investment bank UBS said diesel cars, which still make up close to one half of all new car sales in Europe, will almost disappear by 2025, as hybrid gasoline, improved conventional gasoline engines, and electric cars gain ground.

In Europe, diesel market share will fall to about 10% in 2024 from 55% in 2012. Global share will slide to 4% in 2025 from 13.5% currently, UBS said.

Not so says Peter Schmidt, Editor of European newsletter Automotive Industry Data.

Schmidt points out European diesel market share in the first 10 months of 2016 in Western Europe still stood at 49.7% compared with 51.7% in the same period last year. Despite all the bad dieselgate and health publicity, diesel share will hold at between 40 and 45% next year and beat 40% in 2018. By 2025, diesels in Western Europe – that includes all the big markets like Germany, France, Britain Italy and Spain – will still chalk up a healthy one third market share.

But Schmidt concedes that the diesel market in the U.S. is going nowhere.

Lose allure
UBS, in its report, said diesels will lose their allure because of mounting fears over their impact on health which has led to higher taxes at the pump, and threats they will be banned from some city centres. This will undermine residual values and threaten the business of many automotive supplier companies. Manufacturers will suffer too, led by PSA of France, which makes Peugeots and Citroens, and BMW.

PSA is the most exposed because it has a higher percentage of its sales in European markets compared with other big manufacturers. BMW is endangered because of its big diesel leasing book. But premium manufacturers are generally less exposed than mass car makers.

“After 2020, we see the shift towards full electrification as a key contributor towards more ambitious CO2 (fuel economy) targets. Premium (manufacturers) have the highest diesel share today, but are also likely to enjoy the most rapid increase in mild-hybrid gasoline and BEV (battery electric vehicle) sales,” the report said.

“We see two other areas of concern – (manufacturers) could face ‘stranded’ investments in new diesel engine generations and engine plants; and residual values of diesel cars on the lease books could drop faster than expected, causing write-downs. On the latter, we believe BMW is most exposed,” the report said.

AID’s Schmidt says this is far too pessimistic.

Healthier
The future of diesels is much healthier than predicted by UBS and other studies but does depend on a couple of key factors. Diesel manufacturers must remind the public their engines obey the legislation on noxious emissions, and he assumes the noise and clamour for bans on diesels in city centres won’t actually happen because voters won’t allow governments to force them out of their diesel cars.

“Manufacturers must guarantee European car buyers that their engines will meet all legislative requirements which will allow them to drive into cities without breaking the law. If they don’t get this guarantee the anti-diesel propaganda will win,” Schmidt said in an interview.

Schmidt said current E.U. emissions regulations are unlikely to be tightened any time soon, not least because of the time it takes to organize this.

“I am completely convinced that this collapse in diesel car demand won’t be anywhere near as bad as UBS is predicting. But there’s no denying diesel is going through the most severe crisis in its history. It’s almost like coal, there’s nothing positive being said it, but I say this is undeserved,” he said.

“I reckon that this loss of diesel market share will continue but I think it is going to be significantly less severe than an awful lot of forecasts have been predicting. This does depend on there being no sudden changes in the law (about emissions) and manufacturers reassuring the public that their diesels will meet all legislation,” Schmidt said.

“Small cars used for cities and shorter distances are more likely to be powered by cheaper gasoline engines”

Diesel power in Europe, where the price of gasoline is more than twice that in the U.S., will still be popular in medium sized cars and above, and particularly SUVs. Drivers who do long distances will want diesels. Small cars used for cities and shorter distances are more likely to be powered by cheaper gasoline engines.

The maintenance of diesel demand is also crucial for manufacturers.

“Manufacturers have invested billions in diesel engine technology. All that could be lost overnight because of this underserved negative image. Even by 2025, despite some progress by electric cars and plug-in hybrids, we will still have diesel penetration of nearly one third, based on the innate technical advantage of the modern diesel engine, which is significantly superior to anything gasoline engines can do. Fuel economy saving of 30% is great for bigger vehicles and SUVs. If they’re not clobbered by ill-informed legislation people will continue to buy diesels in droves,” Schmidt said.

What about diesels in the U.S.?

“I am convinced that in the U.S., the diesel market is dead and nothing will reawaken it,” he said. 

  

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