Panic Over For Diesel Makers Thanks To Mild Hybrids.
“The industry is investing heavily in mild-hybrid – 48 volt hybrids. You get the same CO2 emissions like diesel”
European auto makers look like riding out the current panic over diesel engine health risks, fighting off a clamour for action by politicians and environmentalists, and despite some worrying projections by investment bankers.
New “mild-hybrid” technology will quickly fill the gap left by diesel’s precipitate decline, while a softening attitude from the European Union (E.U.) suggests city bans of this now derided technology might not be as ubiquitous as feared.
Earlier this week Daimler announced it was “voluntarily” recalling more than 3 million Mercedes diesel cars and vans to reduce poisonous nitrogen oxide (NOx) emissions. The recall involves a software patch to emissions cleaning systems which will cost about $255 million.
This is the latest development in a diesel engine saga which has shaken investors’ confidence in European car makers. Diesel sales in Europe are crumbling as environmental activists worry about the health implications of noxious diesel fumes, and the apparent failure of E.U. regulations to bring them under control.
The election in Germany is also adding fuel to the diesel controversy and it will be an issue when voters go to the polls September 24. Polls currently point to a win for the incumbent Chancellor Angela Merkel.
Americans might be puzzled by Europe’s diesel controversy because in the U.S. this mainly concerns trucks. But in Europe, where fuel costs up to three times as much as in the U.S. because of penal taxation, diesel has been popular because it can give up to 30% better fuel economy.
Sales of diesel powered cars and SUVs were as high was 55.7% of Western European sales in 2011, hovered around 50% until 2015, but are now on the slide, with some experts saying by 2025 market share could collapse to about 15%.
This is hugely important to European car makers because the E.U. has imposed harsh rules which force ever better fuel consumption by 2021. Big financial penalties await the transgressors. Diesel was supposed to carry the brunt of this fuel economy drive, but its popularity has been torpedoed by fears about health, inducing a vicious circle where sales weaken, and potential buyers worry that second hand values will plummet, which again prompts purchases of gasoline powered cars with much inferior fuel economy.
This is likely to devastate the balance sheets of the car makers, according to investment bank Morgan Stanley. In a report published before the Mercedes news, Morgan Stanley said if the industry misses the 2021 targets it could mean one billion euros ($1.2 billion) in annual penalties for many of the big manufacturers. Although Morgan Stanley said earlier this year that penalties could reach close to 2 billion euros, that wouldn’t be good news.
As well as the penalties, manufacturers would be faced with investing massive sums to accelerate the production of battery-only and plug-in hybrid vehicles which can’t currently compete on price.
But this nightmare scenario doesn’t make sense to Professor Ferdinand Dudenhoeffer from the Center for Automotive Research (CAR) at the University of Duisberg-Essen in Germany. He accepts that there might some temporary reversal in the gradual improvement required to meet 2021 standards as diesel sales slide, but new and affordable so-called mild-hybrid technology will come to the rescue.
“The industry is investing heavily in mild-hybrid – 48 volt hybrids. These systems cost about 300 to 400 euros. Using this, you get the same CO2 emissions like diesel. Toyota is the striking example. They do not need diesel but fulfil E.U emissions standards thanks to their success with hybrids,” Dudenhoeffer said.
Renault and Volkswagen are already offering 48 volt mild-hybrid engines instead of small diesels because costly after-treatment systems are likely to become mandatory to make diesels comply with tougher emissions regulations. These systems use the higher voltage to provide additional electrical power to drive an increasing number of electrical components in cars. The higher power can be combined with a belt-starter generator to assist acceleration and can increase fuel efficiency by between 10 and 15%. And it is relatively cheap.
“I guess that in 15 to 18 months we will have a broad offer of Mild Hybrid vehicles and then we will re-start improvements to CO2 (fuel efficiency). So it is just an interval, and we have some room to meet the targets,” Dudenhoeffer said.
“I’m sorry to say Morgan Stanley is wrong. The standards will prevail and technology will help to fulfil the standards,” he said.
Citi Research agrees that 48v mild hybrids will come to the reuse.
“As it stands today there are only a handful of vehicles equipped with a 48v system, but we expect penetration to grow exponentially as we close in on 2020 (and 2021) when fuel efficiency targets in Europe and China become more stringent. We expect 48V uptake to rise in 2018 and 2019 and it will be a 2.5 billion euro market by 2020,” Citi Research analyst Raghav Gupta-Chaudhary said.
This is just as well because politicians and environmentalists are closing in on diesel. Many European cities like Paris, London, Stuttgart and Munich have announced plans to ban the dirtiest diesels from city centres. The favorable tax regime which persuaded Europeans to buy diesel in the first place is being rescinded.
According to Brussels-based green lobby group Transport & Environment (T&E), the E.U. Commission, the executive arm, has asked member states in a letter to act quickly to clean up diesels, threatening tighter regulations if the industry doesn’t comply.
T&E’s Greg Archer said even cars meeting the latest so-called Euro6 E.U. rules emit nine times more NOx than gasoline cars on the road, as opposed to in the test laboratory-driven rules. Archer said Mercedes recent software upgrades won’t do the trick.
“I don’t believe the (Mercedes) software upgrades will reduce emissions enough to justify lessening the pressure to bring in diesel bans in cities. Mercedes is trying to resurrect the reputation of diesel in response to these city bans. I don’t believe the software upgrades will reduce emissions enough to justify that,” Archer said.
“So even new cars aren’t clean. We aren’t an anti-diesel organisation, but anti-pollution. We need them to be clean, then there’s no reason to ban them,” Archer said in an interview.
If auto companies used SCR (Selective Catalytic Reduction) systems that would make them as clean as cars, he said.
This would make Euro6 cars clean.
SCR works by using urea to negate up to 90% of NOx. But it requires a bulky tank making it impossible for use in small cars. And the urea tank has to be refilled every 10,000 miles or so. The system works but is bulky and expensive.
But the commission apparently also said in the letter it doesn’t want to precipitate a collapse in the diesel market.
According to Bernstein Research analyst Max Warburton this is great news for the car makers.
“The E.U has just said it doesn’t want city-level bans, doesn’t want a collapse in the diesel market and doesn’t want to harm the auto industry. This is important. Sector investors can breathe easier after this…. metaphorically at least,” Warburton said.