European Market: Decreasing diesel vehicle sales, and the shift to EVs

Strengthened environmental regulations, the introduction of WLTP, and Brexit

2018/12/17

Summary

Introduction of WLTP

Sales of new cars in Europe were affected by the WLTP (*Note), a new fuel consumption and emissions standard introduced in September 2018. Sales until August increased due to rush demand prior to implementation of the WLTP, but have since dropped due to concerns about price increases at the time of vehicle purchase. Type certifications for new cars requiring WLTP inspection to meet conditions closer to real world driving conditions compared to NEDC, the previous testing method, resulting in increased costs for automakers to conduct inspections. Though consumers are looking forward to fuel economy information closer to reality, they are also concerned about increased prices at the time of vehicle purchase.
(*Note) WLTP: Worldwide harmonized Light vehicles Test Procedure, NEDC: New European Driving Cycle

Strengthening of CO2 emissions regulations

In the EU, the battle continues to decide on the goals to reduce CO2 emissions leading up to 2030 on new vehicles sold within the region. Current regulations mandate CO2 emissions of 130g per 1km, which will be tightened to 95g/km starting in 2021. In November 2017, the European Commission announced the new proposed targets for CO2 emissions, with 2025 emissions required to be 15% lower than 2021, and 30% lower by 2030. In October 2018, the European Parliament introduced a plan to reduce emissions by 40% by 2030, and the EU Environment Council announced goals to reduce emissions by 15% by 2025, and 35% by 2030. The three parties aim to negotiate a finalized plan by the end of 2018. These significant emissions reduction targets are tied to reducing the environmental burden and increasing the availability and competitiveness of EVs, but the automotive industry is wary of overly strict goals being determined solely by political decisions.

西欧の新車販売台数
Source: Created based on ACEA documents

Decreased sales of diesel vehicles

European automakers have responded to the EU’s strict emissions regulations by selling clean diesel vehicles with low CO2 emissions. Some reports indicate that the level of CO2 emissions in new vehicles sold in the EU increased in 2017, which was in part due to a decline in the sales of clean diesel vehicles. The sales ratio of diesel vehicles in Europe trended downwards in recent years, with Japanese automakers announcing the discontinuation and reduction of diesel vehicle sales in the European market. The three major German OEMs view clean diesel vehicles as essential to meeting the CO2 emissions regulations and will continue investing in diesel vehicles. Furthermore, if automakers withdraw from diesel vehicles, it may have a negative effect on employment in Europe. Also, a number of major German cities have implemented restrictions on the entry of diesel vehicles into those cities, and the German government announced measures for the replacement and retrofitting of older diesel vehicles in October 2018. Various automakers, including the German OEMs, are implementing replacement incentives for older diesel vehicles.

Shift to EVs

While the sale of EVs, which are expected to reduce the carbon footprint, is steadily increasing in the European market, the percentage of EVs that comprise the entire vehicle market in major countries such as Germany, France, and UK, is still at 5% or less (2017). However, there are exceptions to this situation, such as in Norway where the sales ratio of EVs is particularly high at roughly 40%, with various brands releasing BEVs and PHEVs primarily in the C- and D-Segments. The Norwegian government has set a goal to make all new vehicles by 2025 zero-emissions vehicles, and is actively promoting the introduction and popularization of EVs.

Brexit

Regarding Brexit, where the U.K. is scheduled to exit the EU in March 2019, an agreement was reached between the U.K. and the EU in November 2018. However, many citizens in the U.K. oppose the agreement proposal, and the situation remains difficult, with many voicing concern for a no-deal Brexit. While new vehicle sales in the U.K. have remained high at a level of 2.5 million vehicles annually, as Brexit approaches, consumers have become less willing to spend, and vehicle sales have continued to trend downwards. Additionally, automakers with production facilities in the U.K. are hurriedly trying to counter a no-deal Brexit which would result in increased tariffs and customs procedures.

 

Related reports:
VW Group (Part 1) Europe: Introduction of new WLTP emissions test; drop in diesel vehicle demand (Nov. 2018)
U.S. trade policy and tariffs under the Trump administration (Sep. 2018)
2021-2030 CO2 regulations in Europe, backlash against diesel, and electrification (May 2018)
OEM Electrification Strategies: Acceleration of EV and PHV Lineup Expansion (Apr. 2018)
European market: Passenger vehicle sales exceed 15 million units, diesel vehicles drop below 50% (Sep. 2017)

<LMC Automotive report>
LMC Automotive European Passenger Car Sales Update (September 2018) (Oct. 2018)