Automakers in Europe fear a lukewarm consumer response to the fleet of electric vehicles they are preparing to launch to comply with tougher emissions regulations. But they do have one lifeline: the plug-in hybrid electric vehicle. The PHEV is in some respects an almost magical vehicle. Adding a battery and electric motor to a conventionally powered vehicle preserves most of the usability that consumers know while allowing the manufacturer to reduce carbon dioxide output by 50 to 80 percent.
PHEVs give Europe a compliance lifeline
Because of the way emissions are calculated, PHEVs are easily capable of recording a CO2 figure of below 50 grams per kilometer. That means their sales will not only help reduce automakers' average CO2 when the 95 g/km average kicks in next year, they also count as "supercredit" sales until 2023, letting automakers offset deliveries of their higher-emission vehicles.
On top of all that, PHEVs qualify for various tax incentives and purchase grants within numerous European Union countries. And they are allowed entry into many cities' ultralow-emissions zones, where conventional vehicles will be banned from entering.
But there are also huge pitfalls for manufacturers relying on PHEVs. Most worrying is the potential backlash from environmental groups, city mayors and ruling governments if they decide that PHEVs are nowhere near as green as the stated CO2 figure claims.
"The climate credentials of plug-in hybrids are directly proportional to how much they drive on their electric motor," said Julia Poliscanova, director of clean vehicles and e-mobility for European pressure group Transport & Environment. "If, as the evidence seems to show, most people don't charge them, then they are worse than previous-generation cars."
As far as customers reading the label know, these cars are second only to full-electric vehicles in terms of CO2 output. The EU-mandated Worldwide Harmonized Light Vehicle Test Procedure, which replaced the outdated New European Driving Cycle, states that's the case. For example, the range of new PHEVs launched by PSA Group, including the midsize Peugeot 508 and Opel/Vauxhall Grandland X compact SUV, record figures as low as 29 g/km. By comparison, a Peugeot 108 minicar, weighing half as much as a plug-in hybrid SUV, emits 93 g/km.
The PHEV has often been described as a gateway technology to get consumers comfortable with the idea of plugging in their car before taking the more radical step of going full electric. The EU's seeming generosity in classifying PHEVs as ultralow-emission vehicles via the test cycle was a calculated decision to boost availability of electrified vehicles, said Jeff Schuster, global forecasting director for analyst firm LMC Automotive.
"I suspect it's the EU giving the automakers a get-out clause. I don't think anyone wants to go down the scandal road again," he said, alluding to Volkswagen Group's cheating on emissions tests. Even before VW Group admitted to using software that made its engines operate more efficiently during testing than on the road, it was known that automakers were exploiting loopholes in the NEDC to avoid fitting expensive exhaust-cleaning technology to their vehicles.
LMC predicts that PHEV sales will more than double in Europe next year to 590,000, up from a full-year estimate of 220,000 in 2019. That would give them a market share of 3.1 percent and briefly help them overtake full-electric vehicles. LMC believes that by 2025, PHEV sales will top 1 million and take a 5.2 percent share.
The problem that automakers now have to deal with is that PHEVs are unavoidably costly, restricting their rollout. "The plug-in hybrid is a very expensive technology, so it makes sense on heavier, bigger, higher-CO2 vehicles where it does more for CO2 reduction and the premium is not as big as small cars," Roelant de Waard, general manager for passenger vehicles at Ford of Europe, said in April at the launch of the Kuga, which will offer a PHEV variant.
Fitting a battery, electric motor and power electronics to an existing combustion-engine car adds about €5,000 ($5,500), according to research from German engineering specialists FEV. The expense is such that a plug-in hybrid drivetrain with a battery big enough to reduce CO2 below 50 g/km — the threshold automakers need to qualify for EU supercredits and many local tax incentives — costs more than a drivetrain for a small electric car with a 32-kilowatt-hour battery, FEV said.
Getting the consumer to shoulder the extra cost will be almost impossible, Bernstein analyst Max Warburton argues. Instead, he expects that automakers will have to absorb about 60 percent of the cost of the PHEV technology to be able to sell the cars at the volume required to achieve the EU's 2020-21 CO2 targets. "It's going to require the industry to force quite a lot of cars into the market. It's going to require them to do very favorable fleet deals. It might require them to sell these cars to their own employees," Warburton wrote in an August report.
Automakers will have help from local incentives, ranging from purchase grants, company-car tax breaks and permission to drive in restricted low-emission zones.
In those countries where incentives are generous, the cars may almost sell themselves.
"It's not so much that we have to persuade buyers — in some countries, the tax system will persuade them for us," Ford's de Waard said. He cited Germany, where the tax on PHEV company cars is half that of conventional cars, and France, which has a steep curve in CO2-based taxation that heavily penalizes large nonhybrids. De Waard predicts "a lot of demand" for Ford's PHEVs from those two countries.
The danger is that incentives can be removed as quickly as they are applied. "Sales of PHEVs have been very volatile so far, and they really depend on the governments' support," Kia Motors Europe COO Emilio Herrera told Automotive News Europe.
Eventually, PHEVs will not be needed. Batteries will get better and cheaper, meaning full-electric cars will become just as viable as their combustion-powered counterparts. LMC believes that next year will be the last in which PHEVs beat or even come close to outselling EVs in Europe. It predicts that full-electric cars will surpass 1 million sales annually in the region three years before PHEVs.
Despite plug-in hybrids seemingly offering the best of both worlds, consumers won't necessarily buy them at full price.
"Incentives are required for plug-in hybrids, and you will see the manufacturers essentially force through product introductions," LMC's Schuster said. "It's a gamble, but it's one that the industry has no choice but to make."
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