Euroscope. An electric shock to Europe’s carmakers

By all accounts, last week’s announcement by the British government that it planned to ban sales of new “conventional” diesel and petrol cars and vans by 2040 caught many — including those at the top of the sector — off guard. Even Mike Hawes, who heads the Society of Motor Manufacturers and Traders, said he had been given no forewarning of the announcement, and read the details of the government’s plans that would determine the future of his industry as it was publicly released.

While the timing and the extent of the action may have somewhat surprised industry, action was certainly expected: the Conservative Party’s election manifesto commits it to making “almost ever car and van” zero emission by 2050. It also follows on from actions by other European nations. Last year, Norway announced plans to phase out new petrol and diesel vehicles by 2025, while France will end the sales of these vehicles by 2040, according to plans unveiled by Emmanuel Macron’s government last month. The pressure is on other European nations too: with Germany’s Bundesrat (upper legislative assembly) calling for petrol vehicles to be phased out by 2030.

Rapid progress has already been made in some quarters: thanks to infrastructure and incentive systems (large numbers of charging points, a partial VAT exemption ) Norway is nearing the point where electric car sales could outstrip those of diesel and petrol vehicles: in June electric and hybrid vehicles accounted for 42 per cent of new vehicles registered. Volvo, the Swedish carmaker, said in June that from 2019 onward it would no longer launch new models of cars that were just powered by the internal combustion engine.

According to a report by Morgan Stanley published in May, a billion battery electric vehicles could be on the road globally by 2050, reaching parity with those powered by internal combustion engines. “The automobile’s long-promised electric future may be in sight,” the report said. “Indeed, new and coming standards and targets for efficiency and emissions may simply be too high for internal combustion engine drivetrains to meet — at least economically. More expensive engines will either mean higher prices for consumers or lower profit margins for automakers — or both. Meanwhile, government incentives could provide enough of a push for both the industry and consumers to go electric at a faster pace.”

While much has been happening beyond Europe’s shores (China remains the world leader in electric car sales, followed by the US and Japan), things have been moving rapidly in Europe, and Britain’s sector appears well geared towards the industry shift, with Nissan producing its popular all-electric Leaf in Sunderland. “Jaguar Land Rover is already working towards the 2040 timetable in moving to autonomous, connected, electric vehicles,” said Jaguar Land Rover in response to the government announcement last week.

The extent of the ban also remains unclear: Hawes and others in the industry have noted the deployment of the word “conventional” in the government’s policy paper, which could allow for some inclusion of the internal combustion engine, updated and greener.

Still, it’s hard to deny that it’s a major moment for industry: in Britain at least, just 1 per cent of cars driven are electric, and industry has been keen to stress that much will depend on the development of the right infrastructure and incentives. The government, as part of its policy update, set aside £100 million for charging points, but that is unlikely to be nearly enough in the long term. There are other major logistical considerations for the industry: would, for example, British factories continue to produce (and road-test) vehicles with internal combustion engines destined for markets internationally that had not made the leap towards electric vehicles, and which could nevertheless remain crucial markets for automakers (particularly in the context of Brexit, as Britain attempts to push itself as a global champion of trade).

However, the biggest challenge for Europe may be unravelling its diesel dilemma: having spent time convincing consumers that it was the cleaner, more cost-effective option, the tables have turned, fuelled by the Volkswagen emissions scandal. With air pollution levels in several European cities exceeding legally permitted limits, many are looking at ways to tackle nitrogen dioxide emissions in particular. While the British government’s current plan does not envisage charges on diesel vehicles, the responsible minister acknowledged this could be the route ahead for some of the country’s most polluted streets. In Germany a court in Stuttgart ruled that the city could ban older diesel cars that didn’t meet the latest emission standards. More of this is likely to be seen across Europe and beyond.

However, bans aside, the challenges from the electric vehicle is one the industry will have to wake up to. A recent investigation by Der Spiegel found “secret cooperation” between the country’s biggest carmakers, in what it described as a “cartel”-like operation in which the companies worked together to set similar standards (such as the maximum speed at which they could open or close the top). The magazine suggested the diesel emissions software tampering was part of this process.

It highlights the pressures on some of the world’s most established names from the likes of Tesla, which has over 400,000 pre-orders for its Model 3. Many have contrasted the simplicity of the components that make up an electric car with the complex supply chain of the petrol or diesel, which will continue to make the industry less nimble than its alternatives at a time that the political mood has changed too.

On Wednesday a “diesel” summit took place in Germany at which the largest automakers agreed to take steps to cut emissions by offering free software to existing cars that failed to meet emissions standards. The industry body, the VDA, has been strongly critical of any ban on diesel and petrol vehicles, warning that it would have “severe impacts on employment and value creation with Germany”. However, in the current environment such warnings may not be enough to hold back the political tide that has shifted decisively against the conventional internal combustion engine.