How plug-in hybrids, under fire for emissions, can regain their luster

Full-electric vehicles are the darlings of the automotive world. Elon Musk's Tesla enjoys a market capitalization that is the envy of conventional competitors, while investors are throwing billions in cash at unproven startups, hoping to catch a little of the EV magic. Automakers and governments are racing to declare ever-earlier end dates for the internal combustion engine. 

But in Europe, it is the plug-in hybrid that is the unsung emissions workhorse. With batteries that allow them to run in zero-emissions mode for typical commute distances, plug-in hybrids are certified for CO2 emissions that are a small fraction of their internal combustion-only equivalents. Those with emissions below 50 grams per km qualify for EU "supercredits," adding to their emissions-reducing value.  

Beyond helping automakers avoid fines, plug-in hybrids are eligible for generous tax benefits-in-kind for company cars (in the UK and Germany), can avoid high-emissions initial purchase taxes (in France and Sweden) and get purchase and trade-in incentives (in France). Plug-in hybrid owners can even qualify for priority parking permits (in Amsterdam).

Buyers, especially businesses and fleets, which account for about 70 percent of sales, have embraced plug-in hybrids. Plug-in hybrids are selling in equal or better numbers than EVs in Europe this year. 

Matthias Schmidt, an independent auto analyst in Germany who closely tracks plug-in hybrid sales, says 2021 will be "the year of the PHEV."

"I see PHEVs [plug-in hybrid electric vehicles] as a complete elephant in the room," Schmidt said. "Lots of people talk about EV penetration being 15 to 16 percent in Europe, but they don't actually realize that more than 50 percent of those are PHEVs."

Recently, however, plug-in hybrids have come under intense scrutiny from environmental groups and analysts as failing to live up to their low-emissions promise, with one, Transport & Environment, calling them "fake electrics." Real-world CO2 emissions, they say, are on average two to four times as high as certified values.

As such, critics say, plug-in hybrids are merely "compliance technology" tools to avoid emissions fines and allow automakers to continue selling highly profitable models -- especially big SUVs -- that also benefit from generous (and undeserved) incentives, while deferring sales of unprofitable EVs.

Not so fast, automakers say. They argue that plug-ins are a necessary bridge between affordable internal combustion cars that can be fueled up anywhere in minutes and expensive EVs that take hours to charge at hard-to-find dedicated public outlets. 

Driven as intended, they say, plug-in hybrids are clean and efficient, and get drivers used to quiet, powerful EVs without range anxiety.

Analysts and even critics say, however, that plug-in hybrids can play a key role in decarbonizing Europe -- provided automakers rethink how they are engineered and governments take a hard look at incentives and tax breaks. 

"I still see a noteworthy share of buyers who are anxious about going full electric, especially with well-known problems about range anxiety and public charging infrastructure, which may or may not be justified," said Patrick Ploetz of the Fraunhofer Institute, the lead author of a recent study of real-world plug-in-hybrid emissions, "but the important part is that people have worries about buying a full EV, and PHEVs give them a feeling of safety."

Ploetz agrees with automakers in that plug-in hybrids "open electrification" for additional buyer groups 

"In that sense, it's good because studies show that when you get used to driving electric most people enjoy it immensely," he said. "However, the actual emissions are not as good as we expected or they [automakers] promised."

Among the findings of Ploetz's study, which was done in conjunction with the International Council on Clean Transportation (ICCT), and analyzed data from more than 100,000 vehicles in Europe, China and North America:

• On average in Germany, Europe's biggest plug-in hybrid market, real-world emissions are more than twice as high as tested values, and four times as high for company cars
• Private users in Germany charge their cars fully only three of four driving days. For company cars, that figure falls to one in two driving days
• Private plug-in hybrids are driven only 37 percent of the time in electric-only model. Company cars are driven electrically only 20 percent of the time.

"Everybody assumed people would have a full recharge for every driving day," Ploetz said.  "Real world data shows this is not the case.

"We thought that if a person buys a PHEV they want to drive electric, save fuel, plug in -- and it turns out some don't," he added.

The current wave of plug-in hybrids hit the market in Europe starting in January 2020, when the EU imposed a fleet target of 95 g/km of CO2.

Notable entrants included models from PSA Group (now part of Stellantis) such as the Peugeot 3008, Citroen C5 Aircross and DS 7 Crossback. Renault joined with plug-in hybrid versions of the Captur and Megane. 

As a measure of how critical plug-in hybrids can be to meeting emissions targets, Ford had counted largely on a single model, the Kuga compact SUV, to help it do so. But plug-in hybrid Kugas were the subject of a recall last year because of fires while charging, leading to a production halt and causing Ford to say it would miss its 2020 target because of that.

But it's premium brands that rely on plug-in hybrids the most. Wealthier buyers can afford the extra cost incurred in producing plug-in versions; many models are primarily company cars; and the heavier fleet mass of brands such as BMW and Mercedes means their CO2 targets are higher under EU rules.

Among premium brands, Volvo led the way with a 41 percent mix through six months, according to company data.

Stellantis' DS Automobiles had a mix of 29.8 percent; Mercedes' mix was 22.9 percent; Land Rover was at 20.4 percent; and BMW at 19.7 percent, according to five-month data from Schmidt.

"PHEVs are the most profitable way, primarily for German premiums, to reach CO2 compliance," Schmidt said, adding that he included Jaguar Land Rover in that category. "It makes far more sense for a large premium model [to be a plug-in hybrid], because you have to lug around an extra motor and a lithium-ion battery."

In contrast, Volkswagen brand's mix was 5.4 percent; Peugeot was at 6.1 percent, the same as Renault brand; while Opel/Vauxhall was at 2.6 percent; and Fiat had no plug-in hybrids in its lineup.

According to Schmidt, the best-selling plug-in hybrids through May in western Europe, which accounts for 90 percent of the market, were the Volvo XC40 followed by the Peugeot 3008 and BMW 3 Series (see chart, below).

Schmidt expects sales to total about 1 million units in western Europe this year, with an 8 percent market share. Sales will grow slightly on an annual basis until 2024 or 2025, reaching a mix of 11 percent, when the next round of CO2 emissions cuts are due, forcing automakers to sell many more full-electric vehicles.

"From 2025, battery-electric vehicles will dominate the market because the emissions change will be the turning point for automakers to introduce mass-market BEVs," he said.

Longer term, the survival of plug-in hybrids in Europe depends largely on emissions rules, experts said -- especially if the EU sends a clear message that internal-combustion engine sales will be prohibited after 2035.

"Once BEVs exceed 75 percent market share or so, it doesn't make sense for an automaker to have a huge factory producing 500 or so combustion engines a year," Ploetz said. "They will shut down the ICE [internal combustion engine] plants and only focus on BEVs." 

The next round of greenhouse gas regulations will be presented for debate on July 14. For automakers, that could mean a 60 percent reduction of CO2 targets compared with 2021 levels by 2030, rather than the current 37.5 percent. It's even possible that the EU will mandate a 100 percent cut by 2035, effectively killing the internal combustion engine. 

Neither Ploetz nor T&E's Anna Krajinska, who has worked within the automotive industry as an emissions engineer, say that plug-in hybrids should be banned. Instead, they urge the EU and member states to design regulations and incentives to maximize electric-only driving and minimize use of their internal combustion engines.

T&E's recommendations include:

• Use real-world consumption figures from onboard monitoring for a new WLTP type approval for plug-in hybrids by 2025
• End what's known as a zero and low emissions vehicle (ZLEV) credit multiplier for plug-in hybrids that will replace the current supercredit system in 2025. The group says this multiplier, which applies to plug-in hybrids with CO2 outputs of 50 g/km or below, encourages sales of vehicles close to that limit
• Promote bigger electric motors and smaller internal combustion engines by capping engine-only emissions at three times overall emissions. For example, a plug-in hybrid with 32 g/km emissions would be allowed a maximum of 96 g/km in engine-only mode.
• Eligibility for ZLEV credits should be reserved for plug-in hybrids with an electric-only range of 80 km, the ability to use 50 kilowatt fast chargers and electric motors with equal or more power than the internal combustion engine.

Both Krajinska and Ploetz said EU member states could also look to apply similar standards to incentives and company car benefits-in-kind. They noted that Germany is raising the minimum electric-only range for plug-in hybrids to 80 km from 40 km in the coming years. Fleet managers, too, have a role to play, Ploetz said. 

"Many companies have realized that PHEV usage is not as expected and some have tightened their company car policies," he said.

The future of plug-in hybrids varies by automaker, although most are committed to the technology.

Mercedes-Benz is counting on improved technology to keep plug-in hybrids relevant and environmentally compliant.

Daimler CEO Ola Kallenius said that the latest generation of Mercedes C-Class plug-in hybrids could travel 100 km (62 miles) on a single charge, twice as far as its predecessor, because of a larger battery.

"A lot of the talk about [plug-in hybrids] is still based on data from the first generation, where the batteries were smaller and the range was shorter," he told Automotive News Europe.

Kallenius said customers were encouraged to drive in an energy-efficient way with gaming graphics on the instrument cluster and using the Mercedes Me app to share fuel consumption data.

Mercedes will be monitoring data from EU-mandated onboard fuel consumption meters, he said.

Hyundai, too, is not ready to give up on plug-in hybrids, Europe President and CEO Michael Cole told ANE.

"We know that some people are questioning the long-term viability of plug-in hybrids," Cole said. "I still think the technology offers a CO2 reduction in real terms, with a lot of customers using it to travel emissions free a good share of the time under the right conditions."

Despite its big plug-in hybrid volume, Volvo Cars may be backing away from the technology in favor of an earlier transition to EVs. The automaker said last week that its next all-new large SUV would be full-electric only.

CEO Hakan Samuelson said that moving to full-electric vehicles was a priority for Volvo. "It's very important for us in the future to demonstrate and show ourselves as a company that is really utilizing technology and electrifying faster than anybody else," he told ANE.

Stellantis' Jeep brand has gone all in on plug-in hybrids to lower fleet emissions, with no conventional hybrids or full-electric offerings yet. At the end of 2020 it added versions of the small Renegade and compact Compass SUVs, and this year revamped its Wrangler midsize SUV lineup to a single offering in the EU: A four-door plug-in hybrid, dropping conventional gasoline and diesel models.

The move has paid off, with plug-in hybrids accounting for 31 percent of Compass sales in Italy through May, a volume of 3,631 units, making it the country's best-selling plug-in hybrid in that period. 

The coming Grand Cherokee premium large SUV will also have a plug-in hybrid offering.

"Jeep is moving over to PHEVs at an incredible rate," Schmidt said. "They were potentially a huge emissions problem for Stellantis."