More new models, tougher CO2 rules poised to boost EVs, plug-in hybrids

A lack of choice has been one reason that buyers in Europe have not fully embraced full-electric and electrified plug-in hybrid cars. But that is quickly changing as automakers prepare to launch more models to prepare for tougher CO2 emissions regulations that start to take effect in 2020.

The number of EVs on sale in Europe will increase to 24 this year from 18 last year as new vehicles such as the Audi e-tron, Tesla Model 3, Mercedes-Benz EQC, Mini EV and full-electric Volvo XC40 crossover hit the market, according to LMC Automotive data -- which excludes very-low-volume niche models. The number of plug-in hybrids will nearly double to 53 this year from 27 in 2018, LMC says.

But the real jump will come in 2020, when the number of full-electric cars on sale doubles to 48 and plug-in-hybrid choice reaches almost 100, according to LMC data.

Next year battery-powered cars underpinned by Volkswagen Group’s flexible MEB electric-car platform and aimed at the mass-market will go on sale. VW brand's Golf-sized I.D. hatchback will come first but it will soon be followed by MEB cars from the Audi, Skoda and Seat brands. They will have ranges of more than 550 km (342 miles), to ease range anxiety fears among car buyers.

It’s no coincidence that 2020 is also when the EU will start fining automakers if they miss their stricter CO2 reduction targets that are being implemented to help reduce greenhouse gas emissions blamed for contributing to climate change.

“We have only one target, which is to be compliant for CO2 targets for 2020, so 2019 will be the launch of all our electric and plug-in hybrid vehicles,” Maxime Picat, PSA Group’s operations director for Europe, told journalists in January.

PSA will launch plug-in versions of the Peugeot 508 midsize, 3008 compact SUV and Opel Grandland X compact SUV first, while the smaller full-electric cars -- the Peugeot 208e, Opel/Vauxhall Corsa and DS 3 Crossback -- will go on sale in 2020.

PSA’s tactic is expected to be repeated by other car companies.

“We remain convinced automakers will do their best to avoid paying CO2 fines and steer sales toward what they need to sell to comply, at the expense of margin,” said Philippe Houchois, an equity analyst at the Jefferies Group investment bank.

Plug-in hybrids and full-electric cars don’t just cut average emissions. Because of the EU’s supercredit system, the sale of any car emitting less than 50 gram per kilometer of CO2 will count as two vehicles in 2020, 1.67 vehicles in 2021, 1.33 in 2022 and one by 2023.

Then it gets tougher still. By 2025, automakers will have to lower CO2 levels by 15 percent from 2021 figures and by 37.5 percent by 2030. Again, selling more plug-in hybrid cars helps the manufacturer soften its targets, set at a minimum 15 percent of sales from electrified cars and vans by 2025, rising to 35 percent of car sales and 30 percent of van sales by 2030.

Selling more electric cars in markets that currently have a low penetration of plug-in vehicles, such as eastern Europe, also boosts the credits.

This will have the intended effect and spur sales, LMC predicts. In 2018, Europeans bought just under 190,000 electric cars and nearly 155,000 plug-in hybrids, LMC figures show. But this year those numbers are expected to jump to 300,000 electric cars and 250,000 plug-in hybrids, while the following year the combined total will be more than 1 million in Europe, with plug-in hybrids taking the lead again with a 55-45 split over EVs.

When sales of full-electric cars overtook plug-in hybrids in 2018, product planners could have been forgiven for having a crisis of confidence in a technology that is both expensive and complex. Last year, incentives were dropped in the UK, the biggest market for plug-in hybrid electric vehicles. In addition, many of the popular models were pulled across Europe after new emissions regulations known as the Worldwide harmonized Light vehicle Test Procedure (WLTP) increased their emissions figure when the new standard went into effect last September.

WLTP had the effect of pushing these vehicles over the 50g/km figure, meaning they failed to clear the threshold for many incentives. It’s a temporary setback, said Roland Irle, a co-founder and an analyst at Sweden-based EV-Volumes: “They will come back again.” Any plug-in hybrid that emits less than 50g/km not only attracts incentives, reducing customer tax burdens, but also qualifies the manufacturer for those supercredits under the 2020-21 EU-wide CO2 agreement.

The lengthy halt on sales of popular plug-in hybrids such as the VW Passat and Golf allows them to return this year with new advances in battery packs, providing longer ranges. “With advances of energy densities, in some cases they don’t even need to change the packaging for the battery,” Irle said.

One of the first to react was Mitsubishi, which installed a bigger battery in the Outlander PHEV compact crossover -- Europe’s best-selling plug-in hybrid in 2018 -- to make sure it still would qualify for incentives after WLTP took effect.

Those who argue that plug-in hybrids add cost without benefit are missing the point, new Mitsubishi Europe CEO Bernard Loire told Automotive News Europe. “CO2 at 46g/km provides a strong reassurance that you can drive a family SUV anywhere in Europe -- the mountains, on the highway and in city centers,” said Loire, referring to areas within cities where access is restricted to those with ultralow-emissions vehicles.

The latest city to clamp down on cars to help reduce air pollution is Madrid, which last November created a 472-hectare area within which only full-electric vehicles or PHEVs with an electric range of 40 km or more can drive freely.

The freedom of plug-in hybrids versus full-electric cars is also touted by PSA. Operating under the assumption thatplug-in hybrids are better for long journeys without the need for charging, PSA will keep the technology for larger cars, while small cars such as the Peugeot 208 and Opel Corsa will be sold with electric versions.

“As a transition technology, it’s very powerful,” PSA’s Picat said. “Some people dream that the entire market will be electric in 10 years, but we all know that’s not going to happen.” But he does agree theplug-in hybrid market depends on incentives. “Politics has the power to decide,” Picat said. “If suddenly plug-in hybrids are not considered a low-emissions vehicle technology, which might happen in China, then it changes again.”

Already the plug-in hybrid market is divided down size lines. The best-selling body style for plug-in hybrids last year was the SUV with 47 percent of the market, according to data from JATO Dynamics. Helping that were the top-selling Outlander and No. 2 Volvo XC60.

Meanwhile, the best-selling EV body style was the hatchback at a massive 79 percent, led by the Nissan Leaf and followed closely by the Renault Zoe.

Last year, SUVs accounted for only 12 percent of EV sales. But that should increase this year as models such as the newly launched Audi e-tron and Jaguar I-Pace gain ground and the Mercedes EQC joins in.

Volvo says plug-in hybrids account for about 15 percent to 20 percent of sales for those vehicles in its range that offer the technology. The automaker considers the technology an in-between solution ahead of full-electric cars.

“We haven’t made up our mind to drop plug-in hybrids, but in theory we should,” said Lex Kerssemakers, head of Volvo in Europe. “We have to see how fast development of the EV market is,” he said. “Is there the charging infrastructure? Does every government give support?”

Volvo will launch a full-electric version of the XC40 compact SUV this year. Volvo could sell more plug-in hybrids but says it is constrained by battery supply, a problem many EV makers are experiencing.

As with many other automakers, Volvo uses batteries from South Korea’s LG Chem. “All brands are trying to get the capacity secure,” Kerssemakers said, adding that he expects to see a reduction in delivery times this year. One problem is that much of Korea’s lithium-ion production is being diverted to local battery storage, but LG is about to open a new battery-cell plant in Poland, which should free up more supply.

The big leap in demand for full-electric cars will come in 2021, predicts LMC, when sales will nearly double from the year before to 890,000, moving ahead of PHEVs at 700,000. That will be the first full year for the VW I.D. hatchback, as well as the VW I.D. Crozz, Audi’s equivalent crossover on the same platform and one MEB car each from Skoda and Seat.

VW’s 80 billion euro bet on EVs is likely to pay off, Arndt Ellinghorst, an analyst with Evercore ISI, wrote in a note to investors. “We see VW selling about 35 percent of global EVs by the mid-2020s,” Ellinghorst said. Two-thirds of those will be sold in Europe and China, he said.

VW thinks the economies of scale it will achieve with MEB will allow it to eventually achieve a profit margin equivalent to its diesel cars. “We believe this needs to be proved first,” Ellinghorst said. “VW had high ambitions for its MQB platform in the past which haven’t materialized.”

Battery costs remain a problem for full-electric cars. For a 300-km range, a 60 kWh battery pack costs about 12,300 euros, with an additional 1,760 euros for the electric motor and inverter, estimates Max Warburton, an analyst with Bernstein. That compares with 4,400 euros for a gasoline powertrain.

The sheer cost and size of the battery needed are deterring even ultraluxury brands.

Bentley has said it won’t produce an electric car for the next four years at least, to allow battery power density levels to increase. “The problem is when you get to our segment with the size of our vehicles and the frontal area we push through, current battery power density limits the size of the car you can offer with credible driving range,” Bentley CEO Adrian Hallmark told Automotive News Europe.

Bentley has instead joined Porsche in offering plug-in hybrid versions, starting with the Bentayga Hybrid SUV.

High-end luxury cars are a better place to absorb the 2,640 euro to 4,400 euro cost of the battery pack, Bernstein’s Warburton said. “Plug-in hybrids should still be profitable on larger cars, but in the smaller segments, a several-thousand-euro increase can make the difference between a profit and loss,” he said.  “We think it is unlikely that automakers will be able to sell plug-in hybrids at a higher price than internal combustion engine cars, on the basis that plug-in hybrids provide no real extra benefit to the consumer.”

Therefore, battery costs will be absorbed by automakers. If the automakers can make the sums work, there is a growing enthusiasm for electrified cars, especially EVs.

“There is a much higher awareness, interest is increasing, and definitely there is S-curve behavior happening in EV adoption,” said Irle of EV-Volumes, referring to steep growth after an initially slow start. “We see 40 percent growth rates as normal.”