Analysis
5 Mar 20

This is how PHEVs will impact the market

The number 95 will go down in automotive history as one of the most dreaded targets ever. It is the amount of CO2 in grams per kilometre the EU has imposed as a maximum weighted average for all cars OEMs sell this year. Guess what this means in terms of new BEV and PHEV models.

Most car manufacturers have been postponing the launch of their all-electric model (BEV) to this year. That is only logical: they cost a lot to develop, create little margin and the market is only starting to warm up. In 2019, the total battery-electric vehicle sales hit 350,000 units in Europe, on a total of roughly 15 million. That's a market share of just 2.3%.

But there is another good reason: a thing called super credits. Starting in 2020, every vehicle that emits less than 50g/km counts double in the calculation of an OEMs weighted average CO2 emissions. Indeed, that means that most plug-in hybrids or PHEVs (which typically emit between 40 and 50g/km) also contribute to lowering the average, but not to the same extent as BEVs (0g/km).

Push now or pay later

This year, a multitude of new BEV and PHEV models will be arriving on the market, as you can see in the graph below (source: Transport & Environment). From about 60 battery electric (BEV), plug-in hybrid (PHEV) and fuel cell (FCEV) models available at the end of 2018, the offer will go up to a combined 176 models in 2020.

EVs (or xEVs) are still relatively expensive to build and create little margin for OEMs, but they are a “necessary evil”. OEMs have two options, basically: push EVs now and make less money than they would if they just continued selling combustion engine cars or pay hefty fines in 2021 for not respecting their target. The most cost-efficient solution seems to be to sell just enough EVs to hit the target – and that is going to be an interesting balancing act for OEMs next year.

It may cause serious local market disturbance, especially towards the end of 2020. Carmakers that are on an emission collision course will surely search for solutions to make sure the numbers add up. It is likely to become a combination of big discounts, self-registrations and an increased rental activity. The latter option only postpones the problem: these cars are coming back after a few months. The first two options are definitely bad news for residual values, which are only just starting to increase.

Sales steering

Depending on how eager the market will be to absorb all those new (x)EV models – something that is directly linked to the availability of subvention schemes and charging infrastructure - OEMs may also limit the availability of high-CO2 models, such as petrol-powered crossovers, even though they are in demand.

Other models, mainly diesel-powered C-segment and D-segment hatchbacks, saloons and estate cars, will become more difficult to sell, even though they have no negative impact on the CO2 average. For those vehicles, importers and dealers will have to be creative, too. Rather than dumping them on the local market, they may want to consider the services of a trading company, which can discretely channel ‘unwanted’ vehicles outside the EU.

Image copyright: BMW

Authored by: Dieter Quartier