Diesel is not as dead as you may think

Last week, BMW Group’s NextGen conference in Munich (read Fleet Europe’s report here) was all about electrification and how much the car maker is investing in the transition towards new mobility.

Still, board member Klaus Froelich told on the side-lines of the event that “A best assumption of 30% of electrified sales (battery-electric vehicles and plug-in hybrids) by 2025 means that at least 80% of our vehicles will have an internal combustion engine.” He added that his company expects diesel to survive for at least 20 more years and petrol at least until 2050, Automotive News reports.

If a spokesperson of a large, fleet-oriented carmaker like BMW makes such a statement, it is taken seriously by the industry. In fact, it prompted us to reach out to industry peer Daimler and automotive consultancy Autovista to ask for their view.

Market readiness and margins

Electrification is the only way forward for OEMs. It is a “necessary evil” to comply with the emission targets set by the EU. But that does not mean all Europeans will be driving electric cars by 2025. Outside Europe, in markets like Russia, the Middle East and Latin America, e-mobility is anything but on the agenda.

“One thing is clear: the future is electric. But it is also clear that a wide range of our global markets do not yet provide the conditions for the daily use of battery-electric mobility and that is likely to remain so in the next few years,” the three-pointed star says, concurring with BMW’s assertion.

“That's why today, our main concern is to keep our portfolio in balance, figuratively speaking. Here we have several factors in view: first and foremost the reduction of CO₂ and thus the fulfilment of legal requirements. Naturally, the requirements of our customers are just as important to us as we want to offer them a suitable mobility offer in the future as well. But we also keep an eye on the efficient use of our resources, the costs and thus the profitability of our company.”

Combust or go bust

Political correctness prevents them from explicitly admitting it, but Mercedes – like BMW, JLR and VW Group – would like to see diesel engines to stick around for as long as possible. It’s what they have invested in, it’s what helps them achieve CO₂ targets and it’s what their biggest clients want to continue driving because of the lower TCO the oily fuel still offers in the case of high-mileage drivers. It is also the only fuel that works for LCVs and trucks, which in most cases need torque and range.

In the wake of dieselgate, many fleet managers are still uncertain as to what to do with diesel: strike it from the car policy for good or keep it – albeit for only the +30,000km per annum cases. Rationally, they have no reason to shun the fuel now that the Euro 6d-temp/WLTP/RDE is in place. Local diesel bans are based on false assumptions and throw the baby out with the bathwater: the latest diesels are cleaner than ever before, as research shows.  

But what about the other crucial element in the equation: residual values? “Looking towards 2025, we expect only the slightest of declines in RVs for diesel-powered engines in Germany; the correction has already taken place”, Autovista told Fleet Europe. “The biggest corrections should occur in France with medium-to-high single digit percentage declines depending on segment, because there is still an oversupply of diesel used cars. Italy, Spain and UK will see substantial single digit percentage declines in our most likely development scenarios, but lower than those anticipated for France.”

After 2025, Autovista believes the development of market shares of diesel and petrol will be supply-driven rather than demand-driven. “It is not a trade secret that the industry is heavily focussing on pushing electric mobility and actively intending to reduce the supply of both petrol and diesel engines in their portfolio.”

Plug-in hybrids galore

European car makers will be focusing on plug-in hybrids rather than full EVs over the next years. PHEVs help them lower the carbon footprint of their fleet considerably, they keep the existing industry alive and they do not require tough efforts from their customers.

Volvo is launching the XC40 T5 Twin Engine, Audi the Q5 55 TFSI e Quattro, BMW the X3 xDrive 30e and Mercedes allegedly the A 250 e in September.

“By 2025, we expect 15-25% purely electrical share. Conversely, according to this prognosis, at least 75% will still have an internal combustion engine on board - with corresponding electrification," Mercedes said. "We are systematically implementing our portfolio so that we could reach more than half of our car sales by at least plug-in hybrids or even all-electric vehicles by 2030.” Mercedes is the only brand that offers diesel plug-in hybrids, incidentally.

Corporate car taxation

To find out more about how company car taxation is set up in 29 European countries, including benefit in kind, fiscal deductibility, EV incentives and other tax benefits, check out the Fleet Europe Taxation Guide here.