Published on September 8th, 2018 | by Dr. Maximilian Holland0
Dirty Reality Catching Up With Fossil Fuel Vehicles
September 8th, 2018 by Dr. Maximilian Holland
This week marks an important transitional step away from the obsolete technology of dirty fossil fuel vehicles and in favor of electric vehicles that can run on clean energy. The Worldwide Harmonised Light Vehicle Test Procedure (WLTP) has come into force in the EU from 1st of September 2018, leading to much hand-wringing by the traditional fossil fuel vehicle OEMs, whose cars have always been highly polluting, and are now running out of road. The old fig leaf of the 1990s NEDC (New European Driving Cycle) testing regime is being replaced by the updated, more realistic WLTP testing regime, along with its onroad-emissions-testing counterpart, the Real Driving Emissions test (RDE). While still imperfect, these new testing regimes do track real world emissions performance much more closely.
As a consequence, the current generation of fossil fueled vehicles (FFVs) are now officially earmarked by lawmakers as being more polluting in particulates, carbon dioxide, and other harmful emissions. A higher bar is set for their entry on to the market, which will require expensive and complex technology to achieve. They will also be taxed at higher levels than before, and will cost consumers more to purchase.
Let us be clear that FFVs have always been inherently inefficient, dirty, and polluting, but have not been appropriately sanctioned for their pernicious effects in the past. The previously weak regulatory environment was what allowed, for example, the diesel emissions scandal to occur, and other ways of gaming the system to become part of the culture of the industry. The new stricter regime takes things a step in the right direction for the health of our societies and environment. Several previously popular model variants of FFVs have already fallen foul of their own stink, and either been cancelled outright, have not yet passed the new higher testing regime bar, or have had to be modified to produce lower power than previously, to lower their real world emissions.
Volkswagen stockpiles half of its models
The VW Golf, formerly Europe’s best selling car, has seen many of its variants not yet make the grade. They therefore cannot not currently be sold in the most of the EU region. Reuters recently reported that “only half of its VW branded passenger car models in Germany are compliant with a new pollution standard” because “Volkswagen has only gained regulatory clearance for seven of its 14 main model lines.” It will require at least another month or two before re-certification starts to permit the sales of such FFVs, though VW’s sales and marketing honcho, Thomas Zahn, has stated that VW expects “very strong deliveries in December.” Meanwhile, VW is having to rent car parking spaces by the tens of thousands, just to stockpile the non-certified cars. Fortunately, VW has plenty of experience of stockpiling hundreds of thousands of cars that don’t make the grade. Some of the VW’s Audi brand models have been hit particularly hard (e.g. the RS3 has been shuttered), as have several models under its Skoda brand. It’s worth noting that Renault-Nissan chief Carlos Ghosn has said that the WLTP certification dust won’t settle until spring of 2019, so VW’s hopes for December may be optimistic.
BMW publicly castrates itself
Other traditional FFV makers are similarly affected. BMW’s famous M3 variant of its previously popular 3-series not only cannot compete on performance with the newcomer Tesla model 3, it cannot even legally be sold in Europe any more due to its excessively polluting and dirty emissions. What a blow-hard.
Other BMW models, such as the X3 M40i, have had their power output castrated, just in order to scrape over the higher emissions bar set by the new testing regime. Production and sales of all gasoline variants of BMW’s flagship 7-series are being stopped for a year due to their inability to come clean under the new WLTP standards. BWM’s mini brand has also been hit (see above chart). Both VW and BMW have admitted that, as well as their production plans being disrupted, they will struggle to make profits over the remainder of 2018 due to being pulled up by the WLTP on the dirty reality of so many of their existing model lines. As you can see from the above chart, most manufacturers have had to pull, pause or delay orders and sales on a significant proportion of their models.
Consumers forced into paying extra for dirt
Even those existing models that manage to scrape over the higher bar of the new emissions standards are affected. Under the old regime they could lie about having low emissions of CO2 and other pollutants. Under the more realistic new standards, they receive emissions rating figures closer their true CO2 output in real world driving conditions. BMW has seen a worsening of its emission figures across its entire model range. Even the entry-level BWM 116d SE has seen its rated CO2 emissions rise from 94g/km of CO2 to 111g/km (an 18% rise) and its fuel economy reduced from and 78.5mpg to 67.3mpg (a 16% drop). All other models have seen similar downgrades.
DW.com reports that “The German Association of the Automotive Industry (VDA) has estimated that fuel consumption and CO2 figures will increase by 22 percent on average — meaning first and foremost a welcome windfall for treasuries all over Europe.”
Since tax and other charges are tied to rated emissions output, and all FFVs’ measured emissions have increased under the new regime, this effectively raises the tax on a given model compared to the tax levels it was subject to previously. Twenty of the EU countries use CO2 emissions as a basis for taxation, often including the initial registration fees, as well as ongoing annual road taxes (and equivalents) over the vehicle’s lifespan. More and more cities are implementing low emissions zones, with daily charges for access to these zones calibrated to the relative emissions of the vehicle — or in some cases outright bans. Thus the higher rated emissions of the new standard will cost consumers extra money in this respect also.
There will also be added costs to the purchase price of vehicles due to manufacturers having to add more and more complex and costly technologies to enable an inherently polluting process (internal combustion of fossil fuels) to meet the tighter emissions standards. Renault-Nissan Alliance chief Carlos Ghosn recently stated, “We don’t know if customers will be willing to pay the new prices because we need to add technologies.” Since emissions standards will get ever more stringent in the future, as well as allowing less margins for testing errors, the sticker costs of FFVs will only increase overtime, as well as taxation, entry to low emissions zones, and repair and maintenance costs.
EVs are better AND less costly all round
The ever increasing costs of purchasing and owning FFVs only go to make EVs look relatively more attractive. As the cost of FFVs gets ever more expensive (both environmentally, and on your wallet), the cost of EVs is getting ever less expensive. Batteries and other powertrain components are quickly getting cheaper as manufacturing and know-how scales, and electricity production is turning increasingly to renewables, making the exact same EV less damaging to the environment over time. Meanwhile all FFVs belch out more pollution as they age (and get more expensive to maintain). Related to this deferentially graceful ageing, there’s also the depreciation component of FFVs vs. EVs. This is starting to turn in favor of the latter (we’ll be doing an in-depth analysis of this soon), despite what Kelly Blue Book and other industry stalwarts would like you to think. The truth is, on a total cost-of-ownership basis, especially considering FFVs’ depreciation and coming obsolescence, in the face of the ever tightening emissions context, many the current generation of EVs are already cheaper overall than equivalent FFVs. Savvy folks know this and are queuing up for EVs in droves.
Finally, the relative cost of FFVs vs EVs to the industry itself is changing fast. Alongside the tighter WLTP and RDE emissions standards we have discussed above, from 2020 onward, there will be corporate fines for manufacturers whose fleet average CO2 emissions exceed certain levels. The target for 2020 is 95 g/km. A manufacturer’s fine for exceeding this will be €95 per extra g/km per vehicle sold. So selling a million vehicles that fall 10 g/km short of the target (105 g/km) will cost the manufacturer €950 million. Most manufacturers are still not on track to meet these levels, especially those at the performance / luxury end of the market. The bar will be continuously raised over time. The fines will be passed on to FFV consumers in ever higher sticker prices (and ever higher service fees). This is the single biggest reason why we have seen so many press releases from traditional manufacturers about EVs and plugin hybrids due for release in the 2020-2021 time-frame. EVs (and long-range plug-in hybrids) are the only way for manufacturers to meet these forthcoming EU CO2 emissions targets. The manufacturers will have to accelerate their shift away from FFVs towards EVs. Fortunately there will be plenty of folks lined up to buy them.
There are many other complexities and repercussions of the new WLTP and RDE standards that I didn’t dive into here. Please feel free to add your own insights and perspectives by joining in the conversation in the comments.