Diesels Down but not Out

Sales of diesel-powered vehicles in Europe fell 8% last year to 6.8 million units, shrinking the engine’s share of the market there to a 10-year low of 44%. But diesel engines still have some life—at least for now.   

Volkswagen CEO Matthias Mueller predicts there will be revived demand for diesels as consumers recognize they are eco-friendly and a “very comfortable drive concept.” He also asserts that diesels, which are about 20% more fuel efficient than gasoline engines, are the best way to meet carbon dioxide emission limits until electrified vehicles become more popular.

Registrations of gasoline-powered vehicles climbed nearly 11% in 2017 and now account for more than 50% of the European market, according to JATO Dynamics. Sales of hybrids and all-electric vehicles soared 46% last year to 737,000 units for a 5% market share. But analysts don’t expect a major shift to electric vehicles to happen for at least a decade.

The decline in diesels stems from VW’s 2015 emissions cheating scandal in which the company rigged 11 million diesels to evade emission limits for nitrogen oxides. The scandal has since focused regulatory and public attention on excessive NOx emissions from diesels and prompted several companies to accelerate their EV plans as they back off diesels.

Fiat Chrysler Automobiles, which gets 41% of its sales in Europe from diesel-powered vehicles, reportedly intends to phase out diesel options for all its passenger vehicles by 2022. And Toyota said last year it was unlikely to add new models with diesel power.

In addition, several major European cities have announced plans to limit or ban diesel vehicles altogether in coming years. Last month media reports said Rome will prohibit all diesels from operating in the center city by 2024. About two-thirds of new vehicles sold in Italy last year were diesels.

But such transitions can be uneven and have unintended consequences. In the U.K., for example, diesel’s share of the new-car market fell to 42% last year from nearly 48% in 2016. The decline coupled with the switch to larger, less fuel-efficient crossover vehicles resulted in an uptick in CO2 emissions—the first year-over-year increase in more than 16 years, according to the Society of Motor Manufacturers and Traders. SMT says Britain’s average new-car CO2 emissions fell from 181 g/km in 2000 to 120.1 g/km in 2016 before rising to 121.0 g/km last year.

Meanwhile, Mercedes-Benz warns that its aggressive plans to shift from diesels to electrified powertrains could squeeze profits. The carmaker, which aims to electrify its entire passenger vehicle lineup of more than 50 models by 2022, notes such a move away from diesels will cause significant cuts in capacity utilization for some suppliers. As a result, Mercedes could be forced to pay compensation to help affected vendors cover their fixed costs. At the same time, Mercedes may have to provide financial aid to other suppliers to ramp up development and production capacity of batteries, electric motors and related components.

Sales of diesel cars in France have plunged from 73% of the market in 2012 to 47% last year. The drop-off has left the countries two domestic carmakers, PSA and Renault, scrambling to retool engine plants to make more gasoline engines. To tide it over, PSA has been importing gasoline engines from its Chinese joint venture with Dongfeng Motor.

Other companies remain cautiously committed to future diesel models. Mazda touts its latest Skyactiv-D technology that so far have been able to meet limits on nitrogen oxide emissions without the need for special filters and aftertreatment systems. The carmaker launched the redesigned CX-8 large SUV in Japan in December as a diesel-only model. The vehicle’s 2.2-liter engine generates 188 hp and 332 lb-ft of torque.

Porsche, which was rumored to be phasing out diesels, says it will offer such engines in its redesigned Cayenne large SUV and possibly in the smaller Macan crossover. Company officials point out that diesel’s superior torque and fuel economy “makes sense” in such models.

While the future clearly favors EVs and hybrids, conventionally powered vehicles—including diesels—will have a role to play in coming years.