Will diesel car sales rebound in Europe?

The first round of CO2 targets for light vehicles in the EU established fleet average limits of 130g CO2/km in 2015, and 95g CO2/km in 2021.

While the first was easily met — 2015 average CO2 emissions were 119.5g CO2/km — the 2021 target is far from being achieved, despite the severe penalties involved. In fact, after reaching a low of 118.1g CO2/km in 2016, average emissions increased two years in a row and reached 120.4g CO2/km in 2018. This is a direct consequence of 'Dieselgate', which prompted bans or restrictions on older diesel cars in some cities and a shift in public opinion against diesel. With a charging infrastructure for electric cars still being developed and battery costs remaining prohibitive in most segments, drivers have been switching from diesel to petrol vehicles, leading to higher average CO2 emissions.

Despite a continuous fall in diesel share of new car sales in the EU since the scandal, different trends have recently been observed in some countries. An interesting case is Germany, where the diesel share has been dropping since mid-2016, with an acceleration in 2017 when cities started to take action to restrict diesel car circulation. After some slowdown in the pace of decline in 2018, the diesel share stabilised and then started to increase in the first half of 2019 (See Figure 1).

One might conclude that the worst for diesel has now come to pass, and that the share of diesel will continue to increase, particularly on the road to the 2021 targets. But recent car sales have been impacted by another important factor: the transition from NEDC to WLTP emissions testing cycles in September 2018. As explained by a recent article from the International Council on Clean Transportation, VW cars took longer to get type approved under the new test procedure. Towards the end of the year, diesel car certification was finalised and sales bounced back quickly, but gasoline cars were still uncertified. Therefore, the share of diesel cars looked more stable in countries where VW and Audi cars have a stronger presence, particularly in Germany and Austria (See Figure 2).

If diesel cars are important for manufacturers to reach the 95g CO2/km target in 2021, the prospects for all internal combustion engines look uncertain in the wake of the future CO2 targets. In December 2018, the EU confirmed a 15% reduction target for 2025 based on a 2021 WLTP baseline and a 37.5% reduction for 2030.

To meet these limits, car manufacturers will have no option but to electrify faster. Renault and Nissan, which were among the first to establish ambitious electric vehicle (EV) penetration targets, still aim for a 20-30% share of electric cars by 2025. GM and Toyota have similar targets, whereas VW is targeting a 40% share of global sales by 2030.

The longer-term future of diesel cars in Europe is therefore lacklustre. Most industry observers expect that the diesel car share will continue to drop in Europe, from 30% in 2019 to 10% or lower in 2030. The pace of this decline will be dictated by battery costs and EV incentives, but also by how well gasoline, diesel and hybrid cars adapt to the second and final round of real-world driving standards.

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