Recent events in the automotive industry have heightened the worry around diesel being a viable option for automotive powertrains. However, according to a report by Roland Berger Strategy Consultants, diesel will remain a key pillar in OEM powertrain strategies in Europe, which spells into an opportunity for suppliers to implement innovative solutions for more efficient and clean diesel technologies.
In the global core passenger car markets, the diesel powertrain is mainly a European phenomenon with over 50% of new sales. In Europe, an overwhelming 53% of the 12.5 million cars sold in 2014 were diesel as compared to 3% of the 13.8 million cars sold in the USA. As of today, the road transport sector is the largest source of NOx emissions in Europe and diesel is a major contributor.
In China, less than 1 percent of the 18.1 million cars sold last year were diesel. Now with the diesel controversy even that will reduce. In Japan, 2% of the 4.7 million cars sold were diesel powered. India, of course, is very much a diesel market with 52% of the 2.6 million cars sold. Brazil, where diesel is banned, is a 100% ethanol market and accounts for 2.8 million cars.
Roland Berger Strategy Consultants says European OEMs have utilised the fuel-efficient diesel powertrain as a key lever to reduce corporate fleet CO2 emissions, especially in the EU due to 2020/21 CO2 vehicle emission targets. These targets are basically impossible to reach without diesel. Therefore, expect diesel to remain a key pillar in OEMs' powertrain strategies, especially in Europe.
Some resultant benefits of the current debate about diesel will, however, further drive innovations in combustion and after-treatment of diesel due to increasing regulatory requirements and standards, and will enforce test cycle implementation aiming to reflect Real Driving Emissions (RDE). Also, in order to fulfil RDE regulations, diesel will become cleaner (with emission levels similar to petrol engines), but also more expensive. The resulting cost increase will accelerate the substitution process from diesel to smaller petrol engines, especially in lower vehicle segments. Diesel will still remain dominant in the upper vehicle segments but total diesel share in Europe will decline in the coming years.
OEMs, therefore, have to further accelerate alternative powertrain solutions. Suppliers have the opportunity to implement innovative solutions for the further control of diesel RDE, and should also step up their preparations for alternative powertrains.
2025 worldwide outlook: Diesel car demand down in most markets but not in India
In the USA, customer interest in diesel (whose price remains higher than petrol) in will decline due to the recent controversy. The leading local carmakers will focus on efficient petrol engines and electrification and diesel will only be offered in some niche market segments.
European OEMs will still focus on diesel technology due to existing investments and CO2 emission targets. While diesel powertrain is getting more expensive, partly due to implementation of RDE cycles with Euro 6c, diesel will lose market share (especially in smaller vehicle segments). Diesel will still play a major role in upper vehicle segments though.
China and diesel don’t jell. The Chinese government is heavily promoting the development of battery electric vehicles (BEV). Diesel engines will not play any role in China for passenger cars and diesel engines are only relevant for trucks.
In Japan, there is a strong focus of Japanese OEMs in alternative powertrain technologies (i.e. hybrid and electric vehicles) and there are government subsidies for alternative powertrains. So no major share of diesel engines in passenger cars is expected.
The India market though is different. Diesel fuel has a price advantage even without subsidies and sales of diesel-fuelled cars are expected to keep on rising.
Opportunities for suppliers
Diesel is essential for CO2 reduction by OEMs but higher technology demand to meet regulations. Here are some potential benefits for the supplier industry:
- Innovative solutions for more efficient and clean diesel technologies needed.
- Innovative solutions for more efficient petrol technologies needed
- Higher demand for alternative powertrain solutions increases demand for cost-intensive BEV/PHEV cars.
- Higher demand for after-treatment solutions for diesel engines to meet RDE regulations.
- Long-term volume reduction through increasing demand for BEV cars
- Shift from diesel to petrol engines in car segments changes the technology.
- Long-term volume reduction through increasing demand for BEV cars.