Europe 2020

Al Bedwell, Director, Global Powertrain Forecast

11 December 2019

2020 Could be a Strange Year for Europe’s Car Market

From a volume perspective, the fundamentals point to a 2020 car market little changed from 2019. But we are already starting to see seasonal distortion coming into play as a result of impending regulatory hurdles. As OEMs seek to reduce their new car fleet CO2 emissions levels from January next year, we anticipate (and already have anecdotal evidence of) OEM activity designed to move registrations of high CO2 emitting cars from 2020 into Q4 of 2019. Our best estimate of the impact of this strategy is a fourth quarter Western European car market 7.5 percentage points higher than the same period last year, while the YoY growth for the full year is expected to be just 0.1%. The pulling forward of sales from 2020, coming on top of other confidence-sapping factors, leads us to forecast a rather disappointing 2020 Western Europe car market just over one percentage point lower than that seen in 2019.

This is not a dramatically poor forecast but there are a series of risks, including difficult Brexit transition period negotiations, which could push the market deeper into negative territory. However, the purpose of this blog is to highlight some of the ways in which the powertrain and vehicle type mix might need to alter in order for OEMs to meet their CO2 obligations. Of course they may not do so, in which case little would change apart from the payment of large fines and the potentially unquantifiable losses that would stem from image damage in these environmentally conscious times. So, our default position is that OEMs will do everything in their power not to miss CO2 targets.

For some that means significant action is required. To quarter three of this year (the latest actual data we have) it appears that the overall gap between the current CO2 position and that required by the end of 2021 is little or no better than it was a year ago. There is a wide variation of course, with the best placed OEM just 6 grams of CO2 per kilometre away from the required position while the worst needs to make a 40-gram improvement.

However, we shouldn’t be too surprised that the CO2 trend has not yet started to move in a positive direction for many OEMs. There is no incentive for OEMs to start selling their most fuel-efficient products before January of next year, particularly those (often plug-in vehicles) which may be less profitable than conventional ICE cars. The volumes of those will start to be ramped up in earnest from 2020 as will the shift, especially among European premium brands, toward 48V mild hybrid fitment. But while that technology, and to some extent plug-in hybrids, can be maximised in the marketplace via attractive lease deals, the opportunity to do the same with battery electric vehicles is limited. This is because the barriers to BEV ownership for most people are greater than those for hybrids.

Electrification will help dramatically, but for some OEMs it won’t be enough. We anticipate an almost flat diesel market in Western Europe next year. That doesn’t sound particularly good for diesel, but in the context of a likely 600,000-unit decline in 2019, it is very positive. Further falls in diesel will make the CO2 problem worse. Already we are seeing signs of reversal in the declining diesel share of some models. In addition, some OEMs are removing their high emitting petrol models from sale and replacing them with diesel variants in order to lower fleet average CO2 emissions. Audi has introduced a new range of ‘S’ models and they are all diesel. The 2020 model year SQ5 TDI is shown here. It is unlikely that the petrol SQ5 would have been withdrawn from European sale were it not for forthcoming CO2 targets. That’s not to say that the diesel version isn’t competitive: it is faster than the petrol version it replaces and has lower emissions. In the long-term, cars such as this will be prime candidates for BEV powertrains but right now diesel, or gasoline PHEV, makes much sense.

While the exact powertrain mix of OEMs is impossible to predict (the number of ‘levers’ that can be pulled being huge), we have adjusted our powertrain forecast such that the share of high emitting gasoline vehicles falls. Certain model lines not able to be upgraded to the latest engine families or to be electrified in some way will likely be removed from sale. Electrification will of course see a significant boost. We anticipate that the Europe Big 5 market plug-in share of new car sales will leap from 2.4% this year to 8% in 2020 and to 12% in 2021. In that year, electrified cars of all types (the ‘xEV’ share) will achieve almost 30% market share.