Ideal stepping stone?

Al Bedwell, Director, Global Powertrain

01 November 2018

long term future of PHEVS

Could PHEVs become the white elephant of the EV world?

On the face of it, plug-in hybrid electric vehicles (PHEVs) seem like an ideal stepping stone on the roadmap to sustainable mobility. They offer the ability to be zero-emission when desired (as long as their batteries have sufficient charge), while mitigating the range anxiety associated with pure electric vehicles (EVs). In recognition of these environmental benefits (compared with conventional ICE vehicles), they are usually included in the package of EV consumer incentives offered by many jurisdictions around the world. However, because in many driving modes they do produce emissions, the level of incentive that they attract is often lower than that of the BEV, a full-time zero-emissions vehicle.

“PHEVs have thus far attained very good fuel efficiency and CO2 ratings “

From the OEM perspective, a key benefit is that PHEVs have thus far attained very good fuel efficiency and CO2 ratings during the certification processes that are required prior to eligibility for sale. Aside from an enhanced contribution to OEM fleet CO2, CAFC or CAFE reduction requirements, the strong environmental credentials of PHEVs may very well be reflected in a lower tax burden for the user, especially in the business sector. The PHEV driver, aside from possible financial benefits, gets a vehicle that (in EV mode) feels more premium than similar non-PHEV rivals, probably has enhanced performance and does not require much change in behaviour compared with a conventional ICE car.

As a result of the demonstrable benefits of PHEVs, they have established a sales base in many markets. There are around 50 mainstream PHEV models currently available worldwide, with sales amounting to 425,000 units in 2017. Excluding China and its very large BEV market, PHEVs were the bestselling plug-in cars globally last year.

“There are around 50 mainstream PHEV models currently available worldwide”

So with a raft of advantages and strong sales performance, why should we be worried about the long-term future of this technology?

Near-term concerns include the sustainability of incentives and, from a European perspective at least, the impact of WLTP on PHEVs. Like most types of electrified vehicle, PHEV demand is highly incentive-dependent, be they direct (such as a sales grant) or indirect (such as gaining an advantage in the license-plate lottery in Chinese cities). Reduction or removal of such inducements results very quickly in falling or even collapsing sales. Worryingly, we are seeing a tendency for EV incentives to focus on full-time zero-emissions vehicles, which are seen by regulators as the long-term transportation solution to greenhouse gas and urban air quality issues.

“we are seeing a tendency for EV incentives to focus on full-time zero-emissions vehicles”

Under outgoing emissions testing schemes like the NEDC, most vehicle types recorded results that differed substantially from real-world performance. For PHEVs, however, the difference can be huge, running into several hundred percent. PHEVs have historically been treated more like BEVs than ICEs, meaning that their test CO2 emissions appeared unrealistically low, hence why they qualified for BEV-like fiscal treatment. Under WLTP, the PHEV driving mode is no longer assumed to be undertaken with a fully charged battery, meaning that the ICE engine operates for longer, leading to higher emissions. To counter this, OEMs in Europe are redesigning PHEVs such that they have a longer EV-only range. While this happens, many PHEV models have been withdrawn from the market. So, aside from lost sales (we estimate up to 50,000 in the 2018/19 period in Europe), there will be a production cost penalty for the new generation of longer-range PHEVs.

“the government altered PHEV incentive qualification to a level that no current PHEV can meet”

Incentives are not likely to increase to offset this – rather the opposite. An example is the UK where in mid-October this year the government altered PHEV incentive qualification to a level that no current PHEV can meet. PHEV sales were pulled forward of that event, but are expected to decline dramatically afterwards.

By its nature, PHEV is an expensive technology as it effectively requires two connected powertrains. With the fiscal support infrastructure for PHEVs likely to deteriorate, and a requirement for more (expensive) battery capacity to be built in, the long-term profitability of this market segment looks questionable.

We always considered that PHEV was a technology that would smooth the way for BEV, but as it faces increasing headwinds and the BEV sector gets massive investment, which will result in lower prices and increased desirability, the window of opportunity for PHEV may be smaller than originally thought.