Electric Cars Won’t Save European Auto Makers as Diesel Sales Drop

The Wall Street Journal The Wall Street Journal

Manufacturers are focused instead on making more gasoline-powered vehicles to offset the shortfall

In Germany, threats by politicians to ban diesel cars from cities have scared off customers, and sales of new models plunged 14% in August from a year ago, Germany’s federal motor vehicle agency said.

As sales of diesel-powered cars take a dive in Europe, the continent’s car makers, heavily invested in the technology, are scrambling to offset the shortfall.

Electric cars, often seen as the future of the industry, aren’t the solution—at least not yet.

European auto manufacturers polled by The Wall Street Journal said demand for electric vehicles remained too small for them to replace diesel cars anytime soon. While all the companies are investing in electric mobility, their immediate focus is on building more gasoline-powered cars and making diesel engines cleaner.

Since Volkswagen AG , the world’s biggest auto maker by sales, was caught rigging diesel engines to dupe emissions tests two years ago, sales of diesel cars have declined rapidly.

In diesel-country Germany, for example, threats by politicians to ban the cars from cities have scared off customers, and sales of new models plunged 14% in August from a year ago, according to Germany’s federal motor vehicle agency. Sales of gasoline-powered cars rose 15%.

Research group LMC Automotive says diesel’s market share in Europe, always the biggest market for the technology, could decline to around 45% this year from 53% before the scandal.

By comparison, electric cars or hybrids are expected to grab 4% of the European market this year, up from 2.3% before dieselgate.

Electric-car sales in Europe by type, as a percentage of totalTHE WALL STREET JOURNALSource: LMC AutomotiveNote: 2017 is a forecast
%Mild hybrid electric vehiclePlug-in hybrid electric vehicleBattery electric vehicle2012’13’14’15’16’

The high price tag on electric cars, the scarcity and inconvenience of charging stations and the vehicles’ inability to travel long distances have put off drivers. Car makers, who dragged their feet for years on electric cars, also have few models in the market to lure consumers away from diesel.

“In many segments that are of interest to families, the products just aren’t available,” Steve Armstrong, CEO of Ford of Europe, told The Wall Street Journal on the sidelines of the Frankfurt Motor Show.

Auto makers at the Frankfurt show announced big plans for the future. Volkswagen increased the number of electric models it would offer by 2025 to 80, up from 30, and said it would offer electric versions of all its 300 models by 2030.

BMW has committed to offering 25 new electric cars and hybrids by 2025, and Daimler plans to offer an electric version of every model it makes by 2022.

But car makers aren’t sure they will make money on electric cars soon. A Daimler executive told investors on Monday that the company expected half the margins on electric vehicles compared with the cars they replace.

“If it works and companies can be profitable, that’s good,” Peugeot Chief Executive Carlos Tavares said this week. “But if it does not gain acceptance in the market, then everybody—industry, employees and politicians—have a big problem.”

While Peugeot is planning to launch seven plug-in hybrid vehicles and five fully electric cars between 2019 and 2021, it is scrambling now to double production in France of some gasoline engines “to meet growing demand,” a spokesman said.

Other car makers said the decline in diesel sales in Europe would have little to no impact on production or jobs at their engine plants. The reason is because most models already come with an option for either diesel or gasoline. That means auto makers simply ramp up production of gasoline engines if demand grows.

The bigger problem is shouldering the costs of developing electric car technology as regulators around the world continue to attack the conventional internal combustion engine.

France and the United Kingdom have announced plans to ban all gasoline and diesel powered vehicles after 2040. They would possibly exclude hybrids, but the aim is to promote all-electric vehicles.

In Germany, Volkswagen, BMW AG and Daimler AG’s Mercedes-Benz are engaged in a frantic battle to defend diesel, which they say is necessary to meet the European Union’s ambitious climate goals.

Diesel produces fewer greenhouse gas emissions than gasoline. The downside is that it produces toxic nitrogen oxide, which is linked to deaths and respiratory diseases.

The German manufacturers are spending millions on a voluntary recall to update the core engine software on some of the newest diesels to make them cleaner. They are also offering as much as €10,000 in cash incentives to customers who trade in old diesels and purchase a new car—regardless of what type of engine is under the hood.

With so much at stake, the entire industry is watching Germany to see if the car makers can “preserve the validity of diesel as a technology solution,” Fiat Chrysler Automobiles NV CEO Sergio Marchionne said recently.

“My gut tells me that whatever happens out of all of this that we’re going to see diesel come out of this in a much weaker state than it was on the way in,” he said.

Klaus Fröhlich, BMW board member in charge of research and development, told reporters last week that the diesel scandal had spawned “irrational regulatory initiatives” around the world.

BMW expects to sell 100,000 electric cars and hybrids this year—out of a total of 2.4 million vehicles. By 2025, it plans to offer at least 12 pure electric vehicles and 13 hybrids, compared with nine electric cars and hybrids in 2017.

Volkswagen has launched a major investment drive to develop roughly 30 new electric models across its brands that include VW, Porsche, Audi , Skoda, SEAT, Bentley and Lamborghini. But at a gathering of around 300 employees for a town hall meeting with Chief Executive Matthias Müller last week, some attendees seemed unconvinced.

“Why are we investing so much into a market that is a niche of a niche of a niche?” one person asked.

Mr. Müller said Volkswagen had to have its feet planted firmly on both sides of the field. It had to keep developing the combustion engine until the market for new technology takes off.

“That’s why I say the technologies will have to coexist,” he said. “One day, electric vehicles will make up 25% of our sales.”