8 November 2018
Dieselgate
When in 2015 VW confessed that it had installed software in its cars which was designed to falsify emissions test results, the car industry realised that there would be serious consequences. Only now are we starting to appreciate the full extent of the changes that may follow in the scandal’s wake. The press, and consequently the public, have started to characterise diesel engines as ‘evil’ producers of noxious emissions that damage our lungs and cause premature death by respiratory disease.
Of course this is an overreaction. Diesel engines have progressed hugely in the last couple of decades and those made to the Euro VI standard trap 98% of harmful particulates. Future developments would have made them even cleaner. They also emit less CO2 than petrol engines and therefore contribute less to global warming. For long journeys the economy of a diesel engine is unsurpassed. In spite of recent advances in battery technology the electric vehicle cannot yet compete with the diesel’s range.
Diesel’s demise
Nevertheless, the public has formed its opinion and is acting on it. Monthly car sales in September fell by 20% in the UK compared with the same month last year, the largest monthly decline since the Financial Crisis. A number of factors were responsible, the sudden fall in diesel’s popularity being one. Diesel sales were down by 42% at 98,191. Petrol sales were also down, but only by 6.7%. EVs and hybrid sales rose by 3.9%: 23,507 were sold.
Electric and hybrid cars still only make up about 0.5% of the total but Dieselgate has given them an impetus which will have far-reaching effects on the car industry.
German industry under threat?
Nowhere will the effects be felt more acutely than in Germany. The German car industry makes most of its profits out of manufacturing luxury cars. BMW and Daimler (the Mercedes-Benz brand) are the market leaders, and VW makes 65% of its profits from its luxury brands Audi and Porsche. Four-fifths of the world’s premium cars are made by these three manufacturers. Furthermore the engineering giants Bosch and Siemens devote much of their output to supplying the car industry. The industry represents 13% of the country’s industrial output and employs 800,000 people. It is the flagship of German enterprise and therefore underpins the country’s export success.
The German car industry was until recently inseparable from its politics, funding the Christian Democratic Union, whilst the car trade unions fund the Social Democrats. All this is changing rapidly. Angela Merkel, who has used her influence to dilute EU car emissions standards, is in the departure lounge, and the Greens now hold more sway than ever before. Recently a German court opened the way for many cities to impose access restrictions on diesel cars.
Slow to respond
And yet the German car industry is well behind the curve in the development of EVs. German suppliers are not geared up to supporting an entirely new industry. And one could argue that cars that are designed for drivers’ enjoyment do not match the concept of an electric vehicle that is little more than an electronic device on wheels. In the field of luxury cars Jaguar Land Rover has stolen a march on the Germans with its new I-Pace electric SUV, whereas German manufacturers are still basing their EVs on existing ICE models. Tesla are also taking a share of this market, but there are other new kids on the block, for example Dyson.
The rise of the East
Dyson is perhaps indicative of the geographical shift that could undermine Germany’s pre-eminence. Although founded by a British engineer who gained his expertise in electric motor and battery technology from the development of his eponymous vacuum cleaner, the company now proposes to manufacture its new EVs in Singapore because of its proximity to “high-growth markets” in Asia. Meanwhile EV production in China has soared from being insignificant in 2012 to representing nearly half of the global total in 2017. It should also be noted that both Renault-Nissan-Mitsubishi and Toyota, two giants that rival VW in size, are both much further down the line in their development of EVs and hybrids than their German competitors.
It is quite possible that the focus of the global car industry, not only for basic cars but also for premium models, will soon move from Germany (and therefore Europe) to the Far East, significantly diminishing Europe’s dominance in high quality engineering. And, as history will testify, with industrial dominance comes political power.
If this blog raises any issues that you wish to explore further, please do not hesitate to contact me or a specialist in our automotive team.
