EU Slowly Killing Plug-In Hybrids, But Sales Will Accelerate In China

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EU Slowly Killing Plug-In Hybrids, But Sales Will Accelerate In China

Plug-in hybrids seemed the perfect bridge between traditional vehicles and electric ones, but their days are numbered in Europe because of uncompromising government regulation. The Chinese have other ideas.

www.forbes.com

Plug-in hybrids should be the perfect bridge between traditional vehicles and electric ones, but their days are numbered in Europe because of strict government regulations. The Chinese have other ideas.

European Union (EU) carbon dioxide (CO2) rules ban the sale of new internal combustion engine (ICE) vehicles by 2035 and that includes plug-in hybrid electric vehicles (PHEV), like the Peugeot 408 GT Hybrid 225e I’ve just been driving. The recent small gap in the rules for so-called e-fuel to extend the life of combustion engines demanded by Germany could lead the way for a PHEV amnesty, at least in theory, but that looks unlikely.

According to data from investment researcher Jefferies, sales of PHEVs in the EU hit just over 1 million in 2022, will remain close to that until 2025, slip to 813,000 in 2030, before bowing out with 700,000 sales in the final year, 2035. In China PHEV sales will accelerate from just under 1.3 million in 2022 to 6 million in 2025, nearly 8 million in 2030, 7.8 million in 2030 and 8.6 million in 2035, according to Jefferies. At the same time China keeps ahead of EU battery electric vehicle (BEV) sales, hitting 12.4 million in 2035 compared with 11.8 million in the EU.

PHEVs offer motorists insurance against the horrors of range anxiety from current pure electric cars. PHEVs have batteries with about 25 to 60 miles or more of electric-only driving. The ICE then kicks in for up to perhaps 350 or 400 miles. Traditional hybrids pioneered by the Toyota Prius use battery power combined with an ICE to improve fuel economy and reduce emissions of CO2. They have limited, perhaps 1-mile, of electric-only range.


PHEV range matches a regular ICE vehicle and defeats worries electric car range on long high-speed (but legal) journeys might be slashed by 30 to 50% because the laws of physics don’t like electric cars as speeds advance over 60 mph (see Databox).

So what’s not to like about PHEVs? Green NGOs like Brussels-based Transport and Environment (T&E) rail against them as fraudulent. They point out some fleet operators of PHEVs, bought with substantial government subsidies in the name of fuel economy, often perform worse than ICE vehicles. Some company car drivers, with fuel paid for by employers, don’t fill the battery once range has expired. Then the extra weight of the battery means PHEVs emit more CO2 emissions than ICE vehicles.

Private motorists will use the usually cheaper battery electric range to the maximum. It’s their money after all. And a PHEV, even with the limited, average 24.2 miles electric-only range of the Peugeot 408, will mean many average users rarely buy gasoline again, particularly if they can plug the car in at the office during the day. (Peugeot is a subsidiary of Stellantis.)

So why would the Europe seek to outlaw a concept that offers a guarantee against range anxiety, and which consumers seem willing to buy even without government subsidy? Surely modern technology should be able to provide a mechanism that forces reluctant PHEV drivers to use electricity? Geo-fencing sighted around urban areas could force drivers to engage the battery at least when they enter cities.

Felipe Munoz, global automotive analyst at JATO Dynamics, said PHEVs don’t need huge batteries and outlaw range anxiety, but are often too expensive.

“PHEVs are in theory the 2nd best midway solution between combustion and fully electric. The first in my opinion is the full hybrid that needs no plugin. They don’t require big batteries and the driver doesn’t need to care about range,” Munoz said.

“Still, the way the European industry has developed and positions these cars until now is mainly premium. You don’t find small plug-in city cars, and very few (compact) SUVs like the Mini Countryman, Renault Captur, and Jeep Renegade. The majority of the offer is premium, with 53% of the models available, and so the demand: they counted for 51% of the sales of PHEVs in Q1 2023 in Europe,” according to Munoz.

Manufacturers should make clear what their advantages are.

“I think that in order to survive, PHEVs need to find their positioning in the industry. They need to be positioned as the cars that you mainly use in the city with some occasionally longer commutes outside of it. They can’t compete against fully electric in a direct way, so they need to find their purpose that must be different from the BEVs,” Munoz said.

Matt Schmidt of Schmidt Automotive Research agrees PHEVs still have a role to play.

“Going forward there is potentially still room for PHEVs thanks to the smaller batteries and thus fewer critical minerals etc, and with most daily journeys being around 50km (30 miles) each day is it really worth having a large production, energy-intensive battery fuelled car that effectively pinchs those currently limited resources? That is a similar argument Toyota is making, saying that PHEVs with decent ranges are democratizing EV driving allowing more batteries to be used across many rather than few vehicles,” Schmidt said.

As for the Peugeot 408 PHEV, it has arrived too late to shine, Schmidt said, with PHEVs purchase government subsidies all but exhausted in most north European markets. Ford will likely pull the plug on its top-selling Kuga PHEV once the electric Explorer comes to market as it attempts to ramp up battery electric volumes.

According to Schmidt Automotive Research, the Ford Kuga is the biggest-selling PHEV in Europe, followed by China’s Lynck & Co 01, two Volvos – the XC60 and XC40, the BMW 3-Series and Jeep Compass.

Jamel Taganza, vice-president of French consultancy Inovev, said PHEV demand was hampered by confusion about how to get the best out of them. There was a glimmer of light though for at least a short-term boost in demand if Euro 7 rules are not watered down.

So-called Euro 7 CO2 emissions regulations tighten in the fall of 2025. VW has called for implementation to be delayed for two years. European carmakers say the new rules are too costly and impossible to implement at the speed demanded.

“What could be the impact of Euro 7 on the PHEV market? Because maybe it can boost temporarily the sales of PHEVs if they were the only (ICE) vehicles to meet Euro 7 standards,” Taganza said.

All this handwringing must be puzzling the Chinese manufacturers. If the EU does decide to stick with Euro 7 rules, Chinese PHEV makers will be poised to strike.

Meanwhile Schmidt points out an unintended consequence of PHEV technology. Supercar makers like Ferrari use PHEVs to brag about fuel economy, but the battery power boosts performance too.

“Luxury sports cars use PHEV technology to boost performance rather than for CO2 credentials. Ferrari are seeing around a third of their European new vehicles come fitted with a plug,” Schmidt said.

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