DIESEL BREAKTHROUGH MAY SLOW ELECTRIC VEHICLE ADOPTION
A recent technology breakthrough announced by Bosch, which the company claims can radically reduce nitrogen oxide emissions from diesel engines, has the potential to reverse some of the recent pullback from the fuel, Fitch Ratings says. This could moderate the pace of electric vehicle (EV) adoption by restoring one of auto manufacturers’ more powerful options for meeting fleet-wide carbon dioxide (CO2) emissions targets. Diesel engines have better fuel efficiency than gasoline engines and therefore emit less CO2, despite being more polluting.
Bosch has announced a new technology that it says has the potential to reduce diesel vehicles’ nitrogen oxide emissions to a tenth of the regulatory limits scheduled to come into force by 2020. Diesel vehicles have had a mixed history with regulators and public perception. For some time, they were favoured in Europe in the pursuit of fuel efficiency and CO2 reduction. But following the Volkswagen emissions scandal, more attention has been paid to the level of pollutants they produce, particularly nitrogen oxide and particulates, leading to bans on certain diesel vehicles in some European cities, a reduction in demand for new diesel vehicles, and falling used vehicle residual values. If the proposed technology provides the silver bullet Bosch hopes, it could allow manufacturers to rebalance their planned portfolios to get more of the fleet-wide efficiencies they need to achieve from diesel efficiencies rather than electrification.
In our recent report “Batteries Update: Oil Demand Could Peak by 2030”, we highlighted the unpopularity of diesel as one of the things that had encouraged manufacturers to step up their plans for EV adoption. These plans are now tracking the hypothetical “extreme case” scenario we first presented in 2016, under which all cars sold are electric by 2035, and which could see oil demand peak by 2030. There remain strong drivers of EV demand, including drive quality, continued improvements in battery costs and performance, green credentials, and a clear policy bias in some jurisdictions in their favour. In the short term, we can add the increased oil price, which has recently risen to USD75 (Brent), well above our long term projection of USD57.50.
However, major constraints to the adoption of full EV remain, including the extra cost, the lack of charging infrastructure, and the time needed to recharge the battery, leading to a high degree of uncertainty regarding the pace and extent of EV adoption. The “extreme case” above assumes a 33% CAGR of sales to 2035, which becomes more of a stretch the further out in time you go. But whatever the true path was, Bosch’s announcement, if the technology is demonstrated and gets widespread take-up, will lead to slower adoption.