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Has Volkswagen killed the diesel car?

The Volkswagen emissions scandal is quite shocking in a numbers of ways. First and foremost, in these days of controls, audits, checks and compliance, it is really unbelievable that they could put a piece of software in a car to enable them to manipulate emission tests. And what is clear is that a huge number of people within VW, as well as their suppliers, would have known about the “defeat device” as it is called. I don’t know if the VW management and supervisory board knew about the existence of the defeat device but I am sure they would have found out earlier this year when the International Council on Clean Transportation published a study entitled In-use emissions testing of light-duty diesel vehicles in the U.S. which showed “VW vehicle emissions were 5 to 35 times the standards during on-road testing.” This begs the question why they did nothing? Why did management not come out and do a product recall and apologize, and be active in dealing with the issue? Where they so naïve to believe that it would never come out? Of course, it could well be that the boards did not find out about the defeat device until the story broke. But if that is the case, that would also be damning, because it would suggest that all of those board members are sitting in their ivory towers and have no touch with reality. Either way, what it tells us is that there are huge leadership issues at VW. But worse still it tells us something about the state of the whole European automobile industry.

That VW, the biggest car company in the world with the largest R&D budget of any manufacturer, had to design a piece of software to allow them to manipulate NOx (nitric oxide and nitrogen dioxide) emission tests, says a huge amount about the future of diesel, a technology that nearly all European manufacturers have invested massively into. And the industry has constantly told us that with diesel it is possible to be both clean (low NOx & particulates) and efficient (high fuel economy & low CO2). The reality as VW have shown us is very different. They obviously found it very difficult to meet US NOx standards. That said, they could have met the US emission standards by putting in place costly diesel after-treatment equipment but that would have caused a worsening of fuel consumption and increase in CO2 emissions. This would destroy the economics of diesel against gasoline.

What the scandal also tells us is that the European regulatory and emission testing framework does not work. They have also allowed themselves to be manipulated by an European automobile industry who has been pushing against increased NOx limitations for years, noting that European NOx limits for new diesel cars (so called Euro 6 rules which just came into effect at the start of this month) at 0.08g per km are still twice what they are in California! And NOx are a major contributor to air pollution which can cause severe respiratory problems. And let’s not forget that there have been other studies which have shown that on-road emissions of NOx from diesel cars from VW and other manufacturers to be higher than the levels see in the lab.

What will happen now is that we will see real-world emissions testing in the US and Europe which could cause a need to retrofit diesel automobiles and redesign new ones. This will have a negative impact on the economics of diesel and thus the sales of diesel cars. It will also make it very difficult for automobile makers to meet, in Europe, their 2020 99g/km C02 targets. This puts automobile manufacturers in a difficult situation. Either they pay fines for not meeting those targets or they invest in new technologies that enable them to meet them.
What those technologies are going to be is already pretty clear. The CEO of BMW Harald Krueger said as much on the 2015 Q2 Conference Call in August “… the BMW i is something which we need to look at the long-term, because as you know that all across the globe, especially in Europe, the CO2 regulations in the future for 2020 are that tough that without electrification, without electric drive trains, you will have no chance to meet those regulations …”
He said this before the VW scandal broke, and I have a sneaky feeling that “long term” is becoming much “shorter term”. The electric car will come even quicker than what we think, thanks to VW!