Automotive News Europe - June 2019 - 7

AUTOMOTIVE NEWS EUROPE

COVER STORY

WLTP. Automakers would need popular
EVs in cheaper, more accessible categories to be able to carry on selling conventional SUVs or face fines.

or gasoline engine. Also affecting all cars,
small to large, are EU requirements to
add a raft of mainly camera-based safety
equipment starting in 2021.

That means an automaker's smallest,
lightest car -- the car that traditionally
helped lower the company's average
CO2 -- no longer offsets the higher emissions of bigger cars. This car exists purely as a business case in its own right, and
the business case for minicars is poor.

Cutting CO2 emissions by means of partial electrification such as adding mildhybrid, full-hybrid or plug-in hybrid technology is one option, but this solution
won't be economically viable for many
brands. A 48-volt mild-hybrid option
adds 600 euros to 1,000 euros per car,
according to Bernstein analysis, a full
hybrid costs almost 2,000 euros while a
plug-in hybrid adds up to 5,000 euros.

'Under pressure'
"Ironically the smaller vehicles are
toughest to reduce CO2 in," Ford of Europe Chairman Steve Armstrong told Automotive News Europe at the recent unveiling of the Kuga SUV. "The smaller the
vehicle, the tighter the margin, the harder it is to meet emissions targets."PSA's
head of Europe, Maxime Picat, agreed.
"The ability of any carmaker to make a
profit [from minicars] is under pressure
because of all of the technology we have
to add in our vehicles for safety and for
emissions."
Another reason why small cars are going
to get more expensive to produce -- even
if they keep their combustion engines -
is because of tougher standards for oxides of nitrogen (NOx) that take effect in
September 2020. Ford's Armstrong estimated that bringing tailpipe emissions to
the Euro6d Temp standard will cost about
2,000 euros whether the car has a diesel

Looking at the average cost of minicars
and small cars, it's clear they aren't well
placed to absorb the extra cost. Statistics from JATO show that the average retail price of cars registered in Germany,
Spain, France and Italy in the first quarter of 2018 was 14,152 euros for minicars and 17,459 euros for small cars.
Bernstein estimates that automakers
make "only a few hundred euros" gross
profit per car on small cars.

'Not ready to pay'
Any cost increase, however, won't be
tolerated by the customer. "The smaller
the car the harder it is to justify this price
increase because the tech costs more or
less the same for a small car as a big car,"
Alain Favey, head of global sales and marketing for Skoda, told ANE. "People are
not ready to pay it."

Automakers will only be able to pass on
25 percent of the total cost of CO2 compliance technology, leaving automakers
to shoulder the remaining 75 percent,
according to a recent report by UBS that
examined the earnings impact.
Right now electrification in small cars and
minicars accounts for a tiny portion of the
market. Toyota alone has shown that car
companies can make a full-hybrid system
work in a small car with the successful
Yaris hybrid, which emits 84g/km of CO2.
Toyota, however, is unique in achieving
economies of scale for its hybrid powertrain partly because of strong demand
for the system in Japan. That popularity
should also help Honda when it adds a hybrid version of its new Jazz small car next
year, while Nissan has said it will add its
E-power system, which is currently only
offered in Asia, in Europe.

Small-car dependent
The two brands most reliant on small
cars in Europe are Fiat and Renault, with
each brand counting on the models for
more than 60 percent of their total 2018
European sales. Nearly all of Fiat's share
was in minicars due to the popularity of
the 500 and Panda, which are the two
best-selling cars in the segment, leaving
parent company Fiat Chrysler Automobiles particularly vulnerable to fines once
the new emissions regulations start to
take effect next year.
FCA plans to spend 1.8 billion euros in the
next three years to buy regulatory credits
to minimize the number of emissions-related fines it will pay in Europe and the U.S.
This plan includes paying Tesla to join it
in a pool to offset FCA's high emissions in
Europe and also benefit from the so-called
"supercredits" that ultra-low emissions
vehicles bring until 2022. Fiat has already
killed the two-cylinder engine that performed poorly in its Panda and 500 in realworld CO2 tests, but the automaker said
it remained committed to the sector. "FCA
is constantly working on making cars less
polluting and safer, but that does not mean
having to renounce market segments that,
by their nature, meet specific customer
needs," a spokesman told ANE.

Electric future?
Toyota's success with hybrids in Europe is due to
strong demand for gasoline-electric versions of the
Corolla, RAV4, C-HR and Yaris (shown).

JUNE 2019

Fiat next year will launch a full-electric
version of the 500, on a new platform,
to prepare itself for what some automakers believe is the only viable propulsion for the smaller car sectors. Citroen

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Automotive News Europe - June 2019

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