thin air

Green Cars Not Yet the New Black

Hybrid Cars
Nice car but Daimler still has a way to go with hybrid technology.
  • Why it matters

    Why it matters

    Carmakers are trying to reduce emissions and are investing in hybrid vehicles but few people are buying them, making it hard – and expensive – to achieve environmentally-friendly targets.

  • Facts

    Facts

    • Car buyers are choosing bigger, cheaper cars as rising SUV sales show – one in four Audi and BMW cars sold is a sports utility vehicle.
    • Car makers have ambitious environmental targets to meet to put one million hybrid vehicles on Germany’s roads by 2020.
    • Potential buyers of hybrid vehicles are put off by high prices and the lack of charging stations.
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    Audio

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Top German car executives including Daimler chairman Dieter Zetsche and Volkswagen chairman Martin Winterkorn made an expensive promise to Chancellor Angela Merkel in May 2010, when they vowed to put a million electric cars on Germany’s roads by the end of the decade. So far, the number of vehicles with electric or hybrid drives remains miniscule, barely reaching one percent of all new registered cars.

But those numbers will likely increase, as the European Commission, unlike the German government, steps up pressure on automakers by requiring the average vehicle emission to fall below 100 grams of carbon dioxide or less per kilometer by 2020. The European auto industry is nowhere near achieving that reduction, forcing manufacturers to assume the costs of the advanced technology without profiting from it.

In Copenhangen, Ola Källenius, Daimler’s executive vice president of sales and marketing for Mercedes, recently showed what the future could have in store when he presented a new Mercedes-Benz S-class with hybrid drive. The car can travel 30 kilometers (18.64 miles) on electric power only and, when using fuel, up to 100 kilometers per 2.8 liters. Its carbon dioxide emissions are just 65 grams. And its price is comparable to S-class vehicles with a conventional drive.

Daimler is absorbing the added costs for the supplemental electric motor and all the other technology that replaces the internal-combustion engine during short distances because, according to Mr. Källenius, customers aren’t willing to pay more. More than 10 percent of Daimler’s vehicles must be hybrids by 2020, or about 200,000 units per year, if the carmaker is to meet the environmental goals.

As for the other German carmakers, Porsche is selling its Cayenne SUV as a hybrid without a price increase. Next year, BMW aims to roll out a new top of the line model 7-series that will incorporate lightweight carbon fiber components and a hybrid motor. The current 7-series model offers a hybrid variation, but at a steep markup over internal-combustion-only engines.

The clock is ticking on the implementation of the more stringent environmental policies.

The Paris Motor Show, which runs to October 19, shows the industry’s dilemma. On one hand, customers are demanding big cars, especially from German carmakers. One in every four Audi or BMW models is sold as a SUV, or a sports utility vehicle. These vehicles are particularly difficult to bring in line with environmental targets.

On the other hand, the clock is ticking on implementing more stringent environmental policies. Since auto manufacturers change their models about every seven years, the emissions benchmarks will apply to all the cars being displayed in Paris.

“The producers are in a bind,” said Stefan Bratzel of the Center of Automotive Management in Bergisch Gladbach near Cologne. “They must lower the prices for hybrids, but can’t jeopardize their margins.” Adding to their woes, German carmakers have little influence on the price of hybrid batteries. Japan, South Korea, and China dominate research and production in this area.

Carmakers have been busy calculating how much it will cost to eliminate a gram of carbon dioxide. The move from 160 to 130 grams would cost €30 ($37.77) per gram and vehicle, an amount that would be comparatively cheap when compared when using other pollution-fighting solutions, such as better tires or systems that automatically turn off engines at stop lights. These would add costs of about €1,000 per car.

The step from 130 grams to the 95 grams required by 2020 will be considerably more expensive. According to industry calculations, every gram saved over conventional drives would add €50 ($62.94) per car. An industry insider warned, however, of additional costs for every gram at least €100 for hybrids and electric vehicles.

Mr. Bratzel said battery prices alone are not the problem. “The complex production also drives up the costs,” he said. Volkswagen, for example, has been struggling with problems with its electric Golf model line since summer.

Mr. Winterkorn is not selling the hybrid Golf, priced at €36,900, at a significantly higher price than the GTD turbo diesel. Whether Volkswagen can make money on the Golf hybrid remains to be seen since the automakers in Wolfsburg, much like their colleagues in Munich and Stuttgart, lack the experience of the industry leader, Toyota, which introduced the hybrid Prius in 1997. Since then, the Japanese have sold more than 1.2 million cars with hybrid drive while earning record profits.

 

Markus Fasse is a Handelsblatt correspondent in Munich with a special focus on the car and airline industry. Martin Murphy has been an editor with Handelsblatt in Düsseldorf since 2008. To contact the authors: fasse@handelsblatt.com and murphy@handelbslatt.com

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