EU demand for diesel further deteriorates in Q3
IHS Markit perspective
- Implications: Demand for diesel passenger cars in the EU has deteriorated further during the third quarter, while gasoline and electrified options continue to improve.
- Outlook: It has been a tumultuous quarter due to the transition from NEDC to WLTP, and the measures that some OEMs have undertaken and the pressures they have faced have affected the market. We anticipate a further fall in diesel market share during 2018 to 38.6%, although recent circumstances and other factors could mean that this figure will be adjusted again.
The European Automobile Manufacturers' Association (Association des Constructeurs Européens d'Automobiles: ACEA) has released passenger car fuel-type registration data for the European Union (EU) excluding Croatia, Cyprus, Luxembourg and Malta for the third quarter of 2018. This has shown that diesel has come under further pressure while both gasoline (petrol) and electrification continue to rise, in what has been a tumultuous period for the market.
For the three months ending 30 September, the number of diesels registered in the market fell by 18.2% year on year (y/y) to 1,208,639 units. Diesel's share of the market has retreated from 43.1% during the third quarter of 2017 to 34.7% in this quarter. The majority of passenger car markets in the region have gone into decline, including all the top-five passenger car markets. Of these, four contracted by double-digit percentages. The biggest decline in percentage and volume terms was in the UK, where registrations of this fuel type are down by 33.9% y/y to 178,480 units. However, Germany, Italy and Spain, where consumers have had a longer-term relationship with diesel, have declined by 16.0% y/y, 16.7% y/y and 12.2% y/y, respectively. France, which had been leading the retreat away from diesel in previous quarters has fallen by "only" 9.3% y/y. Less significant markets also contributed to this retreat, with Austria, Belgium, Czech Republic, Finland, Ireland, Netherlands, Slovakia and Slovenia all recording double-digit percentage falls as well. The biggest decline has been in Sweden, although this has been partly down to the introduction of a new bonus-malus tax which has hit the wider market. However, not all markets recorded contractions for diesel in the third quarter, with Poland, Romania and Denmark growing, the latter having grown by 24.9% y/y due to a rise in the number of larger passenger cars and crossovers after recent tax changes. In the year to date (YTD), registrations are now down by 16.9% y/y to 4,316,091 units.
One of the main beneficiaries from the decline of diesel during this period has inevitably been gasoline. Registrations during the third quarter have grown by 15.2% y/y to 2,007,738 units, with its market share reaching 57.6%. Demand increased in nearly all markets, including the five largest passenger car markets in the region. In Germany, the EU's largest market, registrations have grown by 9.2% y/y to 522,376 units, while in the UK, where there has been a weak market environment, the gain was 4.9% y/y. However, there were double-digit percentage upswings in the France and Spain; with the former up by 30.2% y/y and the latter increasing by 39.6% y/y. There were also double-digit percentage gains in many other markets as well. The exception to this overall upswing has been the Swedish market which fell by 17.6% y/y due to the introduction of the new bonus-malus tax system noted above. For the YTD, registrations are now up 16.6% y/y at 6,716,384 units.
The declining share of diesel has also boosted the market for vehicle electrification, and this will also have had some effect on the market for gasoline passenger cars as well. Hybrid electric vehicles (HEVs) remain the biggest portion of this category, with 147,649 units registered during the third quarter, an increase of 37.1% y/y. This will be being helped by the growing availability of this type of vehicle, particularly with the rise of mild hybrids, which the ACEA data include. Hybrid registrations have risen everywhere, but the most notable gains have come from Spain, Italy, France and Germany which recorded increases of 39.8% y/y, 35.5% y/y, 35.9% and 85.6% y/y, respectively. However, Germany's share of this type of vehicle is growing from a low level compared to some markets. YTD registrations are now up by 37.1% y/y at 439,225 units.
There were even stronger gains in the EU for "Electric Chargeable Vehicles" (ECVs) which include battery electric vehicles (BEVs), fuel cell electric vehicles (FCEVs), plug-in hybrid electric vehicles (PHEVs) and extended range electric vehicles (EREVs). The number of these registered in the region in the quarter has grown by 39% y/y to 71,981 units. YTD has now grown by 40.2% y/y to 215,173 units.
Of this total, combined registrations of BEV and FCEV have increased by 37.4% y/y to 32,351 units during the quarter. However, many of the big five markets in the region saw only relatively modest gains this quarter, the exception being Italy which recorded a trebling. Strong gains were recorded elsewhere as well, with the Netherlands - which is set for a tax change at the end of the year - more than doubling, as has been Portugal, while the Irish market for such vehicles has trebled. Its YTD now stands at 98,035 units, up 39.3% y/y.
Norway remains the biggest market for BEVs and FCEVs in Europe with 11,261 units registered, a gain of 33% y/y, despite being relatively mature in terms of market acceptance. This has taken its YTD to 31,406 units, a gain of 35.0% y/y.
The market for PHEVs and EREVs has grown by 24.5% y/y in the quarter to 39,630 units. All the key markets reported some degree of improvement. France, UK, Spain and Italy were double-digit percentage gains, and Germany's increase was a relatively weak 9.0% y/y. Its YTD has now reached 117,138 units, a gain of 41.0% y/y.
The alternatively powered vehicle (APV) category, which includes ethanol (E85), liquid petroleum gas (LPG) and natural gas vehicles (NGV), has risen 11.8% y/y to 51,046 units in the quarter. Italy remains the largest market for such vehicles at 33,577 units due to customer demand flitting between CNG and LPG-powered vehicles, although volumes have slipped by 1.1% y/y. However, interest in natural gas has had benefits in other markets, with registrations increasing in Spain by 389.3% y/y this quarter and Germany up by 78.6% y/y. Overall, the YTD now stands at 183,458 units, a gain of 19.9% y/y.
Outlook and implications
As noted above, the third quarter has been a tumultuous period for the European passenger car market. This has been due to the transition from NEDC to WLTP emissions certification which took place at the beginning of September. This brought about a huge push to clear stock and bolster sales figures during July and August, which had an impact on registrations in September. This was further compounded by some OEMs having struggled to certify key models, which meant they were unable to register vehicles until this had been completed. One of the OEMs that has most struggled with this has been Volkswagen (VW) Group; there was a detrimental impact on its sales in Europe during September, and it may well have been partly this that led to some of the weaker performances in categories that are typically faster growing, particularly in Germany.
IHS Markit now forecasts that the diesel passenger market's share in the EU during 2018 will stand at around 38.6%. This would be a contraction from 44.2% in 2017 and 49.5% in 2016. However, the disruption from the introduction of WLTP - particularly in the area of certification - may well continue into the final quarter of the year and could lead to a further reassessment. Furthermore, while modular engine platforms will help automakers to meet the change in demand, there is also some issues with the supply chain meeting this shift, with for example the gasoline particulate filters (GPF) being a bottleneck area. As such, we will continue to watch developments in the market closely and adjust as necessary.
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