German Carmakers Push for Electrics While Clinging to Diesel

Volkswagen AG, Daimler AG and BMW AG are walking a tightrope, vowing to speed up their push into electric cars while clinging to diesel as a stopgap technology.

The German automakers are presenting at the Frankfurt International Motor Show plans to electrify much if not all of their model lineups. The problem is that transformation is going to take more than a decade and in the meantime they need diesel to help meet ever stricter emissions regulations in Europe.

Hence a two-pronged strategy that both calls for investing billions to build hundreds of electric models, while defending their embattled diesel technology as the cleanest alternative to gasoline engines for the time being. Nonetheless, the overhaul is urgent, with China, the world’s largest auto market, over the weekend joining France and the U.K. in announcing plans to phase out fossil-fuel powered vehicles.

“Conventional and alternative powertrains are not adversaries,” said Volkswagen Chief Executive Officer Matthias Mueller. “We earn the money we need to invest billions in the future from the vehicles we sell today. And without efficient and clean diesel engines, climate targets won’t be achievable.”

German automakers are under particular pressure to present a fresh approach to the challenges facing the industry given that they are more reliant than others on diesel as a way to lower emissions in their bigger cars. VW’s cheating scandal and concerns about inner-city pollution have also sparked a crisis in Germany that prompted two national summits on diesel this summer with political leaders, including one with Chancellor Angela Merkel.

Mueller on Monday night announced sweeping plans to build electric versions of all 300 models in the 12-brand group’s lineup – a shift that will take until 2030 and lead to development costs reaching 20 billion euros ($24 billion).

Ambitious Plans

Volkswagen’s plans are the most ambitious in the auto industry and reflect the company’s efforts to recover from its rigging of 11 million diesel vehicles to cheat on emissions tests. The scandal set off a backlash that has led consumers to turn away from the technology amid concerns about pollution and municipal driving bans, as well as regulatory probes across the European auto industry.

China’s aggressive policy push for battery-powered vehicles and European officials’ skepticism about conventional motors are putting the region’s engine-technology leadership at risk, PSA Group CEO Carlos Tavares told reporters at the Frankfurt show.

“I find it logical to head toward vehicle electrification, but if we only follow impulses and day-to-day emotions, we’re missing a few aspects of the problem” such as the models’ profitability, the way electricity is generated and battery recycling, said Tavares, head of the French maker of Peugeot, Citroen and DS cars and the new owner of the Opel and Vauxhall brands. “If we are instructed to make electric vehicles, authorities and administrations must assume the scientific responsibility of this choice.”

Along with the costs to develop the new models, automakers will have to contend with weaker margins for their electric vehicles than what they’re used to getting for diesel models. Daimler is slashing 4 billion euros from spending by 2025 in anticipation of the lower profitability it expects initially from electric cars.

In Frankfurt on Tuesday, Daimler’s Mercedes-Benz brand debuted an electric hatchback, part of a 10 billion-euro project to release 10 electric vehicles by 2022. In addition to the new EQ line of battery-powered vehicles, the manufacturer will add electrified variants across its entire model range, including so-called mild hybrids with a smaller battery that don’t require a plug to be charged.

“The debate over diesel isn’t helpful, but what we can see is that many buyers are rational, and they see that diesel is a very attractive technology,” Ola Kaellenius, Daimler’s development chief, told reporters on Tuesday. “Our answer to the debate has to be innovation and technology.”

BMW is showing a low-slung electric sedan in Frankfurt that the company will add to to its stalled “i” sub-brand. The four-door model is set to go on sale by 2021 and will be positioned between the squat i3 city car and the sleek i8 plug-in sports car.

Overall, BMW plans to offer at least 12 fully electric vehicles by 2025, including battery-powered variants of mainstream models like the X3 SUV as well as the futuristic self-driving iNext. New technology is facilitating the revival of the “i” nameplate, which hasn’t been assigned a new car since the i8 in 2014.

“Electric cars in general won’t be as profitable as cars with combustion engines,” BMW CEO Harald Krueger told reporters in Frankfurt. “Diesel is absolutely necessary to reach climate goals in the medium-term.”

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