Automobile and Hybrid Car Market – Europe

Figures and facts taken from Frost & Sullivan 2006 – 16 Jan 2006 Strategic Analysis of the European Market for Micro, Mild and Full Hybrid Vehicle Technologies

Introduction

European vehicle manufacturers have always been more confident with advanced diesel technology – but increasing petrol prices and voluntary agreement by all VMs to reduce CO2 in Europe (2008 ACEA agreement). Hybrid Electric Vehicle introduction is inevitable.

3 types of vehicle (micro, mild and full hybrid)

• Micro hybrids can reduce the fuel consumption up to 20 percent in congested cities such as London, Frankfurt, Paris.
• Mild hybrid powertrains can potentially achieve up to 30 percent more fuel economy on a city driving cycle
• Midsize full HEV (with a motor rating of 30 kW) is estimated to allow between 40 and 50 percent more fuel economy in comparison to a conventional vehicle with an internal combustion engine.

Current Market Conditions in Europe

European Market Timeline:

2000 – Honda Insight (mild)

2002 – Toyota Prius (full)

2003 – Honda Civic Hybrid (mild)

2004 – Citroen C3 from PSA (micro)

2005 – Lexus RX 400 h (full)

Slow penetration rate in Europe, compared with Japan and US.

Citroen C3 the only hybrid (micro) manufactured in Europe – all others imported from Japan.

Currently only 3 entrants to hybrid market in Europe: Toyota (50%), PSA Peugeot (43%) and Honda (7%) (See Fig. 1)

2005 - Current Market Share of HEV by VM (Europe)

Figure 1

These entrants will retain some level of early mover advantage, although the market share picture will change dramatically by the end of the decade.

Currently, the 4^th largest economies of Europe also make up the largest new car purchasers – with the rest of Europe accounting for around ¼ of all new car purchases (by value) (see Fig.2)

Western Europe

• Market saturation; only innovation will survive.
• Governments discouraging cars, encouraging public transport
• Majority have signed the Kyoto protocol – reduce emissions

Eastern Europe

• Great chance for growth – wealth increase.
• Manufacturing plants moving here.

Forecasts

• According to Frost & Sullivan: less than 2000 hybrid vehicles sold in 2004, but predict that to raise to 700,000 vehicles (4% market penetration) by 2010 – Dramatic increase.
• Every European VM to enter the market by end of the decade.
• Frost & Sullivan estimates full hybrids to have a share of 1.1 percent of total vehicle market by 2010.
• Total forecast can be seen in Figure 3.

Competition

• PSA Group is planning to micro hybridise vehicles such as Citroen C2 and Peugeot 207.
• Ford is targeting their volume segment vehicle Fiesta for micro hybridisation.
• BMW has already unveiled its concept hybrid vehicles such as X3.
• Daimler Chrysler has developed a concept hybrid Mercedes S Class.
• Toyota is full hybridising its upper medium segment vehicle Lexus GS 450h and plans to launch the vehicle in Europe in 2006.
• Other models introduced by 2008 will be from Fiat, Honda, Opel and Renault Nissan.
  
  

Market Drivers (External Market/Competitor Behaviour Factors)

Hybrid Electric Vehicles and Reduction of CO2 Emissions (High)

• The introduction of increasingly tough CO2 targets through the ACEA CO2 reduction agreement is one of the key drivers for VMs to research and develop HEVs.

Reduction of Fuel Consumption - Key Incentive for Both End Users and VMs to Invest into Hybrid Electric Vehicles (High)

• Reduced fuel consumption leads to lower CO2 emissions for the vehicle manufacturers and improved fuel consumption is the main incentive to attract customers.

Hybrid Electric Vehicle's Reduce Urban Pollution and Harmful Exhaust Emissions (Medium)

• Hybrid electric vehicles offer the emission- free start of the powertrain.

Hybrids are used by VMs to enhance their Environmentally Friendly Image (High)

• Hybrids are regarded as a very effective promotional tool by the automotive industry to enhanced green values.

City Congestion Schemes with Exemption to Hybrid Electric Vehicles – Push HEV Sales in Cities (High)

• Owning a hybrid vehicle has an added advantage for the end users in terms of government incentives and tax benefits.
• Already such incentives in Netherlands, Germany, France and UK.

Hybridisation Allows Engine Downsizing without Performance Losses (High)

• Engine downsizing combined with electric boost - give a very small engine the feel of a much larger one and to reduce overall vehicle weight.

Increasing Fuel Prices Could Drive the Demand of HEVs (Medium)

• Increasing fuel prices could potentially generate a significant market demand for hybrid vehicles and taken into account by governments when funding sustainable mobility projects - hybrid powertrains are seen as a step on the way to reducing dependency on fossil fuels.
  
  

Market Restraints (Automotive Industry/Volkswagen)

Vehicle manufacturers are Making Losses on Hybrid Electric Vehicle’s - High Cost of Hybrid Components (High)

• As yet vehicle manufacturers are selling hybrid electric vehicles at a loss - energy storage unit and the motor/controller are the key cost factors.

The Cost Difference between Hybrids and a Conventional Equivalent - Not Commercially Viable for the End User (High)

• High retail prices have contributed to hamper a significant market uptake of the hybrid electric vehicles available in Europe today.

Diesel Powertrains are Strong Competitors to HEVs (High)

• Hybrids are competing with high-efficiency diesel powered vehicles could therefore hinder their mass-commercialisation.
• European Vehicle manufacturers are working hard on optimizing diesel engines and on building up a high percentage of diesel engines in their portfolios.

Heavy Depreciation of Hybrids (Medium)

• The European second-hand market is known for being intolerant towards new technology - fear over potential repair bills
  
  

Hybrids Offer Little Fuel Economy on Highways – not for High Mileage Drivers (High)

• On a highway cycle hybrids are able to improve fuel economy only marginally. Consequently, it is difficult for VMs to target their high mileage customer group with hybrid powertrains.

Creating Customer Awareness and Understanding of Technology (High)

• Customers do not understand technology & benefits fully
• More promotional and educational activities required

PEST

Political

• ACEA (European Automobile Manufacturers Association) CO2 reduction - industry participants to meet the 140 g/km CO2 emission target set by the ACEA agreement for 2008. This is a strong driver for vehicle manufacturers interest in hybrids, because it is the technology to help in achieving future harsher regulation.
• Regulation and Tax Incentives – already several exemption and grant schemes in UK, Germany, Netherlands, France and Sweden.[1]
• Kyoto protocol - Most Western European countries pledge to cut emissions by 5.2% by 2012[2].

Economic

• Europe is the largest market for new passenger cars – 42.7% of global market value.[3] Total revenues of $341.7 billion in 2004.[4]
• Increased fuel prices over recent years - this has driven the need for green adoption by European vehicle manufacturers and increased European energy security concerns.
• Anti-competition laws by EU – moving the European market into a free market direction which is suitable for innovation.[5]
• Eastern Europe becoming a strong market as these transition economies become wealthier. Already a strong vehicle manufacturing hub for many vehicle manufacturers throughout the world.

Social

• European commission to allow radio frequencies to be allocated to the automotive industry. This will tap into a larger push for increased road safety and part of the eSaftey Programme (to reduce European traffic fatalities by 50% by 2010).[6]
• Europeans are very concerned about the environment, as outlined in a Eurobarometer report[7]. They are adamant that stronger regulations should be placed on complete industries, which fits in with increasingly harsher regulations against vehicle manufacturers.

Technological

• R&D will become increasingly important for European vehicle manufacturers, in order to survive on the tougher global marketplace.
• Vehicle producers working on multiple ways to produce cleaner, fuel efficient vehicles (hybrid-electric, clean diesel and hydrogen fuelled). Fuel industry needs to understand needs of vehicle manufacturers and work towards global harmonisation in fuel quality.
• Diesel is very popular in Europe and is regarded by many as the best medium-term solution to fuel emissions and supply worries. Currently much research into this field, such as the Mercedes-Benz advanced diesel BlueTec engines[8].