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Green technology: Makers hedge bets on alternative vehicles
By John Reed, Financial Times
March 4, 2008
As improved hybrid, clean-diesel, electric and other green powertrain technologies proliferate, manufacturers are investing in the next-generation cars we will drive in five, 10 or 15 years' time.
Regulators, from Europe and the US to China, are prodding them along by tightening rules on greenhouse-gas emissions and fuel economy.
Few big carmakers are putting all their eggs in one basket, and understandably so: petrol price trends, changing consumer preferences, and future breakthroughs in areas such as lithium-ion batteries or hydrogen fuel-cell technology will all help determine which green-car formats truly take off.
Big manufacturers, from Toyota and General Motors to Renault/Nissan and Daimler, are hedging their bets by investing in a range of alternative-fuel vehicles, from diesel hybrids to plug-in electric vehicles.
Industry experts point to a few clear near-term trends in cleaner cars. Americans are due to begin embracing diesel this year as a proliferation of models from German, domestic and other carmakers hits the US market. Europeans, who have reaped fuel-economy savings from diesel cars for years, are set to buy more hybrids.
Alongside hybrids, electric cars and biofuel or biodiesel "flex-fuel" vehicles are set for dynamic growth around the world, albeit from a small base. And amid strides in technologies such as downsized engines and improved fuel injection, some leading manufacturers such as BMW are investing heavily in cleaner conventional petrol and diesel-engined cars.
Until recently green cars had a whiff of science project or window-dressing. Over the past two years, tighter regulations and changing political sentiment on greenhouse gas emissions and energy security have turned the field into serious business.
The regulatory push for greener vehicles is intensifying in the US, where Congress recently mandated a 40 per cent improvement in fuel economy by 2020. California is leading a push by several states to set their own greenhouse-gas regulations. Across the Atlantic, the European Union's draft proposal to cut cars' CO2 levels by about 25 per cent by 2012 is accompanied by new rules promoting lower-emission cars through rebates, higher taxes, congestion charging and other schemes.
On the demand side, however, carmakers face a tough time producing green cars that consumers want. Despite changing political sentiment on the environment, industry players say most car buyers are indifferent. "Very few people will want to pay a premium to cut CO2," says Andre Lacroix, chief executive of Inchcape, the car-retailing group.
A recent survey by the vehicle management company LeasePlan found low emissions falling among buyers' priorities, cited by 26 per cent of drivers, behind reliability, safety, performance, styling, and space. In 2006, 29 per cent listed it as a top concern.
Edmunds.com, the US car-shopping website, came up with another telling if unsurprising piece of research recently showing that Americans bought more fuel-efficient cars primarily when petrol prices went up.
Carmakers on both sides of the Atlantic have complained about being pushed into shouldering the costs of developing greener vehicles they then need to sell to a largely reluctant public. While noisily lobbying legislators for laxer rules, however, they have been diligently developing cars that deliver a cleaner drive without asking drivers to sacrifice much or even anything on performance.
GM, after seeing Toyota take an early lead in hybrids with its best-selling Prius, is now rolling out hybrids across its range, including a hybrid version of its Chevrolet Silverado pickup truck due to launch next year. Its Chevrolet Tahoe two-mode hybrid won last year's Green Car of the Year award in the US. While the full-sized sports utility vehicle jars with most "green" stereotypes, it gets the same mileage as a midsize Toyota Camry, while offering the large, high-off-the-road stance many American drivers prefer. Daimler's Mercedes brand showed its own two-mode gasoline-electric hybrid SUV last year in Frankfurt, the ML 450.
Toyota, which pioneered hybrids with the Prius, is now also selling them successfully in the premium segment through its Lexus brand. Its RX hybrid has appealed more for its performance than its environmental credentials. A range of hybrid cars by other manufacturers are also poised for launch, offering buyers a much broader choice.
Honda, after discontinuing its slow-selling hybrid Accord, is developing an all-new model due to launch in 2009, which many analysts expect to sell well.
Peugeot is one of several manufacturers developing diesel hybrid cars a format analysts say will offer the best of both fuel-saving worlds, and likely to appeal to picky European buyers. "The shift to diesel is coming to a peak in Europe," says Al Bedwell, a powertrains specialist with consultancy JD Power and Associates. "They've got a tough task to find something to retain the CO2 reduction trend."
The group forecasts that hybrid vehicles will roughly quintuple to half a million units by 2015 under a pessimistic scenario, and could near 1.2m under optimistic forecasts.
JD Power, in its nine-year forecast to 2017, also predicts diesel cars could outsell hybrids in the US by then. A shift to diesel of that size would mark a sea change in US consumer attitudes toward the format, which had a bad name in the 1970s from the noisy, unreliable models of the day. Now several manufacturers, led by Mercedes-Benz, BMW and Volkswagen, are launching diesel cars over the next year or so.
Bosch, the German automotive supply giant, forecasts diesels could make up 15 per cent of the US vehicle market by 2015, adding that the longer average driving cycle in the US suits the format. But diesel pump prices in the US are higher than petrol.
Carmakers are also clamouring to fill a niche for flex-fuel vehicles. Despite growing concern over biofuels' and biodiesels' overall environmental impact, lawmakers on both sides of the Atlantic are mandating their increased use.
The EU recently targeted an increase in the use of biofuels to 5.75 per cent by 2010, and countries such as France and Sweden are promoting their use locally. Ford Motor through its Volvo brand, GM with Saab, Peugeot and Renault are all developing flex-fuel vehicles. As the debate over biofuels' true costs continues, Daimler, VW, and GM are working with companies developing less environmentally damaging fuels made from biomass rather than food crops.
Electric and other zero-emission vehicles are also getting a strong regulatory push from European countries and schemes like London's congestion charging system, variants of which are being considered elsewhere. Renault and Nissan are developing an electric vehicle due to debut in 2011.
Alongside hybrid cars, "micro-hybrid" or stop-start systems that switch off cars at junctions are proliferating. BMW and Peugeot Citroen are rolling them out across their fleets.
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