Navigant Research Blog

Diesels Set for Surge in the United States

— April 17, 2013

Automotive analysts – including this one – have been predicting a comeback for diesel cars in the United States for several years.  Demand in the United States has indeed been steadily rising in recent years.  According to the HybridCars Dashboard, sales rose from just over 58,000 in 2009 to 125,522 in 2012, a compound annual growth rate of 29%. Despite these rising sales, though, diesel’s share of total passenger car sales has persistently remained well below 1%.  In 2010, diesels captured 0.7% of U.S. passenger car sales, while in 2012, diesels captured 0.87%.  So why the hype over clean diesels in the United States?

First, the reality is that all alternatives to conventional gasoline cars are but a tiny portion of the total U.S. car market.  Hybrids are selling around 3 times the number of diesel cars – which means that, more than 15 years after the Prius was introduced, hybrids still only capture 3% of the market.  Plug-in vehicles are receiving a huge amount of attention, as they represent the potential to be a disruptive technology.  However, while we’ve seen a significant uptick in sales in the United States, from roughly 18,000 in 2011 to 53,000 in 2012, PEVs are an even smaller percentage of the U.S. car market than diesels.

Annual Sales of Clean Diesel and Hybrid Passenger Cars, United States: 2009-2012


(Source: HybridCars Dashboard)

Second, as has been discussed in this blog, automakers must come up with an array of fuel-efficient options to meet the stringent federal Corporate Average Fuel Economy (CAFE) standards for 2017 and beyond.  While automakers will primarily focus on modifications to conventional gas cars, diesels may well appeal to a different demographic than small, fuel-efficient gas cars.  The diesel Chevrolet Cruze, to be introduced for model year 2014, offers an example.  The diesel Cruze gets 42 mpg on the highway.  While this is the same highway mpg as the gasoline-powered Chevrolet Cruze Eco, the Eco is equipped with a manual transmission, and U.S. drivers are not big fans of manual transmissions.

Volkswagen (VW) just released the results of a survey that found that the likely clean diesel customer is also different from the average hybrid customer.  VW’s survey indicated that, while both groups are concerned with fuel efficiency, diesel buyers tend to be more concerned about torque and acceleration, while the hybrid drivers are more motivated by the car’s eco-friendliness.  These results suggest that the soon-to-be-introduced hybrid Jetta will not compete with the diesel Jetta – the best-selling diesel in the United States – but will expand VW’s appeal to a different type of efficiency-conscious consumer.  This survey will be heartening to automakers as they marshal a combination of diesel, hybrid, start-stop, plug-in technology, and other options to meet the CAFE standards.


Diesel Hybrids Arrive at Last

— December 11, 2012

More expensive than their gasoline counterparts,  diesel engines deliver significantly better fuel economy and are vouched for by taxi drivers the world over.   Some 15 years ago, Toyota and Honda introduced the world to the hybrid drive car, adding an electric motor and a large battery, making stop-start driving more efficient by storing and reusing kinetic energy.

With both technologies established, it was then logical to think about combining the two to make an even more efficient drivetrain, but the double premium (both diesel and hybrid drives are more expensive than conventional gasoline models) made OEMs think that the incremental cost was too much for the market even though the long-term benefits would be very attractive.   Finally, PSA in France decided at the end of 2011 that the time was right and launched its Hybrid4 system, first in the Peugeot 3008, followed by the new Citroën DS5, and then in the Peugeot 508.  In this system, the diesel engine drives the front wheels while the electric motor drives the rear wheels.  A choice of four different modes allows the driver to choose when to use the technology: to be clean, frugal, 4WD, or sporty.  More importantly, the official emissions figure of 91 g/km of CO2 and 80 mpg (Peugeot 3008 Hybrid4 Active model) makes the vehicle attractive to both individual and company car buyers in many European countries, thanks to taxation policies that emphasize fuel efficiency.

PSA’s Hybrid4 technology uses a 1.1 kWh NiMH battery pack that gives an electric-only range of about 2.5 miles.  The premium for hybrid drive on the 3008 is £4,200 ($6,700), or about 18% extra.   The Peugeot 508 with Hybrid4 drive retails at £31,450 ($50,100), which represents a premium of about £7,000 ($11,150) over the non-hybrid version.

The only other production announcement has come from Volvo, which takes things up a notch by including a much bigger battery and the ability to recharge it without the engine.  With a Li-ion battery pack rated at 11.2 kWh, the upcoming V60 diesel hybrid will be capable of about 30 electric-only miles.  On average, the V60 Hybrid official fuel economy is 148.6 mpg and it emits 49 g/km of CO2.

The Price Premium

It’s interesting to note that Volvo chose to use a similar architecture to the PSA design, with the diesel engine driving the front wheels and the electric motor driving the rear.  Again, the driver gets to choose driving mode, in this case from Pure, Hybrid, and Power.  There’s also a ‘Save’ button that prevents the electric drive from being used and saves battery power in advance of entering a low emission zone where all-electric mode is best.

Volvo made its announcement just as PSA was bringing its diesel hybrid to the market, and there has been some fanfare about the first-year production run of 1,000 units being sold out, so it must be worth the £47,000 ($74,900) price tag to the European early adopters.  That is £12,780 ($20,400) more than the R-Lux version of the V60 with the same diesel engine, an increment of about 37%.  These numbers are softened in some markets where rebates and government incentives apply; for example in the United Kingdom, PHEV and EV buyers get a £5,000 ($8,000) rebate from the government.

So the diesel hybrid is finally with us and showing solid, if not spectacular, sales performance in its first year of production.  Both companies have chosen a design that appeals to buyers thinking about an electric vehicle but concerned that it will not meet all their needs and would only be practical as a second vehicle.

The popularity of the diesel engine in Europe will work in favor of this new flavor of hybrid, especially with its tax advantages and significant economy improvements.  Accounting for the total cost of ownership, eliminating congestion charges, and low or zero annual registration costs, it probably will be a cost-effective alternative to a similarly-priced conventional vehicle.  Also, OEMs know that most people decide to buy a new car based on their financial calculations, and then justify the purchase to other people in terms of saving the planet.  The diesel hybrid can do both without sacrificing performance or functionality.


Diesel’s Second Act in the U.S.

— May 31, 2012

It has long been a source of frustration among advocates of diesel cars that American car buyers have been so impervious to their attractions while Europeans have flocked to diesel.  This is starting to change, with diesel car sales rising significantly in the past few years.  There is still a huge gap in the market share for diesel compared to Europe, but the increasing availability of light duty diesel models in the U.S. combined with the rising gas prices are making the U.S. a promising market for diesel for the first time in many years.

To provide some context, the chart below shows the market share for diesel in LDVs in Western Europe and the top four European car markets since 1994.  In Europe, diesel sales began ticking up in the late 1990s, and broke past the 50% mark for the total Western European market as of 2006.

Diesel Share of New Passenger Car Vehicle Registrations, Western Europe and
Top Four EU Car Markets: 1994-2010

(Source: Pike Research)

The percentage varies quite a bit from country to country, based largely on the comparative prices of diesel and petrol.  In most of Western Europe, diesel is taxed at a lower rate than petrol, and this is partly responsible for the massive shift from petrol to diesel for passenger cars (that and the high prices for fuel overall).  However, this is not true everywhere, most notably the United Kingdom, which has one of the lower rates of diesel market share, but still sees diesel capturing over 40% of sales.

By contrast the U.S. has had very little light duty diesel market activity except in the pickup truck category.  It’s widely assumed that U.S. consumers’ bad experience with diesel cars in the 1980s spoiled the market, as many diesel cars from that time were unreliable lower powered, and distinctively smoky and smelly.

We are now seeing a major shift.  The U.S. saw a significant jump in demand for clean diesel cars in 2011, up 27% over 2010.  That’s higher than the total growth in the light-duty car market, which was around 10%, and also more than the hybrid market, which actually saw sales drop slightly, just 2% from 2011 over 2010, although this is most likely a blip and not a trend that we expect to continue.

There are a couple of reasons why the U.S. is becoming a better market.  First, diesel cars in the U.S. are now much cleaner, as they adhere to the same emissions standards as gas cars do – another difference with Europe, where diesel is regulated separately from petrol and given greater allowance on NOx emissions which are the hardest to control for diesel.

Second is simply increasing availability of diesel models beyond the pickup category.  The market is still dominated by the European OEMs, many of which are in the premium vehicle segments, but there are also mid-range diesel cars like the Volkswagen Jetta and Golf, which capture more than 50% of diesel car sales in the U.S.  The 2013 introduction of the diesel powered Chevrolet Cruze, which will be the first new diesel car in the U.S. by a domestic manufacturer in quite some time, has created high anticipation.

Going forward, we expect the U.S. diesel market to show strong growth but still at a relatively low total market share.   As with the hybrid market, demand for diesel may wax and wane a bit as gasoline prices do, but with gas prices expected to rise, this should drive demand for all types of fuel efficient vehicles, including diesels.


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