Once 'green' plug-in hybrid cars suddenly look like dinosaurs in Europe

LONDON -- Plug-in hybrid cars were once seen as a go-to technology for the climate-conscious driver. But, according to some experts, they are not that good for the environment and they could be phased out by automakers in the face of tougher European rules.

EU policy plans for plug-in hybrid vehicles, which combine an electric drivetrain with a combustion engine, could mean the "transition" technology has a shorter lifespan than envisaged by some leading automakers.

Draft green finance regulations would ban manufacturers from labelling them as "sustainable investments" beyond 2025, potentially deterring investors. Meanwhile planned rules on emissions of pollutants like nitrogen oxides could increase the cost of producing these cars.

The aim of such reforms is to speed the transit to full-electric vehicles and meet climate goals. Yet they would mark a shift from existing EU policies, such as CO2 standards, which have treated hybrids on a par with all-electric cars and helped spur the auto industry to invest tens of billions of euros in the technology.

Some automakers had envisaged selling plug-in hybrids until at least the end of this decade as a bridge to full-electric vehicles - although their shift away from the technology looks to be underway.

An analysis of car production plans in Europe through to 2028 compiled for Reuters by AutoForecast Solutions (AFS), which tracks industry production plans, shows only 28 plug-in models versus 86 EV models.

That is a turnaround for an industry where plug-in models on the market have outnumbered full-electric models every year since 2015, often significantly.

Now some automakers fear the EU could prematurely cut short that transition. They warn upcoming rules could make it hard to sell plug-in models in European markets in just a few years' time, despite consumer concerns about the range of full-electric cars and a lack of charging infrastructure.

"It's crazy to do this by 2025 because effectively you kill demand today," said Adrian Hallmark, CEO of British brand Bentley, a unit of Volkswagen Group, referring to proposals to not classify plug-ins as sustainable investments. He plans to sell plug-in hybrids until 2030 before going all-electric.

"For most people, a battery electric car is not yet practical," he told Reuters.

A European Commission official declined to comment on the green finance rules specifically, but said its policies were "technology neutral", adding that plug-in models were "a transition technology towards zero-emission mobility."

To reach an overall climate neutrality target in 2050, nearly all cars on the roads must be zero emissions by that time, the Commission added.

The rules, which are still being drafted, come against the backdrop of a shift in the position of some leading environmental groups which are pushing to dispel the green credentials of plug-in models and do away with their subsidies.

One study, from the International Council on Clean Transportation last September, said the fuel consumption and CO2 emissions are up to four times the level they are approved for in plug-in hybrids, because people do not charge them often enough.

Julia Poliscanova, senior director for vehicles and e-mobility at European NGO Transport & Environment, said its own research showed that when driven in combustion-engine mode, plug-in hybrids' CO2 emissions were higher than conventional cars and their greater weight caused them to use more fuel.

"From the perspective of environment and climate, today's plug-in hybrid technology is worse than what it is replacing."

This is a change in the group's position from as recently as 2018, when it saw plug-in models as a transition technology.

Automakers say plug-in hybrids, used properly with electric as the primary power source and combustion as a back-up, emit far less than conventional cars. They add that the models are a popular transitional choice for consumers who want greener travel.

Plug-in sales in the EU more than trebled to 507,000 vehicles in 2020, almost as many as the nearly 539,000 full-electric vehicles sold.

Gauging automakers' investments on plug-in models is hard because they only announce broad "electrification" plans. Consultancy AlixPartners estimates automakers and suppliers will invest $200 billion in electrification from 2020 to 2024.

German engineering specialists FEV estimates fitting a battery, motor, and electronics to a combustion engine car to make a plug-in model, costs up to 4,000 euros ($4,700) per vehicle.

European automakers are dividing over whether to fight for plug-in models or spend their financial and political capital accelerating the leap to full-electric vehicles and pushing for better charging infrastructure across the continent.

Stephan Neugebauer, chairman of the European Green Vehicles Initiative Association, told Reuters technology improvements will mean future plug-in vehicles rely less on their combustion engines, making them fit for the green transition over the next decade and even beyond.

"Will all customers buy battery electric vehicles in 10 years, or nine years? We don't think so," said Neugebauer, who is also BMW's director of global research cooperation.

"Why? Because sometimes you have to make a long-distance trip, you go on holidays, you have to pull a trailer. And for this, you need public charging infrastructure. And this will still be a critical issue."

BMW and Renault, which have not set a date for going all-electric, are among the companies firmly in the hybrids camp.

BMW boss Oliver Zipse said last month that they were "a great consumer product" and there would be a market for them even without subsidies. Renault CEO Luca de Meo said in February that plug-ins "will be part of the landscape for the next 10 years easily" and were more profitable than conventional cars.

Volvo Cars CEO Hakan Samuelsson told Reuters: "It's a bit disappointing they (Brussels policymakers) don't see the value of a plug-in hybrid." But he said his company, which aims to be all-electric by 2030, was more focused on pushing the EU to make member states invest heavily in charging infrastructure.

"If we in the car industry invest in electric cars, and do that very rapidly, I think our credibility to ask for investments in the charging network increases," he said.

"The limit of what is achievable"

The European Commission is due to propose at least a dozen pieces of legislation to slash emissions across all sectors this year.

Current drafts of the EU's sustainable finance taxonomy, a list of economic activities that from next year will determine what can be marketed as a sustainable investment, exclude manufacturing of plug-in vehicles from 2026.

That could deter the army of investors seeking assets with green credentials. It could also potentially restrict public funding if governments moved to align their spending with the taxonomy.

While many countries still subsidize plug-in cars, the Netherlands scaled back tax breaks for them in 2016. By 2020, eight times as many full-electric vehicles were sold in the country as plug-ins, compared with four times as many hybrids as EVs four years before, showing how government policy on vehicle technology can have a major effect on consumer behavior.

A consortium of researchers, commissioned by the EU and known as CLOVE, this month recommended that so-called Euro 7 rules should tighten car emissions limits for pollutants including nitrogen oxides and carbon monoxide from 2025. Its recommendations are not binding, but aim to inform the European Commission's proposals, due later this year.

Transport & Environment, part of the Commission's expert group working on the standards, said the proposals would force automakers to fit lug-in hybrids with expensive technology to curb emissions from their combustion engines.

Hildegard Mueller, president of German auto industry association VDA, said the proposals were "at the limit of what is technologically achievable."

"We still have to be very careful that the internal combustion engine is not made impossible by Euro 7," she said.