Tackling emissions
With reports on the effects of climate change becoming ever more alarming, the automotive industry is being forced to respond. Car makers must work toward curbing CO2 emissions while keeping efficiency high and customers happy – not an easy task.
Reports on the effects of climate change are increasing and becoming ever-more alarming. Floods and fires across Western Europe this summer have generated dramatic images, which some experts say is a warning of what is yet to come, unless these issues are not tackled head on. Facing increased public pressure, western car makers have had to step up their efforts toward developing environmentally friendly cars, especially in terms of CO2 emissions. Many experts agree that these Original Equipment Manufacturers (OEMs) realized too late that this was the trend of the future, focusing less on fuel efficiency and more on horse power. Analysts believe that they have failed to find a trade-off between fuel consumption, emissions, brand values and customer expectations. With binding EU CO2 fleet emission standards of 130g/km looming in 2012, car makers have their work cut out for them, but this challenge can be mastered.
A new study by Roland Berger Strategy Consultants entitled "Solving the powertrain challenge," highlights possible hurdles ahead and shows how OEMs and suppliers can capitalize on these changing circumstances.
Technical solutions exist – but costs are high
"You essentially have two options to reduce CO2 emissions: Either use fuels which emit less CO2 or increase the vehicle's energy efficiency, thus reducing its fuel consumption," says co-author Wolfgang Bernhart, Partner in the consultancy's automotive competence center.
Fuels which lead to less CO2 emissions are mainly compressed natural gas and liquid petroleum gas which emit about 10-20 percent less CO2, and so-called biofuels, which emit about 40-80 percent less CO2. An increased use of biofuels is strongly encouraged by the European Union as a measure toward reducing emissions below the 120 g/CO2 level. But these cannot be the only answer, as their market share looks to limited due to the relatively high production cost. Their impact on EU-wide CO2 fleet emission in 2012 will only be about 7-8g/km.
Reports on the effects of climate change are increasing and becoming ever-more alarming. Floods and fires across Western Europe this summer have generated dramatic images, which some experts say is a warning of what is yet to come, unless these issues are not tackled head on. Facing increased public pressure, western car makers have had to step up their efforts toward developing environmentally friendly cars, especially in terms of CO2 emissions. Many experts agree that these Original Equipment Manufacturers (OEMs) realized too late that this was the trend of the future, focusing less on fuel efficiency and more on horse power. Analysts believe that they have failed to find a trade-off between fuel consumption, emissions, brand values and customer expectations. With binding EU CO2 fleet emission standards of 130g/km looming in 2012, car makers have their work cut out for them, but this challenge can be mastered.
A new study by Roland Berger Strategy Consultants entitled "Solving the powertrain challenge," highlights possible hurdles ahead and shows how OEMs and suppliers can capitalize on these changing circumstances.
Technical solutions exist – but costs are high
"You essentially have two options to reduce CO2 emissions: Either use fuels which emit less CO2 or increase the vehicle's energy efficiency, thus reducing its fuel consumption," says co-author Wolfgang Bernhart, Partner in the consultancy's automotive competence center.
Fuels which lead to less CO2 emissions are mainly compressed natural gas and liquid petroleum gas which emit about 10-20 percent less CO2, and so-called biofuels, which emit about 40-80 percent less CO2. An increased use of biofuels is strongly encouraged by the European Union as a measure toward reducing emissions below the 120 g/CO2 level. But these cannot be the only answer, as their market share looks to limited due to the relatively high production cost. Their impact on EU-wide CO2 fleet emission in 2012 will only be about 7-8g/km.
Read the study in full:
Thus, the development of new technology that actually increases the energy efficiency of a car becomes all the more important. This can be done either by optimizing the energy output of the engine (the combustion process, respectively) or by optimizing the energy management of the vehicle (minimizing energy losses or recuperation of thermal and kinetic energy).
Car-makers in Japan have answered this question by introducing hybrid technology, which reduces CO2 emissions by 20 percent, compared to today's combustion engines. Yet again, this technology has a higher sticker price (EUR 3000-4000) limiting its use to vehicles with a weight over 1600 to 1800 kg. But Europeans like their small, city cars. That means the hybrid market share in the EU over the next years will be too low to have a large enough impact toward achieving the Union's ambitious 2012 emissions targets. The study shows that hybrid vehicles are not the end-all-be-all in solving Europe's CO2 woes.
The combination of a number of full hybrids on Europe's roads, and the increased use of gas and biofuels will help bridge the gap between the average European CO2 fleet emission of 161g/km and 2012 target, but will fall short of reaching it. What is needed, the study suggests, is a broad and complex portfolio of technologies. Already the automotive industry is reacting, by optimizing the combustion engine and taking other steps toward reducing its volume and functioning.
The authors of the study argue that the 130g/km emission target can be reached – but will come at a higher production price in the range of a few hundred to a few thousands euros per car - EUR 500 to 1,000 on average. These costs, the experts project, could add up to approx. EUR 15 billion for cars sold in EU-27 in 2012. OEMs would have to shoulder the annual burden of between EUR 650 million to EUR 3 billion. Depending on the final legislation in each country, these amounts could even stand to rise and the authors caution that these cannot be simply be handed down to the customer in the form of price increases in an already stagnating market.
Car-makers in Japan have answered this question by introducing hybrid technology, which reduces CO2 emissions by 20 percent, compared to today's combustion engines. Yet again, this technology has a higher sticker price (EUR 3000-4000) limiting its use to vehicles with a weight over 1600 to 1800 kg. But Europeans like their small, city cars. That means the hybrid market share in the EU over the next years will be too low to have a large enough impact toward achieving the Union's ambitious 2012 emissions targets. The study shows that hybrid vehicles are not the end-all-be-all in solving Europe's CO2 woes.
The combination of a number of full hybrids on Europe's roads, and the increased use of gas and biofuels will help bridge the gap between the average European CO2 fleet emission of 161g/km and 2012 target, but will fall short of reaching it. What is needed, the study suggests, is a broad and complex portfolio of technologies. Already the automotive industry is reacting, by optimizing the combustion engine and taking other steps toward reducing its volume and functioning.
The authors of the study argue that the 130g/km emission target can be reached – but will come at a higher production price in the range of a few hundred to a few thousands euros per car - EUR 500 to 1,000 on average. These costs, the experts project, could add up to approx. EUR 15 billion for cars sold in EU-27 in 2012. OEMs would have to shoulder the annual burden of between EUR 650 million to EUR 3 billion. Depending on the final legislation in each country, these amounts could even stand to rise and the authors caution that these cannot be simply be handed down to the customer in the form of price increases in an already stagnating market.
OEMs are not well prepared
Unlike their Japanese competitors like Toyota, which promotes full hybrids as the solution to reduce green-house-gas emissions, western manufacturers have largely failed to introduce the 'green' element in their marketing and brand positioning strategies. They have neither addressed the trend toward more sustainable behavior nor have they been able to charge a price premium for more technologically advanced 'green' vehicles.
The consultants urge European OEMs to tackle the hurdles, which are currently preventing them from developing cost-efficient solutions quickly:
Unlike their Japanese competitors like Toyota, which promotes full hybrids as the solution to reduce green-house-gas emissions, western manufacturers have largely failed to introduce the 'green' element in their marketing and brand positioning strategies. They have neither addressed the trend toward more sustainable behavior nor have they been able to charge a price premium for more technologically advanced 'green' vehicles.
The consultants urge European OEMs to tackle the hurdles, which are currently preventing them from developing cost-efficient solutions quickly:
- Shortage of in-house competence: OEMs must invest in capacity building and recruiting among key personnel as necessary, including engineers to ensure they can put the most cost-efficient solutions on the road
- Overly complex engine portfolio: In addition to the detailed technology portfolio, the powertrain engineering departments of German OEMs, for example, deal with a highly complex engine portfolio, tying up crucial resources
- Heavy-handed organizational structure: The majority OEMs have failed to adjust their organizational structures to changing needs. Only a few have created separate departments to address the powertrain application and/or technology competence centers across gasoline and diesel engines to enhance the research development within an organization. A holistic view of the entire vehicle to evaluate energy efficiency is often missing.
These organizational obstacles can be overcome, if car manufacturers are prepared to make crucial changes. Rethinking traditional operating structures can streamline the production process, stimulate the development of new technologies or cut costs to facilitate research. By adopting these key changes, OEMs could produce cars that meet stricter environmental standards, while enhancing their positioning in an increasingly competitive market environment.
Necessary changes and opportunities
To benefit from the market growth opportunities, a sound understanding of various technical options, or possibly even technology leadership, is necessary. This will require OEMs to make often sizeable investments. Not all companies will be able to shoulder such a burden. Thus, the consultants foresee a consolidation phase. Suppliers need to review their strategies and innovation portfolio to ensure they make the right changes to remain in the game.
The authors of the study argue that the traditional power struggle between OEMs and suppliers could have adverse effects in this changing situation. The two parties must work together to develop more cost-efficient technological solutions toward reducing emissions. OEMs need to find a common approach together with their main suppliers. In a joint effort, they should define concepts to boost economies of scale and thus reduce the massive cost burden. A joint approach would benefit OEMs, suppliers, and society as a whole, the study concludes.
If you have questions or comments, please do not hesitate to contact us:
Necessary changes and opportunities
To benefit from the market growth opportunities, a sound understanding of various technical options, or possibly even technology leadership, is necessary. This will require OEMs to make often sizeable investments. Not all companies will be able to shoulder such a burden. Thus, the consultants foresee a consolidation phase. Suppliers need to review their strategies and innovation portfolio to ensure they make the right changes to remain in the game.
The authors of the study argue that the traditional power struggle between OEMs and suppliers could have adverse effects in this changing situation. The two parties must work together to develop more cost-efficient technological solutions toward reducing emissions. OEMs need to find a common approach together with their main suppliers. In a joint effort, they should define concepts to boost economies of scale and thus reduce the massive cost burden. A joint approach would benefit OEMs, suppliers, and society as a whole, the study concludes.
If you have questions or comments, please do not hesitate to contact us:
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