2018 New Year’s Briefing Future Regulation Scenarios in ... · Future Regulation Scenarios in Perspective. ... EU Proposal EU 28 –Passenger ... Quota on car plates for ICE cars

Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

© 2018 IHS Markit. All Rights Reserved.

6-7 February 2018 | Frankfurt, Germany

Thomas Meininger, Associate Director,

+49 (0)69 20973 343, [email protected]

2018 New Year’s Briefing

Future Regulation

Scenarios in Perspective


IntroductionNews about xEV adoption often illustrate a stretch into the extremes – with the underlying regulation

serving as major market driver instead of continuously developing demand patterns


2

Source: Automotive News China

“Deliveries of all-electric vehicles

and plug-in hybrids jumped 53

percent year on year to 777,000

vehicles in 2017”

Source: LA Times

“4.8% of new vehicles registered in

the Golden State were zero-emission

vehicles and plug-in hybrids, the

highest share ever recorded.”

Source: NPRA, elbil.no.

“In 2017, electric vehicles

(BEV+PHEV) had a 39.2 %

market share in Norway.”

“Sales of Plug In Vehicles in the

Netherlands Drop Off Big Time”

Source: Inside EVs

“Georgia Electric Car Sales Drop

~90% in ~6 Months”

Source: Clean Technica


Emission norms

Fleet

consumptionEnvironmental

laws

Air quality laws

Full entry ban

Registration

Limits

Restricted access

Congestion

charge

Incentive/

Penalty

Systems

Quotas

Registration Tax

Road tax

Regulation OverviewIHS Markit reviews three levels of regulation for the key automotive regions


3

Regulation

Levels


Regulation – Regional LevelIncreasing care about the environment and public health. Stringent rules to be expected


4

Regional Level

Government Level

City Level

Category Short-term Long-term

Environmental laws Article 249 - Treaty for the

Functioning of the EU (TFEU)

guidelines on topics concerning the

environment: climate change, air

pollution, water protection, etc.

International sanctions for countries

not meeting the standards. More

countries to adopt environmental laws.

Air quality laws European Union – Clean Air Policy

Package (2013). Reduce national air

pollution emissions as well as air

pollution and thus improve air quality.

Air quality laws to be more stringent.

Increasing penalty for exceeding the

imposed limit.

Emission normsUSA – Environmental Protection

Agency (EPA) identifies six gases that

endanger both public health and public

welfare incl. fix emission thresholds.

Acceptable emission levels will be

reduced to improve public health and

public welfare. Increasing penalty for

exceeding industries.

Fleet consumptionUSA – Corporate Average Fuel

Economy (CAFE) and Greenhouse

Gas Emission standards (GAG).

Target reduction of polluting gases and

increased fuel efficiency.

More severe fleet consumption laws

where already existing. More regions to

adopt such regulations.

Increasing strictness and enforcement

Com

ple

xity

Source: IHS Markit Research


Regulation – Government LevelCountries will move away from incentives to increasing taxes and penalties for

heavy polluting vehicles


5

Regional Level

Government Level

City Level


Registration Tax

UK registration tax based on CO2

emissions and vehicle list price.

Taxation will be raised at all levels of

CO2. Other polluting gases could be

taken into consideration.

Road tax India – Electric vehicles get rebates

and reduced taxation

Germany – no road tax for electric

vehicles. Driving taxation factors are

ccm and CO2. Final taxation is rather

low even with big engines.

Electric vehicles added to pay road

tax while combustion engine will see a

clear increase.

Quotas United States - Section 177 – California

Zero Emission Vehicles mandate.

Increasing share of xEV sales required.

China New Energy Vehicle quotas.

More US states could adhere to the

Section 177 and/or xEV sales share

raised – current target is 22% xEV

sales by 2025.

Incentive/ Penalty

SystemsFrance - bonus/malus based on CO2

emission when purchasing a vehicle

France – No more bonus for xEV and/or

reduced CO2 penalty threshold with an

increase in the penalty amount


Com

ple

xity



Regulation – City LevelConventional combustion engines increasingly restricted to enter major city centers


6

Regional Level

Government Level

City Level


Restricted Access UK – London – introduction of Ultra

Low Emission Zone in the city centre.

Vehicles to meet exhaust emission

standards or pay a daily charge

Restricted access to become a full

entry ban. Several entry bans already

communicated by major cities.

Full entry banParis ban old diesel/petrol vehicles

from the city

Stockholm ban to pre-EU5 vehicles in

city centre, later extended to pre-EU6

vehicles

United Kingdom – Oxford ZEV – whole

city centre area ban for all

diesel/petrol vehicles from 2035

Congestion charge Proposed new Congestion Charge

scheme in New York based on time of

day and geographical zone.

Following the examples of Singapore

or London.

Congestion Charge area extended

and/or increase in entry fee. More

cities to follow.

Registration Limits

China - Shenzhen has a 80,000 new

plates per year limit and 20k are

reserved for Electric Vehicles

Ever increasing share of electric

vehicles on total quota. Total

registration limit reduced. ICE licence

plate renewal no more allowed.


Com

ple

xity



30

40

50

60

70

80

90

100

110

120

130

140

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Current Rule

EU Proposal

EU 28 – Passenger Car Emission Regulation OutlookWith the latest EU commission proposal in 11/2017, a new target would be set for 2025

and 2030 with a CO2 reduction of -15% and -30% compared to 2021


7

Post 2021+ Compliance Target Proposal

-30%

95g

No absolute values (in g

CO2/km), but relative

reduction compared to 2021

New Proposal Summary

• Target CO2 emission reduction of 15% by 2025 and 30% by 2030 for passenger vehicles and vans (no more absolute values given the NEDC to

WLTP switch)

• Manufacturers achieving a 15% share of zero- and low-emission vehicles (FCEV, BEV, PHEV, REEV) by 2025 will receive an easier CO2 target

for the rest of their fleet. This share will be raised to 30% by 2030. Zero emission vehicles will count more then low-emission vehicles.

• Eco Innovation not measured in the test cycle will still be allowed upon negotiation (e.g. LED tails, air conditioning improvements)

-15%WLTP and demand patterns

complicate even the short-

term goal achievement

Source: European Comission November 2017


France – Bonus / Malus System UpdateMalus to be revised and getting stricter for 2018 – starting now from 120g CO2/km.

High emission vehicles experience a huge tax increase


8

0 €

1 €

2 €

3 €

4 €

5 €

6 €

7 €

8 €

9 €

10 €

11 €

12 €

120 122 124 126 128 130 132 134 136 138 140 142 144 146 148 150 152 154 156 158 160 162 164 166 168 170 172 174 176 178 180 182 184 186 188 190 192 194 196 198 200

Tho

usands

Malus 2018 Malus 2017 Malus 2016g CO2/km

Strong Malus increase

particularly for vehicles emitting

more than 160g C02/km

Malus Tariff Evolution over the years



Malus Revision: Example Impact in DetailFor high emission vehicles, the Malus exceeds the cost surplus of a high end automatic

transmission in most cases – manual transmission often removed from the offering – with stricter

Malus this trend will spread to down to further vehicles


9

CO2 with manual: 184g

Malus: 10.290€

CO2 with manual: 179g

Malus: 8.735€

CO2 with automatic: 167g

Cost of automatic: 2.850€

Malus: 5.573€

CO2 with automatic: 163g

Cost of automatic: 2.200€

Malus: 4.673€

BMW

M140i

Porsche

Boxster 718S

1.867€ cost savings

from the automatic

1.862€ cost savings

from the automatic

High end automatic

with emissions

reduction

Source: BMW France, Porsche France, December 2017


Example – C40 Cities Target CO2 ReductionsAn increasing number of European cities actively reduce vehicle use


10

The C40 Cities Climate Leadership Group

connects 92 of the world’s biggest cities that

represent 25% of global GDP.

Major European Cities adopt concrete measures

against congestion and pollution, among them:

• Barcelona (superblock traffic bans)

• Madrid (city center car ban, targeted car

usage reduction)

• Copenhagen (pedestrian only zones, very

strong car taxation)

• Oslo (city center car ban 2019)

• London (congestion charge, diesel ban

planned)

• Paris (diesel ban planned, selected streets

BEV only)

Source: C40 Cities Publication


USA – Regulation Systems OverviewIn the United States, two major forms of regulation have to be differentiated:

National regulations and California’s ZEV mandate, an optional federal regulation


11

Section 177 of Clean Air Act

• EPA (Environmental Protection Agency) has established

national green house gas emission standards

• NHTSA (National Highway Traffic Safety Administration)

has established CAFE (Corporate Average Fuel

Economy) standards

• Parallel standards combined in nationwide standards until

2025, mandatory for all states not using section 177.

Standards to be revised under Trump administration

• California is allowed to set own (stricter) emission

standards due to special provisions in the Clean Air Act

• ZEV mandate until 2025 forces OEMs to sell increasing

percentages of (T)ZEVs, i.e. BEVs, FCEVs and PHEVs

• As other states are not allowed to set own regulations, nine

so called Section 177 states have chosen to follow the ZEV

mandate instead of national regulations

• Regulation expected to remain under Trump administration

National Regulations California ZEV Mandate



USA – Increasing DiscrepanciesWhile certain states and cities increase the benefits for alternative powertrains,

headwinds emerge in other regions


12

EPA to revise the CAFE targets

Federal Tax Cut Incentive for xEVs threatened

States adding taxes on BEVs to compensate for Gas Tax

Opposing

Forces

ZEV states continue to stick to the defined quota.

More and more cities want to promote low emission vehicles.

Local OEMs preparing alternative powertrain offerings.



Future Future Future

8%10%

12%

12%14%

16%18%

20%22%

24%18%

26%

34%

42%

50%

58%

0%

10%

20%

30%

40%

50%

60%

70%

2018 2019 2020 2021 2022 2023 2024 2025 2026

Initial Proposal

Final Rule

LinearContinuation

Stricter Scenario

China – NEV Quota Outlook for DiscussionA tightening of the NEV quota is likely, increased targets and reduced credits per vehicle


13

initial Proposal

China - Annual NEV Quota and Credit Outlook

no official Statement beyond 2020

Government target of

20% NEV sales shareQuota

Credits

FCEV BEV PHEV4-5 Credits

4-5? Credits

3-5 Credits

2-3? Credits

2 Credits

0? Credits

1 Credit

Source: MIIT


China – City Policy on NEV incentivesRestricted cities strongly promote NEVs by providing subsidies and ease of getting

car plates – electrification ramp up is accelerated


14

CityQuota on car plates for ICE

cars

Quota on car plates for NEV

carsTravel ban

Beijing 40,000/ Year 60,000/ Year

(PHEV excluded)BEV excluded

Shanghai 130,000/ Year No Limit /

Tianjin 90,000/ Year 10,000/ Year NEV excluded

Guangzhou 108,000/ Year 12,000/ Year /

Shenzhen 80,000/ Year 20,000/ Year /

Hangzhou 80,000/ Year No Limit NEV excluded

* Data is based on 2018

City Restriction – Current PerksToday some cities achieve

xEV registrations well

above the forecasted

national level

Source: IHS Research


Regulations and Market Frameworks – Takeaways


15

• Post 2021+ compliance target not finally confirmed – yet clear plan presented with the latest proposal of the European Commission

• The regulation is not as hard as in China and is highly divergent across the countries. Some markets with effective measures (FR & UK) will

shape the electrification: e.g. Bonus/Malus in France

• Germany not as strict as UK and FR, OEMs will need to push the vehicles into the market to reach the required adoption levels

Europe

China

• China taking the lead in terms of electrification: Confirmation of hard regulation with the introduction of the NEV quota – implications for

OEM’s is now clear: electrification is required

• City restrictions as other forms of hard regulation force the market to switch towards alternative powertrains

USA

• Regulation split across the states with the CAFE, GHG and ZEV Mandates

• A mix of hard and soft regulation will require OEMs to balance their offerings according to the local requirements

• Reviews of the national regulation still under discussion and unclear


Market Framework SummaryStrong activity across all regions regarding regulation impacting alternative powertrains – overall,

move from supportive measures assisting alternative powertrains to restrictive measures


16

Incentives

Bonus

Tax

break

Free parking

Bus lane use

Free

charging

Quota

City restriction

ICE ban

Compliance targets

Move from xEV support to ICE restriction

Necessity for high level of flexibility to successfully cope with

differences within and between major sales markets


Propulsion System Design Relevance by MarketDiverse Market Frameworks require various powertrain applications


17

USA China JapanEurope

GAS GAS GASGAS

HEV HEV

BEV BEV BEVBEV

DD

PHEV PHEV PHEVPHEV

FC FCFC

Note: Circle size indicates the relevance of a propulsion system design technology by region according to IHSM assessment

Necessity for high level of flexibility in production and according offerings


Option 1: Multi Energy ArchitecturesVarious OEMs, among them BMW, Volvo and Hyundai develop vehicle architectures that can

flexibly integrate all major propulsion system designs


18

PHEV BEV

4 Cylinder3 Cylinder

Source: BMW Technology Workshop Dec. 2017 ; Volvo CMA press release 2016


Option 1: Example BMW/ MINIBattery electric version – not standalone model – for the same vehicle line.

Continuous change of sales mix toward electrified offerings


19

2019 2025+

ICE

BEV

Note: Share mix over time for illustration purposes

Continuous, targeted volume share mix

toward electrification, supported by:

- Favoring market framework

- OEM initiated:

• Tactical pricing

• Improved electric drive performance

• Vehicle packaging/ content offered

• Termination of selected ICE versions


Option 2: Dedicated BEV ArchitecturesVolkswagen´s MEB and Daimler´s EVA2 platform are ground up developed architectures

for battery only applications and a dedicated model portfolio

20


Source: Volkswagen Group of America - Business and Product Update Dec. 2017 ; Daimler Capital Market Day 2017


Option 2: Dedicated BEV ArchitecturesIHS Markit reviews potential plans to terminate ICE models in favor of BEV only positions – the

biggest lever for growing BEV sales shares for compliance but associated with the highest risk


21

Termination?

Phase 1:

ICE only

Phase 2:

Parallel BEV lineup

Phase 3:

Consolidation

ICE

BEV

Pro

du

ct

Off

eri

ng

s

IHS Markit already

Forecasts full BEV

switches for selected

models, e.g. smart,

Porsche Macan.

Audi A5/ A7 and

Porsche Panamera

BEV switches to follow

in future forecast

updates


Summary and Key Takeaways


22

• The underlying regulation still serves as major market driver instead of continuously

developing demand patterns.

• Complexity increases with different layers of regulation. Esp. cities become a driving

force besides the broader consumption/ emission reduction rules in place.

• Necessity for high level of flexibility to successfully cope with differences in regulation

within and between major sales markets.

• OEMs develop vehicle architectures that can flexibly integrate all major propulsion

system designs or build dedicated BEV portfolios.

• IHS Markit forecasts a targeted volume share mix increase toward electrification, incl. the

termination of selected ICE versions or even models during the forecast timeframe.

IHS Markit Customer Care

[email protected]

Americas: +1 800 IHS CARE (+1 800 447 2273)

Europe, Middle East, and Africa: +44 (0) 1344 328 300

Asia and the Pacific Rim: +604 291 3600

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Documents

2018 New Year’s Briefing Future Regulation Scenarios in ... · Future Regulation Scenarios in Perspective. ... EU Proposal EU 28 –Passenger ... Quota on car plates for ICE cars