New study says CO2 emissions reductions of up to 40 percent still possible with conventional auto technologies

New study says CO2 emissions reductions of up to 40 percent still possible with conventional auto technologies

Internal combustion engines are improving their ability to cut CO2 (carbon dioxide) emissions at a lower cost than expected. As a result, carmakers should be able to meet 2020 emissions targets mainly through improvements to conventional technologies, according to a new report by The Boston Consulting Group (BCG).

The report, Powering Autos to 2020, says internal-combustion-engine (ICE) technologies offer the potential to cut tailpipe emissions of carbon dioxide by approximately 40 percent at a cost to consumers of $50 to $60 per percentage point of reduction for an average passenger car. This is about half the cost of what was expected three years ago. To get there, however, automakers will need to modify current combustion technologies, transmissions, vehicle mass, aerodynamics, and power management systems, all at the same time!

Although conventional technologies will pose stiff competition for electric vehicles (EVs), according to BCG, their research also found that there is a distinct “green” consumer segment that will be willing to pay a significant premium for EVs, even if the total cost is higher.

“Electric cars will undoubtedly play an increasingly larger role in many countries’ plans in the decades ahead as energy independence and environmental concerns intensify,” said Xavier Mosquet, a senior partner in BCGs Detroit office, “But they will gain only modest ground to 2020. Gasoline and diesel-powered vehicles are improving faster than expected and will continue to dominate the global landscape.”

The report is based on proprietary economic analysis, BCG’s consumer research, and interviews with industry experts. Key findings include the following:

China and Europe–not the U.S., as many believe–will be the largest markets for EVs in 2020.

Based solely on the economics of total-cost-of-ownership, EVs will not be the preferred option for most consumers. Battery pack costs are forecast to fall sharply (approximately 64 percent from 2009 levels) to $360 to $400 per usable kilowatt-hour (kwh) by 2020. For consumers, however, this still represents a cost of $9,600 per vehicle for the typical 20-kwh battery necessary for a pure battery EV, which is a purchase deterrent.

High costs notwithstanding, EVs will see sales success with a distinct segment of environment-conscious consumers around the world who are willing to pay an average up-front premium of $4,500 to $6,000 to purchase a green vehicle, do not expect their up-front investment to be recouped over time through lower operating costs, and are willing to pay about 10 to 20 percent more in terms of the total cost of ownership over the vehicle’s life. These consumers represent 13 percent of consumers in China, 9 percent of those in Europe, and 6 percent of those in the U.S.

China is a major wildcard. Assuming that the government remains committed to EVs, BCG projects that these vehicles will represent 7 percent of the country’s new-car sales in 2020. Despite this moderate penetration, China will become the world’s largest market for EVs due to its overall market size.

Europe will become the second-largest market for EVs in 2020, with a projected 8 percent share of new-car sales, supported by consumers’ willingness to pay for green technologies, the region’s stringent emissions standards, and high gasoline and diesel taxes.

Sales of EVs in Japan and the U.S., meanwhile, will rise steadily through the decade but remain below those in China and Europe. BCG expects EVs to account for 5 percent of new-car sales in Japan and 2 percent of new-car sales in North America in 2020.

Taken together, EVs and Hybrid-EVs could claim 15 percent of aggregate new-car sales in the four major markets (North America, Europe, China, and Japan) in 2020.