What a drop in PHEV sales means for Europe's car industry

Plug-in hybrids (PHEVs) are losing momentum in the car market in the UK and across Europe as regular hybrids and electric cars outpace them. Sales of PHEVs, including 2021’s best-seller, the BMW 330e, are down 5.5% to the end of May in the UK, while sales of electric cars rose a massive 71%. This meant EVs were twice as much in demand as PHEVs, which captured a 6.6% market share with sales of 43,549 in the first five months, down from a 7% share in 2021. Sales of hybrids, meanwhile, soared 35% to 76,624. The slump is playing out across Europe, too. Sales, led by the likes of the Ford Kuga PHEV, grew to reach a rolling 12-month total of one million in August last year and stayed there, month after month, before dropping back below that magic mark in May, according to data from Schmidt Automotive Research. Sales of the cars are at the mercy of legislation on a country level, which either reward them for their claim to cut CO2 emissions below 50g/km in most cases or go back to treating them like any other ICE car, partly fuelled by claims that few if any ever get close to their claimed fuel consumption figure. Examples of countries yanking PHEV support include Norway, where sales dropped 78% in the first quarter this year after key incentives ended at the beginning of the year, according to figures from European automotive lobby association the ACEA. Sales were also sharply down in Sweden, the fifth-biggest market for PHEVs, and Germany, the drivetrain’s biggest market. Some car makers have avoided plug-in hybrids altogether. “We don’t build a product strategy on something that’s only going to last two years,” Dominique Boesch, managing director of Genesis Europe, said of the Korean premium brand’s strategy to grow here. Nissan, meanwhile, is placing its bets on EVs and hybrids, giving PHEVs a swerve. “A plug-in hybrid requires both an internal combustion engine and a big battery. We're learning that customers don’t charge the battery, so in the end it’s really an ICE car,’ FranÃ§ois Bailly, chief planning officer for Europe, said in justification of the brand’s strategy. PHEVs were always going to be a stopgap strategy given the push to reduce tailpipe CO2 emissions across Europe, ultimately to zero by 2035. But they’re a stopgap that has been enthusiastically embraced by the premium car industry as they pivot their ultimately much heavier cars away from now-unloved diesel and towards something that can match an oil-burner’s fuel consumption while still being reasonably tax-efficient, at least for company-car drivers. In last year’s final tally of PHEVs, a whopping eight of the top 10 came from premium manufacturers, topped by the BMW 3 Series. Only the Ford Kuga in fourth and the Seat Leon in 10th crashed the party. BMW targets this year to have 17 PHEV models globally as it adds a plug-in version of the new 2 Series Active Tourer MPV to the tally. Last year, BMW sold 224,460 PHEVs around the world. A remuneration system for board members means its leading executives can top up their pay by hitting targets for PHEVs, as well as reaching separate target for EVs (they missed the PHEV target last year, set at 241,000). As long as PHEVs retain their advantages to both manufacturers (which use them to reduce their average CO2 in both the EU and the UK) and company car drivers, sales will hover at around 9% in Europe until 2025, according to Matthias Schmidt of Schmidt Automotive Research. “That’s when we expect the switch to BEVs as more models enter the market in more sectors and lease cycles end,” he said. Their brief moment in the sun might be already coming to a close. Mercedes-Benz, maker of two PHEV models in the European top 10 (the GLC and GLC Coupé), said last year that it was reducing its investment in both ICE cars and PHEVs by 80% between 2019 and 2026. PHEVs have come under sustained attack from environmental groups, with Greenpeace calling them “the car industry’s wolf in sheep’s clothing” and European pressure group Transport and Environment dismissing them as “fake electric cars”. The European Commission promised earlier this year to tighten up the so-called “utility factor” in the WLTP emissions test by assuming less electric-only driving. That could increase the official figure to the point that PHEVs ceased to be useful to car makers as an emissions-reducing tool. Car companies have also had to record real-life emissions on the on-board computer from 2021 and offer that data up to European Commission officials, a shift that could be behind BMW’s recent eDrive campaign to incentivise PHEV drivers to plug in more by giving them rewards for doing so. Not all brands are suffering: although sales figures show a fall in European PHEV registrations for mainstream Volkswagen Group brands (particularly Skoda, Volkswagen and most dramatically Seat), the drivetrain is driving Mitsubishi’s surprise return on continental Europe with the Eclipse Cross PHEV. This comes after the Japanese brand lost its long-held crown with the Outlander PHEV. MG is also doing well with the MG HS PHEV, while Geely-owned Lynk&Co is establishing itself in markets across Europe (but not the UK) with the 01 PHEV SUV as its only car, after dropping the hybrid version. The danger for brands is that, after replacing diesel following its dramatic decline, PHEVs might yet suffer the same rapid descent into obsolescence.