Automobile manufacturers are renewing their focus on hybrid and updated petrol engine vehicles as they work to sustain profits during the costly transition period before electric vehicles (EVs) become mainstream. Recently, General Motors, Porsche, BMW, and Mercedes-Benz have all committed to investing in new or upgraded internal combustion engine (ICE) and hybrid models, even as they expand their electric car offerings to comply with stricter emissions regulations in Europe and other regions.
According to S&P Global Mobility, the global launches for new ICE and hybrid vehicles are anticipated to increase by 9% in 2024. Manufacturers plan to introduce 205 petrol models, a decrease of 4% from the previous year, while hybrid model launches are predicted to rise by 43%, reaching 116 models.
Mercedes-Benz announced plans to introduce 19 petrol vehicles and 17 electric vehicles between 2025 and 2027. This decision follows a period during which both sales and profit margins were affected by the slowing growth in demand for electric vehicles. Chief Executive Ola Källenius explained to investors that, given the market conditions that may not be dominated by electric vehicles by 2030, it would not be economically viable to entirely forgo their profitable ICE business.
Porsche, facing a 49% decline in sales of its electric Taycan sedan last year, is reconsidering its EV strategy. Recently, the luxury carmaker revealed plans to revamp its future lineup and invest €800 million in the development of new combustion engine and hybrid vehicles.
Legacy carmakers are grappling with the financial challenges of investing in future electric and hybrid vehicles while maintaining combustion engine technologies for a longer duration than initially anticipated. Hybrids, which combine batteries with internal combustion engines, remain highly profitable and attractive due to growing consumer demand and emission reduction needs. The European Union’s 2025 regulations require a 15% reduction in overall emissions per carmaker compared to 2021 levels, and by 2035, there will be a ban on sales of new petrol and diesel cars.
Automobile manufacturers are advocating for more flexibility regarding these emissions regulations and the planned 2035 ban, with BMW suggesting the ban should be canceled. In recent weeks, companies like Volvo Cars, Mercedes-Benz, and Renault have projected lower profits this year due to risks from potential global tariff wars and the expenses associated with meeting stricter emissions standards, making it challenging to move away from the higher profits associated with petrol and hybrid vehicles.
Renault’s Chief Executive, Luca de Meo, remarked on the progress regarding EV technology, emphasizing that the journey toward dominantly using EVs in Europe would take approximately 20 years. Despite the slowdown in EV sales growth in Europe, demand in China has surged, with electric and hybrid vehicles accounting for 47% of sales last year, a significant increase from 6% five years prior.
Electric vehicles are currently more expensive to produce than petrol vehicles because of the high battery costs, resulting in lower profit margins for EVs. However, Mercedes-Benz’s Chief Financial Officer, Harald Wilhelm, stated that the company is working to reduce EV costs by over 15%, which would help narrow the cost difference compared to combustion engine cars, but acknowledged the challenges involved in achieving full parity.
Volkswagen, Europe’s largest carmaker, is re-evaluating its plan to cease petrol car sales in Europe by 2033, contingent on consumer preferences for combustion engine cars. Meanwhile, in the United States, General Motors is updating its ICE models. Although GM’s share of US EV sales increased from 6% to 9% last year, largely due to demand for its all-electric Chevrolet Equinox, company executives foresee a potential slowdown in market growth, especially following the rollback of consumer subsidies for EVs announced by former President Donald Trump.
GM’s Chief Financial Officer, Paul Jacobson, suggested that the profitability and cash flow from ICE vehicles might persist longer than initially expected.
(Additional reporting by Ian Johnston in Paris)