(July 2010) Recent news reports have highlighted the agreement between Toyota Motor and Tesla to jointly develop electric vehicles (EVs) along with providing updates on the upcoming launches of new EV models such as the Chevrolet Volt and Nissan Leaf. What is happening with the development of other alternative powertrains — such as diesels — in the U.S. market? Mike Omotoso, senior manager, Global Powertrain at J.D. Power and Associates offers insight and answers:

Q: Are German automakers—the Volkswagen, Daimler and BMW Groups—pursuing electrification or are they concentrating more on diesel powertrains?

A: German automakers have traditionally focused on diesel powertrains, but now they are all serious about developing electric vehicles, too. Volkswagen and the company’s Audi subsidiary plan to launch electric vehicles by 2013, and Daimler plans to sell an electric version of the Smart car starting in late 2010. Volkswagen showed an electric vehicle concept called the Up! in January at the North American International Auto Show in Detroit, Audi presented their e-tron BEV (battery electric vehicle) concept at the same show. BMW is creating a sub-brand specifically for its electric vehicles, and they already lease the MiniE in California and New York.

Q: Is the perception about diesel changing with the availability of new–generation, direct-injection clean diesel engines? Are Americans more aware that diesels are cleaner?

A: As for diesel powertrains, the perception has been changing for a couple of years. Ultra-low-sulphur diesel fuel has been sold in the United States since October 2006, and this type of diesel is a lot cleaner than the ‘dirty diesel’ that used to be sold here. Using special catalytic converters, particulate filters and urea aftertreatment have also helped to clean up the image of diesel engines.

Volkswagen and the luxury German brands have done a good job of selling diesel as an alternative to hybrid vehicles. Over 80% of all Jetta SportWagens and over 50% of Audi A3 hatchbacks are sold with a diesel engine. The luxury German brands—Audi, BMW and Mercedes-Benz — have been successful in selling diesel light trucks (crossovers) such as the Audi Q7, BMW X5 and Mercedes ML320 Bluetech.

As gas prices rise, we expect more consumers to see diesel light vehicles with 25-30% better fuel economy to be a viable alternative. The diesel price premium is $1,000-$4,000 per vehicle, depending on the model and brand, and the federal tax break is $900-$1,800 per vehicle. The price premium for hybrids compared to gasoline-powered vehicles is closer to $5,000, according to our research.

Americans don’t see dirty diesel pumps at gas stations anymore and don’t see black smoke coming from the exhaust pipes of diesel cars and trucks, so the perception has changed. However, diesels are still mainly associated with 18-wheelers and heavy-duty pickup trucks. Diesels account for less than 3.0% of light-vehicle sales, and it will be at least another 3-5 years before we see diesels offered in more cars and trucks sold by domestic and Asian manufacturers.

Q: What is the J.D. Power forecast for diesels in this market?

A: Heavy-duty pickup trucks and Volkswagen compact cars account for over 90% of the current diesel market. Diesels accounted for about 2.6% of sales in 2009, although we expect sales to reach 8.0% in 2015. Most of the growth will be in the light-duty pickup and SUV/CUV segments.

— J.D. Power and Associates