Falling gasoline prices, mandated fuel economy standards, media coverage of low volume, innovative vehicle power trains and concern over the environmental impact of fossil fuels, has raised questions regarding the future of gasoline powered motor vehicles.
Most car buying decisions are probably based on the purchaser’s requirements relating to affordability (both initial cost and continuing operating costs), carrying/towing capacity and style. A significant number of purchasers are also concerned about safety, environmental impact and fuel economy.
While these are the major considerations for vehicle buyers, the manufacturers are focused on mandated fuel economy standards that currently require cars to average 54.5 miles per gallon (mpg) by 2025, up from 25.1 mpg last year (of course they still have to produce vehicles that people want to buy). Most industry experts believe that advances in gasoline and diesel engine efficiency can bring the fleet to approximately 40 mpg by 2025. Getting the rest of the way is the leading reason for pursuing alternative power sources, including electric, natural gas and fuel cells.
Currently, virtually all alternative engine concepts cost materially more than a comparable gasoline engine. For some, the higher initial cost can be offset by fuel and maintenance savings. The payback period depends on use. Heavy duty vehicles, with high usage, have shifted to diesel power as the reduction in fuel costs and maintenance can offset the higher initial cost in as little as a year.
Diesel power enjoys a 50% market share for passenger cars in Europe due to materially lower taxes on diesel fuel. In the U.S., diesel currently tends to be more expensive than gasoline and is not the engine of choice for most passenger vehicles.
Electrics and plug-in hybrids have commanded a relatively high level of media attention, particularly for Tesla. However, in the real world, with 2014 U.S. vehicle sales of nearly 17 million units, electric and plug-in hybrids accounted for less than 130,000 units while the top three combustion powered pickups, the Ford F series, the Chevy Silverado and the Dodge Ram, sold more than 1.7 million units.
At present, it appears that, for most applications, the gasoline powered combustion engine provides consumers with the greatest combination of affordability and utility. Longer term, innovation may change that. However, there is still a lot of room for further refinement of combustion engines. Diesel powered engines utilize approximately 45% of the fuel used to propel the vehicle, while gasoline engines only direct 18% of the energy generated to the wheels. Clearly, there is still a lot of room for additional engine development.
Finally, investors might want to note that the U.S. Energy Information Administration projects that in 2040, gas and diesel powered engines will represent approximately 95% of the international car market.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®