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Is Diesel Done?

We think the demise of the diesel engine may be inevitable, but it is definitely not imminent.

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Diesel engine powertrains have come under heightened scrutiny with the revelation of Volkswagen's U.S. emission test cheating. Some pundits have opined an early demise to the technology. However, automakers have invested heavily in diesel capacity, especially in Europe. Legislation in the European Union aimed at reducing carbon dioxide emissions, as well as the region's tax schemes, has played a major role in the industry's investment and consumer demand for the engines. If car companies' use of diesel as a means of reducing CO2 emissions from their entire product portfolio is restricted, technologies other than gasoline engines must be ready to launch today. In our view, alternative powertrain technologies are too costly and not ready to completely supplant diesel engines.

Because of diesel's higher operating efficiency relative to gasoline, diesel engines represent a means to achieving legislated fuel economy and CO2 emissions targets. On average, diesels are about two thirds less costly than hybrid powertrains for automakers and consumers. In the capital-intense auto industry, pulling forward development of relatively higher-cost hybrid powertrain passenger vehicles represents an immense hurdle. Most vehicle programs remain in production for 5-10 years, while engine programs last 10-15 years. As a result, we believe that a substantial number of model-year 2025 passenger vehicles around the world will contain diesel engine powertrains.

Richard Hilgert does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.