Much has been written in recent weeks about Volkswagen and the company’s fraudulent approach to emissions testing of their diesel engines using a “defeat device”. VW has the largest market share of the global diesel engine market at 15%1 so what is the likely impact of recent events on their supply chain and the industry more broadly?

Diesel has about a 10% higher energy content than petrol and diesel engines tend to be more efficient and produce less carbon dioxide (CO2) than their petrol counterparts. This has made them popular with European policy makers in their efforts to reduce transport emissions and consumers looking to reduce their fuel bill. However in recent years diesel’s contribution to local air pollution in cities (particulates and nitrogen oxides) has been highlighted as a human health impact; a study earlier this year from King’s College London attributed 5,900 deaths a year to nitrogen oxides from diesel engines in the UK capital.

The regulatory framework for greater fuel efficiency and lower emissions is clearly defined and it appears that VW broke the rules rather than the rules being found wanting. The VW case has now raised the broader issue of whether diesel cars will ever be able to meet stricter NOx limits whilst maintaining performance levels attractive to drivers. To date, US policy (led by California) has focused on “raising the bar” for lower NOx and particulate emissions. Meanwhile Europe has prioritised CO2 emissions standards, so it was not surprising that the VW scandal broke in the US, despite the diesel car being far more popular in Europe.

The US is already targeting a fuel efficiency of 54.5 mpg by 2025. In Europe the Euro 6 standards introduced in late-2014 saw permitted NOx emissions reduced by 55% from Euro 5 standards for passenger diesel cars. The gap between laboratory testing and “real” results were already understood by EU regulators who had been working against industry lobbyists to tighten testing condition. Recent road tests of 15 types of diesel cars found only one met Euro 6 and only three met the current Euro 5 standards2.

The outlook for testing equipment suppliers looks strong as the industry tries to rebuild consumer confidence. There is much work to be done by the car manufacturers to improve powertrain efficiency in order to extract additional miles per gallon (e.g. improved efficacy of engines, transmission systems, drive shafts, tyres etc). Manufacturers will struggle to find the capacity internally to meet this demand but the specialist suppliers of this equipment look set to benefit, as do environmental consultants operating in this space.

It seems reasonable to expect a significant decline in diesel vehicles is in cities where NOx levels are a pressing issue. We expect electric vehicles (EV) and cleaner hybrid options to increase at the expense of the pure diesel car as Low or even Zero-Emission Zones are implemented.

The ever-tightening ratchet of environmental regulation means that we continue to finding opportunities in the supply chain for suppliers focused on fuel efficiency, emissions standards and “real world” testing environments. 

[1]BaML, September 2015

[2]Liberum, January 2015

Car sales by fuel type, 2014




*Includes electric, hybrid and biofuels


WardsAuto; European Automobile Manufacturers Association; LMC Automotive; Exane BNP Paribas 

Scott Thompson

Managing Director, Business Development

Scott joined Impax in August 2015 and has responsibility for the pension fund and consultant relationships in the UK, across all asset classes.

Scott is a senior finance professional with experience in tier one banks and successful start-ups. He previously worked for Craigmore Sustainables, where he focused on sustainable investments in agriculture and forestry. Prior to this he was Head EMEA Sales at ETF Securities and has also held senior trading roles at J.P Morgan and UBS.

Scott holds an MA in Geography, including climate modelling, from Oxford and an MBA from INSEAD.

Authored Insights

Cleaning up after Volkswagen

Much has been written in recent weeks about Volkswagen and the company’s fraudulent approach to emissions testing of their diesel engines using a “defeat device”.

15 Oct 2015
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