September marked a major milestone in the European auto industry’s decade-long transition to clean, sustainable cars.
For the very first time, zero-emission vehicles outsold conventional diesels over a single month, according to data from The European Electric Car Report.
Unique circumstances such as the acute semiconductor shortage, which limited supply of internal combustion engine cars (ICEs), are partly behind the high-water mark, as are logistical decisions peculiar to industry leader Tesla. This suggests the data could just be an outlier for now.
Still, unlike the United States, Europe has firmly embraced the technology, and many more months like September are on the horizon as battery electric vehicles (BEVs) push toward definitively leaving behind diesels, and ICEs more generally, at some point in the not-too-distant future.
“Right now, it’s likely just an anomaly,” said industry analyst Matthias Schmidt, who publishes the monthly study. “But the underlying trend showing a steady decline in ICEs in favor of zero-emission cars remains intact, so it’s only a matter of time before this becomes the norm in Europe.”
Diesels are not just another powertrain running on a different fossil fuel. In the aftermath of the Kyoto Protocol, they became the continent’s answer to global warming, eventually outnumbering traditional spark ignition cars running on gasoline in the mid-2010s, owing to their beneficial tax treatment and better mileage. There’s a catch, however: Conventional diesel engines spew a lot of nitric oxide, a major contributor to respiratory diseases that the European Union is determined to limit in the atmosphere.
The share of new diesels as a proportion of sales in Western Europe plunged to just 13.4% in September, while BEVs hit a record high last month at 15.3%. By comparison, in the U.S. support for zero-emission cars is merely a fraction of that, with last year’s share at below 2% despite being Tesla’s home turf.
Carrot and stick
The soon-to-be-Texas–based carmaker is a major reason why BEVs performed so well in Europe. For one, Tesla typically enjoys a strong finish in the final month of each quarter owing to its logistical strategy, and September was no exception. Moreover imports of the Model Y from Tesla’s China plant made land in August for the first time, meaning the midsize crossover just enjoyed its first full 30-day period of sales in Europe.
“Just in time for the first customers of the Model 3 to renew their three-year lease with a brand new Model Y,” Schmidt added.
A key underlying factor behind the increasing penetration of battery electric vehicles is the threat of stiff fines from Brussels. This has turbocharged sales of BEV models, which accounted for just 1.9% of the EU new-car market in 2019, prior to the introduction of mandatory targets only reachable with electrification.
Recognizing that automakers struggle to make a new technology both affordable and profitable on their own, governments have stepped in with subsidies to help bridge the still daunting price premium over conventional ICEs. In Germany, for example, policymakers knock €6,000 off the cost of any BEV model with an official list price excluding VAT below €40,000 ($46,200).
Finally, automakers are increasingly abandoning diesel engines in volume-heavy segments like subcompact hatchbacks, where the cost of adding new catalytic converters to clean up hazardous tailpipe pollutants can become prohibitively expensive.
Some sales are also shifting toward mild hybrids, where a 48-volt electrical system is added to the ICE powertrain to reduce CO2 emissions. They are far from zero-emission cars, but fall into a kind of classification limbo that are not counted as traditional-diesel sales.
“The migration to mild hybrid electric vehicles is likely to see them take up a large chunk of ICEs going forward,” Schmidt explained.
Subscribe to Fortune Daily to get essential business stories delivered straight to your inbox each morning.