This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 14, 2017).
As sales of diesel-powered cars dive in Europe, the Continent's car makers, heavily invested in the technology, are scrambling to offset the shortfall.
Electric cars, often said to be the future of the industry, aren't the solution -- at least not yet.
European auto manufacturers polled by The Wall Street Journal said demand for electric vehicles remains too small for them to replace diesel cars anytime soon. While all the companies are investing in electric mobility, their immediate focus is on building more gasoline-powered cars and making diesel engines cleaner.
Since Volkswagen AG, the world's biggest auto maker by sales, was caught rigging diesel engines to dupe emissions tests two years ago, sales of diesel cars have declined rapidly.
In diesel-heavy Germany, for example, threats by politicians to ban the cars from cities have scared off customers, with sales of new models in August falling 14% from a year earlier, according to Germany's federal motor-vehicle agency. Sales of gasoline-powered cars last month rose 15%.
Research group LMC Automotive says diesel's market share in Europe, always the biggest market for the technology, could decline to about 45% this year from 53% before the scandal. Meanwhile, electric cars and hybrids are expected to grab 4% of the European market this year, up from 2.3% before the diesel scandal.
High prices for electric cars, the scarcity and inconvenience of charging stations and the vehicles' inability to travel long distances have put off drivers. Car makers, who dragged their feet for years on electric cars, also have few models in the market to lure diesel-driving consumers.
"In many segments that are of interest to families, the products just aren't available," Steve Armstrong, Ford Motor Co.'s Europe chief said on the sidelines of the Frankfurt Motor Show this week.
Auto makers at the Frankfurt show announced big plans for the future. Volkswagen increased the number of electric models it would offer by 2025 to 80, up from the 30 originally planned, and said it would offer electric versions of all of its 300 models by 2030.
BMW AG has committed to offering 25 new electric cars and hybrids by 2025, and Daimler AG plans to offer an electric version of every model it makes by 2022.
But car makers aren't sure they will make money on electric cars soon. A Daimler executive told investors on Monday that the company expects half the margins on electric vehicles compared with the cars they replace.
"If it works and companies can be profitable, that's good," Peugeot Chief Executive Carlos Tavares said this week. "But if it does not gain acceptance in the market, then everybody -- industry, employees and politicians -- have a big problem."
While Peugeot is planning to launch seven plug-in hybrid vehicles and five fully electric cars between 2019 and 2021, it is scrambling now to double production in France of some gasoline engines "to meet growing demand," a spokesman said.
Other car makers said the decline in diesel sales in Europe would have little to no impact on production or jobs at their engine plants, as most models already come with a diesel-or-gasoline option. That means auto makers simply ramp up production of gasoline engines if demand grows.
The bigger problem is shouldering the costs of developing electric-car technology as regulators around the world continue to attack the conventional internal-combustion engine.
France and the U.K. have announced plans to ban all gasoline- and diesel-powered vehicles after 2040. They would possibly exclude hybrids, but the aim is to promote all-electric vehicles.
In Germany, Volkswagen, BMW and Daimler's Mercedes-Benz are working frantically to defend diesel, which they say is necessary to meet the European Union's ambitious climate goals. Diesel produces fewer greenhouse-gas emissions than gasoline. The downside is that it produces toxic nitrogen oxide, which is linked to deaths and respiratory diseases.
The German manufacturers are spending millions on a voluntary recall to update the core engine software on some of the newest diesels to make them cleaner. They are also offering as much as EUR10,000 ($12,000) in cash incentives to customers who trade in old diesels and purchase a new car -- regardless of what type of engine is under the hood.
With so much at stake, the entire auto industry is watching Germany to see if the car makers can "preserve the validity of diesel as a technology solution," Fiat Chrysler Automobiles NV Chief Executive Sergio Marchionne said recently.
"My gut tells me that whatever happens out of all of this that we're going to see diesel come out of this in a much weaker state than it was on the way in," he said.
Klaus Fröhlich, BMW board member in charge of research and development, told reporters last week that the diesel scandal had spawned "irrational regulatory initiatives" around the world.
BMW expects to sell 100,000 electric cars and hybrids this year -- out of a total of 2.4 million vehicles. By 2025, it plans to offer at least 12 pure electric vehicles and 13 hybrids, compared with nine electric cars and hybrids in 2017.
Volkswagen has launched a major investment drive to develop roughly 80 new electric models across its brands, which include VW, Porsche, Audi, Skoda, SEAT, Bentley and Lamborghini. But at a gathering of roughly 300 employees for a town hall meeting with Chief Executive Matthias Müller last week, some attendees seemed unconvinced.
"Why are we investing so much into a market that is a niche of a niche of a niche?" one person asked.
Mr. Müller said Volkswagen had to have its feet planted firmly on both sides of the field. It had to keep developing the combustion engine until the market for new technology takes off. "That's why I say the technologies will have to coexist," he said. "One day, electric vehicles will make up 25% of our sales."
Emre Peker in Brussels contributed to this article.
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(END) Dow Jones Newswires
September 14, 2017 15:40 ET (19:40 GMT)