Swedish carmaker Volvo will not develop any new diesel engines as the cost of reducing emissions of nitrogen oxide is becoming too expensive, Chief Executive Hakan Samuelsson was quoted as saying on Wednesday.
"From today's perspective, we will not develop any more new- generation diesel engines," Samuelsson told German's Frankfurter Allgemeine Zeitung in an interview.
Samuelsson said Volvo would keep developing current diesel-powered models introduced in 2013 to meet future emissions standards, but then the costs of keeping them compliant with higher anti-pollution standards would no longer be worth it, with the current generation likely to be produced until about 2023.
Instead, Volvo will invest in the electric and hybrid cars, with its first pure electric model due on the market in 2019.
"We have to recognise that Tesla has managed to offer such a car for which people are lining up. In this area, there should also be space for us, with high quality and attractive design," Samuelsson said.
Samuelsson has previously said that tighter emissions rules will push up the price of diesel-engined cars to the point where plug-in hybrids will become an attractive alternative.
The average carbon dioxide emissions limit for European carmakers' fleets will need to fall from 130 grammes per kilometre to 95 grammes in 2021, forcing them to invest more in exhaust emissions technology.
Diesel cars account for over 50 percent of all new registrations in Europe, making the region by far the world's biggest diesel market. Volvo, owned by China's Geely, sells 90 percent of its XC 90 offroaders in Europe with diesel engines.
The scandal over Volkwagen's cheating of U.S. environmental tests to mask emissions of nitrogen oxides, which can cause or aggravate respiratory disease, means manufacturers are facing intense scrutiny over the true level of pollutants being emitted by their cars.
Goldman Sachs believes a regulatory crackdown could add 300 euros ($325) per engine to diesel costs that are already some 1,300 euros above their petrol-powered equivalents, as carmakers race to bring real NOx emissions closer to their much lower test-bench scores.
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