Audi reveals plug-in hybrid and mild hybrid strategy as NVES reshapes Australian market

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With sharpened pricing and reduced lead-times for new models two of the cornerstones of Audi Australia’s “renaissance”, the German brand has also laid foundations for its response to the disruption caused to the Australian car market by the New Vehicle Efficiency Standard (NVES).

With the NVES system of credits and penalties for vehicle CO2 production now in force, the coming era will be defined by emissions caps that incentivise carmakers to increase their proportion of battery electric (BEV) and plug-in hybrid (PHEV) sales—or face multi-million-dollar penalties.

Audi Australia executives, led by brand director Jeff Mannering, explained to Chasing Cars that PHEV, as well as mild hybrid (MHEV) technology, will be central to not only profitability, but also a plan to keep higher-CO2 Audi Sport (S and RS) models on sale for longer.

A plan is being implemented to add combustion, PHEV and BEV options in all “core” segments for Audi. The midsize SUV class will be the first to be built out, with the Q4 and Q6 BEVs in Australia already, supplemented by the just-launched MHEV Q5 while a PHEV version of the Q5 is on the way.

NVES forces a whole new “mathematical equation” on Audi and others

Audi Australia planners are hyper-aware of the need to shift more sales volume to a range of lower-CO2 powertrains from 2025 to 2029, with the New Vehicle Efficiency Standard (NVES) CO2 credit and penalty scheme now in force with financial consequences for car manufacturers.

“It is a mathematical equation—as [NVES headline CO2 limits progress] from 141g/km in 2025 to 117g/km in 2026 and onward, we reduce ICE and increase BEV and PHEV…it is all going to shift over the five-year [NVES] cycle,” said Mannering.

“We have spreadsheets on spreadsheets constantly analysing how our mix shifts with quite big steps in the [NVES] CO2 headline targets,” product boss Dale said. “As new technologies come to our portfolio globally, NVES gives us the opportunity to bring these faster to [Australia].”

For Australia, Audi’s ICE, hybrid and electric powertrain strategy has four parts for now:

• High-CO2 Audi Sport (S and RS) petrol models get a stay of execution
• Regular petrol and diesel models will increasingly acquire mild hybrid systems to reduce their CO2
• More PHEVs will be added to the range at more attractive pricing
• BEV sales will grow—but perhaps not as fast as first expected

Every version of the first SUV to arrive as part of Audi Australia’s “renaissance”—the third-gen Q5/SQ5 SUV—has standard fitment of Audi’s newest ‘MHEV plus’ 48-volt mild hybrid tech that reduces fuel consumption (and CO2 emissions) by around 5-10 percent.

“In formats like MHEV Plus, you can retain [petrol and diesel engines] while selling a heavier mix of PHEV,” said Dale. “MHEV Plus is scalable. MHEV Plus could continue into [other] petrols and diesels to make those more effective and efficient.”

Price parity for PHEVs is a key goal

However, with NVES limits tightening so quickly, by 2027 even MHEV Plus vehicles will be well over headline figures and into ‘penalty’ territory for Audi if too many are sold as part of the brand’s overall Australian sales volume alongside other high-CO2 vehicles.

Higher sales of PHEV and BEV are essential for Audi Australia’s future profitability under the punitive NVES regime. As a result, the brand has decided that all key volume segments will offer BEV, PHEV and ICE choices.

“We have always said PHEV is a great opportunity to have the best of both worlds, and it speaks to the Australian consumer more than what it would in other countries,” said Dale. 

“If you went back three years ago and asked the automotive industry what the next big thing was, everybody would have said BEVs. It has shifted a bit. BEV is still there, but PHEV is probably the more important focus at the moment,” Mannering added.

Achieving price parity (or close to it) is a goal for Audi Australia product planners, and that outcome was achieved in the new A5 range in which the 200kW turbo petrol/AWD (non-hybrid) version and the 270kW turbo petrol/AWD (PHEV) choice both cost $89,900 + ORCs. 

“Like BEVs, PHEVs have improved,” product manager Peter Strudwicke reflected. “Their batteries are getting bigger as they are cheaper to manufacture, and the price jump [from petrol] doesn’t have to be as big as it was, as proven with the A5.”

While Audi Australia acknowledges the production costs of a PHEV are still higher than an equivalent non-plug-in engine, one effect of NVES is that local executives have more leverage with German headquarters to argue for sharp PHEV pricing… in order to avoid costly NVES penalties.

“If it is positioned correctly, you are going to sell some cars,” Mannering said.

Strong MHEV and PHEV sales will offset S/RS model CO2 levels

“We will do a lot of the heavy lifting with positioning of PHEV,” Dale said. “As an example, the A5 having price parity for the first time with PHEV. That drives an opportunity to grow [sales] volume, to start shifting our mix, and having a really strategic view on how we position those cars.”

“It can [also] offset the performance models,” Dale added.

While today’s Audi S and RS models have relatively high CO2 compared to NVES limits (the SQ5 produces 172/km), Audi Sport vehicles are already adopting MHEV Plus and rumour suggests future combustion sports cars from the brand will adopt PHEV to survive.

For emissions ratings purposes, the official CO2 output of a PHEV is mainly defined by the size of its battery and corresponding hypothetical electric-only range—and the laws assume the vehicle is charged up by its owner, even if it is not.

BMW’s M division has already augmented its existing 4.4-litre petrol V8 engine with a PHEV system for CO2 reduction purposes, initially via the experimental XM, and then for the new M5 sedan and wagon. The M5 sedan’s resulting 72g/km official CO2 emissions are NVES-friendly.

More controversially, Mercedes-AMG lopped half the cylinders from its popular C63 model, reducing a 4.0-litre non-hybrid V8 to a 2.0-litre PHEV (with a relatively small battery), increasing overall power while reducing CO2 (from 234g/km to 138g/km).

However, the drastic move has been blamed for a dramatic slowing of C63 sales globally, and could be a reason why Audi is rumoured to be considering maintaining a six-cylinder engine alongside a PHEV system for its forthcoming RS4 wagon reboot.