Sales of diesel could plummet from 50% of fuel for cars to just 10% by 2025, according to a report by banking and financial services group UBS.

It forecasts that diesel faces a “perfect storm” of competition from cheaper electric cars and a tougher regulatory approach to emissions following the VW scandal. Meanwhile, VW says it believes that the cost of producing an electric car will move lower than the cost of producing a diesel model around 2025.

The report says that the falling costs of electric and hybrid vehicles will strip diesel of its former price advantage, and tighter emissions regulation will contribute to its global share of car sales falling from 13.5% to around 4% by 2025.

In Europe, where diesel has been most popular, sales are forecast to fall from 50% to just 10%.

UBS says that it expects diesel cars to be replaced by 48V mild-hybrid technology, which combines a small petrol engine with a large battery, offering what it says is similar fuel economy and performance while eliminating NOx emissions. It believes such vehicles will overtake diesel sales by 2021 and account for a quarter of new car sales by 2025.

Meanwhile Dr Matthias Erb, a Volkswagen Group of America Executive vice president, told the Green Car Congress: “We see a cost line crossing between battery-electric vehicles and diesels. Some of the strategists in our company see that by 2023, 2025, due to the emissions standards, diesels are going to become really expensive. We expect that when those two lines cross, this will be the time when huge pressure comes on diesel.”

Volkswagen has set a goal of selling one million electric vehicles per year by 2025.