Tension and the Electric Takeover

Everyone agrees EVs are the right thing to do, but achieving aggressive market-penetration forecasts will prove difficult.

BMW’s new iX3 electric vehicle coming off an assembly line in Shenyang, China. BMW has elected to mitigate some of the risks of transitioning to electrification by designing models to use either IC or electric propulsion. (BMW)

Something happened in September 2022 that can be seen as emblematic of the auto industry’s accelerating transition to electrification: Tesla’s Model Y was Europe’s best-selling vehicle. An EV as an overall sales leader in a major world market is the tree-hugger fantasy that’s suddenly, almost improbably, the “new normal.”

Engines on the production line at a Volvo facility in Skovde, Sweden. As an answer to the conflicting demands of parallel IC and EV development, Volvo and parent company Geely are consolidating their powertrain-production assets into a separate business unit. (Volvo Cars)

The EV future may be here, but there’s certainly disagreement about what it really looks like — at least from now to 2030, a bellwether date in many EV-adoption timelines. One aspect is certain: automakers are buying in to the tune of scores of billions of dollars in investment in the U.S., most notably for sprawling, joint-venture battery-manufacturing and R&D campuses — as of November 2022, there were 10 confirmed new automaker-affiliated battery-production facilities confirmed for the U.S. But there also is substantial development funding for widely configurable new EV platforms and the sophisticated software and electronics architectures that purportedly will differentiate and “define” new-age EVs.

Although the Biden Administration is pushing for EVs to account for 50% of U.S. sales by 2030, most analysts believe it will not be possible. This Wards-LMC Automotive forecast puts total EV sales for North America at just less than 37% in 2030. (Wards-LMC Automotive)

A Reuters analysis released in October 2022 based on public information and projections by the world’s automakers indicated that EV investment commitment from global automakers through 2030 totals $1.2 trillion. The figure, said the news service, “dwarfs previous investment estimates by Reuters and is more than twice the most recent calculation published just a year ago. To put the figure in context, Alphabet, the parent company of Google and Waymo, has a market cap of $1.3 trillion.”

Ford’s choice to symbolically link the electric Mustang Mach-E (left) and conventional Mustang represents its subsequent choice to divide its product-development activity into separate but mutually supporting ICE and EV business units. (Ford)
Schaeffler’s 4-in-1 e-axle integrates a high-performance radial-flux motor and thermal-management system. (Schaeffler)

According to the Alliance for Automotive Innovation, there were 83 EV or plug-in hybrid-electric (PHEV) production models available in the U.S. in the first half of 2022. An S&P Global Mobility forecast projects nearly 150 EV models alone on the market by just 2025. Some automakers are more bought in than others, but almost all have publicly expressed major commitments to EV transformation.

Meanwhile, Reuters’ figures show automakers intend to build a collective 54 million EVs globally in 2030, or more than 50% of forecasted global light-vehicle production for that year. To help set the stage, regulators and politicians are offering bountiful encouragement for the automakers’ massive financial outlays. There are plump tax incentives to automakers and suppliers for manufacturing investment and to consumers for purchase rebates. Concurrently, global emissions and fuel-efficiency regulations are stacking up hard and fast to disincentivize the continuation of internal combustion engines (ICEs).

At the highest level, President Biden signed an Executive Order in August of 2022 setting a target of 50% of U.S. light-vehicle sales by 2030 being comprised of zero-emissions vehicles, which along with EVs the Administration said includes PHEVs and fuel-cell vehicles (FCEVs). Not long after, California set a definitive sunset date for internal combustion, announcing a mandate that starting in 2035, all new passenger vehicles sold must be electric or hydrogen-fueled. The first phase-in period for the mandate begins in 2026.

Then there’s Europe. Already underway with aggressive vehicle-emissions mandates that include bans of internal-combustion vehicles in some major cities, in late fall the European Parliament and Council announced a provisional rulemaking to also ban the sale of internal-combustion light vehicles throughout the European Union starting in 2035. Europe-based automakers didn’t overtly object, but their industry trade association did speak of issues that many less EV-optimistic sources cite as cautionary signals in the rush to electrification.

Hold on a minute

Stanadyne CEO John Pinson thinks a 30% U.S. sales-penetration rate by 2030 would be a “home run” for the industry. (Stanadyne)

Few challenge that premise that EVs are the transportation end game. But there are persistent and reasonable questions regarding how soon the U.S. and other world regions will get to the EV sales penetration rates being projected by automakers and effectively mandated by legislators. Why? It’s a gamble on industrialization investment on a massive scale. Getting it even partly wrong could grenade not just multi-billion-dollar automakers and suppliers, but entire national economies.

Lithium-ion batteries and new EV platforms are “very new and very expensive,” yet a protracted propulsion-system transition is “forcing the OEMs to maintain a legacy business and pursue this new one,” said Chris Atkinson, professor of mechanical engineering and director of smart mobility at Ohio State University. “Perhaps it's a blessing insofar as they've been able to make profits on the existing technology to subsidize their new ventures — but at some point, it catches up with them in terms of being able to maintain the two simultaneously. It’s an incredibly difficult equation to manage,” said Atkinson, whose perspective also is informed from several years as the program director of the U.S. Dept. of Energy’s Advanced Research Projects Agency – Energy (ARPA-E).

The latest, fifth generation of BMW’s EV “drive unit” that modularizes traction motor, power electronics and transmission. (BMW)

The challenges of maintaining two distinctly different product development paths are intense. It’s widely believed to be a major factor in Ford’s decision in early 2022 to segregate its “legacy” ICE-propulsion business into a new business unit called Ford Blue and operate it separately, the company said, from its Model e division devoted to “innovation and delivery of breakthrough electric vehicles at scale.” Ford Blue “will build out company’s iconic portfolio of ICE vehicles to drive growth and profitability,” the company said in a release, adding that the although the two businesses are separate, they will support one another.

Mitigating the risk of unknown of EV penetration rates a decade from now — i.e. determining how much one has to remain in the internal-combustion business — may take many forms, all based to a large degree on how much market share EVs will acquire – and how soon. A variation of Ford’s two-business-unit strategy is Volvo Cars and its parent company, Zhejiang Geely Holding Group. In mid-2022, Volvo and Geely established Aurobay, a venture comprised of two IC-engine manufacturing plants, one in China and the other being Volvo’s facility in Skovde, Sweden. Aurobay was envisioned as a way to partition the capital assets of IC engine-making in order to improve scale. The unit also intends to shop its engine-production business to outside companies and Michael Fleiss the CEO of Aurobay’s Swedish unit, Powertrain Engineering Sweden, sees consolidation of IC engine production as an avenue to hedge the unknowns of the next decade of EV market penetration.

“The worst thing that can happen to the climate and the world is that there’s no further development of these technologies,” Fleiss told Bloomberg. Merging engine-production assets “would absolutely make sense economically,” he insisted.” Aurobay’s two facilities make some 750,000 IC engines, Bloomberg reported, and Fleiss doesn’t envision conventional engines as a dying prospect. “Even if all these predictions and ambitions of selling BEVs come true,” he said, “in 2040 as many as 75 percent of cars on the road will still be combustion-based.”

Aurobay may consider going public but has no such plan at this time, Bloomberg reported. But Fleiss said a surprising number of entities have shown interest. “These investors see there is a big business still to make, and quite some revenue to be done before this technology dies out,” he was reported as saying.

John Pinson, CEO at multinational fueling-systems supplier Stanadyne, finds it difficult to plan for a market of 50% EV sales as soon as 2030. “If you look at the different aggressive penetration [forecasts], looking at possibly 30% of the light-duty transportation sector being BEV, I think that's going to be a stretch for a lot of different reasons. But even if you took that and then you [factor in] the natural growth of light-duty transport across the market, it's going to grow at about 30%. So, regardless of how quickly this transformation happens, there's going to be a lot of internal combustion. You could be faced with virtually the same number of internal combustion engines being sold into that market in 2030 as today.”

Expected market growth can’t be assumed, however, counters Ohio State’s Atkinson.

“It’s really tricky,” Atkinson submits. “Prior to the COVID pandemic, we [the U.S. auto market] were running along nicely at 17 million units a year. Now down at 13 [million] and will have been essentially for three consecutive years. So that's a difference — and it's a different market. What was the MSRP? It's [averaging] well over $47,000 per vehicle. And for the EVs, they say it's over $65,000. So it's a distorted market. It's not the market we used to have. Clearly, getting to 50% of 13 million is easier than getting to 50% of 17 million, not simply because of the numbers, but because we've lost a whole lot of the low-end vehicles. That 4 million vehicles lost is largely at the low end of the market.”

Stanadyne continues development of ICE-enhancing components such as this high-pressure fuel-injector that is nearing production readiness. (Stanadyne)

Lower-priced vehicles, Atkinson continued, are more difficult to justify electrifying because of the cost constraint. “We have a distorted market now where we're selling fewer, much-higher MSRP vehicles to much wealthier people on average who are fairly keen on electrification. In September of this year, we were at 7% plug-in electric vehicles — a combination of plug-in hybrids and full battery-electric vehicles — and that was at 10% for cars and 5.5% for light trucks, according to the sales statistics. So, this is a transition that's already underway.

“But how quickly can it be achieved and to what extent?” Atkinson asks. “It's been made a lot tougher by the Inflation Reduction Act and the fact that the federal rebates [to EV buyers] now will depend not only on battery component manufacturing assembly in North America, but also ‘extracting and processing’ for critical battery materials in North America, too. So that's going to be a significant limitation. For 13 million vehicles, half of them EVs, we would need approximately 18 very large battery manufacturing facilities. We've got a long way to go.”

Carrots and sticks

The grand question of how far and how fast EV adoption can happen effectively is a high-stakes version of the supply-and-demand equation that governs production of virtually all consumer products. But how much demand can be artificially induced is a critical variable in the transition to EVs. Probably the most significant — and most established — technology-guiding element is government influence in the form of emissions and/or fuel-efficiency regulations.

The average age of vehicles in the U.S. continues to rise – complicating the role of automakers and suppliers charged with assuring adequate supply of replacement parts even as they hasten the move away from legacy propulsion. (S&P Global Mobility)

California’s 2035 combustion-banning mandate is in fact an emissions regulation that forces the phase-out of fossil-fuel internal-combustion propulsion. And Europe’s latest Euro 7 emissions standard, effectively finalized in November 2022 (and set to begin in mid-2025 for passenger vehicles and 2027 for commercial vehicles), ignited controversy when several industry entities, including the European Automobile Manufacturers Assn. (ACEA) and Ford, said that with a working framework to mandate EVs, another round of tightened emissions regulations is counterproductive – and will divert vital resources away from EV development.

“The new proposed Euro 7 emission standard for cars and vans with combustion engines, published on Nov 10, 2022, has the potential to undermine the great progress Europe has made in shifting to electric mobility,” Martin Sander, Ford of Europe’s general manager for the Model e division, was quoted as saying. “We should not be diverting resources to yesterday’s technology and invest in zero-emission instead.”

Gregory Pannone, who until his recent retirement was executive director, Powertrain Analysis at S&P Global Mobility, told SAE Media regarding U.S. emissions regulations, “Based on the past, I believe that fuel economy/greenhouse-gas regulations will continue to be more politically-driven/ideology-biased than a serious review of all of the environmental impacts of electrification versus ICE-based propulsion.” Pannone added that, “Collateral elements such as mining of materials required for batteries and motors, upstream emissions — i.e., the source of electricity generation – charging infrastructure and consumer costs should weigh heavily on any proposed regulation.

“I suspect that the next round of proposals will align with the 50% EV goal stated by the White House,” Pannone concluded. “Estimating CO2 and fuel-economy targets based on removing 50% of ICE-based powertrains and replacing them with BEVs is fairly simple math. This type of aspirational goal led to the 54.5 mpg goal (simply doubling fuel economy) originally floated by President Obama.”

"Why are we using our resources for a technology we want to ban? It's not common sense," Stellantis CEO Carlos Tavares was quoted by Reuters as saying at a conference in Berlin. Further pursuit of internal-combustion emissions standards, he added, are a “diversion from the major goal of electrification."

What’s to be done

Automakers are directing much of the public discourse about the electrification transformation and each is directing its own version of the conversation. Some have been straightforward about their intentions — Ford, 40% global sales to be EV by 2030; GM, all light-vehicle production to be EVs by 2035; Honda, 100% EV by 2040, etc. — but a bit less detailed about the specifics.

For the coming decade of propulsion transition, it’s the industry’s suppliers that are at the tip of the spear. They, as much as the automakers, will be burdened with the unenviable task of balancing the industrial ledgers. And for now, most agree, that will mean a careful and steady management of internal-combustion investments — even though many in the industry are prone to an accelerated view of the EV takeover. “Engine parts makers are ground zero for the most amount of pain in this transition because they have the least amount of portability into EV world," Mark Wakefield, global co-leader of consultancy AlixPartners' automotive and industrial practice, said in an October 2022 Reuters story.

“We have jumping to an entirely new architecture, we have a rapid acceleration in the supplier required and we have an incredible restriction on the source material, the critical materials,” said Ohio State’s Atkinson. “So how that's all going to pan out is just not at all clear.”

“If in 2030 we're in the 30% range [for EV sales in the U.S.], I think that would be a home run for this industry towards electrification,” said Standyne’s Pinson. “And I think it's going to take everything the industry has got to get there. “In the meantime, we have these overriding objectives to get carbon out of the transportation sector.”

At Stanadyne, as with most other suppliers, IC engine-development isn’t — can’t be — discontinued. The company is developing a new generation of high-pressure, gasoline direct-injection (GDI) fuel-injectors at 500 bar (7252 psi) and 1000 bar (14,504 psi) that Pinson said will provide significant efficiency gains and emissions reductions. Stanadyne also intends to introduce electric GDI fuel pumps that will enable total decoupling from the engine, optimizing fuel consumption and reducing engine parasitic losses.

Schaeffler, which acknowledges it is rushing to transition its business to electrification, nonetheless has a litany of new components and systems aimed at improving IC engine efficiency and power. It’s new “e-rocker” electromechanical variable valve-timing system eliminate hydraulics and improves response time and other engine performance and NVH parameters.

And most industry sources agree that hybrids — conventional and plug-in — will emerge as a linchpin technology to help everyone, including cost-conscious consumers — manage the transition to EVs. “The real near-term potential for transportation to decarbonize is in the marriage between electrical and mechanical,” said Stanadyne’s Pinson.

There will be considerable activity and investment in improving IC engines, but many automakers have stated that development of all-new engines has been suspended. “The industry’s effort to create new combustion engines is totally reduced,” said Thomas Stierle, Member of the Vitesco Executive Board, head of Electrification Technologies business unit.

“While there may be "new" engines, I don't believe that any significant/radical ICE propulsion systems will be introduced into the market at high enough volume to impact a full-line manufacturer,” said Pannone. “There are diminishing returns on adding technology — downsizing with turbocharging, cooled-EGR, cylinder deactivation. All impact engine pumping losses, therefore, there will be much less opportunity to reduce pumping losses in future ICEs that already have these technologies. Similar situations exist for thermal efficiency and parasitic losses. I believe non-plugin hybridization is the best path for ICE-based powertrains.”

Ohio State’s Atkinson also sees a direct impact for hybridization. “There's no good reason today that every vehicle should not be a hybrid, and by that, I don't mean a plug-in hybrid,” he said. “But thereafter, there's no good reason why vehicles should not be plug-in hybrid. You get the best of both worlds with respect to that combination.”

“We definitely think hybrids are the right thing to do for the next 10 to 15 years,” added Patrick Lindemann, president of e-mobility and chassis systems for Schaeffler. “Electricity is the right choice.”