End is Nigh (for Engine design)

Once we are through the Covid pandemic, the world will return its focus on zero emission technology, primarily electric but also fuel cell vehicles. It seems that we may be at the end of the internal combustion engine era.  Certainly across the globe, vehicles will continue to use engines for the foreseeable future, because electric only sales mandates will start in developed countries and slowly spread to other regions.  There is also a role for engines in hybrid and plug-in hybrid powertrains, both of which are on the path to full electrification.

Nevertheless, the future appears to be fully zero emission, so the interesting question is not when will the last engine be sold but when will the last engine be designed.   We are already seeing engine designs starting to stagnate.  Engine pollutants are becoming as low as feasible, hence there are limited plans for further pollutant reduction legislation in US and Europe.  There is a desire for CO2 reduction but this now appears to be about electrification not engines. Developing electric powertrains and vehicles will take significant investments in technology, cost reductions, establishing supply chains and assembly plants as well as dealer training and support, all of which will likely distract resources from producing engines .  It would seem that traditional vehicle OEMs and some tier 1 suppliers may well freeze their core engine design activities, and just adapt the existing designs as needed for future markets or product offerings.   This will allow these companies to refocus their engine design cash expenditure and human resources to electric and/or fuel cell vehicle development.   A conclusion could be there may soon be an end to new engine designs.

Different future scenarios can be postulated with positive or negative factors impacting when engine design will cease.  One such scenario is to consider a date when developed countries will enact EV only sales (banning engines in vehicles), and assume that vehicle OEMs will move quickly to limit their investment in new engines because of these mandates.  For example, Canada, Singapore and France have stated 2040 for zero emission vehicle only sales with several countries including UK, Netherlands, Iceland and Norway planning on earlier dates.   Let’s assume 2040 as the end of engine powered vehicle sales in this analysis, which means the last engine designed for these markets will have a production for new vehicles ending in 2040.  Typically the production life for a new engine is 5 years, although there can be some refreshes to the design, which in the past were driven by changing emissions regulations.  However, if this is the last engine designed and engine emissions requirements are not changing, it is likely that a longer production life will be desirable by the OEM to optimize return on investment.  Continuing this scenario, let’s assume the production life is 10 years and the design time for a new engine is around 4-5 years.  For a 2040 end of production, the last engine design would start in 2025 ! 

This is sobering thought is illustrated in the graphic below: 

Even assuming some slippage in the zero emission only sales mandates, and shorter design and/or production life, this scenario still suggests the last ICE design will occur towards the end of this decade.

What might this mean for the industry:

• Although completely new engine design has the possibility to end towards the end of this decade, there will still be application engineering for vehicles in different countries and for integration of engines with electric powertrains where hybrid vehicles are allowed and desired.  

• If major vehicle OEMs focus on electrification,  there is a question on who will provide engine application engineering and engine supply, which may open up new opportunities within the engine supply chain.  

• With the changeover to electric vehicle design, there will also be a need to develop the supply chain and infrastructure to support electrification.   This will continue to provide revenue growth for companies investing and innovating products.

• The transition time to electric has significant uncertainties due to the disruptions caused by the pandemic, and because consumer preference for electric still has to be proved and there is a risk of proposed mandates not being fully enacted.  Hence It is worth monitoring the trigger points for the move to electrification by country including regular reviews of the consumer appeal of electric.  This will provide intelligence to understand how quickly the industry is changing by region and should provide the insights required to exploit the changing engine supply chain and/or exploit emerging opportunities in the electric vehicle ecosystem