Is the Electrification alarm being rung too early? Not if you’re truly looking over the horizon. While the still-evolving, highly robust and cost-effective internal combustion engine is not yet close to being put to rest, electrified and electric vehicles will become the primary home for capital investments in new propulsion technologies and production capacity. There is no doubt about it. Suppliers need to ensure they remain relevant through this shift.
Full-scale investment in brand-new engine families is expected to decline after 2017, according to a recent forecast by IHS Markit and illustrated in the accompanying chart. Through the end of this decade there will be a surge of new engine launches as several OEMs introduce new 3- and 4-cylinder engine families to serve through the 2030-35 timeframe. The majority of these are expected to see duty in various hybrid-electric configurations.
Engine development post-2020 will principally shift to revisions and upgrades to keep pace with emission regulations and to meet vehicle packaging needs. By that time the number of ‘new’ engine family introductions will decline swiftly, the forecast reports.
The economics of capital utilization are at play as the development and tooling investment horizon for engines can be up to 20 years. Building a new powertrain plant today is dictated by a different economic equation than that of vehicle assembly facilities.
This directional sea-change is apparent as OEMs and key suppliers eye the systems required for electrification: batteries, motors, inverters, wire and the ECUs/software needed to connect and control these. Despite whatever changes may or may not occur with U.S. vehicle emissions legislation over the next few years, governments elsewhere are signaling that they will continue to adopt more restrictive standards. Because of this, OEMs and suppliers will need to ensure that their technologies are flexible to comply with stricter regulations in their principal global markets—to protect for the highest common denominator.
Industry is steadily signaling the investment shift. Like the shiny new penny in your pocket, attention is being diverted to incremental volumes devoted to various hybrid and battery-electric offerings. Essentially every OEM is signaling this shift—as are suppliers. For example, since 2012 Delphi has acquired or made strategic investments in 11 companies that specialize in the electronics, electrical architecture and software aimed at autonomous- and connected-vehicle technology, while it spun off its $4.5-billion powertrain division into a separate publicly traded company. Such strategic moves underscore the expectations for longer-term returns.
Announcements by major technology suppliers and others outline this critical shift. Even labor unions are fully aware of what can eventually occur if greater resources are focused on new systems which will require emerging skills, capital deployment, facilities and risk.
While some may downplay the pace of this shift toward electrification, ICEs in some form will still be in approximately 95% of new light vehicles in 2025, becoming more a part of electrified-propulsion solutions. OEMs will re-direct resources to building new or modified supply bases which may include new players, capabilities and investment dynamics.
In the end, existing powertrain component suppliers who cannot foresee and take advantage of the shift will not be the new “penny in the pocket.” Pressure on them for cost reductions and greater efficiencies needed to fund more new technologies is projected to build.
Hybridization will extend the life of the nearly 150-years-old ICE and its dependent systems by several decades. Whatever the horizon is for this amazing device, suppliers in all tiers need to ensure they are relevant as the shift to the future electrified and electric mainstream continues. It’s a case of the destination being less important than the journey itself.