The End of the ICE Age?

Are we starting to see the signs of an “extinction level event” as future vehicle innovation accelerates?

The internal combustion engine (ICE)—more than 100 years old and counting—has been the industry’s dominant form of vehicle propulsion. However, global regulatory challenges focused on emission reduction and fuel economy improvement are increasing the potential for fully electric, zero-emissions vehicles.

Are we starting to see the signs of an “extinction level event” as future vehicle innovation accelerates? The early signs are supporting the notion that the end of the ICE age is nearing, highlighted in the changing global legislative environment, increasing investment in these alternative powertrains and developing OEM strategies. 

2017 saw the beginning of an emerging global trend of announcements to ban the sale of ICE passenger vehicles. Several countries have laid out formal plans to adopt fully electric vehicles within the next decade. Norway took the lead in February 2017 by announcing it intends to only allow the sale of electric vehicles (EVs) starting in 2025. Then in June, India’s energy department stated that it set the "ambitious" target to stop selling gas-powered vehicles. As one of the world’s most polluted countries, India is making a bold vow to start selling only EVs by 2030 and ban ICE vehicles.

France’s President Macron announced an ICE ban by 2040 to meet the obligations of the Paris Climate Accord. This was immediately followed by the UK, with its own ICE ban by 2040. In September, Scotland announced plans to end petrol and diesel car sales by 2032, eight years ahead of the UK's deadline.

Also in September, Xin Guobin, China’s vice-minister of industry and information technology, told a forum of automakers held in Tianjin that the government would ban the production and sale of fossil fuel cars. Although no timetable has been formally announced, most Chinese automotive insiders, including BYD Chairman Wang Chuanfu, believe this ban will take place starting in 2030. 

Even with government incentives, battery electric vehicles (BEVs) are still very expensive due to their low volume and expensive powertrains and batteries. However, as momentum builds, and automakers commit to high-volume manufacturing capabilities and build scale, total vehicle costs will be significantly reduced. 

Cost parity between BEVs and petrol vehicles will be possible as battery costs approach $100/kilowatt-hour. Today, analysts forecast this parity is achieved in the 2022 timeframe in Europe and in the 2025 timeframe in China and the USA. This will have the potential to be a significant driver for wider BEV adoption. 

In response to this legislative environment which has accelerated around the globe, automakers have been aggressive in developing strategies to create market-leading positions. 

One such automaker is the Volkswagen Group. VW Group has established a target of 2-3 million electric vehicles a year by 2025 or roughly 25 percent of annual production. This is supported by Porsche, which plans 50 percent of its total sales to be BEV by 2023. Audi plans 30 percent BEVs and/or hybrid electric vehicles for sale in the U.S. by 2025. 

Other developing OEM strategies include:
• Daimler: $11-billion investment with a commitment to electrify the “entire portfolio” by 2022, offering 50 BEV/hybrid models. From 2020, the smart brand will only have an electric drivetrain.
• Ford: $11-billion investment, 40 electrified vehicles by 2022—16 of which will be BEVs and the rest plug-in hybrids. 
• GM: plans to phase out gas-powered vehicles for an “all-electric future” but didn’t give an exact date for an all-EV lineup. The effort starts, however, with plans for 20 all-electric vehicles by 2023. 
• BMW: developed a new vehicle architecture that will enable 
“electrification on every model/series” with the goal of 15-25 percent of total vehicle sales to be BEV/hybrid electric vehicles by 2025.
• Toyota: 10 new BEVs by 2022 and will have an electric option for its entire lineup of cars by 2025.
• BAIC (one of China’s largest carmakers) to phase out production of non-electric or hybrid cars under its own brand by 2025.

As these new OEM strategies create new products and business model opportunities, the challenge for suppliers will be to adapt and refocus their product portfolios and business strategies accordingly. Some will succeed, and some will fail.