End of the ICE age isn't here, yet

Automakers such as Stellantis, Ford, Honda and General Motors have announced a spate of new or updated internal-combustion engines (ICE) in the past year. It’s a sign they’re betting that the transition to zero-emission vehicles will be a lengthy one in developed markets — North America and Europe — and not even on the radar in others.

“The EV switch is going to take more time than people think it’s going to take,” said Robert Karwel, senior manager of the Canadian automotive practice at J.D. Power.

Canada and California, for example, are mandating that 100 per cent of new-vehicle sales be ZEVs by 2035. Similar legislation exists in the European Union.

Stellantis is among those automakers funneling billions into electrification while continuing to invest in the development of ICE technology. Vehicles now and in the near future require low-emission, fuel-efficient internal-combustion power, the company wrote in an email to Automotive News Canada.

“We are targeting 50 per cent of our Canada and U.S. sales to be battery-electric vehicles (BEVs) by 2030, but that still leaves 50 per cent of our sales with internal-combustion and PHEV [plug-in hybrid vehicle] technologies, and they need to be as efficient and planet-friendly as we can make them.”

2035 TARGET IN DOUBT

Some observers are skeptical that the 2035 sales targets are achievable. EV production capacity, unsettled supply chains and access to raw materials for batteries generate uncertainty.

“If the technology isn’t there to fully replace internal-combustion engines at that point, I can see them being delayed another five years or so, into the 2040s,” said Sam Fiorani, vice-president of U.S.-based AutoForecast Solutions.

Phaseout is likely to take longer in South America, Africa and parts of Asia, said Simon Schnurrer, a Munichbased partner with the industry consulting firm Oliver Wyman.

Automakers will invest in ICE capacity outside Europe and extend the life span of existing engines and transmissions as much as possible.

“There are markets that frankly don’t care much about electric vehicles at the moment, and this is a global industry,” Schnurrer told Automotive News Canada. “So they try to serve the markets; they try to be as flexible as possible.”

Nissan Americas Chairperson Jérémie Papin said as much Feb. 16 during the 2023 Automotive News Canada Congress in Toronto.

“We’re such a global company that we’re going to continue to sell a lot of ICE for a lot of time.”

“If [insufficient] charging infrastructure is a topic of discussion in highly developed markets like Canada and the USA, [then what] about emerging economies, and that’s where we will take more time and have different solutions.”

BALANCING ACT

Suppliers such as Magna recognize that automakers are gradually reducing exposure to ICE while fulfilling current and future demand at minimal input cost.

“We all need to support this transition and make sure that for all the products that are still running that we can run them to the end at a competitive cost,” said Diba Ilunga, president of Magna Powertrain.

Magna’s strategy is to focus on components that have both ICE and EV applications, said Ilunga, who is based in Detroit.

For example, the supplier has three plants in southern Ontario producing parts used in ICE and electric vehicles, such as gears, shafts and stamped components for transmissions assembled in Europe and China.

While automakers straddle the ICE-EV line, they prefer that public attention be focused on their massive EV investment, said Karwel.

“It’s part of their communications strategy. The flip side is we know today [that] it’s gasoline V-8s, V-6s and turbo four-cylinders that keeps the lights on for most brands.”

Indeed, Ford Motor Co. said March 23 it expects its EV business to lose US $3 billion while forecasting increased profits on its internal combustion and commercial vehicle operations.

SPLITTING INTO ICE AND EV UNITS

But Schnurrer said investors are assessing automakers’ exposure to ICE technology in the face of increased government regulation and growing public acceptance of EVs.

“In the end, you will not want to be the one who is positioning even more in the combustion space than they are already,” he said.

Recognizing their ICE operations are in the sunset phase, some companies are splitting ICE and EV segments into separate units.

For example, Ford created ICE and EV divisions last year. Each attracts different types of investors, said Schnurrer. ICE divisions are geared more toward cash generation and dividends, while EV divisions require a longer-term outlook for returns.

Most investment in Canada is going into transforming operations to handle emerging EV demand, said Thomas Schiel, a research expert at Oliver Wyman.

“But some legacy ICE production will continue as needed.

“You can see some money that is flowing into some Canadian plants to make them fit for the future to continue to produce ICE models,” he said.

For instance, GM on Feb. 20 announced plans to assemble electric motors at its powertrain plant in St. Catharines, Ont., alongside gasoline V-8 engines that are used for pickups and large utility vehicles. Details, including the dollar figure of the investment and timeline for the retooling, were not shared.