Are BEV Subsidies Holding Back Powertrain Development?

Hard deadlines set by regulators for a mass transition to electric vehicles could be stunting developments in other powertrain technologies.

Siegfried Mortkowitz

October 31, 2023

5 Min Read
Renault ZOE
ICE investment starves while automakers push BEV technology in vehicles such as Renault ZOE.

In March, French automaker Renault announced that it had signed a joint-venture agreement with the Chinese automobile manufacturing company Geely to produce “best-in-class hybrid powertrains and highly efficient (internal-combustion-engine) powertrains."

The JV expects at launch to supply several automakers with powertrains, including Renault, Geely, Volvo, Nissan and Mitsubishi. In a press statement, Renault says it is planning for an annual production capacity of up to 5 million internal-combustion, hybrid and plug-in hybrid engines and transmissions per year and “to meet worldwide demand for the years to come."

However, although its mission statement sounds very forward-looking, and cites a letter of intent signed by Aramco to grow R&D or synthetic fuels solutions and next-gen hydrogen technologies, Dylan Khoo, EV industry analyst at ABI, says the agreement is simply “a stage of managed decline” and represents a cost-saving consolidation of technology that is being phased out.

“They’re going to consolidate their powertrain development and manufacture them together, which is kind of like saying, ‘It’s not worth it putting our separate resources into it, so we’ll just consolidate it,’” Khoo says.

Khoo says numerous automakers have already announced that they will cease producing ICE automobiles well ahead of the EU’s 2035 deadline. “Mercedes Benz wants to be 100% battery electric by 2030, where market conditions will allow,” he says. “Renault wants to be 100% electric in Europe by 2030. Stellantis is planning for 100% electric in 2030, as are Ford and Volvo.” (Read Renault CEO's contrary views on BEVs as part of this WardsAuto interview.)

Automakers are eager to step away from ICE vehicle production, Khoo says, “because they are thinking, ‘If I can do it faster, why would I spend money on assets that are not going to be revenue-producing after 2035? Might as well bring it forward, ahead of the competition.’”

This strategy of “managed decline” also applies to Volkswagen, who will stop combustion-engine development in 2026. “They’re still going to be producing them, but they’re not going to be improving on the actual core engine itself,” Khoo notes.

Ford is now divided into three separate business units, with the manufacturing units separated into Ford Blue, which focuses on ICE engines, and Ford Model e, which will develop BEVs. The move is intended to make the automaker more competitive against Tesla and other prominent EV rivals, but will also make it easier to phase out ICE manufacturing when the time comes.

Khoo says this strategy applies primarily to the EU, which has the hardest transition deadline. However, automakers in North America are intent on selling the last ICEs as long as they can, “because they have high-margin combustion-engine vehicles that they’d love to keep producing for as long as possible,” he explains.. “GM, for example, is investing heavily in electrification but they’re going to keep selling their big pickup trucks and try and milk that forever.”

The EU’s 2035 transition deadline and generous government subsidies for both EV producers and consumers – including tax breaks for manufacturers, thousands of euros of subsidies per car for buyers and tax credits for households and businesses that install EV chargers – have led carmakers to steer their R&D and investment resources into electrification, leaving little for traditional powertrain development.

“So, in the next 15 years we can expect to see single-digit percentage improvements in car fuel efficiency,” Kooh predicts. "[As a result] people will turn away from ICE technology because it’s not going to get better.” This will affect more than the engine side of the vehicle. “It’s also going to translate into the cabin, the user experience. All of the shiny bells and whistles are going to go to the new and exciting electric model.”

But Ian Lehn, founder of the Ohio-based octane-engineering firm Boostane, says ICE vehicles will still have an important role to play in the post–fossil-fuel era and should, therefore, benefit from the same government support as BEVs. “There is always going to be a place for the internal-combustion engine in the world because there are going to be some things that are not going to be solved with battery electric,” he says.

He is supported in this view by market research from the Specialty Equipment Market Assn.,, which projects that obstacles to EV adoption such as infrastructure shortcomings and consumer acceptance will limit EVs to only 39% of new-vehicle sales by 2035 in the U.S. That is one reason Lehn believes that “the internal combustion engine needs to evolve and get better to find its place in our future."

Lehn is a supporter of all automotive zero-carbon solutions and believes U.S. automakers are erring with their single-minded commitment to BEVs. “The Big Three in the U.S. are completely dependent on their shareholders, so if legislation says you need to be carbon neutral and the only technology receiving any type of government subsidy to achieve that is the battery-electric vehicle, then those companies are going to put all their eggs in that one basket,” he says. “I always thought the best advice was not to put all your eggs in one basket.”

His company is working on synthetic fuels that “would that fit directly into our supply chain right now, that use renewable sources that would supplement the world’s fleet and would bring net carbon emissions to nearly zero,” Lehn says. “The only thing that’s preventing that right now is cost. If legislation were to address other technologies that strictly battery electric, if it were able to subsidize synthetic fuels, here is a sustainable option right now.”

He agrees with Khoo that the focus on BEVs is stunting ICE powertrain innovation. “Over the last hundred years of the internal-combustion engine, we’ve seen efficiencies grow exponentially but now we’re putting a cap on that. Then you’ll have consumers either purchasing an inferior product or stuck with an inferior product because they are not being given a better solution.”

Lehn said that all he wants is “a level playing field” in terms of government support to make all automotive zero-carbon solutions available to consumers. “The electric vehicle is not the silver bullet because a lot of things have to change before that becomes a sustainable option. In Ohio, where I come from, you don’t see a lot of electric vehicles because there’s too much distance driving and too much hauling. Why shouldn’t we work with other technologies to make those people carbon neutral as well?”

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