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Horizons Customer Magazine 2025

The Ice Runway: Could Prospects Brighten?

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Michael Robinet

Executive Director, Consulting SP Global

About the Author

Michael Robinet has more than 35 years of experience in automotive market analysis, forecasting and supplier strategy functions. He joined S&P Global (formerly IHS Markit/IHS Automotive/CSM Worldwide) in 1996. As consulting executive director, he is a valued source for forecasts, industrial transition strategies and market dynamics. Prior to his time at IHS Markit/S&P Global, Michael was a forecaster with two other automotive research houses as well as being active in finance at a major tier 1 supplier. Mr. Robinet is known for his groundbreaking work in measuring vehicle production capacity and ongoing supply base strategies surrounding ICE to BEV transitions.

The automotive supple base has been challenged with a myriad of issues over the past four years.

Outside of the normal hurdles of product/process innovation, constant productivity targets and customer demands; several extraordinary factors have impacted suppliers of late. These included COVID-driven production disruptions, labor availability, microchip shortages and the financial impact of extreme inflation hitting all levels of the enterprise. Over the same period, the major vehicle markets of China, European Union and North America have implemented regulations and incentives to drive reduced emissions/increased propulsion electrification. These factors have suppliers dealing with erratic production volumes amidst a disruptive business planning environment. There is one core secular factor which is rising above all others. The anticipated vs. real world transition to Battery Electric Vehicle (BEV) propulsion from Internal Combustion Engine (ICE) systems.

For over a century, the development and growth of the global automotive industry has been driven by the ICE and its associated systems. Over time, this critical propulsion system has witnessed massive improvements through enhanced performance, cost and efficiency from OEMs and suppliers alike. With scores of innovations in electronics, materials, fuels, fluids, and innovative processes - the ICE has, and will continue to be the center of the automotive ecosystem.

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Beyond the ICE, innovations within other systems such as transmissions, driveline, exhaust, and fuel structures continue to extend ICE’s runway. Though ICE systems are the core of our current systems, the aforementioned BEV propulsion format is gaining a foothold within future development, capital, and technology initiatives across all markets. In question is the pace of adoption and the speed of return on invested capital as well as the resultant trajectory for ICE-dependent systems. In a sense, 2023 and early 2024 have been difficult period for the prospects for swift BEV adoption—is the slope changing?

Global Implications

BEV propulsion has been part of the modern vehicle industry for several decades. Many formats are candidates for each OEM’s propulsion portfolio as a bridge to a BEV or eventually fuel cells (FCEV). These include mild (MHEV), plug-in (PHEV), or full hybrids (FHEV) where the ICE is still core to the solution. Lately, REEVs (Range Extended Electric Vehicles) have emerged as a bridging technology. From a strategy perspective the chosen bridge by each OEM from ICE to BEV/FCEV is critical to success. The graphic below outlines that no one solution will suit a global OEM active in the core major markets. Differing adoption rates. legislation and the prospects for changes in the slope are all possible. As China and the EU charge toward a heavy BEV share later this decade, the competitive implication for western OEMs is paramount. As Chinese domestic OEMs such as BYD, Geely and SAIC continue to build share, western OEMs once dependent on a strong China operation are now facing volume and profitability issues. This impacts investment and options back in home markets of Japan, North America and the EU.

Interestingly, the divergence within OEM strategies to deploy BEVs has never been so apparent. Several OEMs have chosen a hybrid-infused bridge to a BEV/FCEV future while others have opted for a direct transition seeking a first-mover strategy. In the auto space, each OEM appears to be following their own unique blueprint as scale slowly develops - translating to opportunity and risk for the supply base.

Each region following a separate trajectory, influenced by OEM strategy while necessarily addressing different customer sets. North America is clearly the 3rd horse in a three-horse race in terms of BEV penetration while China and the European Union follow different trajectories. Shifting much of the automotive ecosystem eventually to a single propulsion type drives significant capital, human resources, and enterprise risk. This transition was always going to be lumpy—many moons need to align for a seamless shift. This will not be the case.

While there are several positives with the ICE to BEV transition (emissions, carbon fuel dependence, efficiency, running costs etc.), there are several hurdles which cannot be dismissed. Of late, several of these concerns have started to emerge. One surrounds the ability for government and industry to effectively bridge the higher costs (due to scale economies) of BEVs in an environment of higher average vehicle cost. Each major region is facing headwinds with respect to BEV adoption. These include transaction prices (relative higher costs or BEVs vs. ICE), consumer acceptance driven by range and charging infrastructure issues and the ability for OEMs to drive critical scale in critical minerals, cell production and e-motors. This is the transition which will be difficult on many fronts.

There has been mounting concern surrounding the state of the ICE supply base and future ICE-related component demand over the next decade. Beyond the BEV growth hype, other factors are critical. The bridge between OEM CPV (Capacity Planning Volumes) versus forecasts such as the S&P Global Light Vehicle Production Service which suppliers utilize to understand timing, forecasts and context underscores a widening divide.

As several OEMs are integrating a hybrid technical bridge to full BEV production, orchestrating a smooth transition without stranded capital will require a fine balance. Understanding that scale economies, the charging infrastructure, affordability, and other factors need to be solved—several OEMs are defraying risk through several mitigation strategies.

Major Market Bev Adoption–an Extended Adoption Slope?

Output of ICE-based offerings have a strong trajectory for many years which will require a capable supply base. It can be easy for many to view BEV as a treasured growth destination though one needs to remember that in North America, 93% of output is still ICE-based. An example of the resilience of key facets of the ICE supply chain is the expected production of 8, 9 & 10 speed transmission. Versus a forecasted high of 8.4 million units in 2024, volume is still slated to approach 4.5 million units by 2030 according to S&P Global Mobility Forecasts. Still accounting for nearly 60% of transmissions built (less Reduction Boxes). ICE structures and its associated systems will continue to be a viable option for OEMs and consumers for many years. Beyond the hype, ICE components will be challenged though continues to be a critical cog in the NA automotive ecosystem for both OEM and aftermarket applications.

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In Europe, the complexion is different than North America though still compelling through most of the decade. The influx of new BEV variants from both luxury and mass market players will utilize Reduction Boxes of speeds ranging from 1 to 3 with most being single speed in structure. The surge is not expected until the end of the decade as the share of 4+ speed transmission output still eclipses 10 million units through 2027. Any shifts towards increased hybrid propulsion versus the current forecast trajectory will directly benefit transmissions with 4+ speeds and extend/increase volume into the next decade. In Europe DCT and DHT (Dedicated Hybrid Transmission) systems dominate placement on hybrid-structured vehicles through the decade.

The China market has a much different complexion. While currently CVT (Continuously Variable Transmissions) are non-existent in Europe as these are used mainly by Japanese OEMs, they drive over 4 million units of volume through 2024 in China. Transmissions with traditional planetary gears (4+ speeds) are approximately 50% of the market in 2023 with a steady decline towards 25% of the market towards the end of the decade.

A couple of factors are at work here. As the Chinese domestic OEMs gain volume and share versus western OEMs in China, the focus will be on Reduction Boxes for BEVs. From a total volume perspective, transmissions with 4+ speeds are still expected to drive almost 7 million units of volume into 2030. Should BEV adoption slow due to transaction prices or consumer attitudes, hybrid variants may benefit over the mid-term through the balance of the decade.

In summary, downward pressure on the slope of BEV adoption will positively impact volume of automatic transmissions and other systems with planetary gears. This will especially be the case in the EU and North America where consumer adoption may have slowed due to a myriad of factors and government entities are reviewing the slope of emissions legislation driving BEV adoption.

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