The transformation of passenger car propulsion systems from combustion engines towards electrified and all electric powertrains is gaining traction. For the three main automotive markets – EU, USA and China – FEV expects battery electric vehicles to account for 22 percent of sales by 2030, while full and plug-in hybrid vehicles account for another 13 percent. This transition has a major impact on the automotive supply chain because an electric powertrain requires approximately 60 percent less manufacturing process effort than a conventional powertrain. On the other hand, the manufacturing process effort of a plug-in hybrid powertrain is approximately 25 percent higher. Considering future sales volume of powertrains as well as their required manufacturing effort, FEV expects that manufacturing process related value creation will increase by 1.7 percent annually between 2017 and 2030. However, some systems and markets will face consolidation. Companies in the automotive supply chain need to assess their market positioning and re-allocate resources in order to actively shape the transition and participate in the growing business of electrified powertrains.
Electrification trends in the passenger car industry
In 2017, 90 million light-duty vehicles have been sold globally increasing to 118 million units by 2030. The three major automotive regions, Europe, USA and China, account for approximately 60 percent of the global market. Between 2017 and 2030, vehicle sales are likely to stay constant in Europe and the USA. For China and the rest of the world, an annual sales growth between 1.5 percent and 4 percent is forecasted. Sales of combustion engine based powertrains (including hybrid electric drivetrains) are expected to increase throughout 2025 reaching a maximum of approximately 100 million units, which represents a 12 percent increase compared to 2017. In the base scenario, sales of combustion engines are expected to reach a plateau between 2025 and 2030 before declining in the long-term. Sales of electric powertrains are expected to increase significantly reaching 20 million units by 2030. This includes almost exclusively battery electric vehicles, while large scale market penetration of fuel cell based drivetrains is only expected for the period after 2030.
In Europe, USA, and China, the transition from conventional to electrified powertrain systems will be happening significantly earlier than in less mature markets. As a result, the number of internal combustion engines sold in these three markets in 2030 is expected to be approximately 10 percent below the 2016 sales volume. Hybrid drivetrains (including mild hybridization with 48V technology) are expected to account for approximately 56 percent of sales.
>> Sales of electric powertrains are expected to Increase significantly reaching 20 million units by 2030
The technological change also affects other components of the powertrain. The average number of cylinders decreases by 8 percent from 4.3 to 4.0 due to an ongoing trend towards turbocharged three and four cylinder engines.
Among the three key automotive regions, the pace of the transition towards electrified powertrains varies. In Europe, a share of 21 percent battery electric vehicles is forecasted for 2030. A main driver for this development is the regulation of CO2 emissions for newly registered vehicles, which every vehicle manufacturer has to abide by individually. In addition, aversion against combustion engine based vehicles is increasing in some parts of society and the acceptance of e-mobility is increasing. The expected investments into charging infrastructure and roll-out of electric vehicle portfolios by many manufacturers are likely to facilitate the transition. For the US market, a lower sales share of electric vehicles (9% in 2030) is expected for 2030. Compared to Europe, the US CO2 emission regulation is less stringent. In addition, electric vehicles are less suitable for average US customers, which prefer larger vehicles and are driving longer distances compared to Europe. However, in some regions of the USA, especially the coastal areas, a higher market share of electric vehicle is expected. In China, a comparably high electric vehicle share of 29 percent is expected for 2030. Main driver for the high market penetration is a variety of regulatory programs pushing electric vehicle sales, such as fuel economy targets, electric vehicle sales quotas (“NEV credit targets”) and advantages for electric vehicles in license plate assignments.
Change of manufacturing processes for powertrains
The manufacturing process effort required to produce a powertrain depends not only on the type of powertrain (e.g. conventional, hybrid or battery electric), but also on its technological complexity. Especially for conventional and hybrid powertrains, the technological complexity is expected to increase towards 2030. This will be mainly driven by fuel efficiency improvements as well as pollutant emission reduction measures. In consequence, the requirements for production technology also increase for these types of powertrains.
The results of a comprehensive cost analysis show substantial differences between conventional and electrified drivetrains. Compared to a combustion engine based powertrain, a battery electric powertrain has significantly higher material costs, mainly attributable to the traction battery. On the other hand, the manufacturing process effort for an electric drivetrain is significantly lower. Especially those manufacturing processes, which currently dominate the production of combustion engines, are reduced. Their overall value-add for a battery electric powertrain is 64 percent lower compared to a mild hybrid powertrain (note: a mild hybrid powertrain is expected to be the “standard” powertrain in Europe by 2030). The extent of reduction varies between the individual manufacturing processes and ranges from approximately 50 percent to 80 percent. In contrast to that, the production of a plug-in hybrid powertrain requires 24 percent more manufacturing process effort than a mild hybrid powertrain, because a powerful electric drivetrain is installed in addition to the combustion engine.
The development of the overall manufacturing process related value creation can be estimated by combining the manufacturing process effort of individual powertrain types with their expected sales volume.
As a result, it is expected that manufacturing process related value creation (excluding battery cell production) for the combined EU, US and Chinese markets will increase by 1.7 percent annually between 2016 and 2030. The negative impact of the transition towards battery electric vehicles is expected to be overcompensated by three major positive impacts:
- Increase of hybrid powertrain market share, requiring high manufacturing process effort,
- Increase of complexity for remaining conventional powertrains,
- Increase of overall vehicle sales in China (23 million units in 2016; 32 million units in 2030)
However, the overall growth needs to be analyzed in detail. The development of value creation varies significantly between different powertrain components and sales markets: The value creation for internal combustion engines is expected to decline by 1.3 percent per year for the European market and it is likely to stagnate for the US. Only for China will we see an annual increase of 1.5 percent. For electric powertrain components, applied in hybrid and all-electric vehicles, a strong increase of value creation (approx. 20 percent annually) is expected. Additionally battery cell production is expected to account for another 11 billion Euro of manufacturing process related value creation.
FEV’s Zero Emission Vehicle Index – A new monitoring system
The results outlined in the previous chapters are based on FEV’s baseline scenario for market penetration of electrified vehicles. However, the success of e-mobility is uncertain and depends variety of influencing factors ranging from regulatory boundaries to social acceptance. The development of these influencing factors are decisive for the pace and the extent of electric vehicle adoption in different markets.
As a consequence the most relevant factors should be identified, understood and carefully monitored. For this purpose FEV developed a new framework, the “Zero Emission Vehicle Index” (ZEV-Index). Forty different influencing factors (i.e. parameters) are included in the ZEV-Index covering the following dimensions: regulation, technology availability, infrastructure, behavior of industry, economic aspects and social acceptance. For each factor, the status quo is recorded individually for different markets (e.g. number of charging points in EU, USA and China). Additionally, the development of the parameters until 2030 is forecasted. Based on technological and economic assessments the different parameters are normalized in order to integrate different dimensions into one single index value. As a result, a forecast of the ZEV-Index value is generated specific for each analyzed market. An index value of 100 represents market boundary conditions, in which the attractiveness of an electric vehicle is equivalent to a conventional vehicle. Thereby the ZEV-Index can be used as an instrument for development of market scenarios regarding adoption of electric vehicles. Additionally, the constant monitoring of key indicators allows for quick identification of changes in the e-mobility ecosystem in order to derive individual needs for action.
For the European market, electric vehicles are expected to be as attractive as conventional vehicles by 2024. In 2016 the ZEV-Index value was only 47. The main drivers for the steep increase towards 2024 are:
- Roll-out of a broad range of electric vehicles by all major vehicle manufacturers
- Significant expansion of occasional and fast charging infrastructure
- Battery technology improvements and cost reduction
- Broad social acceptance of e-mobility and increasing electric vehicle demand
In China, parity of attractiveness between electric and conventional vehicles is expected to be reached two to three years earlier than in Europe. The main reason is the distinct regulatory framework pushing e-mobility. For the USA, the equivalent attractiveness is expected only in 2028.
Conclusions and recommended actions for suppliers of machinery and components
Recommended measures for machines and component suppliers
Between 2016 and 2030, the manufacturing process related value creation combined for the three markets Europe, USA, and China, is expected to grow by 1.7 percent annually. The reduction of value creation in the conventional powertrain area can be overcompensated by electrified powertrains, advanced technology application and increasing vehicle sales.
By 2030, the number of combustion engines sold in Europe, USA and China, is expected to decrease by 10 percent compared to 2016. China continues to be the largest market for internal combustion engines.
For the machinery industry, as well as component suppliers, the field of internal combustion engines will remain a substantial business area. However, against the background of consolidating markets in Europe and US, individual market players should analyze and adjust their business models accordingly. In order to remain profitable, allocation of development and production resources should be reevaluated. The growing market in Asia will continue to gain importance, so market players should consider to intensify their Asian business by analyzing, if sales and production structures need to be expanded.
There are also opportunities for additional business in the conventional powertrain area. For the majority of combustion engines, an increase of technological complexity is expected due to application of advanced engine technologies. In order to participate in the resulting value creation, market players have to gain or remain in technology leadership position by continuously improving their competencies and capabilities.
The market volume of electric powertrain components – applied in hybrid and battery electric vehicles – will grow significantly. In turn, new business opportunities will arise for market players across the entire automotive supply chain. Each company should identify its individual opportunities to participate in these markets. Existing core competencies and capabilities should be extended through dedicated build-up of additional know-how. Sustainable innovation networks combining industry and science can contribute to the development of new competencies.
In this study the timeline for the transition of powertrain systems is oriented on expected vehicle sales. However, the impact on the business of supplier of components and machines occurs much earlier, because investments into R&D and manufacturing require considerable lead time. As a consequence the business transformation process should already be ongoing or initiated immediately. Companies, which act fast and flexible, can foster their leadership position and exploit the potential of additional business. In the long run, participation in the market of electrified powertrains is imperative for the economic success of suppliers of components and machinery.
This article summarizes a part of the results of the study „Transformation of Powertrain – the electrification and its impact on the value added of vehicle powertrains by 2030″. FEV Consulting conducted the study in collaboration with the German industry associations „Verband Deutscher Maschinen- und Anlagenbauer (VDMA)“, „Forschungsvereinigung Antriebstechnik (FVA)“ and „Forschungsvereinigung Verbrennungskraftmaschinen (FVV)“. Three vehicle categories have been in focus and were analyzed separately: passenger cars, commercial vehicles, and non-road mobile machinery.
The three major automotive markets Europe, China, and USA have been covered in detail, but the findings are transferrable to other markets as well. The results of the study include a forecast of the sales volume of conventional and electrified powertrains as well as an analysis of the required manufacturing processes for different powertrain types. By linking these two factors a forecast of the overall manufacturing process related value creation has been conducted.
 Lüdiger, T.; Wittler, M.; Nase, A VDMA study: Transformation of Powertrain – the electrification and its impact on the value added of vehicle powertrains by 2030, Frankfurt, 2018
 Scharf, J.; et al., Gasoline engines for hybrid powertrains – high tech or low cost? 38. Internationale Wiener Motorensymposium, Wien, 2017
 Glusk, P.; et al. Electrified Future Of Mobility – Is The Expected Value Chain Shift Opportunity Or Threat For OEMs And Suppliers?
With a market share of only about 1% of new vehicles sold, battery driven electric vehicles and plug-in hybrid vehicles (“xEVs”) stand, from a European market perspective, far below expectations. In Germany, the xEV share is 0.6%; corresponding to about 25,000 vehicles sold in 2016. Germany is below the EU average. It is clear that the purchase and tax subsidies from the German government have, so far, not had a significant impact: In the first 3 months, only 4,500 sales were realized. Despite the subdued market demand, the number of public charging stations for electric vehicles tripled between 2015 and 2016. Against this background, FEV Consulting conducted a market and cost study to answer the question of how electric vehicle costs will develop in the future under conditions of increased sales volumes, growing demand for raw materials, and developing production capacities. The main objective is to assess the extent to which xEV vehicles can be cost competitive with conventional vehicles and which powertrain type will dominate the market. Driven by “diesel gate”, statutory regulations, regulatory pressure and technological advances, alternative drives (or xEV vehicles) have developed into a key trend in the automotive sector. Many European OEMs are convinced that the tipping point for electric vehicles will soon be reached: OEMs and suppliers are currently investing heavily in the development of their EV fleet and EV component portfolios. Volkswagen just recently released the launch of its xEV platform (MEB) with a goal of achieving a 600 km electric driving range in its compact car concept, “ID.” Daimler showcased an electric SUV Coupé called “Generation EQ,” at the Paris Motor Show that is based on a dedicated EV architecture. Other manufacturers are planning similar concepts, including purely electric as well as hybrid, and fuel-cell electric vehicles with electric ranges exceeding 350 km. Aside from the regulatory and legislative motivation, the financial implications for OEMs over the next 10 years are still not clear. The question of whether xEVs will be able to attain a significant market share largely depends on future price competitiveness compared with their conventionally powered counterparts.
FEV’s study answers the following core questions:
With a market share of only about 1% of new vehicles sold, battery driven electric vehicles and plug-in hybrid vehicles (“xEVs”) stand, from a European market perspective, far below expectations. In Germany, the xEV share is 0.6%; corresponding to about 25,000 vehicles sold in 2016. Germany is below the EU average. It is clear that the purchase and tax subsidies from the German government have, so far, not had a significant impact: In the first 3 months, only 4,500 sales were realized. Despite the subdued market demand, the number of public charging stations for electric vehicles tripled between 2015 and 2016. Against this background, FEV Consulting conducted a market and cost study to answer the question of how electric vehicle costs will develop in the future under conditions of increased sales volumes, growing demand for raw materials, and developing production capacities. The main objective is to assess the extent to which xEV vehicles can be cost competitive with conventional vehicles and which powertrain type will dominate the market.
Driven by “diesel gate”, statutory regulations, regulatory pressure and technological advances, alternative drives (or xEV vehicles) have developed into a key trend in the automotive sector. Many European OEMs are convinced that the tipping point for electric vehicles will soon be reached: OEMs and suppliers are currently investing heavily in the development of their EV fleet and EV component portfolios. Volkswagen just recently released the launch of its xEV platform (MEB) with a goal of achieving a 600 km electric driving range in its compact car concept, “ID.” Daimler showcased an electric SUV Coupé called “Generation EQ,” at the Paris Motor Show that is based on a dedicated EV architecture. Other manufacturers are planning similar concepts, including purely electric as well as hybrid, and fuel-cell electric vehicles with electric ranges exceeding 350 km. Aside from the regulatory and legislative motivation, the financial implications for OEMs over the next 10 years are still not clear. The question of whether xEVs will be able to attain a significant market share largely depends on future price competitiveness compared with their conventionally powered counterparts.
Methodology and Assumptions
Several alternative powertrain vehicle concepts and a conventional compact vehicle were compared in a cost analysis study. The selected models included typical plug-in hybrids (PHEV), pure battery-electric vehicles (BEV) and fuel-cell electric vehicles (FCEV) in the compact car segment. In order to capture market and technology uncertainties, 3 scenarios were developed that reflect technology development costs and fluctuations in raw material prices. For all 3 scenarios, a set of boundary conditions were determined to allow a fair cost comparison between the different concepts.
Selected boundary conditions for the 2016 cost baseline:
- Vehicle segment: Compact car
- Baseline vehicle for cost comparison is a conventional ICE with start-stop and 12V
- Low production volume for Fuel Cell Vehicles
- Battery specifications based on current market concepts
Selected boundary conditions for the 2025 cost forecast:
- Vehicle segment: Compact car
- Conventional baseline vehicle is MHEV (48V) with an additional 12 kW of electric power
- Production volume for FCEV has been increased to 50 thousand units
- Higher specific energy [Wh/kg]
Selected Study Results
In 2016, the manufacturing costs of plug-in hybrids and battery electric vehicles (PHEVs & BEVs) were about one-third higher than a conventional ICE-powered vehicle with a Start/Stop automatic transmission. Fuel cell electric vehicles (VCEV) manufacturing costs are nearly 5 times as high as those for a conventional vehicle. The reasons for this are lower sales volumes and high development cost in 2016.
By 2025, it is expected that the electric range of xEV vehicles will nearly double, with marginal cost savings of approximately 5% (Allrounder EV). Compared to mild hybrid comparison vehicles with 48V technology, the costs are about 20% higher. The cost of fuel cell electric vehicles, with an electrical range of approximately 800 km, is expected to fall to one-fifth of today’s price, leaving a remaining cost gap of 60% compared to the 2025 baseline vehicle (48V mild hybrid). Battery costs are expected to decrease by 50% for traditional OEMs due to economies of scale associated with increased production volumes and improvements in cell technologies. The electric capacity of a typical BEV is expected see a significant increase from 36 to 70 kWh (500-600 km).
In addition to the comparison of the total cost and the delta analysis of the selected xEV vehicle configurations, detailed powertrain cost splits are provided in the study for key components like the electric motor, controller, battery, transmission, etc. Each key component has been further broken down into the main cost drivers, including material costs as well as overhead costs which were determined using the FEV “should cost” methodology. Uncertainties in future production volumes are considered in the “conservative,” “most likely” and “progressive” scenarios.
Impact on the Automotive Industry
Fully electric drivetrains are far less complex than their conventional counterparts with internal combustion engines, since many components of a conventional drivetrain are no longer necessary. The sales potential of injectors, fuel pumps, filter systems and turbochargers is adversely affected by increasing EV sales. Conversely, the strategic importance of new components, such as the electric motor, battery and power electronics increases. For the future, manufacturers need to decide what share of the added value they want to provide from within (vs outsourcing). This decision is strongly influenced by endogenous factors such as cost competitiveness, exogenous factors such as raw material prices, vehicle range and future development of charging infrastructures.
Suppliers – especially those with a product portfolio focusing on conventional powertrains – will have to undergo a fundamental transformation over the next 15 years, which can be subdivided into 3 steps:
>> BY 2025 BEVS WITH A 300 KM RANGE (NEDC) CAN BE REALIZED AT THE SAME COST LEVEL AS THEIR MILD HYBRIDIZED COUNTERPARTS
1 Today: Strategic Analysis and Preparation of Realignment
Although the industry is in a state of upheaval, there is still partial restraint. On the one hand, the change to the development of alternative propulsion systems is already visible in the organizations of major manufacturers and large or specialized suppliers. On the other hand, traditional suppliers that are active in the internal combustion engine market are still in the preparatory phase.
2 2020: Implementation of the Realignment and Transition
As soon as market shares of xEVs have increased, product and service portfolios must be realigned and value chains have to be reorganized. The orchestration of an orderly ramp-down of the traditional business requires a solid strategic plan and dedicated implementation. It is very likely that the early inefficient suppliers will fall victim to the industry transition and exit the market. As a further consequence, the future R&D focus of the OEM’s will shift even more clearly toward electrification and other value-added product offerings, such as automation and (digital) mobility services.
3 2025+: Completion of Transition Phase
Depending on the respective scenario, market shares for conventional powertrains (ICE-only) will shrink significantly. In one radical scenario, ICE vehicle sales are likely to drop to 75% of the 2016 level. On one hand, as a result of shrinking market volumes, further (and even stronger) consolidation of the remaining suppliers in the field of conventional powertrains is expected. On the other hand, market participants will be well-positioned with an early strategic focus on the realignment and transition toward the new boundary conditions for the future xEV market and technology competition.