The end of ICE?

Al Bedwell, Director, Global Powertrain Forecast

13 June 2019

Is the beginning of the end of the combustion engine in sight?

Pete Kelly’s recent blog post – Pain from policy, and politics, referencing LMC Automotive’s recent client conference, highlighted the increasing burden of regulation facing the industry. The rollout of Euro VI emissions limits in stages, encompassing the shift from the NEDC testing regime to WLTP and the introduction of RDE, has resulted in significant disruption, dissatisfaction and even legal challenge from a variety of stakeholders. But as the scale of the regulatory ambition of those setting post-Euro VI limits starts to emerge, it is becoming clear that the strictness, and thus cost, of the next steps will present the industry with an emissions control challenge far greater than anything seen so far.

The naming of whatever comes after the implementation of the Euro VI limits has not been decided, but for the sake of simplicity, we will call it Euro VII. The unknowns remain when it comes to scope and timing of implementation. What we do know is that the consultation period will extend at least until the end of 2020, possibly longer. We expect fuel and technology type neutrality; the introduction of limits for noxious emissions not currently included; a substantially expanded Real Driving Emissions (RDE) testing envelope; and the requirement for compliance through the whole life of the vehicle. Innovations, such as the monitoring of compliance via vehicle connectivity, are also on the regulators’ wish list.

“The current RDE programme does not come close to measuring the emissions of vehicles under all possible driving conditions.”

Several aspects of the proposal infer the need for greater complexity and cost of emissions control equipment, but the significant enhancement of the on-road testing performance is perhaps one of the most daunting. The current RDE programme, while a leap forward in the narrowing of the gap between in-use and laboratory emissions, does not come close to measuring the emissions of vehicles under all possible driving conditions.

Euro VII RDE testing is also likely to bring Green House Gas (GHG) into the list of emissions monitored. The current focus is on CO2 produced in the laboratory test. Not only will this gas be added to those measured during RDE testing, but other GHGs (CH4, N2O) will be included.

The extra cost burden implied by the above has profound implications. One is that the additional exhaust after-treatment cost will push Internal Combustion Engine (ICE) vehicle prices up, to the extent that they significantly exceed those of many types of electrified alternatives. VW group expects ICE costs to exceed those of Battery Electric Vehicles (BEVs) in mass-market segments before the middle of the next decade because of the move to Euro VII. Whether that happens or not, we can be confident that Euro VII will hasten the move to hybridisation. Hybridisation reduces the need for emissions control by shifting some of the power burden, and therefore emission creation, from combustion to electrical energy. Another potential impact is that vehicles sold in intensively cost-conscious segments, with low profit margins, may become uneconomical to produce in Europe. Carmakers have already hinted at such an outcome. The vehicles in question are typically Small Cars and their production base may shift, or they may simply not be offered for sale at all.

“in the interests of improving urban air quality quickly, several major cities (Beijing included) will shift to China 6b in July of this year.”

What about beyond Europe? At the recent LMC Automotive conference, the audience heard an outline of how China is shifting quickly to emissions limits that are stricter, in most cases, than the current Euro VI limits for gasoline cars. There are two implementation stages, with the final one (China 6b) mandated nationally by 2023. However, in the interests of improving urban air quality quickly, several major cities (Beijing included) will shift to China 6b in July of this year. Some disruption to model availability is likely as OEMs modify, calibrate and then extensively test their fleets for conformity.

The worldwide harmonisation of emissions limits – desired by a globalising and consolidating auto industry, in an effort to shorten new model development times and control costs – is moving steadily. It is expected that by 2025, RDE testing will be in place globally. While Europe’s Euro VII regulations may well be the world’s toughest when they eventually emerge, the direction and rate of change of global emissions limits is converging.

We are not sure whether the intention of the regulators configuring Euro VII rules is to eliminate the combustion engine. As a technology-neutral exercise, this should not be the case. Their job is not to pick winners. The most cost-effective solutions that comply with regulations, while also satisfying market demands, will succeed. However, it does seem likely that Euro VII will ultimately spell the end for pure combustion engines and the start of the move to full electrification, whether that is hybrid, plug-in hybrid, BEV or even fuel cell vehicles.