COMMENT: Powertrain mix of the future to vary by region and segment

Proof of concepts, increased uptake, incentives and sufficient, scalable infrastructure are all needed in the powertrain mix of the future, writes KPMG’s Edwin Kemp

Combatting the global health and environmental impacts of emissions is at the top of the political and social agenda. With global carbon dioxide (CO2) emissions hitting an all-time high of 37.1bn tonnes in 2018 as per Global Carbon Project figures—a 2.7% rise versus 2017—decarbonisation has never been more important. Transportation is a major contributor here; according to the European Commission in 2016 nearly 21% of the EU’s total CO2 emissions came from road transportation. It is therefore of little surprise that decarbonisation of transport is a major focus area today.

Gasoline and diesel internal combustion engines (ICEs) remain the challenged incumbent; across all vehicle classes, they currently represent the largest share of sales. Globally, from a passenger car and light commercial vehicle perspective, an estimated 95% of sales in 2018 were ICEs. A similar percentage of heavy commercial vehicle sales were ICE—93% in 2018—whilst medium commercial vehicles and bus sales were slightly lower at around 88% ICE with small shares of natural gas and hybrids.

But of course, this is set to change quite dramatically.

Regulation and economics: the key drivers of change

Whilst the timing and pace of the shift towards electric vehicles (EVs) and alternative fuels (AFs) will inevitably vary regionally—even down to an urban-rural level within markets—there are a number of clear and consistent drivers of the emerging change in powertrain mix.

The predominant powertrain of the future will vary by vehicle class, and potentially by region

Fundamentally, the key driver today is the change in political and regulatory stance towards ICEs and especially diesel vehicles. This is in response to the growing awareness of air pollution as a significant risk to the environment and public health, with the latest figures attributing seven million global deaths annually to the issue. The most notable responses include around 20 cities globally to date announcing city centre bans for ICE vehicles in the near future. Paris, Madrid, Athens and Mexico City have announced bans by 2025, for example. Meanwhile, countries such as the UK, France (both from 2040), China (date to be confirmed) and India (2030) have announced plans to ban the sale of new ICE vehicles outright.

Secondly, we expect economics to play a key role. At the point at which the total cost of ownership (TCO) of EVs and AFs becomes equal to that of ICEs, consumers—and especially cost-focused commercial fleets—will be encouraged to switch. As detailed in the KPMG Mobility 2030 analysis, we expect EV-ICE TCO parity between passenger cars and LCVs to be reached from 2021 in Western Europe. This timing will vary by class of vehicle, but also the type of alternative powertrain being considered.

Beyond this, ultra-low emission zones—likely as precursors to city bans—EV and AF incentives, taxation and charges on heavily polluting ICEs and a pipeline of new EV models are all encouraging growth in adoption.

The powertrain mix of the future

The predominant powertrain of the future will vary by vehicle class, and potentially by region.

From a passenger car and LCV perspective, as the forecast ICE share of sales globally declines towards 60% or lower by 2030, electrified vehicles (including BEVs and PHEVs) are expected to be the major beneficiary. Battery electric has been proven as technically feasible for cars, and to a lesser extent for LCVs, given payload considerations and driving patterns. Providing supporting factors such as sufficient charging infrastructure are in place, they should see strong growth. Hybrids will also have a relatively large share of sales in smaller vehicle classes, with fuel cell vehicles accounting for another smaller share.

Technology proof of concepts need to be established to ensure that the powertrain can be produced at scale, and that it will be fit for each vehicle type

Regionally, we would expect to see variations in adoption. Indeed, KPMG recently forecast that 70% of UK passenger car sales and 67% of LCVs would be electric (BEV and PHEV) by 2030. By contrast, countries with less developed automotive markets, less stringent ICE regulation, economic or consumer sentiment challenges (such as maximum driving range) will see a substantially lower EV share.

Towards the heavier end, ICE share of medium commercial vehicles and bus sales globally is forecast to decline to 70% by 2025, with around 80% of heavy commercial vehicle sales still being ICE. In both cases, natural gas is generally expected to be the primary alternative, with hydrogen also growing in share and some specific use cases for electric. Infrastructural and pre-production challenges for hydrogen, and payload, range and charging time concerns for electric are, however, expected to moderate their future share of sales. Regional variations are again likely to exist.

The winning milestones

As recently outlined in KPMG’s publication ‘The decarbonisation of transport’, we believe there are four winning milestones for decarbonisation, or in this case the shift to EV and AF.

The key driver today is the change in political and regulatory stance towards ICEs and especially diesel vehicles

First, technology proof of concepts need to be established to ensure that the powertrain can be produced at scale, and that it will be fit for each vehicle type. Increased uptake will also be necessary, which will be driven by proving commercial viability for vehicle users, the ‘TCO equation’, as well as mitigating perceived anxieties, such as around EV range. In addition, sufficient infrastructure must be in place, with large scale investment required in order for these alternative powertrains to be adopted at scale. Finally, network constraints must be managed. Regardless of the future powertrain of choice for each use case, organisations will need to be incentivised to invest in a network that meets demand in line with grid capabilities, working for consumers, businesses and network owner-operators alike.

Overall, for an electric and alternative powertrain future, it is vital that policy and regulation, infrastructure, automaker investment, energy and fuel supply, economics and consumer demand all work together to drive the change. Whilst this will happen at different speeds across the globe, it is clear that the question is now firmly ‘when?’ not ‘if?’

Automotive World’s ‘Special report: The powertrain mix of the future’ is now available to download

About the author: Edwin Kemp is Associate Director, Mobility 2030 at KPMG UK