Legacy Auto Industry Continues Divesting Internal Combustion

Ever since Karl Benz took the first drive in his Motorwagen, the internal combustion engine (ICE) has been the beating heart of the automobile. But over the past several years, as the transition to electrification has become more and more inevitable, the legacy automotive industry has begun winding down its efforts to develop and manufacture ICEs. Most recently, just days before unveiling its new electric flagship, the EX90, Volvo Cars divested its interest in Aurobay, the ICE powertrain unit that it had jointly owned with parent company Geely Group.

Carving Out Engines

In 2021, Volvo Cars and Geely Group carved out Volvo’s engine operations in Sweden and China and combined it with other Geely engine groups under the name Aurobay. Volvo’s engine building and R&D assets were transferred to the new company, which would then provide ICEs for the entire group, including Lynk & Co, Proton, and potentially other automakers.

This was the latest in a series of similar moves by both automakers and suppliers. In 2017, the former Delphi Automotive split off its ICE powertrain business as Delphi Technologies and renamed itself Aptiv to focus on electrical and electronic architectures, software, and driver assist systems. Continental consolidated its ICE powertrain group into Vitesco Technologies and spun it off in 2021. General Motors, Ford, and Stellantis have all cut thousands of employees from their engine and transmission development departments while at the same time hiring engineers with expertise in electric motors, batteries, electronics, and software.

Emissions and efficiency standards for ICEs will continue to become more stringent through the remainder of this decade, requiring additional investment. At the same time, policymakers in Europe and North America have been approving plans to ban sales of new ICE vehicles by the mid-2030s. In this context, the industry has largely decided to end development of new ICEs. Stellantis has acknowledged that the recently launched 3.0-liter twin-turbocharged in-line six-cylinder Hurricane will probably be the last all-new engine it introduces.

Cutting ICE Spending

While tens of millions of ICE vehicles will still be built globally into the 2030s, virtually everyone in the industry has recognized that the segment is moving into maintenance mode. There will be some ongoing refinement of engines for the next decade, but the real innovation will be in designing electric motors, electronics, battery chemistry, and especially control software.

As much of the auto industry consolidates its ICEs down to just a few configurations, three- and four-cylinder turbocharged engines with displacements of 1.5 and 2.0 liters, respectively, have become ever more common. Volvo, Stellantis, BMW, Mercedes-Benz, Volkswagen, Ford, General Motors, and other automakers all have similar offerings. As electric propulsion takes a bigger share of the market, it might make sense for automakers to pool these engine types to leverage economies of scale.

Given the tens of billions of dollars most of the major automakers have pledged to invest in transitioning to electric propulsion this decade, we will likely see similar moves from other automakers, especially smaller to medium sized companies like Volvo. Mazda and Subaru have both aligned themselves with Toyota to share powertrain and other technologies. The ICE isn’t dead yet, but it’s becoming increasingly less relevant to invest in.