Media reports often suggest that the automotive industry will be all-electric––tomorrow. Sometimes sooner. But over the past year, as sales slow in both the U.S. and Europe, the narrative has started to evolve from euphoria to realization. New development is rarely fast or easy. Electrification still needs to overcome challenges related to raw materials, charging infrastructure, driving range, total cost of ownership, government subsidies and consumer acceptance. The size of these challenges increases as the size of the vehicle and the demand of the duty cycle increase from cars to pick-up trucks and commercial vehicles.

The starting point for this outlook is that the foundry industry is part of a growth industry. The German National Bureau of Statistics forecasts strong growth for goods transportation. From 2005 to 2050, global road transport is forecast to grow by 116%, rail transport by 139%, and marine transport by 56%. There is also a consensus that global passenger vehicle sales will increase from 92.5 million in 2023 to 115~120 million by 2030. 

In January 2024, the chairman of Toyota said: “No matter how much BEVs progress, I think that they will have a market share of 30%. The remainder will be hybrids, fuel cells and hydrogen combustion. I have no doubt that engine vehicles will survive.” If the chairman of the world’s largest car company is right, our industry will produce more engines in 2030 than it did in 2019.

From Whence We Came

The powertrain debate too often starts in the future, with endpoints and bans. But let’s start from the beginning. Table 1 shows the breakdown for 2023 Class 8 heavy duty truck sales in the U.S. and Europe. Diesel dominates. In a market of more than 250,000 Class 8 commercial vehicles in the US in 2023, the total sales tally for electric trucks was 441. The timeline for transition should not be taken for granted. 

A similar breakdown for passenger vehicles in 2023 is shown in Figure 1. With smaller vehicles and shorter driving distances, the uptake of electrification has been higher in Europe. But the overall conclusion is similar. In Europe, 85.4% of the passenger vehicles sold in 2023 had an internal combustion engine (ICE). In the US, the number was 92.2%. With OEMs on both continents pivoting from BEVs toward hybrids for consumer acceptance and profitability, the road to an EV-only future remains long.

Newton’s First Law 

Newton stated the obvious: “An object at rest will tend to stay at rest unless acted upon by an externally unbalanced force.”  
In the automotive industry, the external force can be competition or consumer demand. But more often than not, it is legislation, and there has been a flurry of new legislation during the first half of 2024. In the U.S., the EPA published new rulemaking for light and medium duty vehicles on March 20, followed by new rules for commercial vehicles on March 29. 

In Europe, the European parliament voted in favor of a draft law for cars and trucks on April 10. But even in Europe it isn’t all smooth sailing––the draft law passed by a vote of 341 to 268, with 14 exemptions. The draft still needs to be approved by the ministers of all European countries, after the European elections in early June. The U.S. rules extend to 2032 while the EU rules extend to 2040.

What the EPA and the EU rules have in common is that they are both based solely on tailpipe emissions; not life cycle. While this may be a recognition that life cycle is difficult––and often prone to spin––it also means that upstream CO2 emissions for electricity generation for BEVs are not included, while on-road emissions from net-zero fuels are included. Not entirely a level playing field.

New EPA Rulemaking 2027-2032

Recognizing that consumer acceptance is slowing, and that infrastructure is lagging, the final EPA rulings were less stringent than the initial proposals presented in 2023. For passenger cars and pick-ups, the EPA extended the runway for BEV uptake. They also included hybrids and plug-in hybrids in the EV classification that was initially reserved only for full BEVs. The EPA projects a “mix of technologies” with potential penetration of 30%–56% BEV for cars and 20%–32% BEV for super-duty pick-ups in 2032. The balance is projected to be “hybrid electric vehicles and plug-in hybrid electric vehicles, as well as cleaner gasoline vehicles.”
For commercial vehicles, the requirements are based on the percent CO2 reduction relative to the Phase 2 standards that came into effect in 2021. Table 2 shows an extract from the final Phase 3 EPA rulemaking, documenting the ramp of CO2 reduction as a function of vehicle size. The requirement for Class 8 trucks in 2032 is 25% CO2 reduction relative to model year 2026. As with cars, evolution rather than revolution.

EU Legislation

The draft law approved by the European parliament is very clear––except where it isn’t. 

For passenger vehicles, the CO2 reduction requirements are relative to the 2021 fleet average of 95 grams/kilometre (152g/mile). The future fleet must reduce tailpipe CO2 by 15% in 2025, 55% in 2030, and 100% in 2035. But it is important to note that the 2035 limit does not constitute a ban on internal combustion engines. ICE cars running on net-zero fuels are exempt from the ruling.

The EU has taken a similar approach for commercial vehicles. Relative to the 2020 fleet, the future fleet must reduce tailpipe CO2 by 45% in 2030, 65% in 2035, and 90% in 2040. The primary paths are hydrogen engines, hydrogen fuel cells and BEVs. But again, an exemption has been included to allow ICE trucks running on net-zero fuels beyond 2040, although it is not yet clear how the exemptions will work. The new EU law also allows battery electric trucks to exceed the current safe driving limit of 40 tonnes by an additional four tonnes.

Commercial Vehicles

With no consensus among the OEMs, it is still too early to determine what the eventual powertrain mix will be. The world’s largest OEM, Daimler, advocates for hydrogen, saying “Even with a significant breakthrough, batteries might only provide one-thirtieth of the energy that hydrogen packs.”  

Traton, the second largest, advocates for BEVs. Number three, Volvo, takes a pragmatic mixed approach: “There is no silver bullet in order to decarbonize all road transport across the globe; we will need to have a broader palette.”  

Meanwhile the former chairman of Cummins, the world’s largest diesel engine manufacturer said: “We’re trying to convince customers to try things, and the economics of it are not perfect. The technology is good, but it’s not perfect. The diesel engine is perfect. It’s 105 years of perfect.”  It is clear that it is still early days for commercial vehicles. The 2020s are the decade of development and decision. 

One of the potential technologies that has often been associated with commercial vehicles, natural gas (methane), is unlikely to play a role in the Western world. Natural gas provides only a modest 10%–20% CO2 reduction relative to diesel, but is 82.5 times more harmful to global warming than CO2 in a 20-year perspective and 30 times more harmful in a 100-year perspective.

Considering fugitive methane losses during refuelling and operation, natural gas vehicles are more harmful to the environment than diesel. This notwithstanding, natural gas heavy-duty truck sales surged to 50% in China in 2023, on the back of low-cost natural gas from Russia. 

Passenger Vehicles

Electrification will grow in the passenger vehicle sector, but it won’t always be a straight line. The early adopters have made their moves and mainstream buyers are reluctant to purchase expensive vehicles that have compromises. OEMs have responded by reducing prices, but that only adds to the losses. During the first quarter of 2024, Ford reported losses of USD $1.32 billion in its Model e division. On sales of 20,223 units, that corresponds to a loss of USD $65,300 per EV. With full-year losses of USD $4.7 billion in 2023, Ford forecasts EV losses of USD $5.0–$5.7 billion in 2024. 

Rivian, the EV-only OEM, reported 2023 full-year adjusted losses of USD $3.98 billion, which corresponds to a loss of USD $79,400 per vehicle on sales of 50,122 units. For 2024, Rivian forecasts adjusted losses of USD $2.7 billion on sales of 57,000 vehicle in 2024. These results aren’t sustainable.

In response to consumer sentiment and growing losses, most OEMs have adjusted their EV outlook. 

GM initially stated that they would transition directly from ICE to BEVs, but have now said they will re-introduce hybrids. Ford has extended its timeline for EVs in the U.S. and Europe. In parallel, both Ford and GM have announced investments in new engine manufacturing facilities for large SUVs and pick-ups. 

In Europe, Mercedes has delayed its EV targets by five years and stated it will expand its combustion engine line-up. This rethinking of the Western OEMs begins to align the West with Japan, which has consistently advocated for hybrids and warned against EV-only approaches.

Japan—Leader or Laggard?

Following the Fukushima nuclear disaster in 2011, Japan effectively closed its nuclear energy industry. Today, two-thirds of Japan’s electricity is derived from fossil fuels and Japan has acknowledged that charging EVs with this energy mix doesn’t provide a net CO2 benefit. Japan has also advocated to distribute the limited supply of battery metals over the large number of hybrids rather than a smaller number of BEVs. In Toyota’s “1:6:90 Rule,” in a fleet of 100 cars, the limited supply of battery materials could be used to make one BEV complemented by 99 ICE cars, or six PHEVs complemented by 94 ICEs, or 90 hybrids complemented by 10 ICEs. The result: The one-BEV fleet would emit average CO2 emissions of 400 g/mile; the six-PHEV fleet would emit 397.6 g/mile; and the 90-hybrid fleet would emit 328 g/mile.

The pragmatic Toyota approach has been widely criticised by EV-only enthusiasts. But Toyota has recently doubled-down on its pro-hybrid path. In a March 2024 interview, Toyota Motor North America CEO Ted Ogawa referenced the uncertainty of the BEV market and said that Toyota would purchase carbon credits rather than waste money on EV investment: “Wasted investment is worse than credit purchase.”

BEV sales in Japan in 2023 were just 1.7%––the lowest in the developed world. And Japan’s total BEV + PHEV outlook for 2030 is only 30%. Is Japan a laggard? Well, from 2001 to 2019, CO2 transport emissions in Japan were down 23%. During the same period, Europe was up 4%. The U.S. was up 9%.

Foreign Dependence

In 2022, the International Energy Agency estimated that, in order to meet CO2 emissions goals set around the world, the auto industry needs “about 50 more lithium mines, 60 more nickel mines and 17 more cobalt mines ––just to meet the EV projections for 2030.”  

TechMet, a leading investment company for the development of battery metals, estimates that 380 new mines are needed by 2035. Considering the lead time to identify new ore reserves, obtain planning permission, excavate and commission new processing facilities, this ramp isn’t feasible. As the Chairman of TechMet said earlier this year: “We’re heading toward an extreme cliff that, unfortunately, the mining industry needed to invest USD $100 billion five years ago to avoid.”

But the timeline isn’t the biggest concern. Today, China processes 90% of the world’s anode graphite, 85% of rare earths, 71% of lithium, 65% of cobalt, and 35% of nickel. In comparison, the 12 OPEC countries produce 38% of the world’s crude oil. That trade in foreign dependence isn’t sustainable.

From Engines to Energy

The internal combustion engine benefits from well-established manufacturing, servicing, and refuelling infrastructure, as well as excellent driving range and consumer acceptance. The problem isn’t the engine; it’s the fuel. Hydrogen is rapidly becoming the preferred path in both Europe and the U.S., and this provides opportunities for the internal combustion engine in perpetuity. However, net-zero liquid fuels also provide cost-effective solutions for sustainable transportation. 

In Europe, the leading technology seems to be eFuels, also known as synthetic fuels or PtL (power to liquid). eFuels recycle CO2 captured from the atmosphere or from industry, and react it with green hydrogen to produce a net-zero liquid fuel that can be transported in existing pipelines and used in existing engines. 

In the U.S., the preferred path is renewable diesel, which refines non-edible feedstocks such as used cooking oil, animal fat, and plant materials in a process similar to crude oil refining to provide a net-zero fuel that can be fully exchanged with fossil diesel. 
According to the American Transportation Research Institute, the use of renewable diesel in Class 8 trucks provides a 67% reduction in life-cycle CO2 compared to fossil diesel, while a Class 8 BEV truck provides only a 30% reduction. The debate shouldn’t only evolve from engines to energy; it is also important to distinguish between recycled net-zero fuels and virgin fossil fuels: defossilization rather than decarbonization. Unfortunately, current legislation encourages BEV miners, but not net-zero refiners.

H.L. Mencken, perhaps the most influential American writer in the 1920s, famously said: “For every complex problem, there is a solution that is clear, simple, and wrong.” Transport won’t have a one-size-fits-all solution. As we work our way through the 2020s––the decade of development and decision––a mix of technologies will evolve. This is clearly portrayed in Figure 2, from the U.S. National Blueprint for Transportation Decarbonization. Alongside electrification, hydrogen fuel cells, hydrogen combustion engines, and net-zero liquid fuels will all find applications in the vehicles and duty cycles that are best suited to them. After all is said and done, a pragmatic mix will prevail.