Impact of External Factors on Powertrain Development Challenges Faced by Vehicle Manufacturers in Europe
Aug 10, 2016
Development in automotive industry is a process that involves continuous evaluation of existing technologies and upheaval of the same to make better, more cost effective, and safer vehicles that capture imagination of the current generation. Powertrain development forms an essential part of the overall automotive development.
The European automotive market can be regarded as the beacon of the automotive industry with its innovative technologies as well as tighter and stricter regulations as compared to the other regional markets. This forces an OEM to constantly evolve its powertrain technologies and systems to stay relevant in the market. Any OEM that is constantly meeting the European commission’s emission and other regulations is touted to be in line to meet any and every global regulations.
Every powertrain development program has to take a holistic consideration of each and every powertrain attribute to come up with a newer and better powertrain. The most important powertrain attributes are Cost, Weight, NVH, Driveability, Performance, Packaging, Emissions, and Fuel Economy. These powertrain attributes can be broadly classified into four groups, namely:
Group 1: Powertrain Cost
Group2: Weight and Packaging
Group 3: NVH, Drivability, and Performance
Group 4: Emissions and Fuel economy
Every powertrain attribute is affected and have implications due to PESTLE factors. We at Frost & Sullivan have analysed the implication of each and every PESTLE factor on the groups of powertrain attributes.
Creation of emission free and low emission zones in Europe, noise level regulations, and availability of rare earth materials are the biggest environmental challenges faced by OEMs. Such challenges have varied implication on powertrain attributes.
The major implications of creation of emission free and low emission zones are rise in cost due to higher investments in R&D and complexity of the powertrain increasing the time taken to the market. Inclusion of fuel boosting and other efficient technologies results in providing additional parts to existing powertrains increasing its weight and also raising a new packaging issue. These additional parts have to be tested again for their NVH performance leading to additional lead time, thereby increasing their time to market. Moreover, CO2 emission targets make it imperative for OEMs to develop their vehicles across all segments to be environment friendly.
Vehicular noise pollution has increased stress levels in people residing in urban areas leading to high blood pressure compared against the rural population. As per World Health Organisation (WHO) this is second only to air pollution in terms of environmental burden. This creates unique problems to OEMs as they are required to additionally reduce the noise levels of their newer products while adding newer parts to increase fuel efficiency and lessen emissions. Technologies such as variable compression and turbocharging raise newer NVH issues due to sound radiation, torque irregularity, and vibration. To tackle these issues additional investments are required on damping research while contributing negatively on powertrain packaging.
Rise in environmental awareness has led to increase in hybrid and electric vehicle sales. This has negatively affected the environment as the rare earth materials used in motors and batteries are highly polluting to mine and process, limiting the cumulative effect on environment pollution. These calls for investment into research other alternative materials that are environment friendly and substitute rare earth materials at a minimum additional cost.
Figure1: 2016 Air Quality Index in the United Kingdom
The European automotive market is dictated by numerous legislations by different commissions and agencies. These cover a broad range of vehicular aspects such as CO2 emission, noise levels, tail pipe emission, safety, and fuel mileage. Apart from the European Union legislation, a few member countries have individual legislation.
The prime legislative challenge that is currently faced by OEMs is ACEA’s 2020 CO2 target of 95 gm/km and 2025 CO2 target of less than 70 gm/km. This has increased OEMs’ reliance on suppliers and technology companies, as not all OEMs have the economic capacity to carry out research on fuel saving and emission regulating technologies. Moreover, as an after effect this has compelled automakers to form alliances amongst themselves to cut down prices involved in R&D on electrified and fuel cell vehicles.
The next biggest legislative challenge is meeting Euro 6 tail pipe emission norms while developing powertrains that adhere to the future Euro 7 emissions. Most of the OEM diesel offerings currently do not meet the Euro 6 norms. This has adversely affected current offerings and also future offerings in short term, as non-adherence to Euro norms involves fines to be paid for every car sold, thereby increasing costs. In addition, implementation of latest technologies in existing powertrain is a tedious process which often involves changes in packaging while affecting NVH performance of a vehicle, this also increases complexity for servicing and the service workforce need to be trained additionally.
Another prominent legislative challenge is the change of emission test drive cycle from NEDC to WLTP and the implementation of real-time driving emissions (RDE). The change in the drive cycle in vehicle emission tests is estimated to raise a new car price by 1,000 euros which would be a blow to mass market OEMs. A few fuel saving technologies that are currently used such as Start-Stop may become redundant due to their lower CO2 saving potential under the WLTP testing procedures prompting the OEMs to change their mild and micro hybrid strategies.
Legislative regulations such as congestion taxes applied across various European cities have varied effect on new car buyers all the way from swelling customer base for hybrid and electric cars to disenchanted customers who take up public transport instead of owning a car.
Figure2: Light Vehicle Test Procedures Market Evolution in Europe, 2010–2025
According to Frost & Sullivan analysis, in Europe approximately 80% of gasoline powered cars to have start/stop system, about 65% will be turbocharged, 35% to have Gasoline Direct Injection and 8% to 10% of the vehicles will be hybrid or electric vehicle by 2020. This additional technology involved increases the cost of the powertrains and the OEMs would have to pass on the additional costs to the immediate customers. Apart from the cost, these additional technologies mean newer complexities in integration to existing powertrains, which put additional financial burden on OEM as they have to enhance their workforce skillset and changes in the manufacturing processes and production engineering. For example, let us consider replacing steel with aluminum in vehicle BIW, the steel sheets are bonded with each other using spot welding, while the aluminum sheets have to bonded using adhesives. This leads to increase in time to train existing workforce while increase in cost due to changes in manufacturing and procuring processes.
Furthermore, involvement of various technologies and strategies means the OEMs are more dependent on suppliers than ever. This makes it imperative for OEMs to have proper synergy with suppliers and technology companies to bridge the technological gaps.
Powertrain hybridization results in more derivatives from the standard platform and models, which increases the price while affecting the time taken to get the product into the market.
Figure3: IC Engine Technology Production Forecast in Europe
Powertrain light weighting has turned to be a major strategy for OEMs to combat emission and mileage targets. This raises its own unique set of problems for OEMs, as the OEMs have to invest on upgrading the skill set of workers to work on these alternative materials while upgrading the material handling and manufacturing processes. This also increases design complexity during integration of different powertrain parts while increasing its cost.
Geopolitical situation plays an important role in shaping up the future of automotive market. The recent incident of Brexit will have varied effect on the automotive scenario in Europe. The seamless movement of parts and completely built cars between suppliers and manufacturers in the United Kingdom and Europe will cease to be seamless. Such sudden changes in geopolitical situation would hamper additional investments in technology and research, as lot of automotive research happening in the United Kingdom involves citizens from EU members and other countries.
Historically, fossil fuels are highly taxed in Europe and due to increase in healthcare and social security costs many countries have started levying higher taxes on automobiles. This may have a negative impact on new buyers willing to purchase a car and drive them away from car ownership to mobility services and public transport. The fuel cost in Europe has resulted in booming A, B, and C segment cars sales largely due to the tendency of European customers weigh Fuel economy over any other vehicular attribute.
Owing to the growing pressure from the environmental groups and new technology lobbies, countries are forced to dole out incentives on investments in low-carbon technologies, electric charging infrastructure and R&D of ultra-low emission vehicles (ULEV). Many countries also incentivize buyers of electrified and fuel cell vehicles with a slew of subsidies and annual tax breaks for ULEVs. These steps may lead to electrified vehicles becoming more competitive in the market while overcoming range anxiety, thereby gaining market penetration over conventional ICE cars. This also prompts OEMs to churn out hybrid variants of their models leading to packaging constraints.
Figure4: Government Incentives in the United Kingdom and their impact
Global crude oil prices are forecast to remain low in short term at least until 2018. Lower fuel prices help mitigate fuel economy pressure in the short term, but OEMs have to invest on fuel saving technologies for meeting the medium and long term fuel economy goals.
Market uncertainty and currency swings have adverse effect on OEMs operating in Europe. The Euro has fallen 30% against USD in the last 5 years making the European market not attractive as it was 5 years ago. This has led various OEMs to re-strategize their European operations.
The European Union appears to have overcome the recession with majority of the countries posting increase in their GDP numbers and individuals disposable incomes. This rising disposable income has to be converted favourable to automotive market by the OEMs, as customers would be willing to pay the extra cost while choosing a car with green credentials and better performance.
The latest urbanisation trend in Europe is rise in usage of public transport. The United Kingdom reported a 125% increase in its train usage in last 20 years. This has adverse effect on the automotive market, as the governments are willing to increase investments on public transport and infrastructure resulting in slowing down of car sales in urban areas.
Other increasing trend is rise in sales of A&B segment cars. As per Frost & Sullivan analysis A&B segment cars are likely to grow by 25% to 27% to reach almost 8 million units by 2020. This creates unique problems for OEMs as they have to include all fuel saving technologies such as turbocharging and GDI to meet their fleet average CO2 and tail pipe emission targets at very low margins.
The latest trend of ride sharing and fleet services has to be taken into consideration, as this decreases individual vehicle ownership affecting the overall sales while the fleet sales eat into the vehicle margins. Moreover, the west faces a peculiar problem of their newer generation prioritizing gadgets and other goods over cars as compared to the baby boomers and older generations. This calls for additional marketing strategies such as green branding for vehicles and improved vehicle infotainment packages to capture young customers.
Cumulative effect of all these factors play critical role in strategizing the powertrain design philosophy of an OEM. Strategies such as engine downsizing and powertrain light weighting will become standard solution in immediate future, while paving way for hybridization and electrification in medium to long term. Environmental factors are the largest driving force behind powertrain development. Coupled with legislation, they play key role in pushing OEMs to invest more on R&D of powertrain technologies. To stay ahead of the competition optimum synergy between OEM and key technology suppliers will be of prime importance.
Table1: Impact rating of PESTLE factors on powertrain attributes groups