The European automotive landscape is shifting as the EU enforces a ban on combustion engines. Volkswagen, BMW, and Mercedes are extending the lifespan of their gasoline and diesel models, while the need for new engine development has shifted to other regions. Chinese giant Geely, along with Volvo and Renault, is stepping in to fill this gap.
Inconsistent electric vehicle sales across europe
Electric vehicle (EV) sales in Europe are currently fluctuating. Countries like France, Norway, and Italy are experiencing a boom in EV adoption, driven by significant subsidies and penalties for buyers of combustion engine vehicles. In contrast, nations such as Germany, Sweden, and the Netherlands are seeing a decline in EV sales. This divergence has led many automakers to delay their plans to phase out combustion engines. For example, BMW has indicated that its approach to powertrains will be influenced by real market developments.
Future engine development shifts away from Germany
Despite these changes, the expertise for developing future combustion engines is moving away from German car manufacturers. Due to the EU’s 2035 ban on combustion engines, these manufacturers are focusing more on electric drivetrains and battery technology. Consequently, the production and development of gasoline and diesel engines are being outsourced. BMW, for instance, now manufactures its engines in the UK and Austria through Magna Steyr, a contract manufacturer.
China exploits the weakness of European car makers
While many media outlets highlight China’s booming electric vehicle market—reporting that half of all new vehicle registrations are electric and that combustion engines are becoming obsolete—the reality is more nuanced. The so-called new energy vehicles (NEVs) in China include not only pure electric vehicles but also plug-in hybrids that still rely on combustion engines. In July, for example, China sold 878,000 NEVs, with nearly 45% of these being plug-in hybrids. Although the share of pure electric vehicles among new registrations in China is high at 28% and likely to grow, it is still only double the rate seen in Germany.
Additionally, China does not have plans for a combustion engine ban like the EU. Outside major cities, there are still significantly more combustion engine vehicles compared to the highly electric vehicle-friendly urban areas.
Geely, Volvo, and Renault join forces in new venture
It is therefore logical that one of China’s largest car manufacturers is entering the combustion engine market, in partnership with European and Middle Eastern companies. The joint venture, named “Horse Powertrain,” was established in 2023 by Chinese automotive giant Geely, Volvo, Renault, and the oil company Aramco. Notably, Volvo’s participation reveals the Chinese strategy of maintaining its combustion engine expertise while publicly focusing solely on electric vehicles. Volvo will continue to leverage its knowledge of combustion engines through the joint venture while only promoting electric cars in the market.
Horse Powertrain expects to generate approximately €15 billion in annual revenue and to produce around five million drivetrains per year. This forecast might be conservative considering the extended timelines many manufacturers have set for phasing out combustion engines. The venture operates eight production facilities in seven countries and three research and development centers.
Horse Powertrain will produce both existing and new engines, including a 1.2-liter three-cylinder gasoline engine and a 2.0-liter turbo diesel engine, both of which are designed to meet the stringent Euro 7 emissions standards. In an interview with “Automobilwoche,” Matias Giannini, CEO of Horse Powertrain, explained the strategy: “We focus on modern combustion and hybrid technology. By advancing innovation in these areas, we provide many customers with more financial and personnel flexibility to invest in electric mobility without compromise. Most manufacturers have committed to electric vehicles, and sticking with combustion technology long-term would be costly and risky for them. We are stepping into this gap to ensure modern combustion engines remain available in significant numbers for many years to come.”
Approximately 30% of development costs are expected to be saved by car manufacturers through this joint venture. This shift is particularly significant for German motor developers, who will play a reduced role as German brands focus more on politically driven electric mobility. German automakers are effectively abandoning their traditional combustion engine expertise to concentrate fully on electric vehicles.
Aramco’s role and the future of combustion engines
Unusually, Aramco, a major oil company, is also involved in the joint venture. Aramco’s interest in maintaining the life of combustion engines is evident, though it is also exploring alternatives such as synthetic and alternative fuels. Giannini notes, “For Aramco, the prospects for alternative and synthetic fuels are significant. At Horse, we believe we will play a crucial role in the use and introduction of these fuels.” He adds that the EU’s combustion engine ban may seem disconnected from global trends: “We must recognize that by 2035, at least 50% of all new vehicles worldwide will still have a combustion engine.”
This overview highlights how the global automotive industry is adapting to regulatory pressures and market demands, with significant shifts in engine development and manufacturing.
