Saudi Aramco, the world’s biggest oil company, is betting that the internal combustion engines will last for “a very, very long time”. The company sees a potential business opportunity in the growth of electric cars.
Last month, the state-owned oil company, which generated $500bn of revenue last year, mostly from selling and producing crude, acquired a €740mn (10%) stake in Horse Powertrain. This company is dedicated to manufacturing fuel-based engines.
The calculation of Saudi Aramco, the other shareholders in Horse and Chinese carmaker Geely, as well as its French counterpart Renault, is that the industry will stop developing its own engines and instead buy them from third-party suppliers.
Yasser mufti is the executive vice president of Saudi Aramco who was responsible for this deal. He said that it would be very expensive to eliminate or stop using internal combustion engines. If you consider affordability and many other factors, I think they’ll be around for very, very long.
Mufti answered yes when asked if internal combustion engines would continue to exist forever. Saudi Aramco previously stated that it believes even in 2050 more than half of cars will still use some type of fuel.
The demise of internal combustion engines (ICEs) in 2021 seemed certain after automakers such as Ford, General Motors, Mercedes-Benz and the UK government pledged to stop selling new petrol and diesel engine between 2035 and 2020.
The future of ICEs looks less bleak with the slowdown in growth and rise in trade protectionionism.
Matias Giannini is the chief executive officer of Horse. “We think that even in 2035, 2040, and beyond 2040, we will still see a large number of ICE cars,” he said. “More that half, and even up to 60% of the population, will still have an engine. Whether it’s a pure ICE, a hybrid, or a plug in hybrid.”
This outlook offers an opportunity for consolidation of production.
Giannini stated that Horse has already secured “a few pieces of business” and is in discussions with several automakers to provide them with engines.
He said that he was releasing a number of new engines to meet new EU standards. While many car companies stopped investing or developing engines, “we did not”.
Horse was formed a year before, when Geely and Renault combined their respective engine and transmission divisions. The €7.4bn company with 19,000 employees, 17 factories around the world, can build 3.2mn vehicles a year, and wants to make 5mn. This puts it in the same league of Stellantis who owns Chrysler, Fiat, and Citroen.
Giannini said, “Nobody is doing what we are proposing to do.” If you’re a car manufacturer today, and you focus 100 percent on EVs but you suddenly realize that your customers in one area want a hybrid, you can partner with Horse Powertrain.
“You’ll still own your brand vehicle,” he said. “Everybody wins. “Everybody wins.” You don’t need to invest a lot, or reshuffle the engineering. You can still produce in your own plants, and employ people from outside your region, while offering more choices to your final customer.
Giannini claims that Horse can build 80 percent of the engines currently available on the market.
Philippe Houchois is an automotive analyst with Jefferies. He said that it was logical for Geely to combine its manufacturing with Renault’s to reach scale.
Houchois said that the transition to EV was slower than many thought. He added that there were still hybrids which some believed would be gone, so the runway for Horse is longer.
He also predicted that Horse’s “logical playground” (for its engines) would be Europe. “Only Europe today wants to eliminate ICE. The Chinese and the Americans do not work in this direction.
Toyota has developed, on the back of booming sales of hybrids, a new generation smaller engines that are more fuel efficient. These engines could be sold to other automakers. Stellantis also has invested heavily in the future of combustion engine vehicles powered by synthetic e-fuels.
Saudi Aramco has also recently increased its efforts to build a global network.
It reported last year that it owned 17,200 service centers, with the majority of them in the US and China. It has invested in developing markets like Chile and Pakistan where it is expected that the petrol and diesel car market will have a long tail.
Mufti stated that Saudi Aramco will focus on purchasing “well-managed”, filling station networks in markets with “strong demand” and “growth opportunities”.
Saudi Aramco has also established research laboratories in Paris, Detroit, and Shanghai to work on low-carbon fuels and synthetics.
Our research with motorsports and automotive companies has confirmed our belief that synthetic fuel is a viable solution for existing vehicles in order to reduce carbon emission in the transport industry,” said Ahmad al-Khowaiter. He was the chief of technology and innovation at Saudi Aramco, and the person who proposed the Horse deal.
Saudi Aramco bought US lubricant Valvoline last year for $2.65bn. All engines manufactured by Horse will receive their “first fill” of Valvoline products.
Mufti stated that combustion engines still have “significant improvement” to make them competitive with EVs, not only on price but also sustainability.
The success of the venture will depend on how many other automakers are willing and able to trust a company that was born from their competitors.
Giannini said that not everyone understood the business model at this stage, and that Horse should communicate that it is “an independent company that supports everybody and does not just support its mother companies”.
Mufti, however, said that he is confident that pragmatism will prevail. He said that at the end of it all, everyone was here to make money. Carmakers are used to outsourcing their work to suppliers, and if Horse’s engine proved to be more cost-effective and efficient, then “there is a lot value proposition” there.
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