Global Light Vehicle (LV) sales remain strong by historical standards: the seasonally adjusted annualised rate of sales in the three months to May of 2018 was approximately 98 mn units/year. No further improvement will be required from this level for the LMC Automotive 2018 full-year projection of 97.4 mn units to come about. All major regions are expected to show growth in LV demand in 2018 with the exception of North America where a second year of modest contraction is likely. Markets in South America, in particular Brazil, have entered a new period of instability, but in our opinion the ongoing recovery should not be derailed. China is now in a more mature phase of its vehicle demand growth and for this reason the years of double-digit growth are over, at least for now. In 2018 we anticipate Chinese market growth of just 1.5%. Europe is expected to achieve around 2% growth in LV demand with most major markets doing well. The exception is the UK which is cooling after a sustained period of record car markets. Nervousness regarding the outcome of the Brexit negotiations is impacting UK car buyers, but demand remains at a robust level and so the problem should be kept in context. In all, the 97.4 mn mentioned above would represent a 2.2% improvement over the 2017 achievement.

The outlook for 2019 remains positive. While LMC’s forecasting partner, Oxford Economics, has lowered its world GDP growth forecasts for 2018 and 2019 to 3.1% and 2.9%, respectively, (both 0.1 percentage point lower than three months ago), the pace looks set to remain strong by post-global financial crisis standards. This will have a positive impact on LV demand in 2019. Similarly to 2018, the North American region will see a small contraction in demand but elsewhere larger light vehicle markets are forecast. China, on current projections, will see its market exceed 30 mn vehicles for the first time in 2019 while global demand will come very close indeed to the 100 mn level.

Much innovation and R&D effort in the automotive sector at present is focused on the area of vehicle electrification. This is being driven by various policies. In Europe the underlying CO₂ targets have been augmented by growing concern over urban air quality in several major cities. At the same time, the associated decline in diesel car sales is leaving a CO₂ vacuum which needs to be filled by other low emission technologies. The US market, outside of California and the CARB states currently has weak drivers of electrification and this is evident from the declining demand for electrified vehicles in that country overall. China will mandate targets for the sale of plug-in vehicles from next year (2019) and this is helping to stimulate significant investment in this technology not just in China but also from non-Chinese OEMs. They cannot afford to become uncompetitive in the China car market and so are quickly developing partnerships and products to take advantage of the expected boom in electric car sales.

While there are many types of electrified vehicles being developed we see three main categories becoming dominant. These are the battery electric vehicle (BEV), the mild hybrid with 48V technology (MHEV 48V) and, to a lesser extent, the plug-in hybrid vehicle (PHEV).  

Globally, 3.5mn electrified cars and US light trucks were sold in 2017, making up 4.1% of the total. Of these, BEVs accounted for 0.8% with 65% of those sales taking place in China. With zero tailpipe emissions and the fact that the basis of a fuelling infrastructure is already in place, the BEV is well positioned to emerge as the long-term winner in the electrification war. In the very long term, we believe that the fuel cell electric vehicle will start to take over for reasons of sustainability, but this is beyond 2035. So with tougher CO₂ requirements looming for Europe, ongoing legal challenges over urban air quality globally and a growing desire for energy-independence in China, very significant investment is now being channelled toward developing BEVs, the batteries to power them and a network of chargers to fuel them.

In numbers terms, LMC Automotive expects that BEVs will account for 12% to 15% of global car and US light trucks by 2027. Volume-wise, that implies sales ranging from 13.5 mn units to 15.7 mn units. Adding all other forms of electrification results in the prospect of sales in the order of 40 mn units globally by 2027. Most of these will be hybrids of one sort or another with 48V mild hybrid becoming particularly significant. So while we are expecting a strong shift to electrification, with overall rates as high as 60% in Europe by 2027, it is clear that the majority  of vehicles sold, even by 2030 will still have an ICE engine as part of their powertrain. We do not envisage a scenario where the BEV reaches 50% of the market before 2035 at the earliest. Even then, this would only apply in certain markets with the global share being well below 50%.

BEV battery cost and performance are challenges that the industry has yet to solve. However progress is being made. The LMC Automotive assumption is that BEVs will be able to compete on cost terms with the ICE vehicle in mature markets by the middle of the next decade. While a battery technology breakthrough is not expected by that time, incremental improvements will enable sufficient range, at an affordable cost, such that the mass-market for BEVs begins to open up. The other key aspect of creating the correct environment for BEVs is of course the charging infrastructure. This is harder to predict but in recent times we are seeing a greater commitment from the private sector to invest in creating the required number of fast charger stations needed to support mass eMobility. In China the government will force the roll-out of a public charging network with plans for 500,000 fast charge positions to be available by 2020. They will be needed to support the NEV mandates mentioned previously. In Europe we have seen traditional energy companies (big oil) investing in charging networks in order that they are ready for a shift from gasoline and diesel fuel to electricity.

At the same time as the increase in vehicle electrification, conventional technology will not stand still. Standards governing noxious exhaust emissions (such as EU6..) will continue to become stricter. Eventually this will force the economic shift to ultra-low or zero emissions vehicles but in the meantime it will necessitate the adoption of various technologies. On the diesel side these include:

• High load and cooled low pressure/high pressure EGR
• e-Supercharger
• Digital combustion rate-shaping
• Thermal encapsulation
• Steel pistons

Gasoline-specific technologies include:

• Cylinder deactivation
• EGR
• e-supercharger
• Continuous valve lift
• Camless valve train
• Gasoline homogenous direct injection
• Miller/Atkinson cycle
• Water injection
• Stratified lean gasoline
• Ultra high injection pressure
• Gasoline particulate filter
• SCR/LNT for lean gasoline combustion

This is not an exhaustive list and there are many other technologies that may be seen on both gasoline and diesel powertrains in the future. Some are listed here:

• E-turbo
• e-Cat heater
• e-water pump
• e-thermostat
• Predictive thermal management
• Waste heat recovery
• Variable compression ratio
• Articulated crank trains

Regarding the Turkish automotive industry, it is an important regional player currently accounting for almost 8% of pan-European LV production but just 1.7% of global output. We expect 1.6 mn light vehicles to be produced in Turkey this year (2018). Assuming political stability, and perhaps eventual EU membership, Turkey could see a long-term increase in vehicle output, establishing a substantial regional centre of vehicle production in the same way that it has achieved strong consumer electronics (especially TV) and white goods industries.