World’s largest oil company bets on the enduring power of petrol


Saudi Aramco is betting the internal combustion engine will be around for a “very, very long time” as the world’s largest oil company spots a business opportunity from the rise of the electric car.

The state-owned oil group, which made $500bn in revenues last year mainly from producing and selling crude, last month took a €740mn, 10 per cent stake in Horse Powertrain, a company dedicated to building fuel-based engines.

The calculation by Saudi Aramco and the other shareholders in Horse, Chinese carmaker Geely and its French peer Renault, is that as the industry stops designing and developing its own combustion engines, it will start buying them from third parties.

“It will be incredibly expensive for the world to completely stamp out, or do without internal combustion engines,” said Yasser Mufti, the executive vice-president at Saudi Aramco responsible for the deal. “If you look at affordability and a lot of other factors, I do think they will be around for a very, very long time.”

Asked if he thought there would be internal combustion engines forever, Mufti said yes. Saudi Aramco has previously said it believes that even in 2050, more than half of all cars will still run on some sort of fuel. 

The Saudi Aramco logo on a fuel barrel
Saudi Aramco made $500bn in revenues last year mainly from producing and selling crude © Jakub Porzycki/NurPhoto via Reuters

In 2021, the demise of the internal combustion engine (ICE) seemed assured after carmakers including Ford, General Motors and Mercedes-Benz, and governments including the UK, pledged to end sales of new petrol and diesel engines between 2035 and 2040. 

But with growth in electric vehicle sales slowing and trade protectionism rising, the future of ICEs is looking less bleak.

“We believe that as far out as 2035, 2040 and even beyond 2040 we still see a significant number of ICE vehicles,” said Matias Giannini, chief executive of Horse. “More than half for sure, and up to 60 per cent of the population will still have some sort of an engine, whether it is pure ICE, a full hybrid or a plug-in hybrid.”

That outlook presents an opportunity to consolidate production. 

Giannini said Horse had already secured “a couple of pieces of business”, and was in talks with several carmakers to supply them with engines.

“We have a variety of new engines coming out, for example, to address legislation,” he said, adding that while a lot of car companies had decided to stop investing in or developing engines in response to new EU standards, “we continued”. 

The joint venture was created a year ago, after Geely and Renault carved out their engine and transmission divisions and joined them together into Horse. The new €7.4bn, 19,000-employee company, which has 17 factories worldwide, is capable of building 3.2mn units a year and wants to produce 5mn, putting it roughly in the same league as Stellantis, the owner of Chrysler, Fiat and Citroën.

An engine on a Renault Nissan production line
As electric vehicle sales growth slows and trade protectionism rises, the future of internal combustion engines is looking less bleak © Dhiraj Singh/Bloomberg

“There’s nobody doing what we propose to do,” said Giannini. “If you are a car company today and you are focusing 100 per cent on EVs and all of a sudden you realise that in one region your customers want a hybrid vehicle, you could partner with Horse Powertrain.

“You will still have your branded vehicle,” he added. “Everybody wins. You don’t have to make a big investment, you don’t have to reshuffle your engineering, you can have something much faster, still producing out of your plants, employing people out of your region and offering more options to the final consumer.”

Horse is able to build 80 per cent of the engine types currently on the market, according to Giannini.

Philippe Houchois, an automotive analyst at Jefferies, said it made sense for Geely and Renault to try to achieve scale by combining their manufacturing.

“The transition to EV is slower than some thought, and there are hybrids, which some thought would disappear, so the runway is longer,” said Houchois, adding that smaller car companies such as Honda and Nissan could be potential customers for Horse.

He also predicted that Horse’s “logical playground” for its engines would be in Europe. “In the world today, only Europe wants to kill ICE. Neither the Chinese nor the Americans are working in that direction.”

An employee at a Horse Powertrain facility
Horse has 17 factories worldwide and is capable of building 3.2mn units a year © José M Peral

On the back of booming hybrid sales, Toyota recently developed a new generation of smaller engines with higher fuel efficiency that could potentially also be sold to other carmakers. Stellantis has also invested heavily in the long-term future of combustion-engine vehicles that run on synthetic e-fuels.

Saudi Aramco, meanwhile, has recently stepped up its efforts at building a global network of filling stations.

Last year it said it had 17,200 service stations, almost all in the US, China and Japan. This year it has bought into developing markets such as Chile and Pakistan, where the market for petrol and diesel cars is expected to have a longer tail.

Mufti said Saudi Aramco would focus on buying “well-managed” filling station networks where there was “strong demand” for fuels and “markets that offer growth opportunities”.

The Saudi oil major has also invested in research labs in Paris, Detroit and Shanghai, where it is trying to develop low-carbon and synthetic fuels.

“Our research with automotive companies and motorsports competitions has reinforced our view that synthetic fuel can be a drop-in solution in existing vehicles to reduce carbon emissions in the transport sector,” said Ahmad al-Khowaiter, Saudi Aramco’s technology and innovation chief, who first proposed the Horse deal.

Saudi Aramco last year bought US lubricant brand Valvoline for $2.65bn, and all engines produced by Horse will have their “first fill” with Valvoline products. 

Mufti said combustion engines could still see “significant improvements” that would make them competitive against EVs not just on cost but also on sustainability, especially factoring in the emissions and environmental impact of building vehicles. 

The venture’s success will depend on whether other carmakers are willing to put their trust in a company born out of their rivals.

“Not everybody understands at this point what the business model looks like,” said Giannini, adding that Horse needed to communicate that it was “an independent company to support everybody and not only its mother companies”.

But Mufti said he was confident that pragmatism would prevail. “At the end of the day everyone is here to make money,” he said, adding that carmakers were used to outsourcing to suppliers and that if Horse’s engines proved to be cost-effective and more efficient, “there’s a lot of value proposition there”.

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