“The potential for grid-connected vehicles to decimate our demand for liquid hydrocarbon fuels should be clear. Freed from the psychological barriers which hinder widespread market acceptance of pure battery electric vehicles, plug-in hybrids with an all-electric capability of just [30] kilometres would slash liquid fuel consumption, since such a high proportion of journeys undertaken are well within this range.”

"Plugged In: The End of the Oil Age” by WWF
(Dr. G. Kendall, 2008)

Global Engine Markets

PRODUCT SEGMENT	EXAMPLES	NEEDS (KEY DESIGN CRITERIA)	VOLUME(M)	AVERAGE PRICE ($)	VOLUME($M)
Portable	Chainsaws, Brush cutters, Leaf blower, Hedge trimmers, Cut-off saws	Low Weight, Low vibration, Low noise, High power to weight ratio	16.0	270	4,320
Stationary	Power generators, Compressors	Low noise, Reliability	0.5	900	450
Mobile	Lawn mowers, Cultivators, Snow throwers	Low noise, Low weight, High power to weight ratio	20.0	270	5,400
Industrial	Excavators, Skid steer loaders, Dumper trucks	Reliability	1.0	4,500	4,500
Light boats	Outboard motors	Low noise, Low pollution	1.0	3,800	3,800
Light vehicles	Scooters, Motorcycles, Snowmobiles	Low noise, Low pollution	40.0	540	21,600
Road vehicles	Cars, Racing cars, Light trucks	High efficiency, Low pollution, Reliability	70.0	1,800	126,000
Light airplanes	Airplanes	Low Weight, High power to weight ratio	0.01	6,000	60
Total			148.51		166,130

Global Engine Market Size and Volume

The table below provides detail of current engine manufacturing scale in the UK¹

Engine development and manufacture are major strengths of the UK automotive sector and have undergone a period of impressive growth in recent years. In 2008 production exceeded 2.8million automotive engines with non automotive output taking the total to over 3.1 million. Substantial new investments have been made at a number of locations both in developing existing facilities and establishing new ones. The UK is a significant net exporter of automotive engines.

UK engine production is principally for passenger cars; however engines for commercial vehicles, agriculture, Motorsport, motorbikes and non automotive sectors, for example marine and power generation, are also of significance. Ford is by far the largest engine producer in the UK with two major plants: Bridgend and Dagenham producing around 25% of their global engine supply in the UK. Toyota, Nissan, Honda and BMW have medium to high volume plants. Cummins (commercial vehicle engines) and Perkins (commercial vehicle engines and non automotive engines) have major production facilities in the UK.

Global Automotive Markets
Global light vehicles and engines assembly is expected to rise from 68 m in 2008 to 83m in 2015. The assembly growth in emerging markets is expected to represent 100% of global growth as mature markets contract. BRIC countries (Brazil, Russia, India China) are expected to represent 60% of this global growth.

PwC analysis predicts volume growth in emerging markets (especially BRIC countries) due to low penetration rates to date. All global economies have experienced major down turns as the result of the financial crises and stock market crashes of 2008, however the medium term forecast is still a growth rate of 5%.

Many OEMs and tier 1 suppliers are combining the opportunity of growth in emerging markets with the opportunity to reduce labour costs and are establishing production facilities in these countries. In addition to manufacturing for the market in which they are located, these facilities are expected to supply back into the highly diversified global assembly footprints of OEMs.

Market Drivers
Beyond the basic criteria of mobility, cost, comfort and compliance; developed and developing markets have different needs. Key differentiators are the relative, importance of comfort, features and image for developed markets and low cost, ease of maintenance and durability for developing markets.

Fuel economy tends to feature much lower on the agenda of developed markets, however the fuel price spike of 2008 has greatly increased consumer sensitivity to this factor.

Speaking at the Detroit Auto Show, Jan 09, Irv Miller, Toyota Motor Sales U.S.A. group vice president said.

"Last summer's $4-a-gallon gasoline was no anomaly. It was a brief glimpse of our future."

The table below provides more detail the key features of different key automotive markets⁴.

Key Global Automotive Markets

KEY MARKET CHARACTERISTICS
	USA	W. EUROPE	RUSSIA	INDIA	CHINA	BRAZIL	JAPAN
Avg. Engine Displacement	3600cc	1865cc	1780cc	1450cc	1875cc	1410cc	1944cc
Diesel Share	5.5% in '07	51% in '07	9.5% in '07	9.5% in '07	9.5% in '07	3.7% in '07	7% in '07
Automatic Share	>90%	20%	<5%	10%	30%	<2%	75%
Fuel Economy Std	CAFÉ 42 mpg combined by '16	130g/km by '15 95g/km by '20	None	None	Weight based fuel economy standard introduced	None	Weight based fuel economy target for '15
Key Technologies	DISI TC, Stop-start, DCT 6AT	DISI TC, Stop-start, Engine downsizing DCT	SMPI, TWC, CR DI	SMPI, TWC, CR DI	SMPI, TWC, CR DI, 6ATs, DCTs	Multi fuel FIE	DI gasoline Stop-start
Emissions Standards	EPA Tier II, bin 5	Euro V '09, Euro VI '14	Euro III, Euro IV '10	Euro II/ III, Euro IV '10-Metro	Euro III/ IV, '07/10	Euro IV '09	Japanese standard
Average Power	240ps	128ps	94ps	66ps	106ps	90ps	136ps
Comments	Major downturn for SUVs Major upturn for HEVs and smaller vehicles ‘Big 3’ recovery plans focussed on HEV/ PHEV technology	Shift to E. Europe for vehicle and engine production CO2 based legislation & increasing CO2 based taxation Diesel share approx 50%	Significant growth in sales forecast Large share of imported vehicles Investment needed in modern engines and transmissions	High share of dom. manufs. Increasing JV share Low cost market Increasing diesel share Increasing automatic share	Massively increased production Domestic & JV manuf. growing strongly Investment for new engine models required for many manufs.	High share of multi fuel vehicles Limited exports outside region and no domestic manufs.	Most stringent fuel economy target Significant penetration of smaller (kei) cars Next round of emissions legislation 2009

Detailed analysis is contained in the market opportunities section, but key aspects are:

• US political concerns driving massive reduction in foreign oil dependency
• W. Europe fuel economy standards demanding solutions that current engines cannot deliver
• China, India and Russia all combine significant growth with requirements to develop more efficient and lower emission engines; both for internal and export markets

¹Source: SMMT, 2009
²Source: PriceWaterhouseCoopers Automotive Institute 2008 Q4 Interim Data Release
³Source: Knibb Gormezano & Partners, Engine Expo 2008
⁴Source: Knibb Gormezano and Partners, Engine Expo 2008