8 Engine Transmission Tech Road Ma Ping Consequences Oportunities For Lube Fuel JPastor Infineum SBurns Ricardo DAP Forum April 20 2010

Engine and Transmission Technology Roadmapping:
Consequences and Opportunities for Lubricant and

Fuels Development
2010 API Automotive/Petroleum Industry Forum,

April 20th – Detroit
Jofran Pastor, Industry Liaison Manager, Infineum International Ltd.
Shea Burns, Senior Manager, Ricardo Strategic Consulting, USA
© Ricardo PLC 2010 © Copyright INFINEUM INTERNATIONAL LIMITED 2010

RD.09/47503.2 © Ricardo plc 2009
Agenda
• Gl b l trends
Global t d and
d themes
th
• Technology roadmapping
• Consequences and opportunities for lubricants and fuels
• Conclusions
Co
© Ricardo PLC 2010 2 © Copyright INFINEUM INTERNATIONAL

RD.09/47503.2 LIMITED
© Ricardo plc 2009 2010
2
Global trends and themes
What’s going on ……?
Situation:
• Global automotive industry is undergoing rapid change
• “Mega Trends” are impacting OEMs, suppliers and consumers
• Fuel economy standards, emissions legislation, globalisation, and the rise of
emerging
i markets
k are creating
i new opportunities
i i & pressures
Complication:
• Economic downturn is accelerating the changes:
• After the highs of 2000-2007, slow recovery from 2009-2010
• Financial distress among suppliers and OEMs is leading to consolidation and
constraints on R&D budgets
• Tailpipe emissions remain important but fuel economy standards and CO2
dominate R&D budgets and are the major powertrain technology drivers
Co

3
Industry undergoing rapid change: “Mega Trends”

impact
p consumers,, OEMs & suppliers
pp
Macro Economic
• Major markets suffered most in downturn – NA, EU, Japan
Environment • Western sales growth “catch-up” until 2014, “real” growth in China, India
p
& Central / Eastern Europe
Legislation • Fuel economy, CO2, safety & end of use legislation increase product cost
• Shift of growth and market power to global institutions

Globalisation
• Regional advantages become a lever for global competitiveness
Model Mix
• More focus on small cars and smaller engines
 Problem for OEMs who rely on large, premium vehicle profitability
• Growing pressures from CO2, and emissions reduction targets

Climate • Consumers want clean transport but don’t want to pay extra for it
Change Debate • New technologies add complexity/risk & cost for OEMs and supply chain
Technology • Complex road maps with no obvious winning technology

Challenges • Shortage of skills and capacity to develop and deliver new technologies
Co
Business • Growth of low cost vehicles and entry of new OEMs into mature markets
Performance • R&D spend level or rising, despite lower levels of industry profitability

4
Minimal sales growth expected in EU, USA or Japan:

Emerging
g g markets are keyy to growth
g
Car sales [million units]
30
30 25
30
30 +2%
+3% 25 20 25
25 15
20 +3% 20
20 10
15 15 +0%
15 5
10 10
10 0
5 5
5 2008 2009 2015
0 0
0 Eastern
2008 2009 2015 +10% 2008 2009 2015
2008 2009 2015 Western Europe 30
North America Japan
Europe 25
20
30 30
15
25 25
10
20
20 5
15 15
0
10 +7% 10 +8%
CAGR 2008 2009 2015
5
+1% 2008 - 2015
5 Asia –
0
0 excl. Japan
2008 2009 2015 2008 2009 2015
Africa /
South America
Middle East
Co Main winners are China, India and Africa/Middle East

Emerging Asian markets are now larger than North America or Europe
Source: Ricardo Analysis, JD Power GCATT Q110
5
… Resulting in stark choices for OEMs
INNOVATE AND
ADD VALUE
AND/OR MOVE EAST
OR DIE…
Co

6
Agenda
• Gl b l ttrends
Global d and
d th
themes
• Conclusions
Co

7
Technology roadmapping
Increasing fuel consumption & emissions pressure:

Driving
g development
p of new powertrain
p technologies
g
Legislation Competition
• Taxation: Emissions & efficiency • Increasing OEM activities
related taxes (CO2/NOx) • Alternative powertrains as a
competitive measure
• Zero Emissions Vehicle
(C lif i ) b
(California) benefits
fit • HEV/PHEV “technology
technology bridge
bridge”
for future full battery EVs
• Incentives: e.g. “Congestion
Charge” toll exemption (London)
Conventional
powertrain
Energy resources Commercial / Society
• Limited resources/supply • Cost / value proposition
• Oil security fears • Increasing price sensitivity
• Continued increase in • Public awareness of climate
consumption change and global warming
• Increased use of biofuel • Increasing environmental
concerns
Co
• Lobbying
Source: Ricardo Analysis

8
For the first time fuel economy and CO2 legislation is

introduced across the world with challenging targets
Fuel economy / CO2 legislation for light duty vehicles
NHTSA CAFE EISA binding
ttargett for
f 2020
USA 50 Pass Car (US mpg) 27.5 37.8
States Light Truck (US mpg) 23.5 28.8
35 US mpg
Fleet Average (US mpg) 25.3 34.1
Voluntary target, Proposed passenger car

140 g/km CO2
Europe not met by 2008 long term target
Mandatory target phase-in

from 2012 to 100% by 2015
130 g
g/km CO2 ((2015)) 95 g
g/km
CO2
Fleet average fuel economy targets for

Japan 15.3 km/l 16.8 km/l passenger cars & light trucks (<2.5t)
Phase 1 (2005) 19 - 38 mpg by 2005

China
Phase 2 (2008) 21 - 43 mpg by 2008
India No fuel economy or CO2 legislation currently in place
2005 2010 2015 2020 2025

Co
NHTSA = National Highway Traffic Safety Administration CAFE = Corporate Average Fuel Economy, FE = Fuel economy
Source: Ricardo EMLEG database
9
Most cars in Europe do not meet proposed CO2

standard: The most p
profitable face greatest
g challenge
g
“Growth & Compliance” “Profit”

450 Vehicles Vehicles
400
g/km)
350
mbined Cy cle CO2 (g
300
250
200
NEDC Com
150
Permitted specific
100 emissions of CO2
by vehicle weight
50 Gasoline Vehicles Diesel Vehicles
0
700 900 1100 1300 1500 1700 1900 2100 2300
Co
Vehicle Test Inertia (kg)
Source: kba, Ricardo analysis

10
Government policy & customer preference:

Can be conflicting
g market drivers …..
Environmental Legislation
Political & • Diverse market drivers
Market Maturity
Legislative
• Market
M k t drivers
di nott necessarily
il
Energy Security
align with legislator views
Drivers of Change
• Surveys
y & market research do
Oil Price/Pump
P i /P Price
Pi
not always reflect what
Economics/ customers do !
Cost/Value Proposition
Commercial
TCO*: Affordability/Incentive • Economic shifts e e.g.
g
$140/barrel of oil can change
both legislative and consumer
drivers
Preferences / Product Utility
Customer Social desirability & • Significant regional variations
Demand responsibility are always present
Co Product Supply
*Note: ICE = Internal Combustion Engine. TCO = Total Cost of Ownership

11
Incremental powertrain improvements are the most

cost efficient way to improve vehicle efficiency
Powertrain Cost : Benefit Analysis Impact
CO2 Reduction
vs. Current Gasoline Unit
• Continuous improvement of
conventional ICEs
Fuel Cell
50% • Gasoline closes efficiency gap to
PHEV/EV
diesel
40% • Hybrids will deliver efficiency
Hybrid
benefits but at significant on-cost
benefits,
30% • CO2 benefits of PHEV/EV depend
Diesel on renewables content of electricity
generation
20%
Improved • Automated transmissions can
Gasoline further improve economy by up to
10%
5% over benchmark manuals
0%
• All technologies must address
consumer utility and cost
0% 50% 100% 150% 200% 250% 300%
Co requirements
i t
Powertrain Cost Increase
vs. Current Gasoline Unit
12
Uncertainty around alternative powertrains:

ICE continues to be dominant ppower source
INDICATIVE
Indicative EU Powertrain Share Forecasts to 2030 Consequences
Market Share
100% • The powertrain picture to
Fuel Cell
2030 is uncertain
• Advanced “Conventional”
Conventional
Pure EV Internal Combustion Engine
75%
likely to remain the largest
Diesel single application
PHEV
Diesel • Hybrid and plug-in hybrid will

50%
Hybrid grow, mainly at the expense
Diesel
of diesel, as emissions
compliance becomes
Gasoline
increasingly expensive
PHEV
25%
• Pure EVs will g
grow from
Gasoline 2012
Hybrid
Gasoline • Fuel cells start to appear in

0% small numbers from 2025
Co
2000 2005 2010 2015 2020 2025 2030
Year
13
Transmission production mix is strongly regional;

Advanced automation ppoised for growth
g
Transmission Production Preferences and Trends (1/2)

• Preference
e e e ce for
o auto
automatic
at c transmissions,
t a s ss o s, driven
d e by ease o
of d
driving
g & co
comfort
ot
North • CVTs (Continuously Variable) will gain share, led by Japanese OEMs
America • DCTs (Dual Clutch) will enter sub-compact segment, as OEMs leverage
European technology
• Preference for manual transmissions, moving from 5 to 6 speed
• AMTs likely to grow: Cost effective but with refinement challenges
Europe • DCTs will capture market share, development focus on efficiency, launch
performance and cost competitiveness
• CVTs not liked in Europe; technology expected to remain niche
Japan
• CVT ddevelopment
l tddriven
i b
by JJapanese OEM d
demand
d and
d power-split
lit h
hybrid
b id
requirements
China
• China will remain mainly manual, with automation split between CVT, DCT
and conventional automatic
Co
India • India will grow demand for lowest cost manual transmissions

14
Transmission production mix is strongly regional;

Advanced automation ppoised for growth
g
Transmission Production Preferences and Trends (2/2)
North America 2% Japan

6% 6% 8% 7%
16% 21% 23%
32%
1% 1%
2007 2015 2007 2015
83%
88% 63% 45%
2%2% Europe 1% Rest of Asia 3% 3%

14% 1%
10% 10%
1% 12%
2% 10%
2007 6% 2015 2007 2015
80% 74% 89% 82%
Manual
N America & Japan prefer automated transmissions,
AMT
A t
Automatic
ti
p & Asia prefer
while Europe p cost-effective manual
Co
CVT/IVT CVT/IVT are set to grow in America and Japan, while EU prefers DCTs
DCT
Source: CSM Worldwide, Ricardo Analysis
15
Continuous evolution of technology:

No obvious outright
g winning g technology
gy
Powertrain Roadmap
Short Term ((today)

y) Medium Term ((~2025)) Long
g Term ((~2050))
• Portfolio of advanced ICE • Need for major powertrain • Even greater demand for
- based powertrain technology shift in the personal mobility
• developed
p world
Alternative Fuels • Replacement
R l t off ffossil
il fuel
f l
• 2nd gen turbocharging • CO2/ fuel economy measures for transport by electricity,
for 2015-20 in effect
• Direct injection, exhaust gas hydrogen or sustainable
recirculation, lean-boost • Most cost effective solutions liquids
win
• 2/4 stroke ultimate • Almost certainly as a mix
downsizing • Electrification will become
common place  mostly • Parallel change in the
• E-auto manual transmission whole energy sector
(AMT) & e
e-dual
dual clutch PHEV or full EVs
transmission • Lower tech hurdle than H2
• Coal, nuclear, renewable
growing, oil diminishing
• Portfolio of Hybrid (HEVs) • Existing infrastructure
• Strong energy efficiency
& Electric Vehicles (EVs) • Tax free / home-made measures in domestic &
• Micro, mild & full hybrid electricity
l t i it i d t i l applications
industrial li ti
systems, EV/PHEVs
• BUT advanced
• Watching brief on conventional technologies
Hydrogen
y g & fuel cell cars still have important
p role
Co

16
Agenda
• Gl b l ttrends
Global d and
d th
themes
• Conclusions
Co

17
Consequences and opportunities
Introduction of advanced powertrains provides oppor-

tunities for lubricant,, fuel and additive innovation
Gasoline Diesel Transmissions & Hybrid

• Engine downsizing • Engine downsizing • Dual clutch transmissions
• Lean operation • Improved fuel injection • Advanced automatic
• Ethanol blends equipment Transmissions
• Valve train complexity • Exhaust gas recirculation • Start/stop & micro hybrid
• Turbo boosting/ • Aftertreatment for • Full hybrid & PHEV
supercharging NOx/ PM control • New materials
• New materials • New materials • Submerged electrical parts
®
EBDI “Extreme Downsizing” NZED “Diesel for Tier 2 Bin 2” eDCTTM “Efficient Automation”
Co

18
Consequences and opportunities (1/3):

Engine
g e lubricants
ub ca ts
Engine Lubricants Consequences & Opportunities
• Low viscosity and low friction fluids that deliver sustained,

Fuel Economy significant fuel economy contribution, without compromising
engine durability
Emissions System • Delivery of long term engine durability despite pressure to reduce
Compatibility Sulphur, Phosphorus and Ash in the lubricant
• Downsizing and boosting – higher thermal stress on a smaller

Varying duty cycle oil charge
engine protection • Hybrids – long life oils in engines that run intermittently,
infrequently or with a very different duty cycle
infrequently,
NCo M
New Materials
t i l
• Co e t o a add
Conventional additives
t es might
g t not
ot be opt
optimised
sed for
o new
e materials
ate a s
(e.g. DLC)

19

Transmission lubricants
Transmission Lubricants Consequences & Opportunities
Stepped • M
More gears, higher
hi h power d
density
it
Automatic • Fluid solutions to reduce torque convertor and actuation losses,
Transmissions
and to prevent fatigue
• Wet clutch performance with manual transmission performance

DCT • Compatibility with submerged electronics and seal materials
• Fluids to deliver high torque transfer combined with appropriate
clutch friction characteristics
• Fluids optimised for future generations of CVT

CVT
• Lower viscosity, better air release, and electronics compatibility
• High performance fluids for future hybrid optimised transmissions

Hybrids
Co
• High dielectric strength with excellent viscometric properties

20

Fuels
Fuels Consequences & Opportunities
• Intolerant to deposits  requires cleanliness additives to ensure

long term power, fuel economy and emissions compliance
Advanced Diesel • Enhanced lubricity additives to cope with higher pressures and
F l Injection
Fuel I j i new materials
• Higher injector operating temperatures  potential need for new
bulk fuel stability additives
• 1st generation  Additives for stability, cleanliness and cold flow

properties
Bi di
Biodiesel
l • 2nd generation  Potentially specific solutions for cold flow and
continued treatment with lubricity additives
Fuel Economy/ • Fuel borne catalysts for diesel particulate filter regeneration may
Emissions
offer better compromise on fuel economy/DPF performance
Systems
y
Co

21
Consequences and opportunities:

Issues and concerns
Issues & Concerns
Emission
E i i System
S t Co-development
C d l t&
Fuel Economy
Compatibility value generation
• Future may require • Need to formulate for • Formulating for advanced

mandatory delivery of FE • Long oil life hardware is expensive
over vehicle lifetime
• High fuel economy • Increasing requirement
• Fluids delivering FE will for co-development
co development by
become an integral part • Hardware durability fluid & hardware
of the delivery system • Emissions system developers
compatibility • Need for early
Requires compromise engagement
How do we ensure the

How do we ensure the How do we deliver the
system value of these high
correct fluids are used best compromise for
value fluids is shared fairly
over the
Co th vehicle
hi l lif
lifetime
ti ? stakeholders
t k h ld ?
between stakeholders ?

22
Agenda
• Gl b l ttrends
Global d and
d th
themes
• Conclusions
Co

23
Conclusions
• The principal drivers for hardware evolution to 2030 will be emissions

containment and fuel economy improvements driven by the demand for GHG
reduction
• Technology roadmapping studies indicate that hardware changes will occur

incrementally, resulting in a mix of solutions with no obvious outright winners
• The predominant powerplant for the foreseeable future will be the ICE
supported by increasingly sophisticated transmissions
• Performance challenges
g offered by y the introduction of advanced hardware will
provide opportunities to create value for fluid developers, marketers and OEMs
• Early
y collaboration and hardware/fluid co-development will be essential to
ensure maximum value and benefit to all stakeholders
Co

24

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8 Engine Transmission Tech Road Ma Ping Consequences Oportunities For Lube Fuel JPastor Infineum SBurns Ricardo DAP Forum April 20 2010

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Copyright:

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Engine and Transmission Technology Roadmapping:

Consequences and Opportunities for Lubricant and

2010 API Automotive/Petroleum Industry Forum,

© Ricardo PLC 2010 © Copyright INFINEUM INTERNATIONAL LIMITED 2010

• Consequences and opportunities for lubricants and fuels

© Ricardo PLC 2010 2 © Copyright INFINEUM INTERNATIONAL

What’s going on ……?

© Ricardo PLC 2010 3 © Copyright INFINEUM INTERNATIONAL

Industry undergoing rapid change: “Mega Trends”

• Shift of growth and market power to global institutions

• Growing pressures from CO2, and emissions reduction targets

Technology • Complex road maps with no obvious winning technology

© Ricardo PLC 2010 4 © Copyright INFINEUM INTERNATIONAL

Minimal sales growth expected in EU, USA or Japan:

Co Main winners are China, India and Africa/Middle East

… Resulting in stark choices for OEMs

AND/OR MOVE EAST

© Ricardo PLC 2010 6 © Copyright INFINEUM INTERNATIONAL

• Consequences and opportunities for lubricants and fuels

© Ricardo PLC 2010 7 © Copyright INFINEUM INTERNATIONAL

Increasing fuel consumption & emissions pressure:

Source: Ricardo Analysis

For the first time fuel economy and CO2 legislation is

Fleet Average (US mpg) 25.3 34.1

Voluntary target, Proposed passenger car

Mandatory target phase-in

Fleet average fuel economy targets for

Phase 1 (2005) 19 - 38 mpg by 2005

India No fuel economy or CO2 legislation currently in place

2005 2010 2015 2020 2025

Most cars in Europe do not meet proposed CO2

“Growth & Compliance” “Profit”

Source: kba, Ricardo analysis

Government policy & customer preference:

*Note: ICE = Internal Combustion Engine. TCO = Total Cost of Ownership

Incremental powertrain improvements are the most

Powertrain Cost : Benefit Analysis Impact

Uncertainty around alternative powertrains:

Diesel • Hybrid and plug-in hybrid will

Gasoline • Fuel cells start to appear in

Transmission production mix is strongly regional;

Transmission Production Preferences and Trends (1/2)

© Ricardo PLC 2010 14 © Copyright INFINEUM INTERNATIONAL

Transmission production mix is strongly regional;

Transmission Production Preferences and Trends (2/2)

North America 2% Japan

2%2% Europe 1% Rest of Asia 3% 3%

2007 6% 2015 2007 2015

80% 74% 89% 82%

Continuous evolution of technology:

Short Term ((today)

Source: Ricardo Analysis

• Consequences and opportunities for lubricants and fuels

© Ricardo PLC 2010 17 © Copyright INFINEUM INTERNATIONAL

Introduction of advanced powertrains provides oppor-

Gasoline Diesel Transmissions & Hybrid

© Ricardo PLC 2010 18 © Copyright INFINEUM INTERNATIONAL

Consequences and opportunities (1/3):

Engine Lubricants Consequences & Opportunities

• Low viscosity and low friction fluids that deliver sustained,

• Downsizing and boosting – higher thermal stress on a smaller

© Ricardo PLC 2010 19 © Copyright INFINEUM INTERNATIONAL