Internal Combustion Engines Remain the Mainstay as Automakers Advance Next-Generation ICEs
There is no doubt that the electrification of automobiles is an irreversible global trend. However, the transition period is proving to be longer and more complex than originally anticipated. In Europe and the United States, automakers are shifting away from an exclusive focus on carbon-neutral electric vehicles (EVs) toward more realistic low-carbon pathways, particularly hybrid vehicles (HVs).
As a result, next-generation internal combustion engines (ICEs), developed using the best available technologies, are expected to remain the mainstay of powertrains for the foreseeable future. These advanced ICEs are increasingly designed to operate in combination with electrified components, offering a practical balance between emissions reduction and industrial continuity.
ICEs and the Automotive Supply Chain of 10,000 Parts
A single internal combustion engine is said to consist of approximately 10,000 individual parts, supported by a vast and diverse network of suppliers. In recent years, the lack of clear signals from OEMs regarding new engine development caused growing anxiety among small and medium-sized suppliers, many of whom questioned their long-term prospects.
“Once we reach the final engine programs, we should be safe for a while. Then we can look for new orders,” said the president of a Kansai-based screw manufacturer that serves as a Tier 3 supplier to U.S. OEMs. Anticipating the eventual decline of ICE demand, the company has strengthened its quality control systems and actively explored new business opportunities, including the aerospace sector.
Nevertheless, not all suppliers have been able to withstand the pressure. Some small and medium-sized enterprises have chosen to shut down operations due to concerns over future demand, labor shortages, rising energy costs, and an increasingly challenging business environment. New orders are now increasingly concentrated among companies with strong technological capabilities and reputations, often spread through word of mouth. A Kansai-based heat treatment company is one such example.
Investment Decisions Amid Uncertainty
Even for capable suppliers, investment decisions remain difficult. One company established a new factory in the Tokai region to meet demand, but management struggled with whether further capacity expansion was justified. Although the end of the COVID-19 pandemic brought some recovery, uncertainty surrounding future engine programs persisted. Public declarations by OEM executives to “move away from engines” further intensified concerns.
Ultimately, the company chose to proceed with the investment, driven by a strong sense of responsibility and pride in fulfilling its role within the automotive supply chain, despite the risks involved.
OEMs Move to Reassure Suppliers
In May 2024, Toyota Motor Corporation invited Subaru and Mazda—both of which continue to emphasize ICE development—to a joint briefing titled the “Multi-Pathway (All-Directional Strategy) Workshop.” By demonstrating a collective commitment to next-generation ICE development, the initiative aimed to ease supplier concerns and prevent small and medium-sized businesses from exiting the supply chain.
As the slowdown of the EV market—particularly in Europe and the United States—has become more evident, along with a reassessment of hybrid vehicles, OEMs have increasingly reported on the progress of next-generation ICE programs. These announcements are intended to restore momentum across the supply chain and reinforce confidence in the continued relevance of engine-related technologies.
Meanwhile, major and mega suppliers continue to pursue “selection and concentration” strategies for their engine-related businesses. Anticipating a long-term contraction of the ICE market, they are reallocating resources toward electrification. Through internal restructuring, business consolidation, or divestment, these companies aim to preserve supply systems and secure profitability by improving efficiency and scale.
OEMs are also narrowing the number of engine and powertrain variants they plan to produce. In addition to the growing complexity of complying with diverse environmental regulations worldwide, reducing part variations allows OEMs to consolidate orders and streamline procurement.
As hybrid vehicles are re-evaluated, the role of internal combustion engines remains significant (Nissan’s new Elgrand).
Optimized for Electrification
Japan’s EV market is expected to gain momentum in 2026 with the launch of compact EVs from both domestic and overseas manufacturers. At the same time, the development of next-generation ICEs is likely to accelerate. These engines are not incompatible with electrification; rather, they are being repositioned as ICEs optimized for hybrid applications, working in close coordination with motor-driven systems.
There are two primary approaches. The first involves hybrids in which the ICE is dedicated to power generation, with the vehicle driven entirely by an electric motor. Nissan’s e-Power and Daihatsu’s e-Smart Hybrid are representative examples, operating the engine within a narrow rotational range where power generation efficiency is maximized. Chinese OEMs, which are rapidly gaining global presence, are also adopting small ICEs as range extenders to address EV driving range limitations, enabling smaller onboard batteries for daily use.
The second approach is the conventional hybrid configuration, where the ICE serves as the primary propulsion source. Mazda’s next-generation Skyactiv-Z engine, currently under development, follows this model. The engine delivers primary driving force, while electric components supplement performance by utilizing regenerative energy. Mazda claims the engine achieves high thermal efficiency across a wide range of operating conditions, with motors compensating in low-speed ranges where ICEs typically perform less efficiently.
One of the greatest challenges for ICEs is exhaust gas treatment during cold starts. By relying on electric drive immediately after startup, automakers can meet increasingly stringent emissions regulations without significantly increasing the use of expensive precious-metal catalysts. Toyota plans to adopt such role-sharing concepts in its next-generation ICE programs.
Toyota’s new 1,500cc engine displayed at the Multi-Pathway Workshop in May 2024.
The most demanding emissions standards facing ICE vehicles are Europe’s Euro 7 regulations and the United States’ Tier 4 standards, which some describe as requiring exhaust gases “cleaner than air.” The integration of electrified components is enabling ICEs to continue evolving under these constraints.
Beyond Romanticism: Economic Reality
Many automotive enthusiasts are drawn to the distinctive exhaust sounds that vary by engine type and evoke emotional responses. However, automakers’ continued investment in ICEs is driven not by sentimentality, but by economic reality.
Mazda Senior Fellow and Innovation Officer Mitsuo Hitomi, known as the creator of the Skyactiv engine, has stated, “Financially weaker companies have fewer options. They had no choice but to refine their engines.” Companies lacking advanced electrification technologies are seeking to extend the profitability of existing technologies for as long as possible. In this context, the slower-than-expected growth of the EV market has become a tailwind rather than a setback.
Mazda’s next-generation hybrid engine, scheduled for launch in 2027, is positioned as the “ultimate engine” inheriting the Skyactiv lineage.
The question remains whether ICEs can serve as a more realistic environmental solution without forcing abrupt structural changes to the automotive industry. Next-generation ICEs are not merely extending the life of conventional engines; they are expected to pioneer new technological pathways that maintain competitiveness while leveraging decades of accumulated expertise across the supply chain.
Carbon-Neutral Fuels: The Key to ICE Sustainability
The long-term viability of ICE vehicles ultimately depends on the widespread adoption of carbon-neutral (CN) fuels. Even a complete shift to EVs would have limited environmental impact if electricity generation itself is not carbon-neutral. The energy efficiency of next-generation ICEs is already approaching that of thermal power plants. If CN fuels become available at affordable prices, carbon neutrality could extend to ICE vehicles already on the road.
According to the Petroleum Association of Japan, gasoline sold domestically already contains approximately 3% biofuel, with biomass-derived ETBE blends commercially available. Increasing the proportion of CN fuels will require overcoming several challenges, including transitioning to direct ethanol blends, securing sufficient biofuel supplies, and addressing corrosion issues in certain vehicles.
The Japanese government plans to introduce gasoline blended with 10% bioethanol in Okinawa in fiscal 2028, with nationwide expansion targeted for the 2030s, followed by further increases in blending ratios. While both OEMs and the oil industry continue to address these challenges, ICE development must also keep pace with evolving fuel characteristics.
As the automotive industry navigates an extended transition toward electrification, next-generation internal combustion engines—working in tandem with electrified systems and carbon-neutral fuels—are poised to play a critical role in sustaining industrial competitiveness and supporting the global automotive supply chain.
As the bio-ethanol blend ratio increases, corrosion prevention measures for automotive parts become essential, including fluorine rubber materials supplied by Daikin Industries.
