For Lagging Automakers: Stop Pouring Money Into The Wrong Powertrains

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If you’re a company like Honda, Toyota, GM, Ford, Nissan, or any other volume manufacturer that’s still playing catchup on electrification, the next few years will decide whether you remain a real product company or slowly turn into a dealer network for stronger players. Capital is finite. Engineering talent is finite. And the window to make smart choices is closing.

For a US-focused (or global) volume player, there are really five categories of vehicles that still matter. Here’s a clear-eyed ranking of where the smart money should — and shouldn’t — go.

1. Conventional Gas & Diesel

Lay off the specialists. You’re still going to sell these cars and trucks for another 10–15 years in many markets, but you don’t need to keep enhancing them. The competition is not about to deliver a 50% better gasoline or diesel engine. Pouring billions into getting another 1–2% thermal efficiency is a low-return exercise that almost no customer will notice or pay for. Just change the styling and put in a bigger screen.

The bigger problem is structural. Global automotive capacity, especially for traditional powertrains, is already in surplus. Europe alone is carrying more than 20% excess capacity — the equivalent of roughly 5.4 million vehicles or more than 35 full assembly plants. Asia-Pacific manufacturers face tens of billions of dollars in potentially stranded ICE assets as the transition accelerates. In five years, there is going to be tremendous overcapacity in conventional gas and diesel powertrains. Residual values will come under pressure, and the companies that keep investing heavily in refining these engines will look increasingly like they are optimizing a declining business.

If someone does invent a truly outstanding new engine, you can always buy a few or license the technology. You do not need large internal teams continuing to chase incremental gains.

2. Traditional (Non-Plug-In) Hybrids

This segment is hot right now, especially in the United States. Toyota has done an excellent job making hybrids mainstream, and many buyers who are not ready for a pure EVs are choosing them. That does not mean every company should keep pouring money into developing more of them.

I would cut development spending on traditional hybrids roughly in half. There is going to be a flood of these vehicles available over the next few years. Chinese manufacturers are already producing highly efficient hybrid systems at scale, and the technology is becoming more commoditized. If you need hybrid capability, you will be able to buy the hardware and software from suppliers or partners rather than inventing everything in-house.

Traditional hybrids are useful as a bridge, but they are not a long-term differentiator for most companies. The returns on additional internal investment are diminishing fast.

3. Traditional Parallel Plug-In Hybrids

These are the classic half-and-half designs: the engine can drive the wheels, the electric motor can drive the wheels, or both can work together. On paper they look flexible. In practice they are usually compromised.

The vehicle ends up heavier because it carries both a full gasoline powertrain and a battery large enough to matter. Packaging suffers. Cost is higher. And the pure electric range is often only 20–40 miles — enough for some commuting, but not enough to change most people’s relationship with gasoline.

There is also a well-documented real-world problem: a large share of owners, especially company-car drivers, simply do not plug them in very often. When the company reimburses for gasoline but not for electricity, the car just runs as a heavier, more expensive gasoline vehicle. Multiple European studies using real telematics and onboard fuel data have shown this pattern repeatedly. The official low-COâ‚‚ figures that made PHEVs attractive for fleet compliance and tax purposes often do not show up in actual use.

If you already have a strong seller in this category (Toyota’s RAV4 Prime is the obvious example), keep selling it and support the existing customers. But I would not put significant new development money into more parallel PHEVs. They are a transitional technology that many buyers are already skipping past as better options appear.

4. Series Hybrids / Range-Extended Electric Vehicles (EREVs)

This is the category I would prioritize as a better bridge technology.

In a true series hybrid (or extended-range electric vehicle), the gasoline engine never drives the wheels. It only runs a generator that charges the battery or supplies power to the electric motors. The car is driven exclusively by electricity. This architecture has several important advantages:

• The engine can run at a steady, efficient RPM instead of constantly changing with the driver’s right foot.
• The electric driving experience is much closer to a pure EV — quiet, smooth, and responsive.
• You can use a relatively large battery (often delivering 60–120+ miles of pure electric range) while still offering a long total range when the generator is running.
• The engine itself can be small, simple, and inexpensive — closer to a well-engineered generator set than a high-performance automotive engine.

China has already proven that customers will buy these vehicles in large numbers when they are done well. Li Auto built its early success almost entirely on extended-range SUVs. AITO (the Huawei–Seres collaboration) and several other brands have also sold hundreds of thousands of EREVs. Even though pure battery-electric vehicles are now taking a larger share in China, the extended-range formula remains relevant for buyers who want electric driving most of the time without pure range anxiety.

Western companies do not need to invent this from scratch. There is already a purpose-built solution available. Horse Powertrain — a joint venture between Renault, Geely, and Saudi Aramco — has developed the C15 range-extender module. It is a 1.5-liter four-cylinder engine packaged with a generator, inverter, and cooling system in a unit that measures roughly 500 × 550 × 275 mm (about the size of a large suitcase or oversized briefcase). It can be installed horizontally or vertically and is designed to drop into existing battery-electric platforms with relatively little redesign. Naturally aspirated versions produce around 70 kW; a turbocharged version reaches about 120 kW. It is engineered to meet Euro 7, China 7, and SULEV20 standards and can run on gasoline, ethanol, methanol, or synthetic fuels.

This kind of system lets an automaker offer a mostly electric vehicle with a simple, low-cost gas backup. It is far superior to a short-range parallel PHEV for most real-world use cases. Companies that ignore this option risk missing a useful transitional product that many customers still want.

5. Battery-Electric Vehicles

This is the endgame. Every company has to decide how seriously it is going to play.

If you are Toyota-scale and still meaningfully behind on pure EVs, one realistic path is to partner with a strong Chinese manufacturer for platforms, battery technology, and software. Scale and vertical integration matter more in EVs than they did in the traditional auto industry. Trying to reinvent every piece of the stack alone is extremely expensive and slow.

If you are a smaller player — Nissan, Honda, or even Ford if their internal efforts do not become competitive — the risk is more existential. Without the capital and engineering depth to develop truly competitive electric vehicles, you risk gradually becoming a dealer network and brand front for stronger manufacturers. Nobody wants that outcome, but it is the logical result if you lack either the money or the talent to keep pace.

Software, battery cost, manufacturing efficiency, and continuous over-the-air improvement are now core competencies. Companies that treat EVs as just another powertrain option rather than a fundamentally different product will continue to lag.

Conclusion

Legacy automakers still behind on electrification must stop spreading limited capital and engineering talent across every powertrain. Conventional gas and diesel engines no longer justify major development spending amid rising overcapacity. Traditional hybrids and parallel plug-in hybrids are transitional at best and often underused in the real world. The smarter bridge is the series hybrid or range-extended EV, which delivers a mostly electric driving experience with a simple, low-cost gas generator. Companies such as Horse Powertrain already offer compact drop-in solutions. Ultimately, success depends on building competitive battery-electric vehicles or partnering for the necessary technology — otherwise risk becoming little more than a dealer network.

The old playbook of spreading scarce engineering resources across every propulsion type is over. The winners will be the companies that concentrate on two things:

1. Strong, competitive battery-electric vehicles, and
2. A limited number of well-executed series hybrids / EREVs as a practical bridge for customers who still want a gas backup.

Everything else — continued heavy investment in conventional engines, traditional hybrids, and short-range parallel PHEVs — is mostly like rearranging deck chairs on the Titanic. Choose where you are going to be excellent, and stop funding the rest.

If you want to take advantage of my Tesla referral link to get up three months Full Self Driving, here’s the link: https://ts.la/paul92237 — but if another owner helped you more, please use their link instead of mine. 

Disclosure: I am a shareholder in Tesla [TSLA] and XPeng [XPEV]. But I offer no investment advice of any sort here.