Horse power: Renault-Geely engine unit speeds up as EV shift stutters

The Horse Powertrain joint venture, formed by Renault and Geely with a 10% stake from Saudi Aramco, is aggressively positioning itself to become the world's leading engine maker by 2035, targeting €15 billion in annual revenue by 2029. Capitalizing on a perceived slowdown in the global EV transition and automakers' need to outsource production for hybrid and range-extended combustion engines, Horse offers a cost-effective solution for over 15 manufacturers, allowing them to focus resources on EV development. This strategy, while facing some industry skepticism regarding its long-term viability, leverages current market dynamics where traditional powertrains are expected to remain significant well into the 2040s.

Analysis

Horse Powertrain, a joint venture between Renault, Geely, and Saudi Aramco (10% stake), aims to become the world's leading engine maker by 2035, targeting €15 billion in annual revenue by 2029, an 80% increase from 2024 projections. This strategy capitalizes on a perceived slowdown in the global EV transition and the increasing need for automakers to outsource traditional powertrain components, leveraging combined sales of €8.3 billion from its constituent units last year.

The venture's opportunity stems from shifting market dynamics, including U.S. policy rollbacks and European lobbying against the 2035 fossil-fuel car ban, leading carmakers like Porsche, Ferrari, Stellantis, and Ford to slow their EV shifts. Horse positions itself as a cost-effective, one-stop shop for hybrid and range-extender combustion engines, currently supplying over 15 automakers and enabling partners like Renault to anticipate €2 billion in engine development savings by 2030.

Despite aggressive growth targets, Horse faces skepticism regarding the long-term viability of its core business, with critics drawing parallels to Kodak's fate. The company is actively investing in new technologies like plug-in hybrids (PHEVs) and extended-range electric vehicles (EREVs), anticipating continued demand for hybrid solutions even as EVs are projected to constitute 50% of new car sales by 2040. This highlights a speculative but potentially lucrative niche in the evolving automotive landscape.

Key Decisions for Investors

• Consider Horse Powertrain as a speculative play on the extended transition period for internal combustion engines and hybrids, offering exposure to a diversified supplier model.
• Monitor global regulatory shifts and EV adoption rates, particularly in key markets like the U.S. and Europe, as a rapid acceleration of EV demand could significantly impact Horse's long-term outlook.
• Evaluate the financial performance and customer acquisition rates of Horse, especially its ability to achieve the €15 billion revenue target by 2029, as an indicator of its market penetration and operational efficiency.