Powertrain optionality: Flexibility in a multi-lane transition

In our global automotive trends 2026 report, we found that the electrification transition has not stopped, but the idea that one powertrain will dominate every market on the same timetable has fallen away. For middle-market suppliers, this changes the nature of the decision. The question of whether to invest in electric vehicles (EVs), hybrids, internal combustion engine (ICE) programmes, hydrogen, or alternative fuels has ultimately changed. Now, the question is more centred around how to remain commercially relevant to customers while the market moves unevenly between them.

The industry has not turned around; it has found itself at a fork in the road. [CA1.1]Some markets are moving quickly towards EVs. Others are leaning more heavily on hybrids. Some segments, particularly commercial and heavy-duty applications, are still looking at diesel, hydrogen, range extenders, biofuels, or other lower-carbon routes. For suppliers, the danger here lies not purely in choosing the wrong route; it is building a business that cannot change course when customers do.

A transition moving at different speeds

Globally, EV growth remains significant. The International Energy Agency (IEA) reported that electric car sales grew by 20% in 2025 to more than 20 million vehicles, meaning that one in four new cars sold globally was electric. The IEA expects sales to reach 23 million in 2026, representing 28% of total car sales.

Those numbers are important, but they do not tell the whole story. According to that same IEA report, in 2025, EVs accounted for nearly 55% of car sales in China, 28% in Europe and just under 10% in the United States. Southeast Asia and Latin America also grew quickly, but from different starting points and with different policy, income, and infrastructure conditions.[CA2.1]

Europe shows the mixed picture especially clearly. The European Automobile Manufacturers’ Association’s (ACEA) April 2026 year-to-date data shows battery electric vehicles at 19.7% of the EU market, hybrid-electric vehicles at 38.2%, plug-in hybrids at 9.6%, and petrol and diesel together still accounting for 30.2%. In other words, electrification is advancing, but not through one technology alone.

This matters because suppliers do not sell into an average global market. They sell into specific OEM (original equipment manufacturer) programmes, platforms, regions, and vehicle segments. A supplier may be supporting a battery electric programme in China, a hybrid platform in Europe, and a combustion or range-extender programme for North America or export markets. The practical challenge, then, is not the direction of travel but the unevenness of the journey.

Why one powertrain is unlikely to settle the question quickly

Several factors are keeping the market open to more than one answer.

Charging infrastructure is improving, but, like much of this story, it remains uneven. The IEA estimates that private light-duty vehicle charging points reached more than 43 million globally in 2025, while public charging points reached more than 7 million. China accounted for more than 65% of global public charging points, while the United States had only 3% of the global public charging stock despite having around 10% of the global electric light-duty vehicle fleet. [CA3.1]

The economics of charging also vary. Home charging remains attractive for many drivers, but public fast charging can be much more expensive. The IEA notes that public slow charging can cost up to 150% more than residential electricity, and public fast charging up to 240% more. In some cases, a driver relying only on public fast charging may face higher running costs than with a petrol vehicle.

Then there is the issue of supply. Battery metals and rare earths remain vulnerable to concentration and disruption. The IEA’s 2025 critical minerals outlook states that a sustained supply shock for battery metals could raise average global battery pack prices by 40–50%. It also notes that China is the dominant refiner for 19 of 20 energy-related strategic minerals analysed, with an average market share of around 70%.

Policy is also becoming more nuanced. The European Commission’s automotive package maintains a clear signal towards electrification, but also sets out further flexibility from 2035, with a 90% tailpipe emissions reduction target and the remaining 10% to be compensated through low-carbon steel, e-fuels, or biofuels.

Automakers are responding in kind. BMW has said the new X5 model will offer five drivetrain variants: petrol, diesel, plug-in hybrid, battery electric, and hydrogen fuel cell. Stellantis (owner of brands such as Alfa Romeo, Citroën, Jeep, Opel, and Vauxhall) describes its approach as a “multi-energy strategy”, investing in EV, hybrid, and range-extended electric technologies to match different adoption speeds across regions.

Hydrogen also has a place, although a selective one. The IEA’s 2025 hydrogen review says heavy trucks remain the only fast-growing market for fuel-cell electric vehicles, with China accounting for almost 95% of global fuel-cell commercial vehicle stock.

The message here is not that every technology will win everywhere. It is that several technologies may remain commercially relevant for longer than many investment cases assumed.

Where this becomes a plant-level problem

For suppliers, powertrain optionality shows up in the factories, the balance sheets, and in customer conversations.

Our report identified an “uncertainty tax” appearing in excess inventory, stranded capital, and volatile capacity utilisation. It also highlights how suppliers are moving towards modular production, mixed-model lines, reconfigurable tooling, and flexible processing equipment to cope with shifting demand. Which is to say, suppliers are redesigning their operations so they can switch products, volumes, and processes more quickly as customer needs and market conditions change.

This is where the issue becomes commercially sharp. A production line built for one high-volume EV component may be efficient if the forecast arrives exactly as planned. But if the OEM delays the launch, splits volume between hybrid and EV derivatives, or reallocates production to another region, that same line can become a constraint. The assets still depreciate, labour still needs to be scheduled, and inventory still consumes cash.

Risk also exists on the other side of the coin. Suppliers that wait for absolute clarity may find themselves underprepared when an OEM does commit. In a market this competitive, being late can be just as costly as being early.

That is why flexibility has to be designed, not improvised. It should be visible in tooling choices, plant layout, engineering roadmaps, labour planning, and commercial contracts. It should also be costed properly. Flexibility is valuable, but it is not free.

The risk of confusing flexibility with complexity

There is a danger that optionality becomes a polite word for doing too much. Many middle-market companies may not be able to support every customer, every powertrain, and every region with equal commitment whilst preserving the same level of quality. In these cases, the stronger approach is to be very deliberate about where flexibility creates value and where it simply creates cost.

Capital allocation is the first test. Large investments can be staged against clear evidence: customer nominations, programme timing, utilisation thresholds, regulatory milestones, and supply availability. A single base-case forecast is no longer enough. Investment committees need to ask what happens if the programme moves by 18 months, if the customer changes the powertrain mix, or if material costs move sharply.

Production planning needs the same discipline. Modular equipment, universal fixtures, programmable robots, and mixed-model lines can help preserve utilisation, particularly in brownfield (pre-existing/older) plants where full-scale reinvention may not be affordable. But not every process needs to be flexible. Some areas may still benefit from specialisation, especially where demand is clearer or the cost of changeover is too high.

The workforce question is as important as it ever has been. As electrification and automation move deeper into production, suppliers need people who understand high-voltage safety, battery systems, power electronics, software-enabled equipment, and advanced manufacturing processes. The World Resources Institute’s (WRI) research on the US automotive manufacturing transition points to changing occupational requirements, training needs, and new in-demand skill sets as EV production grows.

Commercial terms must also catch up. If OEMs want suppliers to hold capacity across more than one powertrain route, that uncertainty should be reflected in contracts. That means contracts need to be clearer about expected volumes, how changes will be managed, who pays for tooling, how design updates are approved, and how rising material costs are shared. Otherwise, suppliers may end up carrying the cost of flexibility while customers keep the benefit.

A global footprint needs a regional lens

The regional nature of the transition also means that supplier strategy cannot be set only at group level. China, Europe, North America, Southeast Asia, and Latin America are not moving in the same way, or for the same reasons.

Trade and supply chain risk add another layer. The UN Conference on Trade and Development (UNCTAD) warned in its July 2025 Global Trade Update that policy uncertainty, geopolitical tensions, and slowing growth were likely to pressure global trade. The Organisation for Economic Co-operation and Development (OECD) has also cautioned that full relocalisation is not a simple answer, estimating that policies aimed at making supply chains more domestic could reduce global trade by more than 18% and global real GDP by more than 5%, without consistently improving disruption resilience.

This suggests a more balanced response. Suppliers could benefit from having enough regional capability to serve customers reliably and manage tariff or logistics exposure. But they also need to avoid duplicating cost unnecessarily or creating small, inefficient footprints that weaken competitiveness.

The best question is not “where should we put everything?” It is “which activities need to be close to the customer, which need to be close to supply, and which need to remain scalable?”

The next chapter for middle-market suppliers

Powertrain optionality is not a reason to delay. It is a reason to invest more carefully.

Middle-market automotive organisations should assume that the transition will keep moving, but not always in a straight line. They could benefit from building factories that can adapt, contracts that recognise uncertainty, workforces that can move across technologies, and capital plans that do not depend on one perfect forecast.

In many cases, the strongest businesses will not be those that make the boldest single bet. They will be those that understand their markets well enough to know where to flex, where to specialise, and where to say no.

For more insight on the global automotive trends impacting the middle market in 2026, read our latest report.

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