Vehicle electrification (EV) is all the rage right now - not because consumers are willing to pay for it and live with it, but because of government mandates, subsidies and other incentives. By EV adoption going from 1% the automobile market to 10% in a decade, this will collectively save us 10% on our gasoline consumption at the pump at that time.
That 10% savings in a decade would be the equivalent of getting a 27 cent cut in today’s nationwide average gasoline price of $2.73 per gallon price. We could get there by simply cutting Federal and state taxes on gasoline, but going to 10% EVs would get us there without any such tax cuts.
However, EVs are expensive and consumers require anything from subsidized prices, to Federal tax credits ($7,500) to state rebates to carpool lane incentives in order to buy. Getting from 1% EVs to 10% isn’t free. One might say, that such mandates, subsidies and other incentives are unsustainable given the cost to get there. It’s like curing homelessness in California by ordering everyone to buy a $3 million house.
As it turns out, Nissan (OTCPK:NSANY) and Mazda (OTCPK:MZDAF) have found a much better solution, that would get us to around 30% in fuel savings - but without any of the insane costs of electrification, including subsidies, mandates and carpool lane incentives. The Nissan and Mazda solutions don’t even involve mild electrification such as Toyota-style (TM) gasoline-electric hybrids.
Let’s start with Nissan - which also owns the Infiniti brand
Nissan and Infiniti have made available the world’s first variable-compression engine. It launched in the first half of 2018 in the Infiniti QX50 and in the second half of 2018 in the Nissan Altima. The engine has been made available in two very slightly different variants between these two cars, but for purposes of this discussion, they are essentially the same thing.
How does this engine work, and what’s the point? While variable-compression engine technology has been discussed for many decades, this is the first time it has appeared in mass production.
High compression in an engine is more fuel-efficient, and the highest-compression engines have typically been diesels - but the same thing is true even among gasoline engines. In the past, gasoline engine compression used to be very low, in the 7-9 to 1 range. In more recent years, compression has gone above 10:1.
The problem with high compression is that while the engine runs “lean” under low loads, the engine does not perform well when more power is demanded. That’s the inherent tradeoff.
The genius behind the Nissan engine is that you get the best of both worlds: You get high compression under light loads, and you get low compression when you step on it for more power. In other words, that mix of two modes gets you both high power and high fuel economy.
So, how much better?
Let’s look at the new Infiniti QX50 compared to the previous QX50. The outgoing 2017 QX50 yielded 17 MPG city, 24 MPG highway, for 20 MPG combined.
The new 2019 Infiniti QX50 with the variable-compression engine sees a huge improvement, despite being a larger and more spacious vehicle - 24 MPG city, 31 MPG highway and 27 MPG combined.
That is basically a 35% improvement - 20 MPG combined to 31. Even compared to the all-wheel drive (AWD) 2019 Infiniti QX50 - 24 MPG city, 30 MPG highway and 26 MPG combined - that’s a 30% improvement.
What about the other Nissan with a similar engine revolution, the 2019 Altima? The old 2018 model year V6 version was rated at 22 MPG city, 32 MPG highway and 26 MPG combined.
The new 2019 Altima - which has a lot more safety equipment and other improvements over the 2018 generation - yields 25 MPG city, 34 MPG highway and 29 MPG combined: that’s an 11% improvement on paper, but given all the other improvements that hurt weight and size of all-new vehicle, the “real” apples-to-apples improvement is likely quite a bit better than 11%.
Nissan and Infiniti are likely to introduce variants of this engine technology in a very large share of their offerings. It’s an easy way to get over 11% - and up to 35% - fuel economy improvements without the costs and complexity - including infrastructure - of electrification. If applied across the board, even the most conservative estimate of this impact would yield more benefits than electrification going from 1% of the fleet to 10%.
It’s simply a lot more value for the money: Getting to much more than 10% fleet-wide fuel economy improvement without any of the EV costs.
What about Mazda?
Mazda has tried a different approach than Nissan, and its first product is approximately 18 months behind Nissan/Infiniti in terms of arriving in U.S. dealerships. The first product in which Mazda’s new engine will appear is the Mazda 3, which debuts at the Los Angeles Auto Show in late November: It should arrive in U.S. dealerships within about a year from now.
What does this all-new engine do, and how does it do it? I explained it in an article on August 8, 2017: For a very detailed technical explanation, you can also read Frank Markus from Motor Trend Magazine, who describes this complicated engine technology.
In the briefest of description, it’s a gasoline engine that, depending on the circumstance, works a more like a diesel engine. Get that? Basically, when the engine is working under very light and steady loads, it combusts more like a diesel engine - but outside of that “sweet spot”, it combusts more like a gasoline engine.
Just like the Nissan-Infiniti approach, that is a “best of both worlds” scenario: It combines the best of the gasoline engine with the best of the diesel engine. It just uses a different set of tools in terms of getting there. Nissan-Infiniti uses a physically variable piston length approach, whereas the Mazda approach is all about fuel mix and combustion optimization.
One thing the two approaches both have in common: the driver notices nothing. Why? Because both the Mazda and Nissan approaches make the car feel like a powerful engine that just happens to consume less fuel. If you told someone in a blind test that this was a ca 240-280 horsepower 3-3.5 liter V6 engine, they would believe you. However, you’d be getting perhaps around 26-34 MPG depending on the size and shape of the car, instead of around 20-24 MPG.
In Mazda’s case, they have not yet released final U.S. fuel economy numbers, because the first car with this technology remains approximately a year away from U.S. dealerships. However, over the last 15 months, many U.S. journalists have tested prototypes of the car and Mazda claims an improvement of 20% to 30% - while still improving torque by 10% to 30%.
Today, the Mazda 3 is rated at 28 MPG city and 37 MPG highway. At a 30% improvement, we would be looking at 36 MPG city and 48 MPG highway - but that’s “all other things equal.” If we adjust for more power, and that the new Mazda 3 could be a larger, heavier and more luxurious vehicle, the “all other things equal” benefit could superficially look nominally smaller.
However, the Mazda approach has the potential of delivering the highest-mileage gasoline car to date (sold in the U.S. today under current rules and test methods) in a vehicle without any form of hybrid-electric assistance. A blended MPG of close to 40 would be phenomenal for a car of this size, sophistication - and lacking any diesel or electrification.
The bottom line: Electrification is expensive and less effective
The Nissan and Mazda approaches show that you can obtain up to approximately 30% improvement to the gasoline engine without applying costly electrification. It can then be applied to essentially 100% of the cars sold in the market in just a few years from now, and it would not require any new infrastructure, subsides, mandates or other incentives. It would simply be more effective than pushing EVs from 1% of new car sales to 10% via subsidies, mandates and other incentives such as the carpool lane.
Both the consumer and the taxpayer would be protected from higher cost and intrusion in their lives. These two approaches from Nissan and Mazda are truly the solutions that solve the problem of how to improve fuel economy, and do so across the board, fast, and inexpensively.
Politicians should adjust their policies accordingly.
Disclosure: I am/we are short TSLA.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: At the time of submitting this article for publication, the author was short TSLA. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.