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No company offers E85 engine for production (2nd option), they offer only to license (1st option) in the same save. I will try to move to year 1920 or so to see if E85 ever show up for ordering to build by other company.
So that's why you can't use it in a vehicle design.
Did you win a contract with this engine?
Well to produce it, you either need to use it in a vehicle design or get a contact with it. You can't sell/outsource a licensed design.
As a sidenote, now in 1917 even in licensing there are 0 engines that are not gasoline. So if you do not have the technology discovered, you are pretty much unable to license or ask to produce it for you, rendering contracts impossible to do.
Confusing thing was engine not showing up in any views after showing green as bought, thanks for sorting that out.
You can not assign a licensed component for outsourcing or licensing.
The AI generally tends to stick with the most popular fuel types when producing engines. Ethnol based engines for a brief period of time were popular in the early 1900s. But around 1905 Gasoline became king. Diesel starts to popup around the 1950s.