You could potentially make your engine, or whatever is burning fuel, more efficient by itself, if it is no longer required to drive a transmission and can run at any speed. Add a battery, and that enables you to do more stuff, such as regenerative breaking.

Congrats, you got a hybrid now (not unlike a Chevy Volt).

A large engine is generally more efficient than a small one. Most cars are in the 20% range. Steam turbines do better than 40%. So even with transmission and storage losses, having a centralized engine outside of the vehicle is much more efficient.