Global Low Cost Truck Market - Opportunities Concealed Under Cloak of Threats

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A market analysis by Sandeep Kar- Global Program Manager, Global Commercial Vehicle Research, Frost & Sullivan.

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Global Low Cost Truck Market - Opportunities Concealed Under Cloak of Threats

  1. 1. Global Low Cost Truck MarketOpportunities Concealed Under Cloak of Threats Sandeep Kar- Global Program Manager Global Commercial Vehicle Research
  2. 2. Sandeep Kar Functional Expertise • 10 years of global commercial vehicle technologies and markets expertise, which include particular focus on areas such as - Global commercial truck industry growth opportunities, and market penetration and growth strategy development - Advanced truck technologies- powertrain, chassis, safety, telematics and regulation compliance technologies - Global research and consulting management, global business development and team-building, CXO level revenue and market share growth strategy development Industry Expertise Experience base covering broad range of sectors, leveraging long-standing working relationships with leading industry participants’ and senior executives in areas such as: - Global truck manufacturing and major tier-1 and tier-2 suppliers - Governments, legislators, regulators, policy makers - Leading companies in areas such as conventional and advanced powertrain, chassis, safety, and telematics - Leading companies in the area of transportation, logistics, and commercial vehicle mobility What I bring to the Team • Comprehensive and in-depth expertise focused on the global truck manufacturing and trucking industry Sandeep Kar • Strong analytical skills encompassing all areas of truck manufacturing, operations, marketing and product-planning • Cutting-edge research and development in heavy-vehicle dynamics, hybrid and electric powertrain technologies, driver information Global Program and active chassis control technologies, mobile resource management technologies Manager- Commercial • Global organizational development, effective utilization of global resources for effective and efficient product development and Vehicle Research management, ability to develop new revenue streams and accelerate revenue growth Career Highlights Frost & Sullivan • Extensive expertise in commercial truck industry research and consulting, vehicle manufacturing (worked for a leading global truck Global manufacturer as an engineer), marketing of inter-modal freight movement solutions, global footprint expansion and development of sustainable and expanding revenue streams, global product development and marketing management Toronto, Canada • Key strategic management positions in several leading global firms: - Frost & Sullivan, Canada - TATA Motors, Global - Balmer Lawrie and Company, India Education • Master of Applied Science- Heavy-Truck Dynamics, Concordia University, Montreal, Canada • Published technical papers and research thesis in renowned journals such as the International Journal of Vehicle Design • Frequently published and reported in industry journals and publications such as Wall Street Journal, New York Times, CNN, Bloomberg, Thomson Reuters, BusinessWek, FleetOwner, Tuckinginfo.com, Herald Tribune, etc.M657-18 2
  3. 3. Global Low Cost Truck MarketOpportunities Concealed Under Cloak of Threats Sandeep Kar- Global Program Manager Global Commercial Vehicle Research
  4. 4. Price Gaps of $5,000-$30,000 Exist in Developed Markets OfferingOpportunities for OEMs Involved in Global Low-cost Truck Platforms$30,000 $70,000 $120,000 LCV MCV HCV $60,000$25,000 $100,000 $50,000$20,000 $80,000 $40,000$15,000 $60,000 $30,000$10,000 $40,000 $20,000 $5,000 $20,000 $10,000 $- $- $- India Japan China South Europe North India China Europe South Japan North India China Europe South North Korea America Korea America Korea AmericaTRADE OFFS Quality, Reliability, Image, Margin, Strategy DilutionBENEFITS Market Presence, Market Access, Supply Network Enhancement, Local Market Defense, Sales Growth
  5. 5. Voice of Customers: Global Economic Volatility and Rising Proliferation ofAsian Truckmakers Influencing Fleet Managers Rising Truck Fleet Price Consolidations Customer Pull Increases Changes Access to In Fleet Wider Range Demographics Of Voice of Customer: Options Top of Mind Issues Changes in Foreign Brand Perceptions Duty Cycle and Operating Expense Economic Considerations
  6. 6. Market Drivers Outweighing Restraints; Net Resultant DirectingMarket Towards Rapid Market Proliferation Increasing Stricter demand for Rising labor Regulations reliability and materials Stoking Prices costs Lower profit margins Economic uncertainty capital risk model shift Emergence of Urbanization Asian OEMs Vehicle TCO replacement Financing considerations cycles constraints
  7. 7. Low-cost Truck Market (World): Rising Penetration of Low-cost Trucks: Over29 Key Global Low-cost Platforms/Models Likely to Be Introduced by Global OEMs Between 2009-2016 Low-cost Truck Market: Expected Vehicle Model Timeline (World), 2009-2016 2009 2012 2016 Sinotruk HuangHe Sinotruk Howo Daimler Brand X HCV U-Truck HD 12 Kamaz LCT HD DongFeng DFL Hyundai HD MN 25/40 IVECO LC HCV VolvoDongFeng TATA Prima MAN Force AsiaMotorWorks GAZ-FAW HD LCT HD GAZ 3309c ISUZU FTR MCV Volvo-Eicher VE IVECO’s Chinese Fuso FG LCT 7 Platform Based MD DongFeng Duo Daimler Brand X MD Foton MD15 JAC HaoYun Hyundai Porter- Mahindra LCT- Renault Kangoo LCV GAZ Gazelle Global Global TR Platform Ford Transit 10 Connect-Global Foton LD Global TATA Ace Navistar JAC LD 17 12 29 Source: Frost & Sullivan Do you have a plan or platform?
  8. 8. Benchmarking of Key India Based Global Truck Platforms: 6-9 Percent MarginsPossible Through Development of Global Market Focused Volume Driving Low-costTruck Platforms Category LCV MCV HCV MCV-HCV (Case Study) Parameter Model TATA Ace Eicher VE 20.16 Mahindra MN25 Daimler (New Brand) Underlying TATA Volvo- Eicher Navistar-Mahindra Daimler Partnership Engine TATA275 IDI NA, 6 cyl. E483 TCI; 210 HP 120-300 HP 700 cc , 16 hp 147 hp engine Emission Regulation BS II/BS III BS II/BS III Euro III/IV Euro IV+ Euro II/III Euro II/III Transmission 4 speed, Manual 5 speed, Manual 6 Speed Manual 6-9 Speed Wheelbase 2100mm 4800 mm 4250-5000 mm TBA GVWR 1.55 Ton 16.2 ton 25 Ton 6-49 Tons Payload 0.75Ton 10.3 ton 15.9 Ton TBA Price (Estimated $8,000 $35,500 $72,000 $35,000-80,000 Global Weighted Price 2016) Global Success Potential Rating Estimated OEM Margin ~ 6-8% ~ 5-7% ~ 8-9% ~ > 7%
  9. 9. Comparative Analysis of Global Low-cost Heavy-Duty Truck Platforms: $1,500per GVWR Ton Seems a Key Design to Cost Target; Engine Downsizing, Manual TransmissionUtilization, and Sub-5m Wheelbase Emerging as Key Design Attributes Low-cost Truck Market: Comparative Analysis of Major Low-cost HDTs (World), 2009 OEM / Price Growth Rated Retail Brand Engine Transmission Wheelbase GVWR per Potential Payload Price Name ton Rating TATA Cummins PRIMA 4000mm ~ ISBE270, 270 9 Speed Manual 40 ton 25 ton $48,383 $1,209 4.0 5000mm hp Mahindra MAXXFORCE $1,408 4250 mm ~ Navistar 7.2L TCIC, BS 6 Speed Manual 25 ton 15.9 ton $35, 212 4.5 5350 mm MN25 III , 210 hp SINOTRUK D12 CNHTC series, Smartshift 9 Speed, 3200 mm 25 ton 16.2 ton $40,000 $1,600 4.5 HOWO A7 Turbocharged, AMT Euro II KAMAZ KAMAZ-740.51 10 Speed Manual 4000 mm 40 ton 22.4ton $52,967 $1,324 3.0 55111 engine,225 hp FOTON WD 618.42Q, 3300 mm ~ $40,000~ AUMAN 11.596 L, 420 12 Speed Manual 25 ton 15 ton $1,800 3.5 4650mm $45,000 ETX hp “We have be receiving interest in those downsizing the baby-eights to explore the higher-end 7’s. The downsizing/right- sizing trend is definitely out there”- NA Class 8 Vocational Truck Manufacturer “The price difference between different HDTs are mainly dependent on gross weight and number of Source: Frost & Sullivan axles. The low cost HDT in most cases use MDTs chassis” – Chinese OEM
  10. 10. Example of the Supply Chain for TATA Prima: A Key Global Truck Platform from TATA Shows Reliance on a Global Supply ChainRetail Price (India) Various functional and aesthetic Seating systems : Retail Price (Global) - $50K (approx) components for interiors and exteriors.: ISRI – TJC (JV of Tata Johnson - $70-80K (approx) Tata Auto Comp System Controls and ISRI) Outer Rear View Mirrors : Tata Ficosa Cab Styling : Italy Automotive Engine : Cummins and Fiat Powertrain Radiator and Intercooler: Tata Toyo Entire wiring harness, fuse relay box and bulk head for interconnection connectors between front and dash wiring harness :Headlamp cluster : Tata Yazaki Auto compTata Visteon Chassis : Mexico Transmission : 9 speed manual Air braking systems for truck and trailer : ZF Suspension: Tandem Bogie suspension: Knorr Bremse TACO Hendrickson
  11. 11. Major OEM Brand Alliances Worldwide Set to Expedite Developmentand Marketing of Low-Cost Trucks Globally Low-Cost Truck Low-Cost Market Region OEM Global Partners Production Success Capability Projection Daimler Mitsubishi FUSO, KamAZ, Foton, GAZ Volvo Dongfeng, Eicher, MACK Europe IVECO SAIC Volkswagen/Scania/M Force, CNHTC AN (Sinotruk), Wangpai KamAZ Tatra,Foton, LongSeen S T Navistar Mahindra, Caterpillar, JAC, Otokar R North America PACCAR DAF E N TATA Daewoo G Asia T Nissan DongFeng, AshokLeyland H
  12. 12. Low-cost Truck Markets and Production Hot-Spots: By 2016 NorthAmerica and Europe Will Emerge as Fastest Growing Markets forLow-cost Trucks 616,947 185,274 1,413,642 1,061,465 197,247 129,728 Europe 150,063 44,090 2009 2016 (incl. Russia) 322,528 2009 2016 487,274 South Korea 2009 2016 176,766 North America 2009 2016 233,933 China 2009 2016 Japan 2009 2016 India High Growth 32,205 Moderate 5,232 Growth 2009 2016 Brazil Mature Asian markets of Japan and South Korea have heavy export reliance. Source: Frost & Sullivan. Chinese manufacturers have largest total growth expected India to see largest percentage increase “Our driver to enter this market is to participate in the global growth segments” U.S. development gains speed. in region as Truck OEM
  13. 13. Global Low-Cost Truck Market to Grow at CAGR of 8.6% Amounting to Production of 3.2 Million Trucks by 2016 3,500,000 HCV MCV LCV 3,199,571 3,000,000 2016 Production by CV Category 100% 0% 10% 17% 15% 13% 9% 8% 26% 80% 36% 11% 58% 2,500,000 60% 13% 35% 40% 81% 83% 75% 79% 20% 51% 20% 39%Production Units 22% 2,000,000 0% 1,790,721 China India Japan S. Korea E.U. N.A. Brazil 1,500,000 1,413,642 2016 Production by Geographic Location 1,000,000 616,947 487,274 500,000 322,528 197,247 129,728 32,205 - 2009 China India Japan S. Korea E.U. N.A. Brazil 2016
  14. 14. Aggressive Cost Reduction Strategies Implemented by Low-Cost TruckManufacturers Delivering 19-29 Percent Reduction in Cost Savings • Downsizing of engine • Optional A/C with/without turbocharger • Limited infotainment • Basic networking • Minimum to no • New Materials • Analog displays/integrated architecture discounts • Basic aftertreatment cluster • Lesser warranty • Low-speed manual • Integrated headrest • Low-cost multiplexing protection transmission • No central locking/power windowPercentage Cost Saving/ 10 Total Vehicle Cost 8 6 5-8% 4-5% 4 3-4% 3-4% 1-2% 1-2% 1-2% 19 ~ 1-2% 2 29% 0 Powertrain Chassis Comfort and Safety Electronics Marketing Margins Others Convenience and Sales Total Potential Cost Savings• Lower axle ratios • All safety features except • Distribution through • Design changes• Lower priced chassis regulated systems optional existing dealership (narrow cabins, networks cheaper materials, construction materials, manufacturing• Basic brake, steering and • Low-channel ABS, Sensor • Advertisement fusion cost/budget reduction design etc.) suspension technologies “The engine is the major driver of technological adoption. Once it is in place you then need the rest of the vehicle’s systems to accommodate its performance – transmission, brakes, etc.” – Global Drivetrain Supplier
  15. 15. Key Focal Points and Best Practices of Leading Low-cost OEMs andSuppliers Strategy Importance Low-cost Production Location Low High 1 2 3 Design to cost Low High Core 1 2 3 De-contenting Focal Low High 1 2 3 Points Material sourcing Low High 1 2 3 Standardization Low High 1 2 3 Manufacturing Processes Low High 1 2 3 R&D Low High 1 2 3 Marketing and Sales Auxiliary Low High 1 2 3 Focal After-sales Service Low High 1 2 3 Points Management Expenses Low High 1 2 3 “We see this as an opportunity to cater to OEMs from both established markets and from emerging economies. We are now targeting Western OEMs who are struggling to find low-cost yet high-quality truck electronics modules” Japanese Tier-1 Supplier
  16. 16. Cost Breakdown of Tata Ace- A Low-cost LCV From India Targeted atGlobal Markets Low-cost trucks Market: Cost Breakdown Analysis – Tata Ace (India), 2010 Power train Chassis and Comfort* 29.2% Safety Electronics 15.0% 1.2% Others 4.0% Gross Margin 16.5% Excise Duty 9.8% Logistics 12.0% Marketing Dealer Total Retail Price Warranty Margin 4.6% US $4,890 *The chassis and cabin shell are one single unit 2.7% 1.3% 3.7%• The high net profit margin of well-established models such as the Tata Ace is because of incremental gains from a project beyond break-even point, large economies of scale, only variable costs and minimal additional investments that result from a phenomenal level of sales• The dealer margin is significantly less for low cost trucks like Ace, but the dealers are compensated by the high volumes of sales Source: Frost & Sullivan
  17. 17. TATA Ace Elektro – Low-cost Base Platform Can Enable Creation of Cost-Competitive Electric Ultra-Low GVWR LCVs: Targeted at Launch in EuropeanMarket Offering Strategically Priced Electric City Trucks. CASE STUDY • Tata Motors has already proposed it will use an electric Ace to foray into the tougher United States market • In India Ace is powered by 16bhp diesel motor which complies Bharat II and Bharat III emission norms. These Aces are built on Indian platform and are currently being exported to many countries like Brazil, Africa etc. • Considering tougher European norms, Tata Motors has worked in collaboration with the technical support of Archimedes Energy Inc. and Ecolori SpA to develop an electric heart for the ace. Expected Launch Price: • Ace Elektro is powered by asynchronous motor which produces 30KW of peak Between power and a maximum speed of 120 km / hr. US$ 9,000 - 11,000 • Melian Italy is the sole importer and distributor of Tata Motors in Italy • Tata Ace uses Li-thio-polymers which means lighter battery and hence increased mileage. Ace Elektro also makes use of advanced regenerative braking which means it can recover energy while slowing down and braking
  18. 18. Voice of Top U.S. HD Fleet Managers: Low-cost Trucks Are Welcome, Fuel-Efficiency is Welcome; Compromises in Reliability and Uptime Are Not Highest Ranking Benefits of Powertrain Technologies (N=101) #1 Rankings #2 Rankings #3 Rankings Total of Top Three Rankings 60% 53% 44% 44% 40% 29% 33% 32% 19% 20% 20% 18% 17% 21% 14% 15% 17% 13% 12% 12% 15% 11% 13% 14% 9% 8% 9% 7% 7% 6% 7% 6%6% 6%7% 9% 4% 4%5%4% 3%4% 3%3%3% 4% 3%4% 7% 1% 0% Reliability Fuel efficiency Effectiveness Residual value Reduced lifecycle cost lifecycle Low levels of component maintenance infrastructure requirement Lower weight Longer Attractive powertrain conditions Access to idling Reduced operating emission under all Lower count support penalty Q18: Please rank the top-three influences that impact your fleet’s purchase of powertrain technologies. Source: Frost & Sullivan
  19. 19. Virtual Global Low-cost HCV Platform: Recommendations for The Ideal Low-Cost HCV for Global Markets; Target Median Price $65K in Relevant Markets 9 Speed 25-40 Ton Transmission GVWR 9 speed transmissions China and India are appropriate today markets will grow and but also enough to mature towards support the next demanding higher generation of low-cost GVWR engines. HCVs. Price Chassis Design $65,000 Hydraulic power- $65-70K is the base steering, air drum minimum necessary to brakes S-cam, Inverted create a baseline bogie suspension with platform that features option for air globally harmonized suspension, C-frame technologies/systems . chassis, Powertrain 8-10 Liter, 240-280 HP OthersNeed for smaller engines It is important to than comparable accommodate the conventional trucks. features necessary forCost advantage expected meeting local fleetfor western OEMs due to manager and driver in-house vertical demands and local integration. Payload: 16-25 Ton regulatory demands. Wheelbase: 3500 to 4500mm
  20. 20. Market Attractiveness- North America: Market Offering Openings toLow-cost HCVs •$16-20K for LCV Target Price •$32-40K for MCV Recommendation •$70-85K for HCV •LCVs with 1.8-2L engines and HP 120-140 with 5 Speed manual transmission. •MCVs with 5 liter plus engines with 200+ HP and 6 speed Product Positioning transmission. •HCVs with 16-25 Ton GVWR, roughly 250-300 HP 8+ Liter 9 speed transmission (non long-haul type applications) • Stringent emission and safety regulations • Strong position of local OEMs Barriers to Entry • Need for unique designs in MCV and HCV segment • Entry in HCV segment limited to intra-urban and intra-regional Steep regulatory barriers segments (day cabs, short-cabs, etc.) • Wide open price gaps in LCV, MCV and HCV segments. Reasons for Entry • Need for powertrain downsizing and lower HP engines. • Recessionary environment.
  21. 21. Conclusions and Recommendations OEM Supplier • Unique Approach • Strategic • Virtual Integration What Now? Partnerships/Alliances • Innovative Supply • Create New Brands Dynamics • Old Threat, New • Diversify Supply Base Opportunity • Strategic Relationships • Low-cost Production • Asian OEMs Hold • Diversify Manufacturing Location/ Localization of Strategic Advantage Base Content • Guard Local Market, • Outsource • Design to cost/ Attack Global Markets Decontent • Local Sourcing • Short-Term Pain, Long- • Aftermarket term Gain Opportunities • Innovation Will Pay Dividends
  22. 22. Next Steps Request a proposal for or Growth Partnership Services or Growth Consulting Services to support you and your team to accelerate the growth of your company. (myfrost@frost.com) 1-877-GoFrost (1-877-463-7678) Join us at our annual Growth, Innovation, and Leadership 2011: A Frost & Sullivan Global Congress on Corporate Growth (www.gil-global.com) Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities (www.frost.com/news)
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  25. 25. For Additional InformationSarah Saatzer Craig HayesCorporate Communications Sales DirectorAutomotive & Transportation Automotive & Transportation(210) 477-8427 (210)247-2460sarah.saatzer@frost.com craig.hayes@frost.comSandeep KarGlobal Program ManagerAutomotive & Transportation(416) 490-7796sandeep.kar@frost.com

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