Strategic Analysis of Global Low-cost Truck Maket: A Brief Summary


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Strategic Analysis of Global Low-cost Truck Maket: A Brief Summary

  1. 1. Global Low Cost Truck Market Opportunities Concealed Under Cloak of Threats Sandeep Kar- Global Program Manager Global Commercial Vehicle Research
  2. 2. Price Gaps of $5,000-$30,000 Exist in Developed Markets Offering Opportunities for OEMs Involved in Global Low-cost Truck Platforms LCV MCV HCV BENEFITS  Market Presence, Market Access, Supply Network Enhancement, Local Market Defense, Sales Growth TRADE OFFS  Quality, Reliability, Image, Margin, Strategy Dilution
  3. 3. Voice of Customers: Global Economic Volatility and Rising Proliferation of Asian Truckmakers Influencing Fleet Managers Voice of Customer: Top of Mind Issues Customer Pull Access to Wider Range Of Options Truck Price Increases Changes In Fleet Demographics Rising Fleet Consolidations Duty Cycle and Operating Expense Economic Considerations Changes in Foreign Brand Perceptions
  4. 4. Market Drivers Outweighing Restraints; Net Resultant Directing Market Towards Rapid Market Proliferation Urbanization Stricter Regulations Stoking Prices Increasing demand for reliability Rising labor and materials costs Lower profit margins Emergence of Asian OEMs Financing constraints Economic uncertainty  capital risk model shift Vehicle replacement cycles TCO considerations
  5. 5. Low-cost Truck Market (World): Rising Penetration of Low-cost Trucks: Over 29 Key Global Low-cost Platforms/Models Likely to Be Introduced by Global OEMs Between 2009-2016 HCV MCV LCV 2009 2016 29 12 17 12 10 Source: Frost & Sullivan 7 TATA Prima MN 25/40 U-Truck Sinotruk Howo AsiaMotorWorks Daimler Brand X HD IVECO LC HCV MAN Force Sinotruk HuangHe Hyundai HD DongFeng DFL GAZ-FAW HD Volvo-Eicher VE DongFeng Duo IVECO’s Chinese Platform Based MD Daimler Brand X MD GAZ 3309c Renault Kangoo TATA Ace GAZ Gazelle JAC HaoYun 2012 Fuso FG LCT Ford Transit Connect-Global ISUZU FTR Foton LD Global Kamaz LCT HD VolvoDongFeng LCT HD Hyundai Porter-Global Foton MD15 Mahindra LCT- Global TR Platform Navistar JAC LD Low-cost Truck Market: Expected Vehicle Model Timeline (World), 2009-2016 Do you have a plan or platform?
  6. 6. Benchmarking of Key India Based Global Truck Platforms: 6-9 Percent Margins Possible Through Development of Global Market Focused Volume Driving Low-cost Truck Platforms Category Parameter ~ 6-8% Estimated OEM Margin ~ 5-7% ~ 8-9% ~ > 7% LCV MCV HCV MCV-HCV (Case Study) Model TATA Ace Eicher VE 20.16 Mahindra MN25 Daimler (New Brand) Underlying Partnership TATA Volvo- Eicher Navistar-Mahindra Daimler Engine TATA275 IDI NA, 700 cc , 16 hp 6 cyl. E483 TCI; 147 hp engine 210 HP 120-300 HP Emission Regulation BS II/BS III Euro II/III BS II/BS III Euro II/III Euro III/IV Euro IV+ 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 Global Weighted Price 2016) $8,000 $35,500 $72,000 $35,000-80,000 Global Success Potential Rating
  7. 7. Comparative Analysis of Global Low-cost Heavy-Duty Truck Platforms: $1,500 per GVWR Ton Seems a Key Design to Cost Target; Engine Downsizing, Manual Transmission Utilization, and Sub-5m Wheelbase Emerging as Key Design Attributes “ The price difference between different HDTs are mainly dependent on gross weight and number of axles. The low cost HDT in most cases use MDT's chassis” – Chinese OEM “ 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 Low-cost Truck Market: Comparative Analysis of Major Low-cost HDTs (World), 2009 Source: Frost & Sullivan OEM / Brand Name Engine Transmission Wheelbase GVWR Rated Payload Retail Price Price per ton Growth Potential Rating TATA PRIMA Cummins ISBE270, 270 hp 9 Speed Manual 4000mm ~ 5000mm 40 ton 25 ton $48,383 $1,209 4.0 Mahindra Navistar MN25 MAXXFORCE 7.2L TCIC, BS III , 210 hp 6 Speed Manual 4250 mm ~ 5350 mm 25 ton 15.9 ton $35, 212 $1,408 4.5 CNHTC HOWO A7 SINOTRUK D12 series, Turbocharged, Euro II 9 Speed, Smartshift AMT 3200 mm 25 ton 16.2 ton $40,000 $1,600 4.5 KAMAZ 55111 KAMAZ-740.51 engine,225 hp 10 Speed Manual 4000 mm 40 ton 22.4ton $52,967 $1,324 3.0 FOTON AUMAN ETX WD 618.42Q, 11.596 L, 420 hp 12 Speed Manual 3300 mm ~ 4650mm 25 ton 15 ton $40,000~$45,000 $1,800 3.5
  8. 8. Example of the Supply Chain for TATA Prima: A Key Global Truck Platform from TATA Shows Reliance on a Global Supply Chain Engine : Cummins and Fiat Powertrain Air braking systems for truck and trailer : Knorr Bremse Cab Styling : Italy Transmission : 9 speed manual ZF Chassis : Mexico Suspension: Tandem Bogie suspension: TACO Hendrickson Various functional and aesthetic components for interiors and exteriors.: Tata Auto Comp System Seating systems : ISRI – TJC (JV of Tata Johnson Controls and ISRI) Entire wiring harness, fuse relay box and bulk head for interconnection connectors between front and dash wiring harness : Tata Yazaki Auto comp Headlamp cluster : Tata Visteon Outer Rear View Mirrors : Tata Ficosa Automotive Radiator and Intercooler: Tata Toyo Retail Price (Global) - $70-80K (approx) Retail Price (India) - $50K (approx)
  9. 9. Major OEM Brand Alliances Worldwide Set to Expedite Development and Marketing of Low-Cost Trucks Globally S T R E N G T H Region OEM Global Partners Low-Cost Truck Production Capability Low-Cost Market Success Projection Europe Daimler Mitsubishi FUSO, KamAZ, Foton, GAZ Volvo Dongfeng, Eicher, MACK IVECO SAIC Volkswagen/Scania/MAN Force, CNHTC (Sinotruk), Wangpai KamAZ Tatra,Foton, LongSeen North America Navistar Mahindra, Caterpillar, JAC, Otokar PACCAR DAF Asia TATA Daewoo Nissan DongFeng, AshokLeyland
  10. 10. Low-cost Truck Markets and Production Hot-Spots: By 2016 North America and Europe Will Emerge as Fastest Growing Markets for Low-cost Trucks Source: Frost & Sullivan. 2009 2009 2009 2009 2009 2009 2009 2016 2016 2016 2016 2016 2016 2016 44,090 5,232 32,205 185,274 616,947 233,933 487,274 1,061,465 1,413,642 150,063 197,247 176,766 322,528 129,728 North America Brazil Europe (incl. Russia) India China South Korea Japan Mature Asian markets of Japan and South Korea have heavy export reliance. Chinese manufacturers have largest total growth expected India to see largest percentage increase in region as development gains speed. High Growth Moderate Growth “ Our driver to enter this market is to participate in the global growth segments” U.S. Truck OEM
  11. 11. Global Low-Cost Truck Market to Grow at CAGR of 8.6% Amounting to Production of 3.2 Million Trucks by 2016 2016 Production by Geographic Location 2016 Production by CV Category
  12. 12. Aggressive Cost Reduction Strategies Implemented by Low-Cost Truck Manufacturers Delivering 19-29 Percent Reduction in Cost Savings Percentage Cost Saving/ Total Vehicle Cost <ul><li>Lower axle ratios </li></ul><ul><li>Lower priced chassis construction materials, </li></ul><ul><li>Basic brake, steering and suspension technologies </li></ul><ul><li>Downsizing of engine </li></ul><ul><li>with/without turbocharger </li></ul><ul><li>New Materials </li></ul><ul><li>Basic aftertreatment </li></ul><ul><li>Low-speed manual transmission </li></ul><ul><li>Optional A/C </li></ul><ul><li>Limited infotainment </li></ul><ul><li>Analog displays/integrated cluster </li></ul><ul><li>Integrated headrest </li></ul><ul><li>No central locking/power window </li></ul><ul><li>All safety features except regulated systems optional </li></ul><ul><li>Low-channel ABS, Sensor fusion </li></ul><ul><li>Basic networking architecture </li></ul><ul><li>Low-cost multiplexing </li></ul><ul><li>Minimum to no discounts </li></ul><ul><li>Lesser warranty protection </li></ul><ul><li>Distribution through existing dealership networks </li></ul><ul><li>Advertisement cost/budget reduction </li></ul><ul><li>Design changes (narrow cabins, cheaper materials, manufacturing design etc.) </li></ul>5-8% 3-4% 3-4% 1-2% 1-2% 1-2% 1-2% 4-5% Total Potential Cost Savings 19 ~ 29% “ 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
  13. 13. Key Focal Points and Best Practices of Leading Low-cost OEMs and Suppliers Core Focal Points Auxiliary Focal Points “ 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 Strategy Importance Low-cost Production Location Design to cost De-contenting Material sourcing Standardization Manufacturing Processes R&D Marketing and Sales After-sales Service Management Expenses Low High 1 2 3 Low High 1 2 3 Low High 1 2 3 Low High 1 2 3 Low High 1 2 3 Low High 1 2 3 Low High 1 2 3 Low High 1 2 3 Low High 1 2 3 Low High 1 2 3
  14. 14. Cost Breakdown of Tata Ace- A Low-cost LCV From India Targeted at Global Markets Low-cost trucks Market: Cost Breakdown Analysis – Tata Ace (India), 2010 <ul><li>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 </li></ul><ul><li>The dealer margin is significantly less for low cost trucks like Ace, but the dealers are compensated by the high volumes of sales </li></ul>Power train Chassis and Comfort* Safety Electronics Others Gross Margin Excise Duty Logistics Marketing Warranty Dealer Margin 29.2% 15.0% 1.2% 4.0% 16.5% 9.8% 12.0% 4.6% 2.7% 1.3% 3.7% Total Retail Price US $4,890 Source: Frost & Sullivan *The chassis and cabin shell are one single unit
  15. 15. <ul><li>Tata Motors has already proposed it will use an electric Ace to foray into the tougher United States market </li></ul><ul><li>In India Ace is powered by 16bhp diesel motor which complies Bharat II and Bharat III emission norms. These Aces are built on Indian platform and are currently being exported to many countries like Brazil, Africa etc. </li></ul><ul><li>Considering tougher European norms, Tata Motors has worked in collaboration with the technical support of Archimedes Energy Inc. and Ecolori SpA to develop an electric heart for the ace. </li></ul><ul><li>Ace Elektro is powered by asynchronous motor which produces 30KW of peak power and a maximum speed of 120 km / hr. </li></ul><ul><li>Melian Italy is the sole importer and distributor of Tata Motors in Italy </li></ul><ul><li>Tata Ace uses Li-thio-polymers which means lighter battery and hence increased mileage. Ace Elektro also makes use of advanced regenerative braking which means it can recover energy while slowing down and braking </li></ul>TATA Ace Elektro – Low-cost Base Platform Can Enable Creation of Cost-Competitive Electric Ultra-Low GVWR LCVs: Targeted at Launch in European Market Offering Strategically Priced Electric City Trucks. Expected Launch Price: Between US$ 9,000 - 11,000 CASE STUDY
  16. 16. Voice of Top U.S. HD Fleet Managers: Low-cost Trucks Are Welcome, Fuel-Efficiency is Welcome; Compromises in Reliability and Uptime Are Not Q18: Please rank the top-three influences that impact your fleet’s purchase of powertrain technologies. Source: Frost & Sullivan
  17. 17. Virtual Global Low-cost HCV Platform: Recommendations for The Ideal Low-Cost HCV for Global Markets; Target Median Price $65K in Relevant Markets Powertrain Transmission GVWR Price Others Chassis Design 8-10 Liter, 240-280 HP Need for smaller engines than comparable conventional trucks. Cost advantage expected for western OEMs due to in-house vertical integration. 9 Speed 9 speed transmissions are appropriate today but also enough to support the next generation of low-cost HCVs. Hydraulic power-steering, air drum brakes S-cam, Inverted bogie suspension with option for air suspension, C-frame chassis, 25-40 Ton China and India markets will grow and mature towards demanding higher GVWR engines. It is important to accommodate the features necessary for meeting local fleet manager and driver demands and local regulatory demands. $65,000 Payload: 16-25 Ton Wheelbase: 3500 to 4500mm $65-70K is the base minimum necessary to create a baseline platform that features globally harmonized technologies/systems .
  18. 18. Market Attractiveness- North America: Market Offering Openings to Low-cost HCVs Reasons for Entry Barriers to Entry Product Positioning Target Price Recommendation <ul><li>Wide open price gaps in LCV, MCV and HCV segments. </li></ul><ul><li>Need for powertrain downsizing and lower HP engines. </li></ul><ul><li>Recessionary environment . </li></ul><ul><li>Stringent emission and safety regulations </li></ul><ul><li>Strong position of local OEMs </li></ul><ul><li>Need for unique designs in MCV and HCV segment </li></ul><ul><li>Entry in HCV segment limited to intra-urban and intra-regional segments (day cabs, short-cabs, etc.) </li></ul><ul><li>$16-20K for LCV </li></ul><ul><li>$32-40K for MCV </li></ul><ul><li>$70-85K for HCV </li></ul>Steep regulatory barriers <ul><li>LCVs with 1.8-2L engines and HP 120-140 with 5 Speed manual transmission. </li></ul><ul><li>MCVs with 5 liter plus engines with 200+ HP and 6 speed transmission. </li></ul><ul><li>HCVs with 16-25 Ton GVWR, roughly 250-300 HP 8+ Liter 9 speed transmission (non long-haul type applications) </li></ul>
  19. 19. OEM Supplier What Now? Conclusions and Recommendations <ul><li>Unique Approach </li></ul><ul><li>Strategic Partnerships/Alliances </li></ul><ul><li>Create New Brands </li></ul><ul><li>Diversify Supply Base </li></ul><ul><li>Low-cost Production Location/ Localization of Content </li></ul><ul><li>Design to cost/ Decontent </li></ul><ul><li>Virtual Integration </li></ul><ul><li>Innovative Supply Dynamics </li></ul><ul><li>Strategic Relationships </li></ul><ul><li>Diversify Manufacturing Base </li></ul><ul><li>Outsource </li></ul><ul><li>Local Sourcing </li></ul><ul><li>Aftermarket Opportunities </li></ul><ul><li>Old Threat, New Opportunity </li></ul><ul><li>Asian OEMs Hold Strategic Advantage </li></ul><ul><li>Guard Local Market, Attack Global Markets </li></ul><ul><li>Short-Term Pain, Long-term Gain </li></ul><ul><li>Innovation Will Pay Dividends </li></ul>