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Dyer at kearny presentation

The document discusses powertrain trends for commercial vehicles globally and in China. It analyzes different vehicle segments including heavy duty, medium duty, buses, and identifies hybrid electric vehicles (HEVs) as gaining significant market share by 2020, especially in city bus and medium/heavy duty distribution segments due to their strong total cost of ownership case. Original equipment manufacturers are also increasingly offering HEV options for these segments. However, alternative powertrains are expected to achieve only low shares in China's heavy duty market by 2020, as the focus remains on optimizing conventional diesel engines.

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Global trends and China situation The future of commercial vehicle powertrains China-U.S. Clean Truck and Bus Summit October 2012 Dr. Stephen W. Dyer Partner A.T. Kearney (Shanghai) Management Consulting Co., Ltd.
This document is exclusively intended for selected client employees. Distribution, quotations and duplications – even in the form of extracts – for third parties is only permitted upon prior written consent of A.T. Kearney. A.T. Kearney used the text and charts compiled in this report in a presentation; they do not represent a complete documentation of the presentation. A.T. Kearney xx/mm.yyyy/00000 2
Agenda • Global trends in clean commercial vehicles • China clean commercial vehicle situation A.T. Kearney xx/mm.yyyy/00000 3
Converging interests of multiple stakeholders are driving the development of the alternative energy automotive industry EV/HEV customer buying criteria and key influencing stakeholders and drivers Convenience Total Cost (%) represent “% of Ownership (9-11%) (15-35%) importance” for passenger car Functional Safety Customer Perform- buyers (11-13%) decision ance (17- 26%) Reliability Image (13-17%) (13-20%) Stakeholders Description / role Needs / motivation Key drivers • Governments have actively promoted • Energy security • Financial/non financial subsidies alternative powertrain, especially for • Environment protection (purchase, R&D, infrastructure) Government electric vehicles • Industry/ economic • State owned enterprises leadership • It includes energy companies and • Profit • Energy cost infrastructure operators (e.g. grid) • Sustainable business • Infrastructure availability Energy Providers • Driven by market opportunities and • Image/ political Government pressure, they are heavily investing in EV/HEV business Vehicle • It includes all companies operating on • Profit • Technology performance manufacturing the EV/HEV value chain: vehicle OEM • Sustainable business • Technology cost/ price players and all upstream suppliers • Image/ political • Production capacity Source: China Consumer Surveys; A.T. Kearney analysis A.T. Kearney xx/mm.yyyy/00000 4
Commercial vehicle buyers have a much more clear and rational focus on TCO than passenger car buyers Recent VOC case example Innovation opportunity scores for long- distance coach purchaser desired outcomes Desired outcome opportunity map Minimize f uel consumption 151151 Satisfaction (%) >150 121-150 Maximize usef ul lif e of brake system 141141 101-120 <100 100 Minimize labor and parts cost of repairs 138 138 Over-delivered 90 desired outcomes Maximize the predicability of component f ailure 132 132 (cost reduction Minimize cost of periodic maintenance 128 128 opportunities) 80 Minimize accoustic noise in vehicle interior 126 126 Maximize useful Minimize time f or f ault diagnostic and repairs 125 125 70 life of braking system Maximize accuracy of monitoring f uel / operating costs 125 125 Maximize f reshness of air in vehicle interior 123 123 60 Minimize necessity to replace complete assemblies 123 123 50 Minimize the unpleasant odor in new vehicles 122 122 Minimize fuel Maximize the accuracy of f uel consumption monitoring 122 122 40 Minimize labor and consumption parts cost of repairs Minimize vehicle skidding or loss of control 122 122 30 Minimize corrosion of vehicle chassis 120 120 Maximize the usef ul lif e of tires 120 120 20 Minimize the chance of A/C ducts leaking water out 119 119 Under- 10 satisfied Minimize time to evacuate vehicle during emergency 116 116 desired … outcomes 0 Maximize alignment of luggage compartment doors 75 75 0 10 20 30 40 50 60 70 80 90 100 Minimize chance of luggage compt. door handle f ailure 72 72 Importance (%) Source: quantitative survey results; A.T. Kearney A.T. Kearney xx/mm.yyyy/00000 5
A recent global A.T. Kearney study assessed the future of alternative powertrains for commercial vehicles Focus Study approach and results segments • Global study on the future of commercial LD MD HD vehicle powertrains • Conducted by A.T. Kearney Long-haul Approach • > 70 interviews with fleet customers, OEM, suppliers and associations • Supported by TCO calculations, third party data research, etc. MHD Distrib.2) HD Distrib. • Vehicle segments: Truck (LD, MD, HD), LD Truck Bus (LD, MD, HD) Construction • Technologies: Diesel, Gasoline, HEV, HHV, Truck Scope CNG • Regions: Europe, NAFTA, Japan, China MLD Distrib.3) • Timeframe: Today - 2020 Garbage • Forecast of global powertrain shares per vehicle segment in 2020 (scenario based) • Description of the related key drivers: Small Bus City Bus Coach Results customer demand (e.g. TCO, functionality, Bus image), OEM perspective, technology development and regulation 1) GVW: >15t 2) GVW: 9-15t 3) GVW: 6.4-8.9t 4) GVW: 2.7-6.3t Source:; A.T. Kearney A.T. Kearney xx/mm.yyyy/00000 6
We applied a scenario based-approach using customer and OEM strategies to model future powertrain developments Factors and scenarios impacting the 2020 powertrain landscape Boundary conditions Scenarios Perspective Parameter “Mod- How do macro parameters impact “Low” “High” erate” powertrain developments? Customer Tech- Regula Fuel Fuel price increase, e.g. Signif- nolog Limited Moderate -tion y prices • Crude oil price 2020 icant 70 140 [$/barrel] 210 OEM Component cost reduction, Aggre- e.g. Limited Moderate Customer OEM ssive • HEV Li-ion battery cell 26 18 9 needs strategies costs 2020 [$/kW] What do What do OEMs customers want? plan to offer? Technology OEM‟s drive to introduce • Total costs of • Technology Limited Moderate Strong alternative powertrains, e.g. ownership strategy • Avg. SOP HEV for HD 2018 2016 2014 • Functionality • Development Long-haul, Europe • Image status Regulation • SOP/ramp-up Maturity of new drivetrain planning technology, e.g. Low Moderate High • HEV battery lifetime 2020 4 6 8 [years] 1) 1. Example MD Upper Distribution profile 2. Only vehicle technology related reduction; additional targets might include biofuels, speed limitation, etc. Focus of this Source: A.T. Kearney A.T. Kearney xx/mm.yyyy/00000 presentation 7
Due to comparably high annual mileage with major urban driving share, City Bus HEV has a strong TCO case City Bus: Customer need TCO 2020 (Europe) Fleet customer‟s evaluation TCO p.a. [k €] TCO 90 • Clear TCO advantage of HEV for most usage profiles € 5,800 p.a. TCO advantage for HEV vs. Diesel Functionality 80 • Additional volume of alternative powertrains critical (could lead to passenger loss if top- load is not possible) 70 • Limited e-only driving capability (1-5 km) of HEV is beneficial 60 Average Image mileage • HEV is seen as the "greenest" of all available ~60% of all vehicles powertrains 50 40 45 50 55 60 65 70 Mileage p.a. [k km] Diesel CNG HEV ser. 1. 2020 HEV data: 210 kW e-engine, 14 kWh battery; avg. fuel saving cp. to Diesel: 23%; only powertrain related TCO considered Source: Fleet customer interviews,, A.T. Kearney A.T. Kearney xx/mm.yyyy/00000 8
Almost all OEMs globally show clear plans towards HEV City Bus – including China City Bus: OEM strategy HEV CNG • MB Citaro • MAN Lion‟s City • (Small) series • (Small) series • Orion VII • New Flyer C30LF • In series • In series • Hino Blue Ribbon • FUSO Aero Star • In series • (Small) series • Dongfeng EQ6122 • King Long CNG bus • (Small) series • (Small) series Expected portfolio penetration1): Expected portfolio penetration1): • Avg. SOP: 2012-2014 • Avg. SOP: in series City bus will be the segment with the overall highest HEV shares in 2020 1. Avg. OEM perspective based on current status and strategy (example Europe) Source: OEM interviews, third party publication research,, A.T. Kearney A.T. Kearney xx/mm.yyyy/00000 9
High urban driving share and comparably high annual mileage also leads to a winning HEV TCO case for MHD distribution MHD Distribution: Customer need TCO 2020 (Europe) Customer„s evaluation TCO p.a. [k €] TCO 38 • Solid TCO advantage of Hybrids for customers with average mileages (but lower 36 € 950 p.a. TCO advantage for than for HD Long-haul) Hybrids compared to Diesel 34 Functionality 32 • Limited weight impact of Hybrids due to downsizing of ICE (+80 kg); CNG weight 30 more critical (+350 kg) 28 • Limited e-only driving capability Average (1-5 km) of HEV is beneficial 26 mileage Image 24 ~60% of all vehicles • HEV is seen as the "greenest" of all available 22 powertrains 35 40 45 50 55 60 65 Mileage p.a. [k km] Diesel HEV / HHV CNG 1. 2020 HEV data: 60 kW e-engine, 72 kW battery; avg. fuel saving cp. to Diesel: 12%; only powertrain related TCO considered Source: Fleet customer interviews, A.T. Kearney A.T. Kearney xx/mm.yyyy/00000 10
MHD Distribution is currently the top focus focus segment for hybridization of powertrains MHD Distribution: OEM strategy HEV CNG Examples Example • Mercedes Atego HEV • International Durastar CNG • 5 vehicles in first trial; second • Prototype trial will be started end of 2010 Expected portfolio penetration1): • Avg. SOP: 2014-16 • Peterbilt Model 335 HEV • Early fleet testing HHV Example • Hino Ranger HEV • FCCC HHV Walk-in Van • In series Chassis (MT55) • Initial prototypes Expected portfolio penetration1): Expected portfolio penetration1): • Avg. SOP: 2014-2016 • Avg. SOP: 2015-2017 MHD Distribution will see the highest Hybrid shares of all truck segments in 2020 1) Avg. OEM perspective based on current status and strategy (example Europe); Source: OEM interviews, desk research, Bosch, A.T. Kearney A.T. Kearney xx/mm.yyyy/00000 11
In Europe, hybrids will likely capture share up to 22% in truck segments and up to 35% for buses Market summary Europe 2020: Powertrain shares Powertrain market shares [%] Key findings Heavy Duty Medium Duty Heavy Duty 15% 22% • Hybrids will find inroads into all HD segments 5% except construction • CNG will gain some share in HD niches 85% 73% • Garbage with highest HD Hybrid and CNG shares Medium Duty • MHD Distribution (9-15t) with higher Long-haul Upper MD alternative powertrain shares than MLD Light Duty Bus Distribution (6.4-9t) 15% 2% Light Duty 5% 35% • Broadest spectrum of powertrains 20% • Alternative powertrains mainly for customers 78% with high mileages and image driven 45% purchase decision Bus • City bus with significantly higher share of Van City bus alternative powertrains than coach EV Hybrids CNG Diesel Source: A.T. Kearney A.T. Kearney xx/mm.yyyy/00000 12
In NAFTA, Hybrids will gain shares up to 21% in truck segments and up to 35% for buses in 2020 Market summary NAFTA 2020: Powertrain shares Powertrain market shares [%] Key findings Heavy Duty Medium Duty Heavy Duty 15% 21% • Similar alternative powertrain shares as in 2% Europe • Higher annual mileages but less recuperation 85% 77% opportunities during long distance driving (more constant driving) and lower Diesel fuel costs Medium Duty Long-haul Upper MD • Slightly lower alternative powertrain shares Light Duty Bus than in Europe as low Diesel costs impact 2% Hybrid and CNG TCO negatively 16% 35% Light Duty 4% 43% 7% • Gasoline remains the dominating powertrain, however Diesel and other alternatives gain 58% share 35% Bus • Similar Hybrid share as in Europe Van City bus • CNG as niche application EV Hybrids CNG Gasoline Diesel Source: A.T. Kearney A.T. Kearney xx/mm.yyyy/00000 13
In China, Hybrids will gain share up to 8% in truck segments and up to 25% for buses by 2020 Market summary China 2020: Powertrain shares Powertrain market shares [%] Key findings Heavy Duty Medium Duty Heavy Duty 1% 8% 3% • Overall low share of alternative powertrains for HD as focus remains on optimizing conventional Diesel engines 99% 89% • Some CNG share for HD Distribution, Construction and Garbage Medium Duty • Increasing share of CNG applications and Long-haul Upper MD some first Hybrids Light Duty 100 Bus Light Duty 1% 8% 5% • Some Hybrid penetration in the LD segment 25% 20% supported by hybridization and full- 20% electrification trend in the passenger car segment 66% 55% Bus • Strong drive towards Hybrids and CNG for city buses to support inner-city emission reduction Van City bus EV Hybrids CNG Gasoline Diesel Source: A.T. Kearney A.T. Kearney xx/mm.yyyy/00000 14
Agenda • Global trends in clean commercial vehicles • China clean commercial vehicle situation A.T. Kearney xx/mm.yyyy/00000 15
The Chinese government desires to develop clean energy automotive to address industry development and energy issues China Government Objectives Develop the domestic automotive Industry (Increase global competitiveness) Stimulate clean Achieve energy security (increase energy automotive use of energy efficient technology and development and Protect the environment (decrease local renewable energy sources) usage “well-to-wheel” emissions) Source: A.T. Kearney A.T. Kearney xx/mm.yyyy/00000 16
Sales of city buses, the top commercial vehicle candidates for clean energy powertrains in China, will likely remain flat mainly due to subway expansion plans China‟s City Bus Ownership Projection (‟11-‟17F) Key Growth Drivers („000 units in operation) 1 +2.61% Metropolitan Public Transportation 431 442 Policy by the Chinese Government +2.61% 420 410 389 399  Beijing subway carries 650K citizens daily, 372 371 375 379 creating the infamous rush-hours nightmares 342 (e.g. 19lines in Beijing and 13 lines in Shanghai in „12)  The government has a plan to expand its subway line with additional 96 lines through 166B KRW investment1 2 Increase of Alternative Transportation Means in China Rural Areas  Fast growth in mini truck and SUV, driving capabilities in bumpy roads surfaces (CAGR 34% over the next 5 years)  The largest motorcycles market in global is still a good source of transportation (23.4M units in ‟11) ‟07 ‟08 ‟09 ‟10 ‟11 ‟12F ‟13F ‟14F ‟15F ‟16F ‟17F 1. 중국 교통운수협회 도시 지하철 교통 전문 위원회 책임자 인터뷰 Source: China Statistics Year Book, Media Search, JAMAM, A.T. Kearney Analysis A.T. Kearney xx/mm.yyyy/00000 17
HEV city buses will increase share in China in the medium term due to increasingly mature technology and TCO advantages China‟s City Bus xEV Penetration Projection (‟11-‟17F) (Unit: %) ICE and Others BEV HEV HEV City Bus Key Growth Drivers CAGR 1 Strong Commitment by 100 100 100 100 100 100 100 100 (‟12F-‟17F) Central/Local Government for Green City Bus Policy  xEV city bus penetration in top 10 cities ranges from 8% through 27% in ‟12 2 66 Immaturity of EV Ecosystem and -4.8% 77 Battery Technology 85 94 90 99 98 96  Neither of battery charging method provides an ultimate solution for BEV bus due to immature battery technology in China 7 49.9% 3 5 Clear TCO advantage for HEV Bus 3 28 58.3% 2 18 2 7 12  Competitive TCO perspective with payback 10 20 31 5 period for HEV buses will become popular as it does not require massive charging ‟10 ‟11 ‟12F ‟13F ‟14F ‟15F ‟16F ‟17F infrastructures Source: China Statistics Year Book, Media Search ,Dongxing Securities, . Kearney Analysis A.T. Kearney xx/mm.yyyy/00000 18
HEV models have TCO advantages and equivalent payback periods for bus fleet operators with government incentives HEV TCO Perspective (‟12) Payback Period (‟12)6 (Unit: „000 RMB) (Unit: years) HEV HEV Add‟l HEV : With Incentive Premium4 Maint4. Energy 9.32 Total Cost : Without Incentive Maint3. Saving5 2,135 64 16 30 Total 627 -25%TCO Energy Saving Cost2 5.48 1,602 5.84 1,569 2.30 Net 3.84 Purchase 3.18 Cost1 3.01 550 ICE HEV ICE HEV BEV 8-year TCO 8-year TCO 1. Net purchase cost includes no purchase tax due to city bus exempt from tax, 2. Total energy cost is calculated based on assumption a 8-year lifetime with 240Km daily driving range that is applied 0.3L/Km with 7.46RMB per liter 3. Total maintenance cost is based on an industry expert and media search 4. HEV Premium is a difference that exceeds ICE purchase costs and HEV requires additional maintenance given the current technology maturity 5. //// 6. Payback period is calculated based on assumptions that a city bus carries 500 passenger per day with 1RMB fare under 365 operation days per year Source: Department of Commerce of China, Media Search, ATK Project IC, Industry Expert Interview, A.T. Kearney Analysis A.T. Kearney xx/mm.yyyy/00000 19
China xEV bus market has evolved through the government- driven public project with local OEMs Major City xEV Bus Market Penetration China Total City China Major City xEV Bus Market (July ‟12) Bus Ownership 25,368 389,043 :Penetration 17,131 11,952 24,098 9,170 300,429 16,720 7,241 (77%) 9,949 6,012 5,000 8,720 3,620 3,120 6,726 5,177 4,535 2,647 2,003 2,795 325 1,270 411 450 515 835 465 973 88,614 Beijing Shanghai Shenzhen Guangzhou Wuhan Hangzhou Zhengzhou Changsha Xiamen (23%) 5.0% 2.4% 16.8% 4.9% 7.1% 13.9% 9.3% 26.9% 10.4% Bus OEM-based in 10 cities – 1,000 units Pilot Project 14% 18% Major 10 cities 12% account for 23% 5% 4% 5% 7% of total bus ownership BAIC Sunwin Wuzhoulong GAIC DFM … Yutong … King-Long The “10 city – 1,000 units project” was a pilot project developed through local relationship, leaving closed sourcing system in China bus market 1. There are 65 bus company operating in Shanghai city in „12 Source: China Statistics Year Book, Media Search, A.T. Kearney Analysis A.T. Kearney xx/mm.yyyy/00000 20
Governments tend to source locally to support local OEMs and drive GDP growth by developing new energy auto industries Local sourcing status for top public xEV vehicle fleets Major cities‟ xEV bus Parc1 & proportion Major cities‟ xEV taxi Parc1 & proportion of local sourcing of local sourcing Proportion Proportion (Units, %) (Units, %) sourced locally2 sourced locally2 Shenzhen 2,003 100% Shenzhen 800 100% Beijing 1,270 97% Beijing 450 100% Changsha 973 Hangzhou 200 93% 100% Xinxiang 100 100% Hangzhou 835 1%3 Shenyang 50 100% Wuhan 515 100% Haikou 27 100% Zhengzhou 465 99% Chengdu 20 100% Guangzhou 450 100% Yinchuan 0% 20 Shanghai 411 100% Zibo 20 100% Xiamen 325 100% Baoji 10 100% 1. Calculated by the number of xEV models in operation as of July, 2012 2. Manufactured locally, or from OEMs with local facilities manufacturing other models 3. Major supplier King-Long has >50% market share in ICE buses in Hangzhou Source: D1EV, A.T. Kearney Analysis A.T. Kearney xx/mm.yyyy/00000 21
But, there exists a slight push to shift to from closed local sourcing to more open sourcing China xEV Bus Sourcing Change Key Issues Faced by Changes in China xEV Bus Market Government Stance Implications In Favor of Component HEV Integration Issue  Chinese OEMs have Designation need to work with  The current local designation of  Local protection superior battery critical components have not ― Through such practice, the contributed to local bus OEM‟s governments can effectively protect suppliers technological improvement, instead the market for their local companies  The global players to causing HEV integration issues and enhance local GDP address many issues  An integration of engine controlling, and possess transmission/E-motor controllers, competitive BMS, and power management system into one HEV single system advantages: is defined as state of arts ―Enhanced vehicle performance Public Safety Issue Open Sourcing Policy ―Reduced security risks  Chinese xEV buses have  Ministry of Industry and Information precedent cases of safety Technology & Ministry of Public ―Increased service incidents: Security have issued banning life –A BEV bus of Shanghai caught orders on changing core parts of on fire in 2011 buses on Sept.,2010 – An HEV bus of Urumqi caught on fire while parking in 2010 Source: Media Search, A. T. Kearney Analysis A.T. Kearney xx/mm.yyyy/00000 22
China will clearly follow or lead global trends toward clean commercial vehicle usage, especially for city buses Consistent trend toward clean Clear and rational commercial vehicles focus on minimal Current local TCO by commercial sourcing trend may vehicle buyers open up in future City buses and HEV bus MHD distribution applications in truck applications China will grow have strongest China will Strong China share quickly TCO case experience government similar clean support for vehicle share by clean energy 2020 vehicles will continue Source: A.T. Kearney A.T. Kearney xx/mm.yyyy/00000 23
A.T. Kearney is a global team of forward-thinking, collaborative partners that delivers immediate, meaningful results and long-term transformative advantage to clients. Since 1926, we have been trusted advisors on CEO-agenda issues to the world‟s leading organizations across all major industries and sectors. A.T. Kearney‟s offices are located in major business centers in 39 countries. Americas Atlanta Chicago Detroit Mexico City San Francisco Toronto Calgary Dallas Houston New York São Paulo Washington, D.C. Asia Pacific Bangkok Hong Kong Kuala Lumpur Mumbai Seoul Singapore Tokyo Beijing Jakarta Melbourne New Delhi Shanghai Sydney Europe Amsterdam Budapest Helsinki Ljubljana Moscow Prague Vienna Berlin Copenhagen Istanbul London Munich Rome Warsaw Brussels Düsseldorf Kiev Madrid Oslo Stockholm Zurich Bucharest Frankfurt Lisbon Milan Paris Stuttgart Middle East Abu Dhabi Johannesburg Riyadh and Africa Dubai Manama A.T. Kearney xx/mm.yyyy/00000 24