Entering a new era where new technologies are increasingly impacting Original Equipment Manufacturers’ product and investment strategies, a balance between priorities of keeping the incumbent business profitable and laying the foundation for new opportunities like alternative powertrains or autonomous driving is being seeked. A moderate volume growth (CAGR of less than one percent until 2030 is expected amidst such a scenario. With revenues and profits expected to grow at a CAGR of more than two percent, the overall OEM profits could increase by Euro 4.9 billion to about Euro 16.1 billion by 2030. This would result in the industry registering a rise in profit from 6.6 percent in 2017 to 6.7 percent in 2030.
While the fundamental positive impact of economic growth across the globe will result in rising volume demand for trucks until 2030, other market-related revenues and profit drivers (mainly price pressure and regulatory measures) will cause a significant negative impact. This will require OEMs to increasingly focus on operational efficiency. Of help will be the new technologies like advanced analytics and internal digitisation. New opportunities like alternative powertrains, autonomous driving, and connectivity and solutions could hold good potentials to add to the profit pool. If the prospect of regulatory changes in China is leading to pre-buying, leading to a steep rise of about 80 percent between 2015 and 2017, revenues and profits for the global truck industry have been growing significantly.
The growth of revenues and profits could be also attributed to the rising share of an aftersales business, value-added technologies and services, and the overproportionate growth of high-margin segments. The increase of the total revenue and profits until 2030 (Euro 71.7 billion and Euro 4.9 billion respectively) will be the aggregate of several trends across three industry categories – market developments, operational efficiency, and opportunities from new business models and solutions. Market developments (including structural shifts) such as the competitive business environment, industry consolidation, higher emission standards, and EV cannibalisation (the replacement of diesel trucks by battery electric vehicle) are expected to negatively impact the global truck industry by a margin of Euro 3.9 billion. Combined with a positive impact of Euro 3.2 billion from structural shifts (volume increases), market developments will have a negative impact on the global profit pool in 2030 by Euro 0.7 billion. This indicates that OEMs cannot rely on the market to ensure higher profitability. They would be required instead, to focus on the areas of action like operational efficiency among others.
Operational efficiency will remain a key focus area of action to increase profits. While cost programs have been a core element of the industry for a long time, new technologies (from digitisation, automation, and AI) will provide the potential for cost optimisation along the entire value chain. They will, apart from influencing operational efficiency and leading to new opportunities, will represent a second major source of profit growth for OEMs through new investments and product launches. The overall profit potential will arise in equal parts from the three major trends, namely alternative powertrains, autonomous vehicles, connectivity, and solutions.
Alternative powertrains will significantly impact profits in the conventional business. The impact of e-truck distribution will result in a profit pool reduction of Euro 0.9 billion within classical Internal Combustion Engine (ICE) powertrains.
On the other side, a profit hike of Euro 0.9 billion through alternative powertrain penetration will correspond to this loss one to one. Add to this the fact, that the additional Euro 0.9 billion profit from alternative powertrains would carry with it the risk of pitting OEMs against new entrants like suppliers for battery technology, and the influence of emission regulations on the global CV industry will be apparent at once.
Emission regulations pertaining to NOx and particulate matter levels, especially in emerging markets coupled with the fuel efficiency requirements (CO2), will largely influence revenue and profit. OEMs and suppliers will find it difficult to pass the additional cost for emission compliance on to customers. It will, in the process, negatively impact the global profit pool of Euro 1.6 billion. US and Japan may have been the frontrunners in terms of ambitious carbon-reduction regulations until now, the fact is, regulations have gotten stricter every other region. That puts all OEMs on a trajectory of adopting the tightest restrictions by 2025.
Many regions have already signed on to the Euro6 regulatory framework, which limits NOx emissions to 0.4 grams per kilowatt-hour. With the widespread adoption of the newest, most ambitious regulations globally, OEMs are set to benefit from economies of scale. With CO2 regulation tightening, the EU regulation is also demanding a reduction of HDT CO2 emission of 30 percent by 2030. With measures to reduce emissions from conventional powertrains decreasing their efficiency and increasing costs, it looks tough for combustion engines to achieve ambitious targets. Regulations are likely to have a technology-forcing effect on alternative powertrains.
Although diesel will remain the ‘volume and profit engine’ for the foreseeable future, diesel efficiency optimisation is becoming increasingly challenging. Alternative powertrains (batteryelectric, hydrogen/fuel cell, CNG/LNG, synthetic fuels, biofuels) are likely to gain importance when it comes to achieving emission goals and reducing the logistics sector’s CO2 footprint.
Complete replacement of diesel by a single technology looks difficult in the foreseeable future as all the alternatives have their share of disadvantages. EVs are likely to be superior in distribution and city-centric use cases. Enjoying the best momentum (major OEMs and start-ups have announced more than 40 different product since 2015), their application triggers significant strategic implications in the case of aftersales and ecosystem partnerships.
Hydrogen is expected to be a strong contender in heavy-duty transport, and in segments that would require long-range and high utilisation. Technically, it provides the most suitable solution. Its higher energy density implies longer range, lower weight, and 10 to 15 times faster refueling than pure battery electric vehicles. It also plays a role in broader energy transition for the integration of renewables and decarbonisation of heating. Key barriers to adopt hydrogen are the required scale-up and industrialisation (of electrolysers and fuel cell stacks). There’s the challenge of establishing the refueling infrastructure and bringing models to market. In the case of CNG and LNG, prices fundamentally depend on underlying raw material prices. The two fuels are thus exposed to market cyclicity as diesel. Large-scale deployment of CNG and LNG would require significant infrastructural investments, and can only be regarded as a bridge technology.
Synthetic diesel (e-diesel)
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