Alastair has over 10 years’ experience leading research activities in scaled, high-growth industrial and technology markets. At Interact Analysis he is responsible for electric trucks and buses, autonomous trucks and off-highway electrification.
Recent news from both Daimler and Volvo revealed that they are to put considerable focus on commercial vehicle electrification. As two of the largest manufacturers of commercial vehicles, this is a strong signal that the market will shift towards electrification to meet more stringent emission regulations and the requirements of low and zero emission zones. However, will Daimler, Volvo and others be able to compete with bullish Chinese vendors in the long term?
The growth of China’s new energy vehicle (NEV) market has been well documented. With strong support from the Chinese government, many local manufacturers have grown into multi-billion-dollar enterprises from sales of electric vehicles to the domestic market. In 2017, close to 100,000 electric buses were sold in China.
Many of these Chinese brands are actively looking to export their expertise in electric commercial vehicles overseas. Undoubtedly, they will face challenges – perceptions about quality, brand equity, underdeveloped service networks, autonomy, etc. – but with a growing appetite for electric trucks, bus and off-highway vehicles there is an irresistible opportunity.
Before assessing how Chinese brands can address these challenges, it useful to review what some of the brands are already doing in the electrification market:
Chinese Brands Expand
BYD is perhaps, the most well-known Chinese electric vehicle manufacturer. To date, it has primarily been active in the electric passenger car and bus markets. However, in recent years it has expanded its product line to include electric vans and refuse trucks, and it has also opened production facilities in the US with further facilities planned in Canada, France, Morocco and Ecuador.
With total shipments of its electric buses exceeding 35,000 units, it has the know-how and growing global manufacturing footprint to be able to dominate markets quickly in pursuit of growth. BYD is also pursuing what it calls its “4+7” strategy which involves seven conventional vehicle types (private vehicles, battery electric taxis, battery electric buses, battery electric coaches, logistics vehicles and waste management vehicles) and four specialised vehicle types (warehouses, ports, airports and mining operations). BYD has the potential to be major on- and off-highway electric vehicle supplier if it can continue to expand both its product offering and global footprint.
FDG Electric Vehicles
Relatively unknown to a global audience, FDG is the parent company of US-based Chanje. The ‘Chanje’ brand draws more attention, particularly with the recent announcement that it will supply 500 electric vans to truck leasing firm, Ryder. However, FDG has recently announced three substantial orders in China totalling over 10,000 units:
- January 2018 – 228 units of electric buses and vans for operation in Sichuan.
- April 2018 – agreement with ZXL to purchase 6000 e-GLORY commercial vehicles before 2021, including 1200 to be delivered in 2018.
- April 2018 – agreement with Shanghai Yidong to purchase 4500 e-GLORY commercial vehicles before 2021, including 1000 to be delivered in 2018
Shandong Heavy Industry Group
A large Chinese conglomerate, Shandong is the parent company or joint-venture partner for a number of Chinese and global on- and off-highway brands, including Weichai, Shaanxi, Kion and Asiastar. Although there is no dedicated, cross-group focus on electrification, many of its brands already offer electrified products, including buses, trucks concrete mixers and forklift trucks. Weichai has recently signed agreements with both Bosch and Ceres Power to develop hydrogen fuel cell technology for use within its vehicles. Because of its size and multiple standalone segments, Shandong would benefit, if one does not exist, from a central division/team that can bring a single, coherent electrification strategy to market. If it can do this, it potentially represents a serious threat to the global on- and off-highway market given its size and breadth of offering.
Dongfeng is one of the largest Chinese manufacturers of cars and commercial vehicles. Its corporate structure is somewhat convoluted – with many joint ventures and subsidiaries – but it is active in electric commercial vehicles through its truck brands and now, notably, its joint venture with Volvo (Dongfeng Commercial Vehicles) may become a focus for electrification. It is also exposed to off-highway equipment in China through its engine joint-venture with Cummins. Its special vehicle subsidiary supplied 500 vehicles for a hydrogen fuel cell project in Shanghai, although the actual integration was done by Shanghai Re-Fire Technology and the fuel cells were supplied by Ballard.
Electrifying the world
Success in the domestic Chinese market does not always equate to success in the global market. Chinese manufacturers face a number of challenges in pursuing global electric on- and off-highway markets.
The current tit-for-tat trade war with the US could be a headwind for Chinese manufacturers looking to build sales in the US. BYD, Shandong and Sany already have US production and/or R&D facilities and Chanje is planning local US production. It’s too early to make a pronouncement on an unpredictable situation; however, the US represents a key strategic market for truck and bus OEMs, so it would be more likely than not that Chinese OEMs would adopt a long-term strategy for the US and pursue opportunities regardless of the current trade situation.
A criticism that is often levelled at Chinese OEMs focuses on product quality. How can brands that have been in existence for a relatively short period of time offer reliable vehicles, particularly for demanding applications like trucks and buses? In reality, there is little reliability data to hand that paints an accurate picture of medium and heavy commercial vehicles and the difference in reliability between US, European and Japanese brands and their Chinese counterparts. Chinese truck and bus OEMs have invested billions in modern production facilities and techniques and are often sourcing the same Tier 1 components as their international competitors. If there is a difference, it is likely closing quickly, particularly as Chinese truck and bus OEMs get more vehicles on international roads and feedback design issues into new platforms.
Chinese truck and bus brands are not, on the whole, well known to international audiences. This may hinder growth in the short term as fleet operators, particularly smaller ones, may not recognise a brand and feel uncomfortable working with an unknown party. However, attempts to increase global brand awareness – such as BYD sponsoring London’s Arsenal football club are likely to continue. Other Chinese brands may look to this tactic in other markets to start to gain visibility with fleet operators.
Underdeveloped service networks
The provision of service is likely the greatest challenge for Chinese truck and bus OEMs when operating internationally – even greater than winning business in first place. Providing local service and parts and helping fleets to maintain maximum operational time (and profit) will be key to winning long-term, repeatable business. Sany, for example, already has a well-developed global service network for its construction equipment. For other Chinese vendors, they will need to give careful consideration to who they want to partner with and where best to invest in building up service capability.