Global Low Cost Truck MarketOpportunities Concealed Under Cloak of Threats

Sandeep Kar- Global Program Manager

Global Commercial Vehicle Research

Sandeep Kar- Global Program Manager

Global Commercial Vehicle Research

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 BENEFITS Market Presence, Market Access, Supply Network Enhancement, Local Market Defense, Sales Growth

TRADE OFFS Quality, Reliability, Image, Margin, Strategy DilutionTRADE OFFS Quality, Reliability, Image, Margin, Strategy Dilution

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

TruckPrice

IncreasesChangesIn Fleet

Demographics

RisingFleet

Consolidations

Duty Cycle andOperating Expense Economic

Considerations

Changes in Foreign Brand

Perceptions

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

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

2912121717

1212

1010

Source: Frost & Sullivan

77

TATA PrimaTATA Prima

MN 25/40MN 25/40

U-TruckU-TruckSinotruk HowoSinotruk Howo

AsiaMotorWorksAsiaMotorWorks

Daimler Brand X HDDaimler Brand X HD

IVECO LC HCVIVECO LC HCVMAN ForceMAN Force

Sinotruk HuangHeSinotruk HuangHe

Hyundai HDHyundai HDDongFeng DFLDongFeng DFL

GAZ-FAW HDGAZ-FAW HD

Volvo-Eicher VEVolvo-Eicher VE

DongFeng DuoDongFeng Duo

IVECO’s Chinese Platform Based MDIVECO’s Chinese Platform Based MD

Daimler Brand X MDDaimler Brand X MD

GAZ 3309cGAZ 3309c

Renault KangooRenault Kangoo

TATA AceTATA Ace

GAZ GazelleGAZ Gazelle

JAC HaoYunJAC HaoYun

2012

Fuso FG LCTFuso FG LCT

Ford Transit Connect-GlobalFord Transit Connect-Global

ISUZU FTRISUZU FTR

Foton LD GlobalFoton LD Global

Kamaz LCT HDKamaz LCT HD

VolvoDongFeng LCT HDVolvoDongFeng LCT HD

Hyundai Porter-GlobalHyundai Porter-Global

Foton MD15Foton MD15

Mahindra LCT- Global TR PlatformMahindra LCT- Global TR Platform

Navistar JAC LDNavistar JAC LD

Low-cost Truck Market: Expected Vehicle Model Timeline (World), 2009-2016

Do you have a plan or platform?Do you have a plan or platform?

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

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 IIIEuro II/III

BS II/BS IIIEuro 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

Category

Parameter

~ 6-8%Estimated OEM Margin ~ 5-7% ~ 8-9% ~ > 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

OEM / Brand Name

Engine Transmission Wheelbase GVWRRated Payload

Retail Price

Priceper ton

Growth Potential Rating

TATA PRIMA

Cummins ISBE270, 270 hp

9 Speed Manual4000mm ~ 5000mm

40 ton 25 ton $48,383 $1,209 4.0

Mahindra Navistar MN25

MAXXFORCE 7.2L TCIC, BS III , 210 hp

6 Speed Manual4250 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 hp10 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 Manual3300 mm ~ 4650mm

25 ton 15 ton$40,000~$45,000

$1,800 3.5

“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

“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

“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

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: TandemBogie 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 compHeadlamp 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)

Major OEM Brand Alliances Worldwide Set to Expedite Development and Marketing of Low-Cost Trucks Globally

Region OEM Global PartnersLow-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 AmericaNavistar Mahindra, Caterpillar,

JAC, Otokar

PACCAR DAF

AsiaTATA Daewoo

Nissan DongFeng, AshokLeyland

S

T

R

E

N

G

T

H

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.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

1,061,4651,413,642

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

1,413,642

487,274

322,528 197,247

616,947

129,728 32,205

1,790,721

3,199,571

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

2009 China India Japan S. Korea E.U. N.A. Brazil 2016

Pro

du

cti

on

Un

its

HCV MCV LCV

81%

51%

22%

83% 75% 79%

39%

9%

13%

20%

17%11% 8%

35%

10%

36%58%

0%15% 13%

26%

0%

20%

40%

60%

80%

100%

China India Japan S. Korea E.U. N.A. Brazil

2016 Production by Geographic Location

2016 Production by CV Category

Global Low-Cost Truck Market to Grow at CAGR of 8.6% Amounting to Production of 3.2 Million Trucks by 2016

Aggressive Cost Reduction Strategies Implemented by Low-Cost Truck Manufacturers Delivering 19-29 Percent Reduction in Cost Savings

0

2

4

6

8

10

Powertrain Chassis Comfort and Convenience

Safety Electronics Marketing and Sales

Margins Others

Pe

rce

nta

ge

Co

st

Sa

vin

g/

To

tal

Ve

hic

le C

os

t

• Lower axle ratios • Lower priced chassis

construction materials, • Basic brake, steering and

suspension technologies

• Downsizing of engine with/without turbocharger• New Materials• Basic aftertreatment • Low-speed manual

transmission

• Optional A/C• Limited infotainment• Analog displays/integrated

cluster• Integrated headrest• No central locking/power

window

• All safety features except regulated systems optional

• Low-channel ABS, Sensor fusion

• Basic networking architecture

• Low-cost multiplexing

• Minimum to no discounts

• Lesser warranty protection

• Distribution through existing dealership networks

• Advertisement cost/budget reduction

• Design changes (narrow cabins, cheaper materials, manufacturing design etc.)

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

“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

Key Focal Points and Best Practices of Leading Low-cost OEMs and Suppliers

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

Core

Focal

Points

Core

Focal

Points

Auxiliary

Focal

Points

Auxiliary

Focal

Points

Low High1 2 3

Low High1 2 3

Low High1 2 3

Low High1 2 3

Low High1 2 3

Low High1 2 3

Low High1 2 3

Low High1 2 3

Low High1 2 3

Low High1 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

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

• 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

Power train

Chassis and Comfort*

Safety ElectronicsOthers

Gross Margin

Excise Duty

LogisticsMarketing

WarrantyDealer 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 PriceUS $4,890

Source: Frost & Sullivan

*The chassis and cabin shell are one single unit

• 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.

• Ace Elektro is powered by asynchronous motor which produces 30KW of peak power and a maximum speed of 120 km / hr.

• 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

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

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

Highest Ranking Benefits of Powertrain Technologies(N=101)

29%

19%

12% 11%7% 6% 6%

4% 3% 3%1%

12%

18%

7%

15%17%

6% 7%5% 4% 3% 4% 3%

13%

7%

14%

6%

20%

9%

4% 4%8%

3%

9%

4%

53%

44%

33% 32%

44%

21%17%

13%15%

9%

14%

7%

0%

20%

40%

60%

Re

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#1 Rankings #2 Rankings #3 Rankings Total of Top Three Rankings

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 TonWheelbase: 3500 to 4500mm

$65-70K is the base minimum necessary to

create a baseline platform that features globally harmonized

technologies/systems .

Market Attractiveness- North America: Market Offering Openings to Low-cost HCVs

Reasons for Entry

Barriers to Entry

Product Positioning

Target PriceRecommendation

• Wide open price gaps in LCV, MCV and HCV segments. • Need for powertrain downsizing and lower HP engines. • Recessionary environment.

• Stringent emission and safety regulations• Strong position of local OEMs • Need for unique designs in MCV and HCV segment• Entry in HCV segment limited to intra-urban and intra-regional segments (day cabs, short-cabs, etc.)

•$16-20K for LCV•$32-40K for MCV •$70-85K for HCV

Steep regulatory barriers

•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 transmission.

•HCVs with 16-25 Ton GVWR, roughly 250-300 HP 8+ Liter 9 speed transmission (non long-haul type applications)

OEMOEM

SupplierSupplier

What Now?What Now?

Conclusions and Recommendations

• Unique Approach

• Strategic Partnerships/Alliances

• Create New Brands

• Diversify Supply Base

• Low-cost Production Location/ Localization of Content

• Design to cost/ Decontent

• Unique Approach

• Strategic Partnerships/Alliances

• Create New Brands

• Diversify Supply Base

• Low-cost Production Location/ Localization of Content

• Design to cost/ Decontent

• Virtual Integration

• Innovative Supply Dynamics

• Strategic Relationships

• Diversify Manufacturing Base

• Outsource

• Local Sourcing

• Aftermarket Opportunities

• Virtual Integration

• Innovative Supply Dynamics

• Strategic Relationships

• Diversify Manufacturing Base

• Outsource

• Local Sourcing

• Aftermarket Opportunities

• Old Threat, New Opportunity

• Asian OEMs Hold Strategic Advantage

• Guard Local Market, Attack Global Markets

• Short-Term Pain, Long-term Gain

• Innovation Will Pay Dividends

• Old Threat, New Opportunity

• Asian OEMs Hold Strategic Advantage

• Guard Local Market, Attack Global Markets

• Short-Term Pain, Long-term Gain

• Innovation Will Pay Dividends