ESTABLISHED MARKETS
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China has both the technical capacity – through joint ventures and R&D – and the production capacity necessary to launch hard at the established markets of Europe and North America. It also has, by our analysis, a couple of other strong items in its favour. The Chinese government has made it clear that domestic growth is not enough: according to the Chinese Ministry of Commerce, the automotive sector is expected to post annual growth of between 15% and 20% in terms of automotive exports from China in 2012-2015.
During the five years from 2015 to 2020, the Department of Commerce expects Chinese automotive exports to reach 10% of the global total. Given that the Chinese domestic auto market has been falling this year – although 6.5% growth seen in March can hardly be described as shabby – there can be little doubt that inflationary pressures may cause domestic consumers to reign-in their spending, and so the export impetus may expand.
A second issue confronting the Chinese truck industry is its rail industry. Investment in Chinese rail infrastructure remains a priority. This year alone, China will spend yuan700bn ($106bn) in railways construction as it works toward its goal of having 13,000km of high-speed rail in place by the year-end.
For much of China, currently unserved by a rail network, this development will offer an alternative to road freight. For the suppliers of that road freight – truck operators and manufacturers – this is a threat, and a second reason OEMs need to look overseas for business.
China isn’t new to exporting trucks and has been doing so in some numbers: Sinotruk has scored some notable successes in Latin America, Beiqi Foton recently announced the development of an Indian sales network, and offers its Aumark product to emerged markets such as Australia.
But Europe and North America remain significant potential markets that remain as yet untapped. But for how long? Possibly for not so long. We are just beginning to hear the start of the Euro-6 debate, with both Scania and Daimler keen to argue that no fuel penalty will be incurred between Euro-5 and Euro-6. This is, given the North American experience, a difficult conclusion to arrive at and one that many would feel is erroneous. That aside, Euro-5 products will prove popular in the lead up to 2014.
From the perspective of production planning, this is the stuff of nightmares, and demand for Euro-5 is expected to far outstrip supply. Parking to one side the assertion that Euro-6 will be MPG neutral, and taking instead the real world experience in North America that argues instead for a 3% fuel consumption penalty, we can see good reason for truck operators to run Euro-5 product for as long as possible.
Traditionally, the argument that is trotted out frequently against a European market entry by an emergent OEM is that of network support. But, let us say that the same network support could come instead from a large fleet user. Think of any of the top 10 European truck fleets and each would be capable of providing its own infrastructure support, especially if the price and the euro rating were right. It wouldn’t be the first time: Chinese OEM Shaanxi launched in South Africa via Super Group Industrial Products. The first customer was Super Group, one of South Africa’s largest logistics providers, proving it can be done.
Will it be done? Probably: much depends on cost and availability of Euro-5 in the lead in to Euro-6. Truck buyers, we suspect, will have little appetite for Euro-6. Euro-5 will be the obvious choice to make and, as the clock ticks down to 1 January 2014, so the buyers’ market becomes more so.
It is a huge opportunity for the Chinese and one they will probably grasp with both hands.