CNH Industrial is separating its On-Highway (commercial vehicles and powertrain) and Off-Highway (agriculture, construction and specialty vehicles) segments into two listed entities, as part of its new five-year 2020-2024 business plan, “Transform 2 Win.” CEO Hubertus M. Mühlhäuser and other CNH executive leaders made the announcement Sept. 3 at its Capital Markets Day event at the New York Stock Exchange (NYSE).
The spin-off of its On-Highway assets—Iveco, Iveco Bus and Heuliez Bus commercial-vehicle brands and the FPT Industrial powertrain business—is expected to be completed in early 2021. According to Mühlhäuser, the move results from an extensive portfolio review that revealed the two businesses have diverging regulatory and customer requirements and are impacted differently by four accelerating industry megatrends: digitalization, automation, alternative propulsion and servitization.
Targeting specifically the alt-propulsion megatrend, CNH Industrial also announced that it’s taking a $250 million strategic stake in Nikola as the lead Series D investor. The investment comprises $100 million cash and $150 million in services such as product development, manufacturing engineering, and other technical assistance, as well as supplying key components to accelerate the production timeline of the Nikola Two and Tre. The start-up also plans to leverage Iveco’s European sales, service and warranty channels to accelerate access to the European market.
In return, Nikola will contribute technologies for a European joint venture with CNH Industrial that will include fuel-cell expertise, e-axles, inverters, independent suspension, onboard hydrogen fuel storage, over-the-air software update functionality, infotainment, vehicle controls, vehicle-to-station communication protocols, power electronics, and access to a hydrogen fueling network.
Mühlhäuser elaborated on these strategic developments and more in his presentation and during Q&A sessions with investors and media, including TOHE, at the NYSE.
On the lack of synergies between on- and off-highway:
Looking at the portfolio composition with a strategic lens, we concluded that while all megatrends are impacting our segments, their impact is different for the On- and Off-Highway businesses…From a synergy perspective, this review was very enlightening once we understood the strategic investment plans of the different segments. We saw low investment synergies in automation, digitalization and servitization, while only alternative propulsion struck us as the major synergistic area between On- and Off-Highway.
On the operational and commercial synergies, we found limited to no synergies on the distribution, engineering and manufacturing side, though there are obviously synergies on the procurement and administration sides.
When we then looked at those synergies within the On- and Off-Highway segments, we saw that there was an overwhelming synergistic potential between Agriculture and Construction equipment as well as between Commercial Vehicles and Powertrain, given that the relative cost share of the engines is higher in trucks than in off-highway equipment. Also, on-highway is typically leading with emission regulation changes, making it critical to our CV business. [FPT Industrial will remain a key supplier to the Off-Highway business through a long-term supply agreement, he added later.]
On the CV business and Nikola partnership:
Our commercial vehicles segment will become the global leader in sustainable transportation. The key priorities enabling that thrust will be repositioning of our heavy-duty truck line [by focusing on service quality and connectivity to accelerate growth], extending our leadership in alternative propulsion by aggressively expanding LNG (liquefied natural gas), entering into the fuel-cell segment, and realizing global growth through partnerships…A strategic partnership with Nikola will leapfrog our CV segment and position Iveco as a true disruptor in the trucking industry and will also open up the U.S. market where Iveco so far has not been present.
Plus, there also is more synergy between Nikola and our Off-Highway business to be gained. That battery power pack and fuel-cell stack that they have can of course go into off-highway and defense applications as well. We’re really excited about that opportunity.
On its agriculture segment and focus on precision farming:
In agriculture, our strategic thrust and ambition is to become the leader in sustainable agricultural solutions. The key priorities that will support this goal are our doubling down on precision farming solutions, the better positioning of our differentiated brands (Case IH, New Holland and Steyr), and the provision of superior product performance and quality…The acquisition of AgDNA [also announced on its Capital Markets Day], a leader in Farm Management Information Systems, is another stepping stone in our digital farming strategy, which is part of our overall investment of US $5.6 billion into the Ag segment.
On simplifying its product portfolio and dealer and manufacturing networks:
The company and all its business segments have fully embraced the 80/20 simplification methodology that we started to roll out in late 2018. [Full implementation is expected by the end of 2022.] The methodology addresses customer—i.e., dealer—as well as product line simplification. We will consolidate our dealer network by 10%, creating one that is stronger and more viable. Simultaneously we will simplify our product lines and reduce complexity by reducing SKUs by more than 50%. [For example, in the Construction segment for North America, the company plans to discontinue 44 model variants, out of 172 total, by 2022.] We also need to address our manufacturing network. We will rationalize our global operational footprint by 1.2 million m2 (nearly 13 million ft2) over the next five years.