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Sales of new-energy vehicles matched total 2013 levels in just the first eight months of 2014, Yutong's Cao Jianwei said.

Clean energy, services on tap for China’s commercial-vehicle manufacturers

China’s commercial-vehicles industry is poised for a transformation as suppliers focus on services and clean energy. These changes are occurring as the country attempts to reduce pollution and congestion in cities.

Executives at the recent Global Automotive Forum in Wuhan, China, said that China’s focus on reducing its legendary pollution could make the country a front-runner in the green-energy field. Commercial vehicles were a central aspect in discussions of the conference theme: Vision for the Transformation of China’s Automotive Industry.

“Chinese bus suppliers have the largest market in the world,” said Michael Lembke, General Manager at Dongfeng Dana Axle Co. “They can become leaders in the transition to clean energy. To do that, they need to work on new business models—to go from supplying parts to supplying services.”

Many speakers said the commercial-vehicles industry may become a leader in China’s attempt to reduce pollution. New energy technologies including electrified powertrains are a central element in the push to transform China’s transportation industry.

“In 2013, new-energy vehicle sales were around 3000 units,” said Cao Jianwei, Assistant to the President at Yutong, a bus and construction vehicle manufacturer. “In the first eight months of this year, we sold over 3000 units.”

The other half of the transformation process is to alter the mind-set behind buying and selling vehicles. Executives are trying to move away from competition based mainly on price. Instead, vehicle manufacturers are focusing on lifetime costs.

“We’re starting to focus on the whole life cycle, including fuel consumption, which is 40% of the cost of a vehicle over its lifetime,” said Huang Gang, President of Dongfeng Commercial Vehicle Co. “If we compete with low prices, it won’t be good long term for customers.”

That change won’t be limited to energy costs. Andreas Schmitz, CEO of Schmitz Cargobull Trailer Co., noted that trailers can be built using techniques that reduce life-cycle costs. However, he noted, it may take a while before buyers realize the benefits of paying a bit more to reduce lifetime costs.

“If they can get higher quality at around the same price level, we feel that more buyers will realize that their initial investment is not the same as the total cost,” Schmitz said. “If they can go five years without maintenance like repainting, they will see that it’s worth it to pay a bit more.”

One of the quickest ways to bring technology into China is through joint ventures. But regulations can slow the transformation even when companies partner with a local company.

“We’ve started a joint venture and are bringing in the newest technologies,” Schmitz said. “We’re not welding, we’re using a rolled frame. And we’re not using paint, we’re galvanizing so our trailers won’t rust. However, Chinese regulations are complicated. Some specify welding quality, which is a problem since we don’t weld.”

As they strive to transform technologies, manufacturers must also adapt to changing markets. China’s dense cities are trying to reduce congestion as well as pollution. Large trucks may be limited to long-distance hauling in some provinces.

“Many cities ban heavy trucks from the central cities; they can only go to warehouses outside the city,” Lembke said. “That could become a trend that fosters growth in light trucks that deliver from those warehouses to the city.”

Some speakers noted that China’s growing middle class will help drive this trend. Web-based buying is helping create a need for smaller delivery trucks.

“The transportation sector in China is highly scattered, with a lot of individual buyers,” Huang said. “We see a lot of growth from express delivery companies. Alibaba and other companies need trucks for rapid delivery. That may bring a shift to specialized vehicles.”

A loosely similar trend may help expand China’s bus market. China has the world’s largest bullet-train network, which is bringing people to urban areas where they’ll need connecting transportation.

“High-speed railways can bring more people to cities, which means more people will want to take buses,” Jianwei said.

All these trends are occurring at a time when Chinese manufacturers are still trying to improve their reputation as high-quality suppliers.

“The gap between Chinese suppliers and multinationals is narrowing, but we feel that Chinese suppliers are still about five years behind,” said Dongfeng Dana Axle's Lembke.

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