Hybrid Truck Market Analysis to 2020 - Favorable Regulations and Fleet Purchases to Buoy the North American Market by GBIResearch

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									              Hybrid Truck Market Analysis to 2020 - Favorable
             Regulations and Fleet Purchases to Buoy the North
                             American Market
 Reference Code: GBICT0027ICR                                                                                    Publication Date: JUL 2010

  Well before the global              North American Truck Industry is recovering from the deepest recession in recent years;
  economic crisis crippled            Improving Orders across OEMs indicate growth of 5-10% though 2012 across all segments
  the world, the North
  American         commercial         Well before the global economic crisis crippled the world, the North American commercial trucking
  trucking    industry  was           industry was striving to find a way out of dwindling margins and plummeting sales volumes. The
  striving to find a way out          medium and heavy truck market started feeling this downturn as early as 2007. The trucking
  of dwindling margins and            industry, viewed as a linchpin to economic growth, was further deteriorated by the economic turmoil
  plummeting           sales          in 2008. The trend percolated in 2009 sales figures as well.
  volumes. . The medium
  and heavy truck market               North America, Medium and Heavy Truck Market, Unit Shipments,
  started      feeling   this          2004 – 2009
  downturn as early as
  2007.                                       350,000



                                              300,000

                                                                                                                       2004
                                              250,000                                                                  2005
                                                                                                                       2006
                                                                                                                       2007
                                              200,000                                                                  2008
                                                                                                                       2009

                                              150,000



                                              100,000



                                                50,000



                                                    0
                                                               Class 8        Class 7            Class 6            Class 5


                                       Source: GBI Research



                                      A confluence of factors from outside the commercial truck market impacted the industry. The huge
                                      changes to the financial market tightened the financing for new trucks, while the housing market
                                      downtrend and unpredictable oil prices, pushed consumers away from buying new vehicles. The
                                      economic downturn made a huge dent on sales volume of the trucking industry as the sale declined
                                      sharply from past levels.
                                      In anticipation of the US Environmental Protection Agency 2007 emissions mandate, which took
                                      effect in the US and Canada at the beginning of 2007, the truck makers had big pre-buy in 2006 —
                                      resulting in exceptionally good sales figures for that year. But due to cyclical decline in the truck
                                      market sales were weak, and the situation aggravated with the weakening housing market at the
                                      end of 2006. With the falling freight market volumes, the sales of new heavy trucks also dropped
                                      significantly. Furthermore, the global financial crisis hit during the fourth quarter of 2008, and the
                                      subsequent economic slowdown led to further market contraction.
                                      Sales of Class 8 trucks have been the hardest hit. The sales of the Class 8 trucks segment, which
                                      includes single-unit and tractor-trailer equipment typically used for long-haul freight transportation,
                                      decreased by 48.3% in 2007 from their 2006 levels due to the introduction of more stringent


Hybrid Truck Market Analysis to 2020 - Favorable Regulations                                                GBICT0027ICR /Published JUL 2010
and Fleet Purchases to Buoy the North American Market
                                                                                                                                         Page 1
                                                                          © GBI Research. This is a licensed product and is not to be photocopied
                                      emissions standards. Class 8 trucks equipped with more advanced diesel emission-control
                                      technologies raised the vehicle price in 2007. The Class 8 trucks market could not recover in 2008
                                      due to the worsening economic climate and further declined by 33.6% in 2009 from their 2007
The US and Canadian                   levels. The trucking industry is experiencing its deepest recession in recent years and business is
governments            have           not expected to pick up soon. However, the forecast for commercial truck sales until 2012 indicates
adopted a wide range of               that all market segments are expected to grow between 5% and 10% in 2010.
policies to reduce oil
dependency and attain                 Mounting Environmental Concerns and the need to Reduce the Dependence on Foreign Oil
energy     security.    This          will continue to Drive the Growth of the Hybrid Truck Market
includes            massive           About two-third of the world’s oil reserves are controlled by the Organization of the Petroleum
modernization of road                 Exporting Countries (OPEC) member countries and most of the reserves are in the Middle-East.
transport    fleet.   Policy          And the world’s oil demand is reliant on social or politically unstable regions for its oil supply: the
analysts have zeroed in               Middle East, Venezuela, and Africa. Thus the supply is vulnerable to disruption. Oil has a
on      the      importance           significant influence on international trade, economics and politics. Relying on foreign oil could
hybridization of vehicle              have serious implications for a country’s security and economic growth. Therefore, the US and
                                      Canadian governments have adopted a wide range of policies to reduce oil dependency and attain
                                      energy security. This includes massive modernization of road transport fleet. Policy analysts have
                                      zeroed in on the importance hybridization of vehicle.

                                       The US, Petroleum Production and Consumption, Million barrels per day, 1970-2030

                                                                          18
                                                                                                                                                                        Off-
                                                                                        US Production
                                                                          16                                                                                          Highway
                                                                                                                                                                                                                                  Air

                                                                                                                                                                                                                                  Rail
                                                                          14
                                                                                                                                                                                                                                  Marine

                                                                          12
                                                Million barrels per day




                                                                                                                                                                                        Medium & Heavy Trucks


                                                                          10


                                                                          8


                                                                          6                                                                                                                    Light Trucks



                                                                          4


                                                                          2                                                                                                                       Cars


                                                                          0
                                                                               1970
                                                                                      1973
                                                                                             1976
                                                                                                    1979
                                                                                                           1982
                                                                                                                  1985
                                                                                                                         1988
                                                                                                                                1991
                                                                                                                                       1994
                                                                                                                                              1997
                                                                                                                                                     2000
                                                                                                                                                            2003
                                                                                                                                                                   2006
                                                                                                                                                                          2009
                                                                                                                                                                                 2012
                                                                                                                                                                                        2015
                                                                                                                                                                                               2018
                                                                                                                                                                                                      2021
                                                                                                                                                                                                             2024
                                                                                                                                                                                                                    2027
                                                                                                                                                                                                                           2030



                                       Source: U.S. Department of Energy
                                       The U.S. Production has two lines after 2005. The solid line is conventional sources of petroleum. The dashed line adds in
                                       other inputs -- ethanol and liquids from coal. Historical petroleum production includes crude oil, natural gas plant liquids,
                                       refinery gains, and other inputs, which include liquids from gas, liquids from coal, and alcohols, ethers, petroleum product
                                       stock withdrawals, domestic sources of blending components, other hydrocarbons, and natural gas converted to liquid fuel.


                                      The US imports around 57% of its oil and it fears that this dependence will increase as it uses up its
                                      domestic resources. Oil price shocks and price manipulation by OPEC have cost the US economy
                                      dearly — about $1.9 trillion from 2004 to 2008 — and each major shock was followed by a
                                      recession. In 1989, the transportation sector petroleum consumption surpassed US petroleum
                                      production for the first time, creating a gap that must be met with imports of petroleum. By the year
                                      2030, transportation petroleum consumption is expected to grow to 18 million barrels per day; at
                                      that time, the gap between US production and transportation consumption will be 7.5 million barrels
                                      per day.
                                      Global climate change is the greatest environmental threat facing the world. World energy demand
                                      grew at a staggering rate of more than 100% during the period 1970-2008, reaching over 12,000
                                      Mtoe (million tons of oil equivalent).This increase in energy demand resulted in a dramatic increase
                                      in carbon dioxide (COB2) emissions triggering global environment change. Worldwide initiatives
                                      such as the 1997 Kyoto Protocol require Organisation for Economic Co-operation and

Hybrid Truck Market Analysis to 2020 - Favorable Regulations                                                                                                                                   GBICT0027ICR /Published JUL 2010
and Fleet Purchases to Buoy the North American Market
                                                                                                                                                                                                                                           Page 2
                                                                                                                            © GBI Research. This is a licensed product and is not to be photocopied
                                      Development (OECD) member states to cut their COB2B emissions by an average of 5.2% by
                                      2012. Massive adoptions of fuel efficient and low-emission vehicles will help decrease GHGs
"Manufacturers and OEMs               emissions helping high-carbon economies to attain these targets.
are       counting        on
governments to step in                The increased use of ‘Green’ technology in trucking sector could play a significant role in reducing
and      help      stimulate          GHGs and preventing further damage to the atmosphere. The growing number of environment-
demand        through    tax          conscious fleet owners is becoming a force in the attempt to limit greenhouse gas emissions.
breaks and subsidies.                 High Prices — a Barrier for Hybrid Trucks
These      incentives    are
expected to generate                  The high price of hybrid trucks is the key restraint impeding the take-off of hybrid sales. The up-
higher sales volumes in               front cost raises the affordability barrier. Fleet operators place high weight-age on upfront costs
the short term so that the            rather than on life time costs of owning a truck. Hybrid trucks typically cost between $23,000 and
hybrid truck industry stays           $45,000 more than traditional trucks. The production volume has not yet reached a level sufficient
afloat, until the industry            to realize cost reduction. Truck makers confront a Catch-22 situation: without higher sales volume
gets higher volumes to                of these trucks, the high sticker price of hybrid trucks will not descend, but their current prices
reduce costs and fuel                 keeps the sales low and commercial fleets will to place large orders only when the prices slide
prices       again      rise          down. The ‘Economy of scale’ model postulates that each supplier needs 3,000–5,000 per year to
significantly."                       reduce their price premium, yet recover their production cost. Manufacturers and OEMs are
                                      counting on governments to step in and help stimulate demand through tax breaks and subsidies.
                                      These incentives are expected to generate higher sales volumes in the short term so that the
                                      hybrid truck industry stays afloat, until the industry gets higher volumes to reduce costs and fuel
                                      prices again rise significantly.

                                       Cost Structure for Hybrids will be Relatively High during the First Phase of Hybrid
                                       Adoption; Barriers to Reach Economy of Scale

                                                    Barriers to reach Economy of Scale
                                                    • Incremental system costs over non Hybrid
                                                      are extremely high                                             • Industry collaboration
                                                    • Supplier base readiness                                          throughout the value chain
                                                                                                                     • Focused research and
                                                                                                                       technology integration
                                                       Technology                                                    • Government funding
                                                         Impact
                                                                                              Technology
                                                                                             break-through




                                                                                       Cost, $




                                                                                                   Fuel Efficiency
                                                                                                      Gain, %




                                                                                                        Time


                                       Source: GBI Research



                                      GBI Research believes that the cost structure for hybrids will be relatively high during the first
                                      phase of hybrid adoption. Currently, the truck industry in North America is still recovering from
                                      deepest recession in recent years — cash-strapped truck industry do not have the option of
                                      adjusting vehicle price downward in anticipation of future sales. Government subsidies will help
                                      drive the initial sales in the short term so that the hybrid truck industry stays afloat, until the hybrid
                                      truck industry gains a strong foothold.




Hybrid Truck Market Analysis to 2020 - Favorable Regulations                                                         GBICT0027ICR /Published JUL 2010
and Fleet Purchases to Buoy the North American Market
                                                                                                                                                    Page 3
                                                                                © GBI Research. This is a licensed product and is not to be photocopied
                                      Trucking Industry Sector is on the Brink of experiencing a major transition to Hybrid
                                      Technology
   Though the hybrid truck            The US market is well positioned to ride the hybrid wave. More than 25 US based truck markets
   industry hasn’t seen the           and 14 hybrid system developers have aggressively forayed into hybrid development. Many truck
   similar revolution as the          makers are ready to test their prototypes while hybrid models from some companies’ have reached
   hybrid passenger vehicle,          their assembly lines. These assembly lines are producing hybrids for applications such as package
   the hybrid truck market is         delivery vehicles, beverage haulers, and utility boom trucks. More than 95 U.S. commercial and
   finally showing the first          utility truck fleets have so far purchased or are testing these hybrids. FedEx Express came to the
   signs of take-off. GBI             fore and ordered the first hybrid trucks in the US, while United Parcel Service that has a large fleet
   Research anticipates the           of alternative fuel vehicles also booked hybrid trucks. Other large fleets adopting hybrids include
   medium and heavy-duty              Coca Cola, Wal-Mart, Verizon.
   hybrid market to reach an
                                      Though the hybrid truck industry hasn’t seen the similar revolution as the hybrid passenger vehicle,
   estimated 98, 702 units by
                                      the hybrid truck market is finally showing the first signs of take-off. Currently, there are over 1200
   2020.
                                      hybrid trucks on the roads in the US and Canada, up from just 200 trucks in 2006. GBI Research
                                      anticipates the medium and heavy-duty hybrid market to reach an estimated 98, 702 units by 2020.
                                      The North American fleets have so expressed interest in replacing a major segment of their
                                      conventional trucks with hybrid models that the growth of medium and heavy-duty hybrid truck
                                      market may go well beyond what is expected.
                                      A confluence of factors highlights the large market potential for medium- and heavy- duty hybrid
                                      trucks: tightening emission standards, the risk of an uncontrollable rise in oil-prices in the near or
                                      long term and increasing climate concerns. Hybrid truck technology offers significant opportunities
                                      to address each of these issues.
                                      The North American Class 8 hybrid truck is expected to robust growth post 2010. The demand
                                      growth is anticipated from increase in freight market due to recovering economy. A large cross-
                                      section of heavy-duty fleet managers believe that in the foreseeable future the cost of compliance
                                      for conventional heavy-duty truck will increase significantly. This factor will further boost the
                                      demand for hybridized cousins of conventional heavy-duty trucks. While the market penetration of
                                      Class 8 hybrids will lag behind medium duty trucks, GBI Research estimates that the production of
                                      Class 8 will reach about 7,908 units by 2015 and 27,429 units by 2020.

                                       North America, Hybrid Market Penetration into Class 5–8 Trucks, %,
                                       2010–2020


                                                                         30%
                                                                                             Growth Drivers:

                                                                                             • Volatility in Fuel Prices
                                                                         25%                 • Regulatory Push
                                                                                             • Reduced Dependence
                                                                                               on Foreign Oil

                                                                         20%
                                                    Market Penetration




                                                                         15%



                                                                         10%



                                                                         5%



                                                                         0%
                                                                               2010 F   2011 F   2012 F   2013 F   2014 F   2015 F   2016 F    2017 F    2018 F   2019 F   2020 F

                                                                                                             Class 8        Class 6-7         Class 5

                                       Source: GBI Research
                                       The suffix ‘F’ denotes the Forecast Data




Hybrid Truck Market Analysis to 2020 - Favorable Regulations                                                                                            GBICT0027ICR /Published JUL 2010
and Fleet Purchases to Buoy the North American Market
                                                                                                                                                                                    Page 4
                                                                                                    © GBI Research. This is a licensed product and is not to be photocopied
                                      Corporate Fleets are at the fore front in providing a positive example of ecological
   North American corporate           responsibility and sustainable practices.
   fleets, striving to reduce
   CO2       emissions    and         North American corporate fleets, striving to reduce CO2 emissions and pollution, are expected to
   pollution, are expected to         be among the steadiest buyers of medium and heavy hybrid trucks. In the US, commercial trucks
   be among the steadiest             account for about 12% of the miles driven but produce about 25% of all emissions. Therefore, the
   buyers of medium and               sector is likely to drive the demand for hybridized vehicles that offer emission reductions and fuel
   heavy hybrid trucks                efficiency. Large and small corporations and government agencies are testing hybrid trucks and a
                                      few have successfully integrated these vehicles into their existing fleets. FedEx, United Parcel
                                      Service Inc and Coca-Cola Enterprises have boosted their fleets with hybrid electric vehicles.

                                       North America, FedEx’s Hybrid Electric Vehicle Fleet, Installed base,
                                       2005–2010


                                                                                                                            389



                                                                                                             317




                                                                                               174



                                                                   95            96



                                                      18


                                                     2005         2006          2007          2008           2009          2010


                                       Source: GBI Research



                                      FedEx operates one of the largest commercial hybrid electric trucks in North America and the
                                      transportation industry with about 317 vehicles and the number is expected to increase to 389 by
                                      the end of 2010. UPS, the package delivery giant, was the first package delivery company to
                                      introduce a HEV into daily operations with a research program it launched in early 1998. In 2001,
                                      the company deployed the industry's first hybrid electric package car into regular service. UPS then
                                      introduced its second generation HEV fleet in 2004. While continuing to develop its alternative fuel
                                      fleet – UPS has invested more than $15m in the effort – the company has also purchased and is
                                      operating more than 19,000 low emission conventional vehicles. These vehicles have regular gas-
                                      and diesel-powered engines but employ the very latest technology and manufacturing techniques
                                      to reduce emissions as much as possible. UPS continues to invest in alternative fuel technologies
                                      and operational efficiencies to reduce its carbon footprint. The company believes that there is no
                                      silver bullet technology to reduce its dependence on fossil fuels; however hybrid technology seems
                                      to be most promising technology. Coca Cola Enterprise owns the largest fleet of hybrid heavy-duty
                                      vehicles in North America with a total of 328 trucks on the road. It formed an initial fleet of hybrid
                                      heavy-duty vehicles in 2001 after extensively testing the hybridized trucks. Its investment in hybrid
                                      technology is aimed at achieving energy efficiency and sustainable practices across the corporate
                                      and industrial value chain.




Hybrid Truck Market Analysis to 2020 - Favorable Regulations                                               GBICT0027ICR /Published JUL 2010
and Fleet Purchases to Buoy the North American Market
                                                                                                                                        Page 5
                                                                         © GBI Research. This is a licensed product and is not to be photocopied
                                      1         Table of Contents
                                      1   Table of Contents ........................................................................................................................ 6
                                          1.1    List of Tables..................................................................................................................... 7
                                          1.2    List of Figures ................................................................................................................... 8
                                      2   Introduction.................................................................................................................................. 9
                                          2.1    Types of Commercial Vehicle ........................................................................................... 9
                                             2.1.1    Class 5 Trucks........................................................................................................... 9
                                             2.1.2    Class 6 Trucks........................................................................................................... 9
                                             2.1.3    Class 7 Trucks........................................................................................................... 9
                                             2.1.4    Class 8 Trucks........................................................................................................... 9
                                      3   North America Commercial Truck Market.................................................................................. 10
                                          3.1    The US Commercial Class 8 Trucks Market, Annual Sales Volumes, 2004–2009 ......... 12
                                          3.2    The US Commercial Class 7 Trucks Market, Annual Sales Volumes, 2004–2009 ......... 13
                                          3.3    The US Commercial Class 6 Trucks Market, Annual Sales Volumes, 2004–2009 ......... 15
                                          3.4    The US Commercial Class 5 Trucks Market, Annual Sales Volumes, 2004–2009 ......... 17
                                          3.5    Canada Commercial Class 8 Trucks Market, Annual Sales Volumes, 2004–2009 ......... 18
                                          3.6    Canada Commercial Class 7 Trucks Market, Annual Sales Volumes, 2004–2009 ......... 20
                                          3.7    Canada Commercial Class 6 Trucks Market, Annual Sales Volumes, 2004–2009 ......... 22
                                          3.8    Canada Commercial Class 5 Trucks Market, Annual Sales Volumes, 2004–2009 ......... 24
                                      4   Drivers for Market Mass Acceptance......................................................................................... 26
                                          4.1    Reduced Oil Dependence ............................................................................................... 26
                                          4.2    Volatility in Oil Prices ...................................................................................................... 30
                                          4.3    Regulatory Impetus in the form of Federal or State Funding and Purchase Incentives .. 32
                                          4.4    Environmental and Climate Change Concerns ............................................................... 33
                                      5   Barriers to Mass Adoption ......................................................................................................... 34
                                          5.1    High Price — a Barrier for Hybrid Trucks ....................................................................... 34
                                          5.2    Economic Meltdown........................................................................................................ 34
                                      6   North America Hybrid Truck Market .......................................................................................... 35
                                          6.1    North America, Class 8 Hybrid Truck Production Forecasts, 2010-2020 ........................ 37
                                          6.2    North America Class 6–7 Hybrid Truck Production Forecasts, 2010-2020 .................... 39
                                          6.3    North America Class 5 Hybrid Truck Production Forecasts, 2010-2020 ......................... 40
                                      7   Industry Structure ...................................................................................................................... 42
                                      8   Corporate Fleets — Early Adopters of Medium and Heavy-duty Hybrid Trucks ........................ 48
                                          8.1    FedEx Corp..................................................................................................................... 48
                                          8.2    United Parcel Service Inc................................................................................................ 49
                                          8.3    Coca Cola ....................................................................................................................... 49
                                          8.4    Wal-Mart ......................................................................................................................... 49
                                      9   Appendix ................................................................................................................................... 50
                                          9.1    Market Definition ............................................................................................................. 50
                                             9.1.1    Product Types covered............................................................................................ 50
                                             9.1.2    Geographies covered .............................................................................................. 50
                                             9.1.3    Market Size Forecasts............................................................................................. 50
                                          9.2    About GBI Research ....................................................................................................... 50
                                          9.3    Glossary of Terms.......................
								
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