Future of CVs

The CV industry is entering a new era with new alternate drivetrain technologies and investment strategies.

Entering a new era where new technologies are increasingly impacting Original Equipment Manufacturers’ product and investment strategies, a balance between priorities of keeping the incumbent business profitable and laying the foundation for new opportunities like alternative powertrains or autonomous driving is being seeked. A moderate volume growth (CAGR of less than one per cent until 2030 is expected amidst such a scenario. With revenues and profits expected to grow at a

CAGR of more than two per cent, the overall OEM profits could increase by Euro 4.9 billion to about Euro 16.1 billion by 2030. This would result in the industry registering a rise in profit from 6.6 per cent in 2017 to 6.7 per cent in 2030.

While the fundamental positive impact of economic growth across the globe will result in rising volume demand for trucks until 2030, other market-related revenues and profit drivers (mainly price pressure and regulatory measures) will cause a significant negative impact. This will require OEMs to increasingly focus on operational efficiency. Of help will be the new technologies like advanced analytics and internal digitisation. New opportunities like alternative powertrains, autonomous driving, and connectivity and solutions could hold good potentials to add to the profit pool. If the prospect of regulatory changes in China is leading to pre-buying, leading to a steep rise of about 80 per cent between 2015 and 2017, revenues and profits for the global truck industry have been growing significantly.

The growth of revenues and profits could be also attributed to the rising share of aftersales business, value-added technologies and services, and the over-proportionate growth of high-margin segments. The increase of the total revenue and profits until 2030 (Euro 71.7 billion and Euro 4.9 billion respectively) will be the aggregate of several trends across three industry categories – market developments, operational efficiency, and opportunities from new business models and solutions. Market developments (including structural shifts) such as the competitive business environment, industry consolidation, higher emission standards, and EV cannibalisation (the replacement of diesel trucks by battery electric vehicle) are expected to negatively impact the global truck industry by a margin of Euro 3.9 billion. Combined with a positive impact of Euro 3.2 billion from structural shifts (volume increases), market developments will have a negative impact on the global profit pool in 2030 by Euro 0.7 billion. This indicates that OEMs cannot rely on the market to ensure higher profitability. They would be required instead, to focus on the areas of action like operational efficiency among others.

Operational efficiency

Operational efficiency will remain a key focus area of action to increase profits. While cost programs have been a core element of the industry for a long time, new technologies (from digitisation, automation, and AI) will provide the potential for cost optimisation along the entire value chain. They will, apart from influencing operational efficiency and leading to new opportunities, will represent a second major source of profit growth for OEMs through new investments and product launches. The overall profit potential will arise in equal parts from the three major trends, namely alternative powertrains, autonomous vehicles, connectivity, and solutions.

EV cannibalisation

Alternative powertrains will significantly impact profits in the conventional business. The impact of e-truck distribution will result in a profit pool reduction of Euro 0.9 billion within classical Internal Combustion Engine (ICE) powertrains. On the other side, a profit hike of Euro 0.9 billion through alternative powertrain penetration will correspond to this loss one to one. Add to this the fact, that the additional Euro 0.9 billion profit from alternative powertrains would carry with it the risk of pitting OEMs against new entrants like suppliers for battery technology, and the influence of emission regulations on the global CV industry will be apparent at once.

Emission regulation

Emission regulations pertaining to NOx and particulate matter levels, especially in emerging markets coupled with the fuel efficiency requirements (CO2), will largely influence revenue and profit. OEMs and suppliers will find it difficult to pass the additional cost for emission compliance on to customers. It will, in the process, negatively impact the global profit pool of Euro 1.6 billion. US and Japan may have been the front runners in terms of ambitious carbon-reduction regulations until now, the fact is, regulations have gotten stricter in every other region. That puts all OEMs on a trajectory of adopting the tightest restrictions by 2025.

Many regions have already signed on to the Euro6 regulatory framework, which limits NOx emissions to 0.4 grams per kilowatt-hour. With the widespread adoption of the newest, most ambitious regulations globally, OEMs are set to benefit from economies of scale. With CO2 regulation tightening, the EU regulation is also demanding a reduction of HDT CO emission of 2

30 per cent by 2030. With measures to reduce emissions from conventional powertrains decreasing their efficiency and increasing costs, it looks tough for combustion engines to achieve ambitious targets. Regulations are likely to have a technology-forcing effect on alternative powertrains.

Alternative powertrains

Although diesel will remain the ‘volume and profit engine’ for the foreseeable future, diesel efficiency optimisation is becoming increasingly challenging. Alternative powertrains (battery-electric, hydrogen/fuel cell, CNG/LNG, synthetic fuels, biofuels) are likely to gain importance when it comes to achieving emission on goals and reducing ducing the logistics cs sector’s CO2 footprint. ootprint. Complete ete replacement ement of diesel by a single technology logy looks difficult t in the

foreseeable future as all the alternatives have their share of disadvantages. EVs are likely to be superior in distribution and city-centric use cases. Enjoying the best momentum (major OEMs and start-ups have announced more than 40 different products since 2015), their application triggers significant strategic implications in the case of aftersales and ecosystem partnerships.

Hydrogen is expected to be a strong contender in heavy-duty transport, and in segments that would require long-range and high utilisation. Technically, it provides the most suitable solution. Its higher energy density implies longer range, lower weight, and 10 to 15 times faster refueling than pure battery electric vehicles. It also plays a key role in broader energy transition for the integration of renewables and decarbonisation of heating. Key barriers to adopt hydrogen are the required scale-up and industrialisation (of electrolysers and fuel cell stacks). There’s the challenge of establishing the refueling infrastructure and bringing models to market.

In the case of CNG and LNG, prices fundamentally depend on underlying raw material prices. The two fuels are thus exposed to market cyclicity as diesel. Largescale deployment of CNG and LNG would require significant infrastructural investments, and can only be regarded as a bridge technology.

Synthetic diesel (e-diesel)

e-diesel (synthetic fuels produced from carbon dioxide and water) are still far away from being an economically viable alternative to diesel. The price of one-litre of e-diesel in Germany amounts to about three times that of the current diesel prices. The energy used to produce onelitre of e-diesel is seven times less efficient than the amount of energy used in a battery-electric vehicle. Likely to be better deployable in applications with limited potential for electrification of the powertrain (aeroplanes for example), e-diesel lose out to biodiesels that are produced from different feedstocks. Predictions on the TCO of biofuel versus diesel are highly volatile as they depend on the underlying raw material prices and taxation. The burning of biofuels may yield local emission advantages, from a well-to-wheel perspective, it remains questionable whether biofuels provide a net advantage over diesel or not.

Customer demand

A combination of political,

regulatory and cultural pressure, along with the customer demand in Europe are expected to drive European city e-bus markets. Large cities, and ‘green countries’ will adopt e-buses first. Economic considerations will play a lesser role. e-bus adoption will be driven by the urgency to curb air and noise pollution. Germany will most likely see an accelerated uptake of e-buses, reflecting ongoing discussions concerning harmful diesel emissions. Presenting cities with three major challenges – high technological uncertainty, large upfront investment requirements, and the need for new capabilities, e-bus sales in Europe are expected to occur as parts of larger transit investments (e-bus infrastructure and additional services for example) with effectively outsourcing to boast of.

To lead to a holistic approach, cities with small and regional hubs will be able to build a sustainable model. Larger cities will typically leverage their infrastructure capabilities. Seeking to realise their future mobility goals, the first step towards successful e-bus operation would involve a move towards a smart, clean and integrated solution. This will be made possible by investing in new infrastructure that combines hardware in the forms of charging stations (often requiring a full redesign of the bus depot and other required equipment) and software solutions that can collect and make use of data concerning driving patterns and vehicle health. The elements of new infrastructure will extend beyond the current IT systems.

The significantly greater complexity of e-bus operations concerning battery lifecycle monitoring, range calculations and charging management will be supported by an established network of highly competent companies. For example, some e-bus manufacturers can assume full system responsibility, partnering with charging infrastructure providers and others to deliver an end-to-end e-bus solution. Others would offer comprehensive packages and take full in-house responsibility for the service and maintenance

of the complete system. At the same time, several transit operators will have core multidisciplinary teams to manage and execute bids or deliver projects. Teams such as those will validate all components of a tender, including contractual clauses, the integration of innovations, operating costs and investments, and quality and safety considerations.

The initial series of e-bus system investments are expected to enable and ease the subsequent introduction of future technologies like autonomous taxis and shuttles. Urban planners will begin foraying e-buses incrementally. They will test the waters and expand their use as the benefits of cleaner air and quieter streets become apparent. e-bus makers will consequently focus on selling a few vehicles to cities, and later take a holistic approach by bundling e-buses with tailored charging, maintenance, and traffic management solutions. This would especially be the case for smaller cities, which do not have the expertise required (high-voltage lines for example) or the risk appetite to ‘go it alone.’ For e-bus OEMs, this may offer the opportunity to become a preferred vendor with a single point of contact, and evolve ultimately into a key partner.

Approached systematically, the transition to e-buses can open a clear pathway to a city’s future mobility goals and vision. It would mark a first and the most important step change towards a long-term vision of sustainable mobility solutions and emissionfree cities. The successful implementation of an e-bus system can make the transition to the next technological horizon and autonomous transport possible. It would have a major impact on city mobility. Systems put in place to handle e-buses could be designed such that they extend to accommodate autonomous buses and facilitate a deeper integration into intermodal transport. The quest for electric truck changing gears in the past 12 to 18 months is not just the OEMs, operators, or emission legislation, but is influenced by local emissions, urban air quality and Corporate Social Responsibility (CSR) in the medium term. It is influenced by GHG/fuel economy legislation in the long term.

The convergence of society and operators’ needs over the next five to 10 years is set to drive the development of conventional CVs. This will be the case despite developments like the Tesla Semi. Conventional CVs will continue for at least the next 10 years, and until electric CVs build a share. Conventional CVs will continue until hybrids, natural gas, and fuel cell vehicles build a share. Diesel is likely to have the largest share of the pie even after the other mediums have build a share. In the case of Tesla, battery prices, vehicle price, charging availability, electricity prices, wouldn’t just stack up. Fleets will, therefore, take low volumes, the technology innovation spilling out from Tesla Semi into other segments, including pluginhybrid. The result would be the last mile all-electric delivery and optimised mild hybrid for longer distances.

The Tesla Semi

Even though the Tesla Semi won’t arrive until the end of 2019, the promise of 500 miles range on one charge is a compelling proposition for several fleets. For many, the announcement leaves many questions unanswered as well. By not specifying the total battery size, but announcing a range of up to 500 miles and energy usage of around two-kWh per mile, Tesla is suggesting a battery of 800-1000 kWh. It is estimated to be 10x as big as the largest Tesla S and 15 times that of the new Tesla 3. Mercedes’s electric delivery truck claims 200 km with a battery of 212 kWh. Daimler’s other new electric truck, a Fuso, has a battery from Daimler’s subsidiary, Deutsche Automotive, with 42-84 kWh capacity. Proterra’s Catalyst (E2 max) electric bus is available with a 660 kWh battery.

The Semi, it is safe to assume, will have the largest battery of any truck. It would however not have the largest road vehicle battery to enter production. Tesla’s battery cost targets are estimated to be USD 100 per kWh, which translates into USD 100,000 as of the battery cost price. A 900 kWh capacity could negatively impact the payload carrying capacity. The new Tesla 2170 cell, for instance, translates to 53,000 cells in total, packaged into around eight to 10 modules roughly. With an energy density of 17 Wh per cell, the weight could be between 5000 to 6000 kg. Such weight could lead to a potential payload loss of around five to 10 per cent depending on the type of truck. With a battery size that big, the Tesla Semi Truck would need around eight units to charge up to 80 per cent of the capacity in 30 minutes with the current superchargers.

In the range of USD 150,000 and USD 200,000, the battery price may provide an optimistic outlook. However, much would depend on the battery cost Tesla will ultimately

achieve. Simple math says 800-1000 kWh at USD 100 means the battery alone will cost half the vehicle price. Proterra’s Catalyst E2 with 330 kWh battery costs a staggering USD 799,000. This leads to a question on other costs and margins in the case of Tesla. What if the batteries will last one million miles? Will they go back into a secondary market? How many service and maintenance dealers will Tesla have for the launch or will they be solely fleet based? From a broader global perspective, the electrification in the CV segment is already considerable. In China especially, electric buses have already grabbed more than 40 per cent of the market.

In markets other than China, the penetration of hybrids is low. There are more natural gas vehicles. The issue with both is of them having lower energy density than diesel. Even with improved energy efficiency, for an electric driveline, the battery size equivalent to a 1000-litre diesel fuel tank with a weight of 800 kg is more likely to be 20-tonnes. With an engine and transmission weighing up to 2,000 kg including accessories, there is likely to be a substantial weight penalty. Even if the energy density doubles over time, the problem is, even with a considerable energy recovery achievable, the average energy consumption is much more than a light vehicle in the case of battery electric. Chinese buses on an average have a battery range of 300 kWh on a closed route. Electric trucks with batteries around 100 kWh can achieve a low but useful allelectric mileage and are being developed by other OEMs in specific applications. Compared to diesel averages in Europe and North America, the cost savings can be significant if the upfront investment falls. With

European and North American fleets looking for less than one-year payback for most new technologies, electric trucks will take a long time. Their success, therefore, will rely on fleets with long payback calculations or CSR CO targets. There is considerable 2 potential for CV applications to continue to improve using conventional technologies. Tesla’s technology has a very aerodynamic body and existing vehicles could adopt these without the need to go to electric.

There is little doubt that 48V is coming faster than expected. Mild hybridisation would allow modest downsizing of the engine with a smaller battery size as well. This would allow conventional technologies to be adopted. Technologies like advanced thermal management, waste heat recovery and aerodynamics will reduce CO from trucks by 20 2 per cent over the next decade, reducing the benefit of the electric truck and pushing out the payback for those trucks. Over 200,000 Class-eight trucks with a five per cent saving in CO is 2 better than a 100 per cent saving in just 10,000. The cost-benefit is likely to be significantly better. Getting these new trucks into the fleets and replacing older vehicles would improve air quality more quickly than a small share of allelectric trucks.

Alternate Drivetrain

A systems approach to powertrain selection and the picking of the right fuel for the truck would be the driver for alternative fuels on a fixed route. This would help make the most of the benefits for air quality in non-attainment zones, and support the use of low carbon trucks in industries that have limited mitigation opportunities in their other processes. Optimising driver training, route selection, load management, etc., would be the other bits in the short term. For the adoption of advanced powertrain technologies with lower emissions for conventional trucks in the mainstream, the use of natural gas or LNG in locations where it is readily available and can displace diesel would prove beneficial. The journey of diesel towards USD 100 is not compelling enough as it is more important to look at secondary benefits to achieve payback at a corporate level. What it also means is that there is a need to change the business model for much of the transport industry, not excluding the major fleet owners if government policies dictate. Let us consider the fact that global hybrid and electrified CVs, plus alternative fuels would reach around one million units in 2024, out of four million in total above six-tonne GVW, and there is no doubt to expect incremental progress in alternate drivetrain using alternate fuel. In the HDT segment, the transition would be slow. In last-mile connectivity or urban transportation, the penetration is expected to be more. As the technology matures and acceptability of alternate drivetrains increases, it will start to make a strong business case. A major change is on the way for certain, the impact of which will be long-standing.

The author is Professor Emeritus, Mechanical Eng. (COEP, Pune), MD & Board Member, Thor Power Corporation (EV, Allentown, PA, USA), and Global Consultant and Principal Analyst, Coleman Research & GLG, USA. The views expressed by the author are his personal opinions and do not necessarily reflect the views of ACI magazine.