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Market Forecast: On-Highway Truck & Bus
2021 is Looking Better for Most Global Commercial Vehicle Markets Orders for medium- and heavy-duty commercial vehicles improved in the second half of 2020 in many global markets, indicating improved conditions in 2021.
contributed by Chris Fisher, Senior Commercial Vehicle Analyst, Power Systems Research
Medium and heavy commercial vehicle (MHCV) production in North America is expected to decline by 35% in 2020 compared to 2019. However, orders for Class 8 trucks improved signifi cantly in Q4 2020 as large fl eets placed their orders for a 2021 build. This appears to signal an improvement in demand for 2021 as the market aligns itself with the expected freight level moving forward. The consumer segment was strong during the last half of the year and the industrial segment is now expected to improve, as well.
Within the consumer side, reefer, fl at bed and dry van carriers have performed relatively well. We have also seen contract and spot rates improve primarily due to tightening truck capacity and an ongoing driver shortage.
Throughout 2020, freight was also very uneven. For example, the trucking sectors that haul for the industrial and energy industries did not see the surge in freight like the consumer side of the economy. Early in 2020 it looked like Class 8 truck production could decline to as low as 135,000 trucks compared with a current production forecast of approximately 200,000 trucks.
A shift in production and power systems
During the past few years there have been some signifi cant trends taking place in the medium and heavy truck segment in North America. In order to retain drivers, fl eets have been transitioning their focus on more regional haul rather than long haul. Basically, truck drivers do not want to “live on the road.” E-commerce has helped facilitate this trend by distributing inventory to a wider range of locations.
Widening the Panama Canal has been a factor, as well, since more imported goods can be delivered closer to their end destinations.
For several years, we’ve been seeing companies shifting production to China as they seek lower production costs, but now this trend has started to reverse as companies seek to decentralize production. The United States tariff s on Chinese products, new global trade deals and the introduction of the coronavirus shed signifi cant light on the risks to the supply chain.
We should note there is signifi cant investment into technology which could move China into a diff erent spot in the supply chain. South Asian nations and Mexico will primarily benefi t from this transition.
During the past decade, the commercial vehicle market has come under pressure to adopt alternative fuels such as natural gas, hybrids, electric and more recently hydrogen fuel cell technology. Hybrid vehicles have not gained traction and natural gas is currently relegated to specifi c applications.
Currently, electric trucks are still in the test phase while hydrogen fuel cell trucks are just beginning the test phase. Much like the rest of the world, major OEMs have electric and hydrogen trucks in the testing stage with series production expected to commence in the 2023-2024 timeframe. However, numerous barriers still will need to be overcome before adoption can take place on a large scale.
While the trend toward electrifi cation has been slower for medium and heavy trucks, the transit bus segment is on a somewhat faster track to series production. Since transit buses typically have pre-defi ned routes and good access to recharging infrastructure, they are good candidates for electrifi cation. It also helps that this segment is not-for-profi t and a payback is not typically required. The signifi cant barriers to adoption appear to have been overcome. During the past few years, numerous large municipalities have set target dates to have their entire bus fl eet converted to all-electric vehicles.
In California, CARB (California Air Resources Board) has established a mandate requiring all transit buses to be zero-emissions compliant by 2040. The Los Angeles Department of Transportation plans to have an all-electric bus fl eet by 2028. They recently ordered 155 electric buses from BYD and Proterra to be delivered during the next 2 years.
San Francisco plans to have a zero-emissions bus fl eet by 2035 and plans to purchase only zero-emissions buses starting in 2025. In Seattle, King County Metro plans to transition to 100% zero-emissions buses no later than 2040.
New York currently has over 5,000 buses which is the largest transit fl eet in the country, and the city plans to convert the entire fl eet to all-electric by 2040. The Chicago city council also approved the transition to a 100% zero-emissions bus fl eet by 2040.
Besides the trend toward vehicle electrifi cation, there are some other signifi cant OEM developments in North America which have recently occurred.
In November 2020, Volkswagen’s TRATON group and Navistar announced a merger agreement in which TRATON will acquire all outstanding shares of Navistar. Previously, TRATON held 16.7% of Navistar’s common shares. The deal is valued at $3.7 billion and is expected to be fi nalized in mid2021. Navistar has been in collaboration with TRATON’s brand MAN for a number of years primarily in engine development. Power Systems Research (PSR) believes additional engine off erings will be one of the primary goals to improve profi tability and long-term market share improvement within the Class 8 truck segment.
To reduce costs, Ford recently ended production of the heavy Cargo series truck in Brazil. Ford has always struggled with profi tability in this region and decided to focus its eff orts elsewhere.
Mack has a strong presence in the
SOLARIS BUS & COACH
Electric buses, like the Slolaris Urbino 12, continue to gain market share due to the many benefi ts off ered in this application.
VOLVO GROUP
Starting in 2021, Volvo will off er a complete range of battery-electric trucks in Europe for distribution, refuse, regional transport and urban construction operations.
©AA+W – STOCK.ADOBE.COM
Research and development into hydrogen fuel cell technology for medium and heavy trucks has increased in recent years.
heavy vocational market and has recently introduced its MD medium truck lineup which is produced at a new facility in Virginia. The new medium truck lineup covers Class 6 and 7 and Mack should be a strong competitor in this segment (learn more, 21113129).
International markets picking up in some regions Europe
In Europe, commercial vehicle demand was down significantly in the second quarter but has since improved and this is expected to continue into 2021. During the first half of the year, medium and heavy truck registrations in the EU declined by 43% compared to the first half of 2019 while bus registrations were down by 35%. Export demand has also declined sharply this year primarily due to the impact of the coronavirus on the global markets. We believe MHCV production for Europe will decline by 25% in 2020 over 2019.
South America
In South America, Brazil is the largest producer of commercial vehicles. Through the first 10 months of 2020, production declined by 31% compared to the same period in 2019. While there has been some improvement during the past few months, domestic and export demand continued to be soft through the end of 2020.
Production was down sharply in April as most of the OEMs and suppliers shut down production facilities because of the COVID-19 outbreak.
On a positive note, we are seeing outstanding performance in the agricultural segment in both production and commodity prices. Construction continues to recover primarily due to low interest rates for home construction. Fiscal stimulus was also enacted by the government for people who have lost their earning capacity and financial incentives for businesses to keep their employees.
Looking into the future in Brazil, we expect some level of truck prebuy in 2022 as P8 (Euro 6) emissions requirements take effect in 2023. The additional cost of the emissions technology with little improvement in fuel economy typically leads to a vehicle pre-buy.
China
After declining sharply in February and into March, medium and heavy truck production in China has been extremely strong in 2020. Much of this activity has been driven by the government mandate to eliminate the current Euro III and earlier emissions-compliant trucks and replace these with new Euro V compliant vehicles. The plan is to have this completed by the end of 2020.
This program, along with stricter punishment for overloaded vehicles in big cities and some small cities and rural areas, has helped drive strong demand this year. As a result of this, PSR expects demand to decline significantly during the next few years. Much like the other regions, bus demand is down significantly.
South Asia
South Asia is a diverse region with the largest production of commercial vehicles located in India. Coupled with price hikes from the BSVI (Bharat Stage 6) emissions regulations, increasing
fuel prices, economic recession, lower freight demand, and driver and labor shortages, the headwinds in the commercial vehicle industry continued in 2020, marking one of the worst years for the Indian commercial vehicle market.
Driven by social-distancing and work-from-home policies, there is little demand for buses from the education sector. The transit bus segment is also one of the worst hit with our estimates of only 10-15% in-service transit bus fl eets being operational. The improving rail freight infrastructure, the proposed vehicle extension policy, shifting focus on used-truck market and under-utilization of in-service vehicle population are likely to further dampen the commercial vehicle outlook in the mid-term.
Much like the rest of the world, medium and heavy vehicle production in Japan and South Korea declined sharply in late Q1 2020 and into Q2 2020 as a direct result of the coronavirus pandemic. While demand has since stabilized in both the domestic
Mack Trucks’ new MD Series is suited to various applications, including pickup and delivery.
and export markets, it will still be a few years before vehicle replacement levels improve to more historic levels.
Over half of the medium and heavy truck production is exported out of the region. Over the last number of years, we have seen the Japanese OEMs face stiff competition from the Chinese OEMs in the Asian export markets.
Early in 2020, Isuzu purchased UD trucks from Volvo (learn more, 21200716). Volvo purchased UD trucks in 2007 but never reached their profi tability target. Isuzu will likely leverage UD Trucks assets and possibly work with Volvo on future initiatives including vehicle electrifi cation and autonomous vehicles. |
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