Industry Insights | The Liberalization of Foreign Shareholding Ratio in Commercial Vehicles Spurs Domesticization of Foreign Enterprises' Commercial Vehicles

From 2018 to 2019, global commercial vehicles maintained an upward trend, increasing from 2.49 million units to 2.52 million units. Affected by the pandemic, overall sales of medium and heavy trucks in global regions declined in mid-2020 to 2.043 million units, but sales of medium and heavy trucks globally returned to normal in 2021.

Geographically, Asia accounted for 54% of global medium and heavy truck sales in 2021, making it the main sales region for the heavy truck market. North America accounted for 20% of global sales, ranking second. Europe accounted for 16% of global sales, ranking third. Other regions around the world accounted for about 11% of sales.

The main global commercial vehicle companies include Daimler, Traton, and Volvo. Among them, the Daimler Group has established a rich brand matrix through acquisitions and other means, covering major truck markets such as Europe and North America, with a leading share in global heavy truck sales. In 2018, its sales were 346,000 units, increasing to 358,000 units in 2019, declining to 294,000 units in 2020, and selling 253,000 units in 2021. From 2018 to 2020, Daimler's global medium and heavy truck sales accounted for about 14% of global sales, which dropped to 10% in 2021. Traton and Volvo are in the second tier.

In Asia, affected by the pandemic, overall sales of medium and heavy trucks in Asia declined in mid-2020 compared to 2019. However, the market performed excellently in 2021, with sales significantly increasing to 1.365 million units compared to previous years; overseas manufacturers in the Asian market include Daimler, Traton, Volvo, DAF, Isuzu, and Hino.

Currently, in the domestic commercial vehicle sector, independent automakers account for more than 95%, while foreign investment is very low. Compared to passenger vehicles, commercial vehicles show a pattern dominated by local enterprises.

However, on June 23, 2020, the National Development and Reform Commission and the Ministry of Commerce issued Orders No. 32 and No. 33, respectively, releasing the 'Special Administrative Measures for Foreign Investment Access (Negative List) (2020 Edition)' and the 'Special Administrative Measures for Foreign Investment Access (Negative List) (2020 Edition) for Pilot Free Trade Zones', which came into effect on July 23, 2020. At the same time, the 'Special Administrative Measures for Foreign Investment Access (Negative List) (2019 Edition)' and the 'Special Administrative Measures for Foreign Investment Access (Negative List) (2019 Edition) for Pilot Free Trade Zones' were repealed.The issuance of a series of policies means that the state is relaxing the share ratio restrictions on commercial vehicles.

In recent years, leading foreign commercial vehicle companies such as Daimler, Volvo, and Traton Hino have gradually strengthened their strategic layout in China and established dealership networks.

At the end of 2021, Daimler Trucks announced its localized Mercedes-Benz tractor product strategy, with domestically produced Mercedes-Benz tractors to be built based on the latest generation Actros platform from Daimler Trucks' global product lineup and offer a rich range of powertrain options to meet different customer needs. The product is expected to be mass-produced at Beijing Foton Daimler Automobile Co., Ltd. (Foton Daimler) in the fourth quarter of 2022.

Traton stated during the Capital Markets Day in Sweden on May 18 that the groundbreaking ceremony for its new Scania China production base was about to take place, with an expected boost in sales after production began.

Image source: Internet

Currently, the world's leading commercial vehicle companies mainly achieve localization production through joint ventures and acquisition of factories.

Joint ventures include two companies: Daimler and Hino.In December 2020, Daimler and BAIC Foton announced plans to transform the Beijing factory (formerly the H6 heavy truck project) to add an annual production line of 50,000 Actros trucks. The joint venture will significantly enhance the price competitiveness of Mercedes-Benz brand trucks in China, while most parts will use the local supply chain, which will further reduce vehicle costs. In October 2020, Hino and BYD announced the establishment of a new joint venture company, which will combine the strengths of both companies to jointly develop pure electric commercial vehicles and electric vehicle parts, and strive to quickly achieve ideal products that meet customer (mainly Asian market) needs.

Companies that use acquisition of factories include Scania and Volvo under Traton.In November 2020, Scania under Traton acquired Nantong Gaokai Automobile Manufacturing Co., Ltd., announcing the construction of a heavy truck manufacturing plant, engine plant, and R&D plant in Rugao, Jiangsu Province. The plan is mainly to promote the construction of the Scania China factory and sales, service, and other networks after localization. Scania China has started to advance related work including parts supply, dealership, and service networks, and is estimated to complete the systematic layout of related work within 1-2 years. In May 2021, Volvo Group acquired Jiangling Heavy Duty Truck Co., Ltd., announcing the construction of a heavy truck manufacturing plant and R&D center in China. Volvo plans to further shorten the cycle from customer order to delivery by establishing new production bases in China, improving its ability to provide customized products and services to customers. Through continuously improving the dealership network, Volvo Trucks China is committed to shortening the service radius of national logistics hubs to 1 hour and regional logistics hubs to 2 hours.

In terms of strategy and service,Daimler will launch a new Mercedes-Benz truck purchase plan tailored to Chinese customer needs, with a down payment as low as 10% and an interest rate as low as 3.4% per year. The company also expects to sell 10,000 units in China by 2023 and 50,000 units by 2025. Scania's 'China' price “and alternatives fuel, digitization, IT strategy, sustainability, future business model, electrification, automation, etc. are proposed as “parallel units” and become one of the eight major strategies. It is unprecedented for a single country to be the focus of the group's strategy, which also shows the group's recognition of the importance of the Chinese market. Volvo will divide the Chinese market into the fifth largest region in the world, while establishing the first domestic uptime center, connecting vehicles, service stations, and backend management to provide users with a better service experience.

In terms of products,Daimler will introduce the domestically produced Actros model, which offers two powertrains: 1) equipped with the latest engines developed by Daimler Trucks; 2) equipped with Cummins heavy truck engines. The product is expected to be mass-produced at Beijing Foton Daimler Automobile Co., Ltd. in the fourth quarter of 2022. Scania under Traton is expected to introduce the new S, R, G, P series, and provide four-wheel drive (4X2) and six-wheel drive (6X2) forms according to the demand characteristics of the Chinese market, while making certain configurations less, such as only providing drum brakes; the headlights are ordinary halogen lamps from before 2015 Scania, with fog lights removed and bumpers made narrower. Decorative parts such as side skirts and wheel hub screw guards are canceled; the rear is air suspension, the braking system returns to drum brakes, and there are no hydraulic retarders. Volvo will introduce models such as Volvo FH, FH16, FM, and FMX.

In terms of the construction of the sales network,Daimler mainly relies on the marketing network of Foton Daimler, covering economically developed regions such as North China, the Yangtze River Delta, and the Pearl River Delta. As of June 2021, there were 35 authorized dealerships for imported Mercedes-Benz trucks in China. Volvo mainly focuses on regions such as Sichuan and Chongqing, as well as the Yangtze River Delta and Pearl River Delta with economically developed logistics industries, covering most parts of China. As of June 2021, Volvo had a total of 61 authorized dealerships in China (the largest number of foreign commercial vehicle enterprises' distribution points in China). Traton mainly focuses on economically developed regions such as the Yangtze River Delta, while also covering areas with harsh transportation environments such as Northeast, South China, and Northwest China. As of June 2021, MAN had a total of 22 authorized dealerships in China, and imported Scania vehicles had a total of 24 authorized dealerships in China.

Compared to domestic commercial vehicle companies, the core competitiveness of foreign high-end heavy trucks lies in their more advanced technology (such as engines, transmissions, axles, and intelligent networking) and lower TCO. The opening up of foreign equity in commercial vehicles will push foreign companies to participate more deeply in the competition for Chinese commercial vehicle markets, forcing market upgrades. The competition for domestic commercial vehicle markets will become even fiercer.