Advanced Technologies Catalyzing Recalibration of Growth Strategies in a

Flat-World Eco-System

Advanced Technologies Catalyzing Recalibration of Growth Strategies in a

Flat-World Eco-System

Sandeep Kar

Global Manager – Commercial Vehicle Research

Sandeep Kar

Global Manager – Commercial Vehicle Research

In the Developed World: Increasing Trend of De-Urbanization – Polarization of Commercial Vehicle Classes and Rising Demand for Hybrid / Electric Commercial VehiclesIn the Developed World: Increasing Trend of De-Urbanization – Polarization of Commercial Vehicle Classes and Rising Demand for Hybrid / Electric Commercial Vehicles

Most offices / retail centers move to the first belt suburbs except non cost sensitive activities: city centres becoming shopping areas (small scale deliveries) for expensive goods and living areas for “double income, no kids” households

– Hybrid / electric LCVs deliver peak efficiency and cost benefits in intra-city areas

Manufacturing plants, industry offices move out to the first belt area as also medium income families while manufacturing facilities and low-medium income families relocate in the second and third belt areas with logistics centers created on 2nd belt periphery‘Green wave’ families living outside cities in outer suburban area. Hypermarkets and malls mostly created inside the third belt low cost area (large scales deliveries)

– HCVs, long-haul vehicles, and inter-modal transportation centers support hub-and-spoke logistics infrastructure

Most offices / retail centers move to the first belt suburbs except non cost sensitive activities: city centres becoming shopping areas (small scale deliveries) for expensive goods and living areas for “double income, no kids” households

– Hybrid / electric LCVs deliver peak efficiency and cost benefits in intra-city areas

Manufacturing plants, industry offices move out to the first belt area as also medium income families while manufacturing facilities and low-medium income families relocate in the second and third belt areas with logistics centers created on 2nd belt periphery‘Green wave’ families living outside cities in outer suburban area. Hypermarkets and malls mostly created inside the third belt low cost area (large scales deliveries)

– HCVs, long-haul vehicles, and inter-modal transportation centers support hub-and-spoke logistics infrastructure

1950s Urbanization

2000s Suburbanization

2015s Network City

Urban sprawl, first highways and ring roadUrban sprawl, first highways and ring road

Creation of the historic centre and districtsCreation of the historic centre and districts

Third suburban area and cities along the highways created, ring road overblown by the urban sprawl

Third suburban area and cities along the highways created, ring road overblown by the urban sprawl

2020s: Branded Cities

Source: Frost & Sullivan

Ring Road Motorway, Living

Areas growing outside the ring road as seen in

London

Ring Road Motorway, Living

Areas growing outside the ring road as seen in

London

In the Developing World: By 2020, We Will See Emergence of About 26 Mega Cities Creating Demand for “City Trucks”In the Developing World: By 2020, We Will See Emergence of About 26 Mega Cities Creating Demand for “City Trucks”

Example 1: Johannesburg and Pretoria becomes one BIG Mega City called “Jo-Toria”Example 1: Johannesburg and Pretoria becomes one BIG Mega City called “Jo-Toria”

Example 2: Town planning could evolve with offices and homes adjacent to each other or within a small compound area (e.g. Chennai, Sao Paolo)

Example 2: Town planning could evolve with offices and homes adjacent to each other or within a small compound area (e.g. Chennai, Sao Paolo)

Core CityCore City

Satellite TownsSatellite Towns

HomeHomeOfficeOffice

2020 + Interconnectivity with Sub Satellite Towns

Global Commercial Truck Production: Polarization of Truck Classes – Light and Heavy Commercial Vehicle Segments Growing RapidlyGlobal Commercial Truck Production: Polarization of Truck Classes – Light and Heavy Commercial Vehicle Segments Growing Rapidly

LCVs and HCVs emerging as most prevalent vehicle classes in the global and North American markets, implying polarization of demand. MCVs losing considerable market share in EU. HCVs and LCVs experiencing demand growth in China and India. Higher GVWR ratings imply heavier mega-trucks in Western EU and NA.

LCVs and HCVs emerging as most prevalent vehicle classes in the global and North American markets, implying polarization of demand. MCVs losing considerable market share in EU. HCVs and LCVs experiencing demand growth in China and India. Higher GVWR ratings imply heavier mega-trucks in Western EU and NA.

20082008

Heavy CV 16.9%

Medium CV 7.1%Medium CV 7.1%

Light CV 76.0%Light CV 76.0%

17.89 Million CV17.89 Million CV

MD+HD CV = 4. 2 MillionMD+HD CV = 4. 2 Million

22%

10%

62%

7%

24%

6%

63%

7%

18%

47%

29%

6%

16%

11%

67%

6%

19%

7%

67%

7%

16%

38%

40%

7%

20082008 20202020

EuropeEurope North AmericaNorth America AsiaAsia OthersOthers20202020

23.49 Million CV23.49 Million CV

MD+HD CV = 4. 7 MillionMD+HD CV = 4. 7 Million

Heavy CV 15.4%

Medium CV 4.3%Medium CV 4.3%

Light CV 80.3%Light CV 80.3%

Light Commercial

Vehicles

Medium Commercial

Vehicles

Heavy Commercial

Vehicles

Highest Ranking Benefits of Powertrain Technologies: Clear and Present Demand for Hybrid Powertrain TechnologiesHighest Ranking Benefits of Powertrain Technologies: Clear and Present Demand for Hybrid Powertrain Technologies

6%

5%

5%

17%

59%

5%

6%

6%

6%

6%

9%

20%

19%

17%

5%

8%

8%

10%

10%

22%

18%

12%

0% 20% 40% 60% 80% 100%

#1 Ranking #2 Ranking #3 Ranking

6%

5%

5%

17%

59%

5%

6%

6%

6%

6%

9%

20%

19%

17%

5%

8%

8%

10%

10%

22%

18%

12%

0% 20% 40% 60% 80% 100%

#1 Ranking #2 Ranking #3 Ranking

Access to Powertrain Support InfrastructureAccess to Powertrain Support Infrastructure

Highest Ranking Benefits of Powertrain Technologies (N = 109)Highest Ranking Benefits of Powertrain Technologies (N = 109)

Lower Level EmissionsLower Level Emissions

Lower Weight PenaltyLower Weight Penalty

Reduce IdlingReduce Idling

Residual ValueResidual Value

Effectiveness Under All Operating ConditionsEffectiveness Under All Operating Conditions

Attractive Lifecycle CostsAttractive Lifecycle Costs

Longer LifecycleLonger Lifecycle

Reduced Maintenance RequirementReduced Maintenance Requirement

ReliabilityReliability

Fuel EfficiencyFuel Efficiency

Note: Proportions less than three not shown numerically in chart.Note: Proportions less than three not shown numerically in chart.

Q: When purchasing powertrain technologies, please rank the top three benefits that are most important to your

fleet from the following list below?

Q: When purchasing powertrain technologies, please rank the top three benefits that are most important to your

fleet from the following list below?

Hybrid Powertrain Technologies – offer solutions but pose

challenges too!!

20092009 20202020

Fuel-EconomyEmissions

Lifecycle Cost

Idling

Driver Retention

Truck Design Issues

Class 6-8 Trucks for 2020 – Hybrids Rising in North America and Could Make up 15% of Total Sales by 2020Class 6-8 Trucks for 2020 – Hybrids Rising in North America and Could Make up 15% of Total Sales by 2020

Hybridization of North American Commercial Trucks (Class 6-8): Production Volumes and Market Shares of Major OEMs (2008-2015),

Hybrid Power Source (2009-2012)

Hybridization of North American Commercial Trucks (Class 6-8): Production Volumes and Market Shares of Major OEMs (2008-2015),

Hybrid Power Source (2009-2012)

20082008

PACCAR 27%

Navistar 62%Navistar 62%

Daimler 11%Daimler 11%

Hybrid ProductionHybrid Production 600600

20152015

PACCAR 23%

Navistar 39%Navistar 39%

Daimler 16%Daimler 16%

Hybrid ProductionHybrid Production 39,40039,400

Volvo/Mack 11%Others 11%

8% of Class 6-8 Truck Production

8% of Class 6-8 Truck Production

0

2,500

5,000

7,500

10,000

12,500

2009 2010 2011 2012

Electric Hybrid Hydraulic Hybrid

0

2,500

5,000

7,500

10,000

12,500

2009 2010 2011 2012

Electric Hybrid Hydraulic Hybrid

1,1001,100 2,3002,300

5,6005,600

10,70010,700

Hybrid Truck ProductionHybrid Truck Production

Conventional HD Trucks

Hybrid HD Trucks

Electric Commercial Vehicle Market: Open for BusinessElectric Commercial Vehicle Market: Open for Business

Without Government funds EV do not have a future, as initial cost is very high

Without Government funds EV do not have a future, as initial cost is very high

Electric Vehicle Market: Definition of Electric Commercial Vehicle Attractiveness (NA), 2009

Electric Vehicle Market: Definition of Electric Commercial Vehicle Attractiveness (NA), 2009

Standard Route from a depot / warehouse / distribution center to various client locations and

back to warehouse

Standard Route from a depot / warehouse / distribution center to various client locations and

back to warehouse

DepotDepot

Total of 18,929 units sold in 2016 from 1,982 units in 2010 at CAGR of 38%

Best Fit for Electric Commercial Vehicles: Urban/semi-urban distribution (typically under 100 miles) and GVWR< 7.5 TonnesBest Fit for Electric Commercial Vehicles: Urban/semi-urban distribution (typically under 100 miles) and GVWR< 7.5 Tonnes

Inter Urban distribution

1118

Long distance1726

40

12

7.5

3.5

GCW / GVW 1* GCW / GVW 1* (tonne)(tonne)

Long distance25

Urban distribution7.2

Urban distribution4

Urban distribution1.5

Pure Electric Pure Electric AttractivenessAttractiveness

Typical ApplicationTypical ApplicationLoad Capacity Load Capacity (tonne)(tonne)

Voice of Your Customers: Fleet Managers Demanding Less Data, More Information that Enables Cost SavingsVoice of Your Customers: Fleet Managers Demanding Less Data, More Information that Enables Cost Savings

41%

20%

7%

14%

9%

10%

7%

9%

6%

6%

11%

5%

6%

6%

9%

7%

6%

10%

9%

7%

8%

20% 16%

15%

15%

0% 20% 40% 60% 80%

#1 ranking #2 ranking #3 ranking

41%

20%

7%

14%

9%

10%

7%

9%

6%

6%

11%

5%

6%

6%

9%

7%

6%

10%

9%

7%

8%

20% 16%

15%

15%

0% 20% 40% 60% 80%

#1 ranking #2 ranking #3 ranking

PrognosticsPrognostics

SchedulingScheduling

Security of Mobile ResourcesSecurity of Mobile Resources

Remote Diagnostics & PrognosticsRemote Diagnostics & Prognostics

Driver Retention & Insulation from Technician ShortageDriver Retention & Insulation from Technician Shortage

Back-office AutomationBack-office Automation

Real-time Monitoring of Key Vehicular SystemsReal-time Monitoring of Key Vehicular Systems

Regulation ComplianceRegulation Compliance

Screen Unsafe Drivers & Reduce Unsafe Driving PracticesScreen Unsafe Drivers & Reduce Unsafe Driving Practices

Mobile Resource (Driver & Vehicle) Productivity MaximizationMobile Resource (Driver & Vehicle) Productivity Maximization

Cost SavingsCost Savings

Note: Proportions less than three not shown numerically in chart.Note: Proportions less than three not shown numerically in chart.

Safety of Mobile ResourcesSafety of Mobile Resources

Product Demand (Application)Product Demand (Application)

Remote Diagnostics & Prognostics at

$12/month

50%

Remote Diagnostics & Prognostics at

$12/month

50%

Back-office Automation at

$6/month

50%

Back-office Automation at

$6/month

50%

Q: When purchasing telematics technologies, please rank the top three benefits that are most important to your

fleet from the following list below?

Q: When purchasing telematics technologies, please rank the top three benefits that are most important to your

fleet from the following list below?

Purchase Intentions of Advanced Safety Technologies: Not Just About Safety

Purchase Intentions of Advanced Safety Technologies: Not Just About Safety

Source: Frost & Sullivan

Q: How likely you'd be to buy any of these safety technologies…

Q: How likely you'd be to buy any of these safety technologies…

Advanced Safety TechnologyAdvanced Safety Technology

(N=109)(N=109)

Level of Purchase IntentionLevel of Purchase Intention

Active

(Are Considering)

Passive

(Might Consider)No Interest

Tire Pressure Monitoring SystemTire Pressure Monitoring System 55% 39% 6%

Disc Brakes and Larger Drum BrakesDisc Brakes and Larger Drum Brakes 51% 46% 3%

Tractor-based Roll Stability ControlTractor-based Roll Stability Control 35% 57% 8%

Blind-spot Detection SystemBlind-spot Detection System 31% 63% 6%

Driver Drowsiness/Distraction WarningDriver Drowsiness/Distraction Warning 31% 62% 7%

Electronic Stability ControlElectronic Stability Control 31% 61% 8%

Lane Departure WarningLane Departure Warning 31% 60% 9%

Trailer-based Stability ControlTrailer-based Stability Control 29% 57% 14%

Forward Collision WarningForward Collision Warning 19% 69% 12%

Adaptive Cruise ControlAdaptive Cruise Control 18% 69% 13%

Automatic Collision Mitigation SystemAutomatic Collision Mitigation System 18% 69% 13%

Night VisionNight Vision 17% 67% 16%

So What Will be the Next Big Factor for Product Differentiation After ‘Soft Technologies’So What Will be the Next Big Factor for Product Differentiation After ‘Soft Technologies’

OEMs generally tend to focus on one of the 7 key factors (as shown on the right) for positioning of their vehicle brands

For each factor OEMs evaluate whether they want to be ‘best-in-class (BIC)’, ‘amongst the leader’ or ‘a follower’

Those factors which strengthen their brand values are normally bracketed in the ‘BIC’ box (e.g. Volvo for safety, Navistar for telematics, Kenworth for aerodynamics)

This new factor will evolve from the current focus on environment. We already see huge evidence of this factor in modern society

OEMs generally tend to focus on one of the 7 key factors (as shown on the right) for positioning of their vehicle brands

For each factor OEMs evaluate whether they want to be ‘best-in-class (BIC)’, ‘amongst the leader’ or ‘a follower’

Those factors which strengthen their brand values are normally bracketed in the ‘BIC’ box (e.g. Volvo for safety, Navistar for telematics, Kenworth for aerodynamics)

This new factor will evolve from the current focus on environment. We already see huge evidence of this factor in modern society

“Health, Wellness and Well-Being” is Expected to be the Next Key Product

Differentiation Factor for OEMs

“Health, Wellness and Well-Being” is Expected to be the Next Key Product

Differentiation Factor for OEMs

Factors which currently form basis of differentiation among OEMs

Factors which currently form basis of differentiation among OEMs

TelematicsTelematics

Driving ExperienceDriving Experience

Comfort and ConvenienceComfort and Convenience

Lifecycle CostLifecycle Cost

SafetySafety

Vocation ApplicabilityVocation Applicability

Fuel-efficiencyFuel-efficiency

Source: Frost & Sullivan

Frost & Sullivan Conducted a Focus Group, Findings of Which Showed that the 3 Cornerstones – The Body, Mind and Soul – Contribute to Driver’s Definition of HWW

Frost & Sullivan Conducted a Focus Group, Findings of Which Showed that the 3 Cornerstones – The Body, Mind and Soul – Contribute to Driver’s Definition of HWW

The Truck Cabin is a WORKPLACE, Regulations Expected to Enter The Cabin

The Truck Cabin is a WORKPLACE, Regulations Expected to Enter The Cabin

MoodSense of connectivityStress levelsMental healthSense of optimismAttitudeSecuritySafety

MoodSense of connectivityStress levelsMental healthSense of optimismAttitudeSecuritySafety

Personal valuesPersonal fulfilmentSelf image / self actualisation

Personal valuesPersonal fulfilmentSelf image / self actualisation

Sight / vision

Touch & feel

Smell / breathing

Noise

Temperature

Wellness

Sight / vision

Touch & feel

Smell / breathing

Noise

Temperature

Wellness

MindMindBodyBody

SoulSoul

Suppliers Technology Portfolio Analysis (NA): Powertrain, Telematics and Safety Technologies to Experience Most GrowthSuppliers Technology Portfolio Analysis (NA): Powertrain, Telematics and Safety Technologies to Experience Most Growth

TechnologyTechnology Installation%Installation%20052005

Installation %Installation %20152015

RevenuesRevenues2005 (Million $)2005 (Million $)

RevenuesRevenues2015 (Million $)2015 (Million $)

Selective Catalytic Reduction (SCR) (Class 6-8) 0.0 76.0 0.0 2,657.4Automatic Transmission (Class 6-8) 17.8 21.2 566.5 932.4Exhaust Gas Recirculation (EGR) (Class 6-8) 0.0 24.0 0.0 479.5Diesel Particulate Filter (Class 6-8) 0.0 100.0 0.0 412.5Hybrid Electric Powertrain (Class 6-8) 0.0 5.7 0.0 332.7Diesel Oxidation Catalyst (Class 6-8) 27.1 100.0 165.0 247.5Hybrid Hydraulic Powertrain (Class 6-8) 0.0 2.3 0.0 74.1Electronic Stability Control (Class 6-8) 2.0 45.7 6.3 77.2Tire Pressure Monitoring System (Class 6-8) 0.0 47.6 0.0 64.1Integrated Collision Mitigation System (Class 6-8) 0.0 12.1 0.0 63.0Lane Departure Warning (Class 6-8) 0.9 6.6 3.1 13.2Blind Spot Detection (Class 6-8) 0.9 17.1 1.7 12.2Forward Collision Warning (Class 6-8) 0.8 3.6 4.2 11.8

Telematics – Penetration of CV Population 3.8 28.2 957.7 6,500.3

Telematics – Penetration of School Bus Population 2.7 37.4 4.5 82.3

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Fuel Economy, Mobile Resource Productivity, Safety, Regulation Compliance Cost Reduction

Fuel Economy, Mobile Resource Productivity, Safety, Regulation Compliance Cost Reduction

Key Trends and Performance Indicators, (2009-2020)Key Trends and Performance Indicators, (2009-2020)

Trends andPerformance

Indicators

Global Harmonization of Platforms and Technologies

Cap and Trade Operating Environment

Alternative Powertrain Technologies

Rising Distributed Electronics- MRM, Prognostics Less Data More Information

Expansion in Soft Technology Revenues

Diminishing Engine Footprint

Legislative Move Towards Higher GVWR

Trend Towards Vertical Integration

Steady Reduction in Truck and System Form-Factor

BRIC Strategy, NA and EU StrategyLCVs and Mega-trucks (3.5T to <60T)Baseline Globally Harmonized Emission and Safety Technologies

BRIC Strategy, NA and EU StrategyLCVs and Mega-trucks (3.5T to <60T)Baseline Globally Harmonized Emission and Safety Technologies

Greater Reliance on Advanced Turbochargers, Advanced Propulsion TechnologiesGreater Reliance on Advanced Turbochargers, Advanced Propulsion Technologies

Mega Trucks, More Axles per Truck, Revenue Expansion for Chassis Systems, Inter-modal ExposureMega Trucks, More Axles per Truck, Revenue Expansion for Chassis Systems, Inter-modal Exposure

Active Role in Policy Formulation to Benefit From Regulations Active Role in Policy Formulation to Benefit From Regulations

Virtual Integration, Consolidation, Global Diversification, Adjacent Market OpportunitiesVirtual Integration, Consolidation, Global Diversification, Adjacent Market Opportunities

Concerted Strategies Towards Weight Reduction, 3,000 LBs Reduction= 500 Gallons of Fuel, 5 MT of CO2 reductionConcerted Strategies Towards Weight Reduction, 3,000 LBs Reduction= 500 Gallons of Fuel, 5 MT of CO2 reduction

Coexistence of Hybrid, CNG, LPG, Biodiesel , Electric, Fuel-cellCoexistence of Hybrid, CNG, LPG, Biodiesel , Electric, Fuel-cell

Multiplexed Architecture, Electronic Interfaces, Vehicle Networking Technologies, Time and Mission Critical Information DeliveryMultiplexed Architecture, Electronic Interfaces, Vehicle Networking Technologies, Time and Mission Critical Information Delivery

15-20% of Revenues of Truck and System Sales Through Soft Technologies15-20% of Revenues of Truck and System Sales Through Soft Technologies

Questions?Questions?

Sandeep KarGlobal Program Manager – Commercial Vehicles Research

Direct: 416.490.7796Fax: 416.490.1533

Email: skar@frost.com

Sandeep KarGlobal Program Manager – Commercial Vehicles Research

Direct: 416.490.7796Fax: 416.490.1533

Email: skar@frost.com