The electric vehicle transition gets heavy

Welcome back. Hedge funds are loading up on short bets against European carmakers, the FT reported this week, adding to downward pressure on their valuations as investors respond to the rapid rise of Chinese electric vehicles.

In contrast, shares in the continent’s truckmakers — another long-established powerhouse of European industry — have been holding up remarkably well, with the electric disruption of road freight widely forecast to be far more gradual than in the passenger car space.

But with Chinese electric truckmakers enjoying booming sales at home, and now targeting growth in western markets, could this sector’s green transformation proceed more rapidly than expected?

The truck transition is picking up speed

This is a year of celebration at Daimler Truck, the world’s biggest producer by sales of heavy-duty lorries. The German company is holding a series of events and exhibitions to mark the 130th anniversary of the world’s first motorised truck, which was brought to market by its founder in 1896.

But Chinese rivals are looking to crash the party — by going global with electric models that are casting doubt on the future of the combustion-engine trucks pioneered by Gottlieb Daimler.

Conventional wisdom has long held that heavy commercial vehicles — the backbone of global road freight — will go electric at a sluggish pace, due to the onerous weight of the batteries required, concerns about charging infrastructure and the prohibitive upfront cost.

Even after electric vehicles seize the lion’s share of passenger car markets, the story goes, we can expect rumbling diesel truck engines to keep disgorging greenhouse gases and noxious pollutants for many more years to come.

The China effect

Chinese truckmakers are now putting that theory to a tough test. Global sales of electric heavy freight trucks (weighing 15 tonnes or more) almost tripled last year to about 230,000, according to the International Energy Agency. This was driven overwhelmingly by growth in China, where electric models accounted for 28 per cent of total heavy truck sales.

Last Friday, the country’s transport ministry unveiled a new national strategy to accelerate the transition in the sector. By 2030, it said, “new energy” models should account for 40 per cent of all heavy trucks sold in China, and a fifth of all those on the roads.

Considering the recent pace of growth, the sales target itself is fairly conservative, in keeping with Beijing’s usual form on its clean energy goals. Zeng Yuqun, chair of China’s biggest battery maker CATL, has predicted that electric trucks will account for more than half of the market by 2028.

More striking — and more ominous for truckmakers elsewhere — is the fact that Beijing has now identified China’s electric truck sector as a national priority. The move comes as China steps up efforts to reduce its reliance on imported fossil fuels, following turmoil in the oil and gas markets caused by the Strait of Hormuz crisis.

Officials are tasked with implementing a wide range of supporting policies, which include ensuring the creation of 30,000km of “zero-carbon highway transportation corridors” and 3,000 truck charging and battery-swapping stations, as well as broader backing for technological development in the space.

Westward bound

Chinese truckmakers are now using the surging domestic demand — driven by plunging battery costs as well as supportive government policy — as a launch pad for international expansion. Half a dozen are set to launch this year in the European market, which is still dominated by European truckmakers such as Daimler.

Electric models accounted for less than 2 per cent of EU heavy truck sales last year, with roughly 5,000 units sold, according to the International Council on Clean Transportation. But electric sales are set for a boost from EU green rules, which require manufacturers to progressively reduce average emissions from their trucks over the coming years. By 2040, these must fall at least 90 per cent from 2019 levels.

Like their peers in the passenger car sector, European truckmakers have been lobbying hard for concessions on the EU’s emissions rules — but have won only limited relief.

Unlike the carmakers, however, their share prices have been doing rather well. Daimler’s stock is up 41 per cent since it was spun out from Mercedes-Benz in December 2021 — compared with a 36 per cent fall for Mercedes and a 52 per cent slump for Volkswagen (a fall that would have been significantly heavier without the robust stock market performance of truck business Traton, which is mostly owned by VW).

One factor protecting the established European truckmakers from Chinese competitors is their deeply embedded relationships with key clients, notes Max Molliere, an e-mobility analyst at the non-profit group Transport & Environment.

There’s also the fact that, while the truck sector’s electric shift is now picking up speed, it’s still expected to lag the pace of the transition in passenger cars. In its annual electric vehicle outlook published yesterday, BloombergNEF forecast that electric models would account for just over half of European sales of heavy and medium-duty trucks in 2040.

The road ahead

Such projections could prove too modest, argues Stephen Meersman, co-founder of Zenobē, a UK-based company focused on electric bus and truck infrastructure and battery storage, which this week announced it had raised £980mn in new debt finance from investors including KKR.

Meersman predicts that demand for electric trucks will surge as their costs continue to decline — even in the US market, which Zenobē entered in March through the acquisition of commercial fleet electrification company Revolv.

Fewer than 4,000 electric heavy trucks have been sold to date in the US, according to analysts at Wood Mackenzie, with high prices acting as a brake on demand. But they reckon the picture could change dramatically with this year’s full commercial launch in the US of Tesla’s long-awaited Semi heavy truck, and a competing model from China’s Windrose, assembled in US factories.

Both are expected to sell for less than $300,000, compared with typical prices well above $400,000 for electric models at present on the market. That’s still a fair whack more than the price of diesel models — but given the lower running costs, fleet owners could recoup the difference in as little as three years, Wood Mackenzie estimates.

A big question hanging over this shift is whether charging infrastructure can be rolled out at the scale required, both at fleet operators’ own depots and at public charging stations. In the US, the federal government’s pro-fossil fuel agenda will raise doubts about this prospect.

And while the EU has promised to support vast investment in charging systems, this is materialising far too slowly, Daimler and other European truckmakers wrote in a letter to EU officials on May 27, complaining that this was undermining their efforts to bring zero-emission trucks to market.

“We remain fully committed to Europe’s climate ambitions,” they wrote, while warning that the decarbonisation of commercial vehicles “remains constrained by structural barriers that are beyond the control of any single manufacturer”.

Uncertainty about the rollout of charging infrastructure is a valid concern, concedes Meersman at Zenobē. But as China’s new generation of electric-first truckmakers takes to the international stage, the incumbent industry leaders can’t afford to slow-pedal their own low-carbon strategies, he warns. “Frankly, they’ve got to get on with it, or they’re going to have a real problem on their hands.”

Smart reads