A Snapshot From Sylvain Gavard

• New European CO2 standards for trucks and other heavy-duty vehicles will be implemented in 2025, but demand for alternative fuel trucks remains very low
• CNHI’s Iveco pivoting away from gas solutions to favor cooperation with Nikola Motor Co. for fuel-cell solutions

Background
On Sept. 3, CNH Industrial N.V. announced a strategic partnership with Nikola Motor Co. to accelerate the adoption of fuel-cell technology in Class 8 Heavy Duty Trucks in North America and Europe. The partnership was a significant topic of discussion on the company’s 3Q19 earnings call on Nov. 6. OTR Global’s sources in Western Europe have historically shared many thoughts on the evolution of alternative fuel solutions in the class 8 truck industry, including the leading role played by CNHI’s Iveco in the liquid natural gas (LNG) segment. The following commentary was taken from interviews with Western European sources for OTR Global’s Oct. 9 Heavy-Duty Trucks report.

Extremely Low Demand from Heavy-Duty Truck Segment
In June 2019, the European Council adopted Europe's first-ever CO2 emission standards for trucks and other heavy-duty vehicles, set to be put in place in 2025. While these standards are expected to drive increased demand for trucks using alternative fuels, Western European sources interviewed in OTR Global’s Oct. 9 Heavy-Duty Trucks report said demand for such trucks so far remains extremely low. Sources said trucks powered by liquefied natural gas (LNG) are the most attractive alternative-fuel solution so far, but unattractive pricing, the lack of LNG infrastructure throughout Europe, potentially low resell prices and the end of the German toll incentives for gas trucks in 2020 heavily weighed on demand. A German Scania (Volkswagen AB) dealer said, “We are still talking of very low levels, like less than 1% of all heavy-duty truck sales that are with liquid natural gas (LNG). There are a lot of risks involved: the German toll exemption that was given as an incentive will run out at the end of 2020. It will therefore become quite expensive for truck operators.” A French Volvo AB dealer said, “It's nice to sell [LNG] trucks, but the resell value is actually close to zero. Nobody knows if you will be able to sell used LNG trucks in five years... And they certainly will not sell well in Eastern Europe, Middle East or Africa.” Several European dealers even said they advised their customers against the purchase of trucks using these solutions. A French Volvo dealer said, “We are not encouraging purchases of LNG trucks (…) We have a study showing that it is interesting only if your truck makes 150,000 km/year. That's a lot. Then, there are not enough LNG stations, and security is a problem in the workshops.”

Looking at full electrification solutions, sources said limited range and high purchase prices make them an nonviable solution for heavy-duty trucks. A French Volvo dealer said, “Volvo has presented its full electric model, the ‘Volvo FL Electric’, and we believe it’s much better than gas, as there is no need for an infrastructure change. But there is no strong demand, except from companies doing business downtown. That's only for small trucks.” A French Paccar Inc. DAF dealer said, “DAF upper management has been very clear lately, saying, ‘We have to be pragmatic. We will switch to alternative technologies when things will clear up and a serious technology is adopted. So far, it is too unpredictable. the market is not mature.’”

Iveco Gives Up Lead in Gas Solutions to Focus on Fuel Cell
European dealer sources said CNHI's Iveco was more advanced than its competitors with its LNG solutions, but several noted that Iveco’s new CEO Hubertus Mühlhäuser expressed more interest in fuel-cell technology than in natural gas through the partnership with Nikola Motor Co., which was announced in September. A German DAF dealer said, “Iveco started as a pioneer on natural gas, and nearly no other brand followed as strongly. Now, Iveco’s new CEO, a German, again placed the topic of alternative technologies on the agenda, and he is investing in fuel cells. Also, DAF, through its cooperation with Toyota [Motor Corp.], is experimenting with this technology. I think that in five years this will come to the market. I do not believe in natural gas as the ultimate solution, and from what I hear in the industry, fuel cells will be the next big thing before natural gas even comes to full blossom.” Another source said, “Nobody is more advanced with alternative fuel solutions so far. The failure of Iveco with gas is an excellent example of that.” French DAF dealer

Additional Quotes
“Trucks on Europe's roads will be cleaner starting in 2025. Under the new European rules, manufacturers will be required to cut carbon dioxide emissions from new trucks on average by 15% from 2025 and by 30% from 2030, compared with 2019 levels. This will boost demand for alternative fuels. We believe in electric and hydrogen trucks. Demand will develop first with urban trucks, which are light and medium trucks, but we believe that by 2025, 3% of our total truck production will be electric. The problem remains infrastructure, though: we need to build proper charging stations that need to provide 300kW/h. We don't believe in CNG or LNG because those are still fossil solutions, and they require even more infrastructure than electricity” U.K. DAF dealer

“Customers are asking a lot about electric trucks, but more for light and medium trucks. In any case, there is very small interest.” U.K. Volvo dealer

“The only segment interested in alternative fuels is the one active in ‘the last 100 km.’” French DAF dealer

“So far, the total sales of trucks using natural gas in Spain is less than 3%. And electric trucks are less than 1%.” Spanish DAF dealer