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Commercial EVs offer challenges and opportunities for global fuel and lubricant sector

Commercial Vehicles

June 2023

Alastair Hayfield

Alastair Hayfield

Senior Research Director

Alastair has over 15 years’ experience leading research activities in scaled, high-growth industrial and technology markets. As Senior Research Director of our Commercial Vehicles Division, he’s responsible for cutting-edge research on electric trucks and buses, autonomous trucks and off-highway electrification.

Jamie Fox

Jamie Fox

Principal Analyst

Jamie has over 15 years experience in market intelligence covering components for commercial vehicles including electric vehicles. He holds a BSc in Physics and Astronomy and an MSc in Nanoscale Science and Technology. Jamie is based in Chile.

Significant change is forecast for the global fuel and lubricant industry as the move towards alternative powertrains continues, but opportunities exist.

The movement towards zero-emission commercial vehicles is taking place in both on and off-highway applications and marks a time of huge transition in the global fuel and lubricant markets. Our research predicts the number of commercial battery electric vehicles (BEVs) is set to rise significantly this decade, accounting for 7% of trucks on the road by 2030, with the numbers continuing to grow over the next decade.

According to our forecasts, we will move away from fossil fuels to a point in 15 or 20 years where a large majority of buses, vans, trucks and off-road vehicles will use alternative fuels. This will affect the whole value chain and will require new products, business models and ways of operating throughout the commercial vehicle sector.

The question we have raised in our latest executive report is ‘How will electrification and alternative fuels shape the commercial vehicle fuel and lubricant market?’ The Global Truck, Bus and Off-highway Vehicle Electrification and Alternative Fuel report explores what changes are anticipated across the commercial vehicles segment and looks at how this will shape the future world fuel and lubricant market.

Battery electric will become the leading alternative powertrain to diesel ICE

Although there will be vehicles entering the alternative energy commercial vehicles market with hydrogen internal combustion engines (H2 ICEs), hydrogen fuel cells, and hybrid engines, battery electric will dominate and ultimately overtake the diesel ICE as the leading powertrain.

BEVs are expected to see gradual, steady progress in registrations overall, with more variation based on vehicle type and country. For example, registrations of long-haul trucks are anticipated to accelerate quickly in 2029 but to do very little in 2023, while sales of German buses are likely to be strong in 2023 with growth slowing by 2030.

By 2040, our expectation is that electric vehicles will have a much higher market share, reaching 90%+ penetration in China, Europe and North America, and 70%+ in Latin America, Africa, South-East Asia, and India.

Fuel cell vehicle registrations will remain low over the period under analysis, at 330,000 trucks and buses out of 18-20 million in 2030, largely due to their high running costs, lack of vehicle supply and lack of infrastructure. Hybrid models will also see only modest sales, as OEMs invest in BEVs, which will win over time on both cost and environmental issues.

Diesel fuel demand will fall as battery electric trucks and buses take over

The decline in demand for diesel will start slowly and accelerate towards 2030 as uptake of battery electric trucks and buses grows. The truck market is much larger overall than that of buses and so presents a much larger opportunity for vehicle, component, fuel and lubricant manufacturers. Most of the sales are currently in utility and light-duty trucks, but larger vehicles consume more fuel and lubricants and so represent a larger overall market for these products.

By 2030, shipments of BEVs will be closing in on ICE sales

What opportunities are there in the future for lubricant and fuel companies?

Market demand for diesel is forecast to fall over this decade and this will have a corresponding effect on demand for engine oil additives and fuel additives, while demand for driveline additives will remain relatively stable. Many of the opportunities presented by the changing market for commercial vehicles are expected to be within lubricants rather than fuels, as electric vehicles still require lubrication, but will require new formulations to meet the different demands of BEVs.

We predict the lubricants market will become increasingly competitive as new formulations are developed to optimize performance of EVs and their components, eg motors. Companies such as Afton Chemical are already working with OEMs and developing new eMobility lubricant formulations designed specifically for the needs of the commercial BEV market, with an emphasis on efficiency and reliability.

In some ways, hydrogen ICEs are a more positive trend for lubricant manufacturers than BEVs because they are more similar in terms of components, still require lubricating the transmission, and can use similar formulations. Technical experts we spoke to explained embrittlement is a potential problem for hydrogen engines that can be overcome, and suggested lubricants could form part of the solution with specially designed formulations.

However, we currently forecast low levels of H2 ICE registrations out to 2030 and the high fuel costs for H2 ICE vehicles are currently acting as a deterrent. As a result, H2 ICE is likely to be a small niche with relatively little impact on total demand for lubricants this decade at least.

TCO to drive truck and bus market

TCO (total cost of ownership) is the number one factor in the move towards BEVs, both buses and trucks, with a lag caused by the higher upfront costs compared with diesel ICE vehicles. However, we also identified a range of other factors from our research that affect decision-making, including resistance to change, lower range, lack of charging infrastructure and unfamiliarity. TCO as a factor influencing purchases is dominant in the truck market, where decisions are largely made by private companies that are trying to make a profit. In the bus market, additional factors such as energy independence, legislation, public pressure and the desire for clean air in cities also play a role.

Based on our analysis of historical data, battery electric vehicles only start to win significant market share when the overall TCO advantage is in the range of 20%-50%, although in many cases, that is already the situation today. When overall TCO is at the lower end of the range, most purchasers will opt for diesel ICEs, while at the upper end, the majority of decision-makers will select BEVs.

Trucks lead BEV market but buses have higher market penetration

Buses have tended to move towards electrification faster than trucks as they follow predictable routes, and are often closer to local and regional subsidies. For instance, the electric bus market in China is saturated and so growth is now slow. There is much more scope in electric trucks, which is a much larger market. Medium and heavy-duty electric trucks (above 6.35 tonnes) are due to overtake buses in 2024 (see graph below), while, if the calculation is done including utility and light vehicles, the truck market as a whole overtook buses in 2021.

For early adopters, environmental factors can be more important than TCO, such as the good press potential in being first in city, country or company to adopt more environmentally-friendly technology. This also has the added advantage of being able to test out the technology for future adoption across fleets and can be driven by one or two major companies with a strong ESG focus, or by one or two city mayors.

The electric medium and heavy-duty trucks market will pull ahead of electric buses in 2024

China leading the way in BEV truck sales

Government support over the last decade has helped to drive sales of electric trucks in China, which was ahead of EMEA and far ahead of the Americas region in 2021. However, the US is set to catch up and establish a lead due to there being more total trucks in the US than China. This will be fueled particularly by strong sales of electric pickup trucks, such as the Ford F-150 Lighting and the Tesla Cybertruck, as pickup trucks and other commercial vehicles are often used in a non-commercial way in the US, while EMEA is seeing growth in electric vans (such as the Ford Transit).

The Americas region is poised to overtake China as the leading market for BEV truck shipments

As a result of its current dominance in the BEV truck market, China has 24,075 out of a total 32,040 global registrations of battery electric medium and heavy-duty trucks, so has 9 out of the top 10 manufacturers, led by Sany (13% of total registrations), XCMG and Geely (both on 9%). Most Chinese manufacturers are currently selling domestically and Volvo is on the list at number 8, with more Western (Korean and perhaps Japanese) entrants expected over the coming years as they offer more electrified models.

Direct Drive is currently the leading transmission type

Direct Drive is the most common transmission type and is expected to continue to be in the short to mid-term for medium duty trucks, but this is due to change because of lack of space for large batteries. It will continue to be widely used in utility and light electric vehicles. The single-speed transmission market is currently limited but is expected to grow, along with multi-speed transmission, as eAxles penetrate the market. Multi-speed transmission is already common in China and is expected to expand its reach to other regions.

Off-highway electrification is slower with smaller vehicles leading the way

Electrification in the off-highway market is slower than in the on-highway commercial vehicles market. Material handling solutions, such as forklifts and AWPs are electrifying fastest, as they are low intensity and easy to charge, followed by compact construction equipment such as smaller excavators and skid steers, but these are unlikely to reach 20% penetration by 2030 in most countries. Electrification of machines deployed at remote locations and large equipment that requires high power density is lagging much further behind and electrification has a long way to go in most applications.

Our research indicates that mining trucks will see some growth, as part of efforts to meet environmental goals and because the battery is a smaller part of overall machine cost, but growth will be constrained by the need to get clean energy to mines. ICE is anticipated to dominate in the smaller dump trucks market for some time to come.

What can fuel and lubricant companies do now?

There will undoubtedly be a lot of activity in the fuel and lubricant market this decade, including training, development, reformulation, development and building supply chains. Some of this is already happening, with fuel and lubricant companies often working with OEMs on creating different formulations for their engines, looking to reduce energy use or exploring methods of alleviating the impact of fuels and lubricants on the environment.

The total number of vehicles in operation that are battery electric will increase from a negligible amount to about 1% by 2025 and this will start to have a noticeable impact on demand as new registrations continue to climb.

We believe manufacturers are looking at a gradual transition over the next 2-3 years, but it pays to be ahead of the curve. Seeing corresponding changes within markets such as filter manufacturers and fuel injection systems, it is important to be prepared for the transition to electrification in the long term and to develop clear strategies. By understanding what is happening across the market, how lubricants are used in BEVs in particular, and the implications for your business, it is possible to develop a good overall business strategy that mitigates risk.

One thing lubricant companies can do immediately is pick a partner, such as an engine manufacturer, to work with on different formulations for different components and powertrains. Key trends are emerging towards energy efficiency, sustainability and enhancing the performance and durability of components such as motors. Working with OEM partners will reduce R&D costs and time to market, helping to create products for the BEV and alternative fuel market to replace what will be lost in the ICE market. For example, fuel can be spiked with nickel or zinc to withstand higher pressure from hydrogen, while anti-wear lubricant formulations are particularly important when it comes to keeping BEVs low maintenance and improving TCO. Trials are now underway for H2 ICE vehicles and it is possible to miss the boat in the near future unless understanding the market and developing new products happens now.

In addition, looking at developing new country markets can protect sales growth, with regions such as South America and Africa seeing slower progress towards electrification so that the ICE market will be buoyant for a longer period of time.

Be under no illusion – big change is coming and it will have a substantial impact. But there is still time to understand the challenges and make the most of the opportunities offered by the move towards new energy commercial vehicles.

For more information about the trend towards alternative powertrains and how this will affect the global fuel and lubricant market, download our FREE report here or contact Alastair Hayfield, Senior Research Director at Interact Analysis.

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