The global market for components to the off-highway machinery market – hydraulics, gears, electronics and electric powertrains – is forecast to be worth $50 billion by 2030. However, the market is stuck in the slow lane for three key reasons:

• A lack of policies and regulations related to emissions, safety and automation
• OEM sluggishness when it comes to introducing new features and technologies
• High mix, low volume applications that require significant customization limits scale

The market for global off-highway components is stuck in the slow lane, dampening price inflation.

Unlike the global automotive market, there are relatively few specific policies incentivizing adoption of less polluting, safer, or automated machines in the off-highway market. This means the use of high value powertrains or electronic components is limited to a very few applications and country markets.

As can be seen in the chart above, the average value of components in a machine across all machine types is forecast to barely increase between now and 2030. OEMs exert significant pricing pressure on suppliers and sales of lower value machines are growing faster than those of higher-value ones. This means that revenue growth is constrained for suppliers and there needs to be a focus on different ways to boost wider adoption of higher value components.

Growing the pie

If off-highway suppliers want to accelerate revenue growth, then focusing on achieving faster adoption of electrified and automation/safety technologies is paramount. The chart below shows precisely why this is impactful – a large internal combustion engine excavator with no automation features has a component bill-of-materials (BoM) of about $75,000. A large battery electric excavator with safety and automation features has a component BoM of about $300,000 (2024 values).

Faster adoption of electrified and automation/safety technologies could accelerate revenue growth

Driving faster adoption will not be easy, though.

Influencing policy makers takes time and they may not, at the end of the day, enact what you want them to enact. But this doesn’t mean suppliers and OEMs shouldn’t try (and, in fact, many are already doing so). The biggest long-term win here would be to get policy makers to promote high efficiency, low emission technologies and advanced technology features.

Suppliers are also limited by how quickly OEMs want to introduce new features and technologies. To a degree, they have little control over this. OEMs will typically only introduce features they think add value to their machines and that end users will pay for. And end users in the off-highway market are very cost conscious. But, with rising pressure from Chinese OEMs in multiple geographies and machine applications, there should be growing incentives for OEMs to innovate and differentiate with new features. This is a proactive step that suppliers can help their OEMs with, by focusing on addressing the challenges that OEMs’ customers face.

The off-highway market is low volume and high-mix – there are huge numbers of machine types for lots of different applications, and sometimes only a handful of particular machines are sold each year. This makes it exceptionally challenging to scale solutions and technologies when they may only be used in a few machines before they have to be modified for use elsewhere. This pushes up costs and limits how widely technologies can be deployed.

One solution here would be for the off-highway market to try to standardize more vehicle platforms and borrow a trick from automotive – software defined vehicles (SDVs). SDVs allow flexibility to be deployed in software, not hardware. It remains unclear how practical this approach might be, but if it’s successful it could allow system costs to be reduced and wider deployment.

Is this an intractable market condition?

There are undoubtedly challenges in the off-highway market to accelerating growth and they cannot be solved overnight. But I would challenge suppliers and OEMs to push for greater adoption of advanced technologies, not only to grow revenues, but also to be better prepared for competitive threats.

For more information about our Off-Highway components research, contact Alastair Hayfield, or browse our reports: Off-Highway Electronics – Off-Highway Powertrain – Mobile Hydraulics