FPC Future Powertrain 2018 Electrification of Off-Road and CV Powertrains Cutting Through the Hype. Knibb, Gormezano and Partners

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1 FPC Future Powertrain 2018 Electrification of Off-Road and CV Powertrains Cutting Through the Hype Alex Woodrow, Managing Director Knibb, Gormezano and Partners February FPC 2018

2 Summary Reports available at Bi-weekly Free Briefings at 2 FPC 2018

3 Acronyms AG Agricultural machinery ADT/RDT Articulated/Rigid Dump Truck BHL Backhoe Loader CECE/CEMA European Construction/Agricultural Equipment Manufacturers Associations Councils CSR Corporate Social Responsibility CREX Crawler Excavator CV Commercial Vehicle GHG Greenhouse Gas (CO 2, CH 4 etc.) ISC/ISM In-service Compliance/Monitoring MEX Mini Excavator OBD Onboard Diagnostics WHL Wheeled Loader RTLT Rough Terrain Lift Truck (Telescopic) Telehandler TIV Total Industry Volume 3 FPC 2018

4 CV vs NRMM Annual Production Volume (Million) CV Medium Truck, Heavy Truck, Heavy Bus NRMM AG Tractors, Harvester, Construction Equipment, *Diesel Materials Handling, Niche AG Global CV Production >6T Global NRMM Production* Heavy Truck (16t+) Medium Truck (6-16t) Heavy Bus (6t+) Agriculture Construction/ Earthmoving Material Handling Niche Agriculture Source: KGP CV Engine/NRMM Engine Forecast Q3 17 FPC 2018

5 Technology Roadmaps Automotive Council Roadmaps Need to consider technology transfer between segments 5 FPC 2018

6 Drivers Legislation Trends CV Europe Euro VI Euro VII? U.S. EPA 10 Brazil P-7 P-8 China China V China VI a China VI b India BS IV BS VI BS VI/PEMS? Japan JP 09 JP 16 NOₓ NOₓ Tightening? NO₂? PM₁₀ PM₂.₅?? ISC LEZ ZEZ? CO₂ CO₂ Tightening? 6 FPC 2018

7 CV Total Market Regulated vs Unregulated 2021 (000s) 2,009 1, Euro IV or greater Euro III or less 93% 94% 85% By % will be Euro VI or equivalent But 7% 6% 15% CO 2 legislation will start becoming stringent in all major markets Heavy Medium Heavy Bus 7 Source: KGP NRMM Q Engine Forecast FPC 2018

8 Drivers - Air Quality Indicators Europe and China London Emissions Inventory PM 2013 Industry 3% NRMM 8% Other 15% Road Transport 51% Resuspen sion 23% 8 Source: AQICN.org/ FPC 2018

9 CO 2 /FE Legislation - CV 9 FPC 2018

10 Drivers Are we at the inflection between the OEM/Operator and Social impact? OEMs/Operators Fuel Cost Productivity t(-10-5y) Noxious Emissions TCO t(-5-0y) Local Air Quality Noise Emissions t? Lifecycle Cost CSR GHG/CO 2/ Carbon Neutrality Safety Electrification Hybridisation Autonomy Digitalisation Competitiveness Supply Chain Integration Infrastructure Society 10 FPC 2018

11 Digitisation and Advanced Vehicle Technologies will Combine NB Not exhaustive Digitisation Platooning Telematics Condition Based Maintenance Smart Routing V2V RCCI All Electric Range (Last mile) 48W Automated Manual Thermal Management Electrical Accessories Mild Hybrid 99.5% NO X Conversion? SCR on DPF Solid Urea Systems Vehicle Technologies 11 FPC 2018

12 Technology Availability CV Market 12 FPC 2018

13 CV Total Market Environmental Scenario 2024 (TIV 3.8m Units) 2, % % s Diesel Electric 75% 89% 2% 50% 2% 81% 84% Full Parallel HEV Full Parallel PHEV Full Series HEV Micro HEV Mild HEV Natural Gas 8% 5% 2% 37% 2% 1% 9% 7% 4% 6% 7% 3% 7% 7% Asia Pacific C & E Europe EU & EFTA North America South America ROW 13 Source: KGP Q GCVEAT FPC 2018

14 Drivers Legislation Trends - NRMM Europe U.S. Brazil Stage IV Stage V Tier 4 Final Stage IIIA China India Stage III Stage IIIA Stage IV Stage V Japan MLIT 3 MLIT 4 NOₓ NOₓ Tightening? NO₂? PM₁₀ PM₂.₅?? ISM LEZ ISC? ZEZ? CO₂? CO₂ Tightening? >56kW Tightening? 14 FPC 2018

15 Market - NRMM 2016 Production 000s by Power Band TIV 3.0m Units Agriculture 49% 48% 63% 44% 34% 47% Construction Material Handling Niche Agriculture 82% 15% 43% 62% 51% 23% 49% 34% 0% 11% 8% 3% 13% 2% 11% 1% 2% 2% 3% <19kW 19-36kW 37-56kW 56-75kW kW kW kW 15 Source: KGP NRMM Q Engine Forecast FPC 2018

16 Drivers CECE/CEMA 4 Columns Need for considerable further development Machine Efficiency Operating Efficiency Autonomy Process Efficiency Alternative Energy e.g. Load sensing hydraulics Electronic engines System optimisation e.g. Driver training and comfort Systems monitoring, optimisation and downtime reduction e.g. Advanced tool changes e.g. Hybridisation Electrification Natural Gas Digitisation 16 FPC 2018

17 Drivers Air Quality Fleet Renewal Estimated EU Equipment Population Millions Stage II or less Stage III Stage IIIB Stage IV Stage V Newer machines average hours are higher than older machines Smaller <56kW use disproportionately less fuel 17 Source: KGP Parc Model FPC 2018

18 Drivers - Fuel Consumption NRMM 200 Fuel Consumption Litres Per Hour Medium Load Fuel cost #1 variable cost >20-30l (HCV ~30l/h) Electric single shift possible Low High 18 Source: Caterpillar FPC 2018

19 Drivers - Duty Cycles CV vs NRMM ADT 40T CV 19 FPC 2018

20 Technology Options Hybrid/Electric & Downsizing Potential Application WHL ADT CREX MH AG Energy Saving Potential Engine Transmission Hydraulics Duty Cycle Load Hours +/++ ++/+++ ++/ /++ Hybridisation/Electrification Potential Mild Hybrid/48V Series Electric +/ / /- Mechanical Downsizing Source: KGP Analysis FPC 2018

21 Electrification NRMM - Current State of Alternative Fuels (NB not exhaustive!) Machine Diesel LPG/ Gasoline CNG/LNG/BG Electric Electric Drive Hybrid Fuel Cell Forklift AG Tractor Combine Harvesters Skid Steer Loaders Backhoe Loaders Wheel Loaders Mini Excavators Excavators Crawler Dozers Rigid Dump Trucks Mining Excavators Underground Mining RTLT Not to mention GTL, HVO, DME, 100% Bio-Diesel etc. Dominant Widespread Infancy/Declining Low Volume Prototype 21 FPC 2018

22 Technology Availability - NRMM Midi Excavator - 38kWh Battery Mini Wheel Loader 14kWh Battery Mini Site Dumper 7.3kWh Mini Excavator Diesel Engine APU Caterpillar D7E Dozer Electric Drive Komatsu 4 th Gen Hybrid Excavator Deere 644k Hybrid Wheel Loader Hitachi Electric Drive RDT 22 FPC 2018

23 Hybrid & Electric Suitability Fuel Consumption 100l/h 50l/h 20l/h <56kW CE/AG/MH 56kW 130kW 560kW 23 FPC 2018

24 Technology Options - Battery Sizing for Electric Applications Mercedes etruck (100kM) Tesla S (400km) Tractor (130kW) Backhoe Loader (7t) Tractor (50kW 5hrs) 8h Shift kwh Efficiency improvements will CREX (30t) Forklift (2t) reduce battery size Hydraulics may be replaced by motors Cost to fall below $200kWh Needs charging solutions for mobile work sites Resale value/ In-field service and maintenance MEX (2t) Source: KGP Estimates, JCB, Public Domain FPC 2018

25 Technology Options Short Term CV Technology Carry Over Carry Over Technology Comments High Medium Stop-Start 48V Electrical Accessories Predictive Cruise Control Combustion Control Thermal Management Downsizing Advanced Aftertreatment High idling % in some appl. Increasing power requirements Packaging benefits Adapt for transmission control LTC for low load appl. Engine, driveline opportunities Low Waste Heat Recovery (ORC) No ram air cooling None Aerodynamics 25 Source: KGP Preliminary Analysis FPC 2018

26 Technology Options - Transfer from Automotive - Status Technology Transfer <56kW >56kW Automotive Segment Light Vehicle Passenger Car/LCV Heavy Commercial Vehicle Batteries Modular packs possible Additional durability/environmental requirements Higher per unit cost due to additional durability/environmental requirements Charging Can use light vehicle chargers Industrial charging system required Motors Application specific Application specific Power Electronics Possible direct transfer Application specific Cost 1-2x 2-5x Maturity Level Good Immature Mature Immature 26 FPC 2018

27 Outlook - Summary Continued pressure on emissions limits globally Potential post 2025 Stage VI/Euro VII NRMM CO 2 regulation to follow CV Harmonisation difficult due to wide range of applications, urban vs extra-urban zones Market Structural changes may be inevitable OEM, dealers/rental companies and operators business models all likely impacted Proliferation of low emission zones and CO 2 will come Some, but not strict impact on NRMM initially Carbon neutrality Corporate Social Responsibility Hybridisation, electrification and alternative fuels System optimisation Increasing variance in the fuel mix Best fit applications to suit wide range of usage cases Technology transfer possible from automotive <56kW, CV above 56kW, but many technologies will be driven by the Construction segment Electrical accessories, turbocharging etc. likely to become more widespread Drivers will impact on whole of the supply chain OEMs Increased product variety Suppliers System integration powertrain incl. hybridisation Dealers/Rental Companies supply productivity and energy not machines and fuel Fuel Companies diversification of fuel types Service Providers Managing digitalisation across brands and systems 27 FPC 2018

28 Questions Contact Us! With thanks to FPC2018, James Dorling, Paris Kiernan, and Mick Beeson 28 FPC 2018