Strategic Analysis of Hybrid and Electric Commercial Vehicle Market in North and South America

MEDICAL DEVICES PHARMACEUTICALS CHEMICALS FOOD & BEVERAGE ELECTRONICS Strategic Analysis of Hybrid and Electric Commercial Vehicle Market in North and South America VPG Publications, Consulting, Clients www.vpgcorp.com VPG Market Research Reports www.vpgmarketresearch.com VPG Partner Reports www.research-store.com/vpg VENTURE PLANNING GROUP 545 Eighth Avenue, Suite 401 New York, NY 10018 Phone + 1 212 564 2838 Fax + 1 212 564 8133 info@vpgcorp.com

Strategic Analysis of the Medium- to Heavy-duty Hybrid and Electric Commercial Vehicle Market in North and South America Electrifying Growth Opportunities Necessitate Hybrid Strategies as Market Pull Dictates Growth May 2012

Contents Objective and Scope of Research 10 Executive Summary 13 Global Commercial Vehicle Hybridization and Electrification Trends Key Mega Trends Influencing the Market Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market Drivers and Restraints Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Production by Drivetrain by Region Hybrid and Electric CV Market Impact of Modifications and Regulatory Support on Fuel Efficiency Electric Commercial Vehicle Suitability Market Structure and Dynamics Price-reduction Strategies for Hybrid and Electric CVs Technology Roadmap and Trends Voice of Customer: Consumer Research and Analysis Global Overview of the Electric and Hybrid MCV, HCV, Transit Bus, and Other Bus Market Global MCV, HCV, Transit Bus, and Other Bus Production by Region Global MCV, HCV, Transit Bus, and Other Bus Market Production by Category Hybrid Penetration in Global MCV, HCV, Transit Bus, and Other Bus Market Hybrid Production in MCV, HCV, Transit Bus, and Other Bus Market Electric Penetration in Global MCV, HCV, Transit Bus, and Other Bus Market Electric Production in MCV, HCV, Transit Bus, and Other Bus Market Global Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market Production by Drivetrain Global Average Component Pricing Global Component Revenue Forecast Global Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market Share Analysis Global Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market Value Chain Overview Global Hybrid and Electric MCV and HCV Product Line of Leading OEMs 20 21 22 23 24 25 26 29 30 39 44 45 46 47 48 49 50 51 53 54 56 57 58 2

Contents (continued) Total Americas Electric and Hybrid MCV, HCV, Transit Bus, and Other Bus Market Analysis Americas Market Overview Americas MCV, HCV, Transit Bus, and Other Bus Factory Production Americas Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Vehicle Production by Drivetrain Configuration Americas Hybrid and Electric Powertrain System and Component Revenue Forecast 61 62 63 65 66 North American Electric and Hybrid MCV, HCV, Transit Bus, and Other Bus Market Analysis Key Market Trends Overview Industry Challenges North American Market Drivers and Restraints Market Forecasts North American MCV, HCV, Transit Bus, and Other Bus Market North American Hybrid Penetration in MCV, HCV, Transit Bus, and Other Bus Market North American Hybrid MCV, HCV, Transit Bus, and Other Bus Production Forecast North American Electric Penetration in MCV, HCV, Transit Bus, and Other Bus Market North American Electric MCV, HCV, Transit Bus, and Other Bus Production Forecast North American Hybrid and Electric Drivetrain Configuration by Vehicle Segment North American Component Pricing Trends North American Hybrid and Electric Component Revenue Forecast Competitive Dynamics North American Hybrid and Electric CV OEM Market Share Analysis North American Hybrid and Electric CV Drivetrain Supplier Market Share Analysis 67 68 74 75 76 77 78 79 80 81 82 83 84 85 88 89 3

Contents (continued) Brazilian Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market Analysis Key Market Trends Overview Brazilian Industry Challenges Brazilian Market Drivers and Restraints Market Forecasts Brazilian MCV, HCV, Transit Bus, and Other Bus Production Forecast Brazilian Hybrid Penetration in MCV, HCV, Transit Bus, and Other Bus Market Brazilian Hybrid MCV, HCV, Transit Bus, and Other Bus Market Production Forecast Brazilian Electric Penetration in MCV, HCV, Transit Bus, and Other Bus Market Brazilian Electric MCV, HCV, Transit Bus, and Other Bus Market Production Forecast Brazilian Hybrid and Electric Drivetrain Configuration by Vehicle Segment Brazilian Component Pricing Trends Brazilian Hybrid and Electric Component Revenue Forecast Competitive Dynamics Brazilian Hybrid and Electric CV OEM Market Share Analysis Brazilian Hybrid and Electric CV Drivetrain Supplier Market Share Analysis 93 94 97 98 99 100 101 102 103 104 105 106 107 108 109 110 Rest of Americas Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market Analysis Industry Challenges 111 112 Key Conclusions and Recommendations 113 Appendix Definitions and Abbreviations 120 The Frost & Sullivan Story 127 4

List of Figures Figure Slide Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Vehicle Segmentation, Global, 2010 11 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Electric Commercial Vehicle Suitability, North America, 2009 25 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Voice of Fleet Managers on Electric Commercial Vehicles, U.K., 2009 43 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Regulatory and Legislative Trends, North America, 2010 70 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: MCV and HCV Model List, North America, 2010 92 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Regulatory and Legislative Trends, Brazil, 2010 96 5

List of Charts Chart Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Production Volume and Penetration Forecast, Global, 2009 and 2020 14 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Component Revenue Forecast, Global, 2009 and 2020 14 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Component Revenue Forecast, Americas, 2009 and 2020 14 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Production Volume Forecast by Drivetrain, Global, 2009-2020 16 Total MCV, HCV, Transit Bus, and Other Bus Market: Production Volume Forecast by Category, Americas, 2009 and 2020 17 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Production Volume Forecast by Drivetrain, Americas, 2009 and 2020 18 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Component Revenue Forecast, Americas, 2009 and 2020 19 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Key Mega Trends Influencing the Market, Global, 2009-2020 21 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Market Drivers and Restraints, Global, 2011-2020 22 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Production Forecast by Drivetrain, Global, 2009-2020 23 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Impact of Modifications and Regulatory Support on Fuel Efficiency, Global, 2007-2015 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Electric Commercial Vehicle Suitability, Europe, 2010 25 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Vertical Integration Opportunities, Global, 2009-2020 27 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Overview of Module and Component Market Structure, Global, 2009-2020 28 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Technology Roadmap of Hybrid Commercial Vehicles, Global, 2005-2016 31 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Technology Roadmap of Electric Commercial Vehicles, Global, 2009-2017 32 Hybrid and Electric Commercial Vehicle Market: Voice of Fleet Managers, Key Desired Benefits From Powertrain Technologies, U.S., 2010 40 Hybrid and Electric Commercial Vehicle Market: Voice of U.S. Fleet Managers, Affordability of Hybrid Technologies, North America, 2009 41 Hybrid and Electric Commercial Vehicle Market: Voice of U.S. Fleet Managers, Expected Payback Period, North America, 2009 41 Hybrid and Electric Commercial Vehicle Market: Voice of Fleet Managers, Vehicle Comparison Based on Cost, U.S., 2009 42 Hybrid and Electric Commercial Vehicle Market: Voice of Fleet Managers, Expected Payback Period on Purchase of Electric CV, U.S., 2009 42 Slide 24 6

List of Charts (continued) Chart Slide Total MCV, HCV, Transit Bus, and Other Bus Market: Production Volume Forecast, Global, 2009-2020 45 Total MCV, HCV, Transit Bus, and Other Bus Market: Production Volume Forecast by Vehicle Segment, Global, 2009 and 2020 46 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Hybrid Penetration Forecast by Vehicle Category, Global, 2009-2020 47 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Hybrid Production Volume Forecast by Category, Global, 2009 and 2020 48 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Electric Penetration Forecast by Category, Global, 2009-2020 49 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Electric Production Volume Forecast by Category, Global, 2009 and 2020 50 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Production Forecast by Drivetrain and Vehicle Category, Global, 2009-2020 51 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Production Volume Forecast by Drivetrain, Global, 2009 and 2020 52 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Component Pricing Forecast, Global, 2009-2020 53 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Component Revenue Forecast, Global, 2009-2020 54 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Component Revenue Forecast by Vehicle Segment, Global, 2009-2020 55 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: OEM Market Share Analysis, Global, 2010 and 2016 56 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Hybrid CV Value Chain Partial List of Participants, Global, 2010 57 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Partial List of OEM Products for Hybrid and Electric MCVs and HCVs, Global, 2010 58 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Partial List of OEM Products for Hybrid and Electric Buses, Global, 2010 59 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Partial List of OEM Products for Hybrid and Electric Buses, Global, 2010 60 Total MCV, HCV, Transit Bus, and Other Bus Market: Production Volume Forecast by Category, Americas, 2009 and 2020 63 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Production Volume Forecast, Americas, 2009-2020 64 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Production Volume Forecast by Drivetrain, Americas, 2009 and 2020 65 7

List of Charts (continued) Chart Slide Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Component Revenue Forecast, Americas, 2009 and 2020 66 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Urbanization Trends, North America, 2009-2025 69 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Electric Commercial Vehicles - Infrastructure Developments, U.S., 2008-2016 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Considerations for Retrofitting, North America, 2010 72 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Considerations for Retrofitting, North America, 2010 73 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Key Industry Challenges, North America, 2011-2020 74 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Market Drivers and Restraints, North America, 2011-2020 75 Total MCV, HCV, Transit Bus, and Other Bus Market: Production Volume Forecasts, North America, 2009-2020 77 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Hybrid Penetration Rate by Vehicle Segment, North America, 2009-2020 78 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Hybrid Production Volume Forecast by Vehicle Segment, North America, 2009-2020 79 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Electric CV Penetration Rate by Vehicle Segment, North America, 2009-2020 80 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Electric CV Production Volume Forecast by Vehicle Segment North America, 2009-2020 81 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Drivetrain Configuration by Vehicle Segment, North America, 2009-2020 82 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Average Component Pricing Trends, North America, 2009-2020 83 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Component Revenue Forecast, North America, 2009 and 2020 84 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Percent of Revenue Shares Between Module and Component Supplies to OEMs, North America, 2009 and 2016 86 71 8

List of Charts (continued) Chart Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Influence of Competitive Factors on Degree of Competition, North America, 2009-2020 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: OEM Market Share Analysis, North America, 2010 88 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Drivetrain Market Share Analysis, North America, 2010 89 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Expected Hybrid Vehicle Model Timeline, North America, 2010 90 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Expected Electric Vehicle Model Timeline, North America, 2010-2011 91 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Urbanization Trends, Latin America, 2009-2025 95 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Key Industry Challenges, Brazil, 2011-2020 97 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Market Drivers and Restraints, Brazil, 2011-2020 98 Total MCV, HCV, Transit Bus, and Other Bus Market: Production Volume Forecast, Brazil, 2009-2020 100 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Hybrid Penetration Rate by Vehicle Segment, Brazil, 2009-2020 101 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Hybrid Production Volume Forecast by Vehicle Segment, Brazil, 2009-2020 102 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Electric CV Penetration Rate by Vehicle Segment, Brazil, 2009-2020 103 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Electric CV Production Volume Forecast by Vehicle Segment, Brazil, 2009-2020 104 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Drivetrain Configuration by Vehicle Segment, Brazil, 2009-2020 105 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Component Pricing Trends, Brazil, 2009-2020 106 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Component Revenue Forecast, Brazil, 2009 and 2020 107 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Market Share Overview, Brazil, 2009-2020 109 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Hybrid and Electric Drivetrain Supplier Market Share Overview, Brazil, 2009-2020 110 Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Key Industry Challenges, Rest of Americas, 2011-2020 112 Slide 87 9

Supply Chain Dynamics Vertical Integration Will Enable OEMs to Differentiate Their Products; Power Electronics (Inverters) Are a Major OEM Focal Point and Offer Product Differentiation Opportunities; Vertical Integration Encompassing Inverters Is a Real Possibility. Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Vertical Integration Opportunities, Global, 2009-2020 Consumers Fleets and Owner Operators Aftermarket OEM Tier I Tier II System Integrators Truck / Bus Manufacturers Module Suppliers System OEM Vertical Integration Captive Supplier Vertical Integration of Truck makers aimed at component suppliers Suppliers Tier III Software Suppliers Component Suppliers Prices of batteries, motors, generators, and control electronics to decrease; power electronics could increase. 27

Module versus Component Sourcing Analysis Mod Limited Production Volumes are Forcing OEMs to Source from Module Suppliers; Warranty Responsibility is Enabling Module Suppliers to Further Inflate Margins. Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Overview of Module and Component Market Structure, Global, 2009-2020 Component/System Supplier to Module Supplier to Truck Maker xx.x percent to xx.x percent markup to module supplier xx.x percent markup in supplying directly omponent/ to OEM tem Supplier Component/System Supplier Module Supplier xx.x percent to xx.x percent markup in supplying to OEM Margins to decline during 2012 to 2020 OEMs absorbing higher margins of module suppliers because of warranty risks assumed by module suppliers, low volume, and initial R&D expenses Pricing pressure to mount on suppliers as OEMs connect directly with component suppliers Truck OEMs 28

Price-reduction Strategies for Hybrid and Electric CVs Key Actions for Accelerating Growth in a Recessionary Environment Hybrid powertrain systems suppliers focused on cost-effective technologies that can be manufactured using advanced processes as well as low-cost sourcing and manufacturing facilities can gain strategic proximity to truck makers and meet their demands for attractive price points. Truck makers and system suppliers that are using this economic downturn to their advantage by fine tuning and optimizing their powertrain systems and their ability to rapidly introduce robust, reliable, and efficient hybrid trucks will gain rapid market share when the economy rebounds. Truck makers that can offer attractive leasing programs encompassing both vehicles and energy storage systems can also reduce the upfront cost for potential end users and influence purchase decisions. Key Strategies for Price Reduction Using existing and mature technologies that are already prevalent in adjacent markets by customizing them to meet the unique application requirements of hybrid trucks can also enable developers and suppliers to reduce the development cost of these technologies for the electric truck market. Module suppliers that are working with key component and sub-system suppliers to ensure long-term contracts that are supported by lean and strong supply chains will be better able to meet the price expectations of truck makers and consumers; thus, they will be better positioned to experience rapid growth in this emerging market. Strategies aimed at incorporating lowcost outsourcing, strategic partnerships with technology leaders, and development of flexible and easily upgradeable technology platforms are expected to provide growth for participants. Companies that are rapidly developing technology expertise, creating synergetic relationships with global technology leaders in advanced power-cell technologies, and leveraging R&D and manufacturing capabilities in low-cost locations globally will enable price-reduction initiatives. 29

Roadmap of Technology Trends for Hybrid Commercial Vehicles Parallel Hybrid Configuration is to Prevail Through Most of the Forecast Period; Hydraulic Hybrids Offer Niche Opportunities in Certain Vocations such as Refuse Hauling and Urban Parcel and Distribution (P&D). Hybrid and Electric MCV, HCV, Transit Bus, and Other Bus Market: Technology Roadmap of Hybrid Commercial Vehicles, Global, 2005-2016 Alternative Powertrain Solutions Diesel Engine LPG/CNG/Biodiesel engines Downsized engines Fuel cell Pumps/ Motors Axial piston pumps open configuration Axial piston pump closed configuration Permanent magnet Asynchronous Switch reluctance In-wheel motors Motor Rating Energy Storage Lead Acid Parallel full hybrids from 80 to100 kw 100 kw to 150 kw Series full hybrids up to 120 kw 120 kw to170 kw Plug-in hybrids 25 kw to 80 kw 100 kw to120 kw Ultra capacitors Ceramic ultra capacitors Hydraulic accumulators Advanced accumulators Lithium batteries Nickel metal hydride Hybrid Configuration Parallel Series Series-parallel Hybrid System Electric Hybrids Hydraulic hybrids 2005 2010 2016 Source: Frost & Sullivan analysis. 31

Global Short-term Technology Trends Focus is Still Heavily Centered Around Energy Storage Systems; Disparate Hybrid Technologies Keep the Global Industry Divided. Effective coordination between the primary power source (IC engine) and the assistant power source (an electric or hydraulic motor) enables greater fuel efficiency based on optimization of power management by using advanced control strategies and electronics. Battery technology development is emerging as a key goal for existing and potential energy systems suppliers. Lowering lifecycle cost by lengthening the battery replacement cycle is becoming a key requirement of truck OEMs. Short-term Technology Trends Scalability of hybrid powertrain systems is emerging as a need in the original equipment (OE) market as the number of platforms and vehicle models featuring hybrid powertrain systems rapidly increases. Lengthening the distance per charge and increasing top speeds are emerging as two main goals for hybrid and electric commercial vehicle development, especially for electric vehicles. Series hybrids are expected to lose prominence because parallel hybrids resonate better with local OEMs in China. CSR Times and Liaoning SG are focusing on research in parallel-series hybrids. 33