Today, Fabio Fabio Ferraresi, Director of Business Development in South America, discusses Brazil MH vehicle production and trends in MHV propulsion and powertrains.
Transcript
Welcome to the PSR PowerTALK podcast produced by Power Systems Research.
00:06 Joe Delmont
From Power Systems Research I’m Joe Delmont, editor of PSR PowerTALK. Today we’ll talk with Fabio Ferraresi about transportation trends in Brazil, especially as they apply to medium and heavy vehicles. We’ll discuss 2021 Brazil production forecasts, and we’ll also look at trends in propulsion and powertrains for medium and heavy vehicles.
Fabio is Director of Business Development in South America for Power Systems Research.
Fabio, let’s look at what happened in 2020 in Brazil to set up baseline for our discussion today.
00:43 Fabio Ferraresi
Well, last year we had a fall in the GDP and it was also falling in the previous year because of the political instability and crisis in 2017 and 2018. So, it’s not a good baseline, but we are recovering now.
01:05 Joe Delmont
OK.
What are the key factors today affecting the Brazilian economy?
01:11 Fabio Ferraresi
Well, uh, we have positive and negative uh, factors affecting the economy. On the negative side we have big demand of structural reforms to implement here, and it’s kind of difficult to approve that now. That’s limiting the growth a little. We had, uh, excessive currency devaluation here and the water crisis affecting the energy side. So, Brazil is very impacted by the electric hydraulic source of electricity, and this is impacting the price of energy and, and causing significant impact in the economy this year.
01:51 Joe Delmont
What’s happening with inflation and interest rates?
01:55 Fabio Ferraresi
Well, interest rates was in the range of 2.5 per year, percent per year. And now it’s increasing. And the inflation, it is high. We have two indicators, one is to, is the general inflation for the population for food and housing, so one it’s in reasonable rates, they range at 4 – 5% and but the, the inflation on, on prices that affect the industry index is very high — It’s at the range of 30-40% in the year, and it’s pushing the economy, especially the industrial sectors.
02:35 Joe Delmont
That doesn’t sound good. Do you, what is the trend there? Do you see that inflation rate coming under control?
02:44 Fabio Ferraresi
Yes, it was heavily impacted by the currency depreciation we had because of many of the components used for these are like electricity and commodities price are in dollar. And, but now we are stabilizing the, the currency ratio and with a trend of recovering so it should be better for the near future.
03:14 Joe Delmont
Fabio, we haven’t talked about COVID yet. Is Brazil getting this pandemic under control?
03:20 Fabio Ferraresi
Finally, yes. This week we had the research released that 54% of the population believes that the pandemic is under control. That is, first time we see that kind of response since January.
We are giving about 1,000,000 to 1.5 million shots of vaccines per day and the number of cases and number of deaths are dropping uhm, very sharply in the recent days; so, we feel that is getting under control now. But the delay for getting that vaccines affected the economy, especially some sectors like services, tourism, and, uh, it impacted the unemployment rate out so.
04:20 Joe Delmont
So that sounds like there are some problems being caused by COVID are. Are there any positive signs for the economy?
04:30 Fabio Ferraresi
Yes, yes we have a excellent harvest this year on the agricultural side that boosts our economy. Is very strong again, the price of commodity is high. On the mining and construction side we have several uhm, bids released and investments on new exploration areas. And the, the demand for housing is high. And, and there’s investment available for that. And, and we see a boost in the economy on the construction and agricultural sites.
The most heavily segments of the economy impacted by COVID was tourism and, and services as I said. Especially the marketing, the events, uh, segment that, that’s important sector of our economy in Brazil.
And, But now it’s, it’s, uh, there’s a trend to recover with the vaccination, increasing improving. And the, the other segments of the economy is, it seems like we didn’t have any COVID on agriculture, it, it doesn’t, it didn’t impact it. And we see records of production in agriculture equipment, in construction equipment, exports are strong, and, and there are a lot of, Uhm, positive signs.
Also in energy, Brazil will be the first largest producer of oil and gas by 2027. A lot of investment coming on energy side and, and these are also all positive signs for the economy and the sectors recover.
06:16 Joe Delmont
Fabio, let’s talk about commercial vehicles, trucks and buses. What is the situation here?
06:24 Fabio Ferraresi
Well, we had a strong reduction for 2014 to 2017, but in 2018 and 19 we started recovering these sales and production levels. With the COVID and all the uncertainty in 2020, it dropped about 20-22%; and uh, but it’s improving. We should reach the year of 2021 with levels above 2019 and for 2022 we see a strong recovery.
Because of the implementation of P-8, PROCONVE P-8, that’s similar to Euro 6, uh, there should be a pre-buy in 2022. And then the, the segment of the economy of the, the sectors recover is very strong; as well does the trailer’s sign as well because of there’s been demand for transportation infrastructure on trucks. And there’s, there are contracts, the number of goods movement is, uhm, good. As we talked in our last PowerTALK, this, this segment is really, really increasing.
07:40 Joe Delmont
Very good, that’s a, that’s a pretty optimistic outlook.
What about the electrification of equipment and the development of alternative power sources for both on-highway and off-road vehicles? What can you tell us about trends here?
08:01 Fabio Ferraresi
Well, we see um, some inroads of electrification in Brazil, in South America. Especially in Brazil we have the announcement of the new E delivery for Volkswagen this week, and they expect to sell more than 1000 units for deliveries. This is a small truck, uh, for urban deliveries mainly. And we see good development of buses, electric buses.
However, the constraints on the total cost of ownership, the autonomy of the truck limits the larger penetration of this technology because of the vast majority of the medium heavy equipment sold in Brazil are for heavy and extra heavy trucks. And this limitation doesn’t allow the, the, the, either for, for total cost of ownership because of the price, acquisition price, of that electric vehicle is 2 to three times higher than uh I see one. And also, the, the time for refilling or recharging the vehicle is a limitation.
So, uh, we see positive trends for buses and the transit delivery, delivering in urban centers; but it’s a, it’s size low path and there are other technologies coming that should shift the alternative propulsion for other, other alternatives.
09:45 Joe Delmont
Well, it sounds like the problems facing a conversion to electric are pretty much the same in Brazil as they are in other, other countries; and that’s the, the initial cost and the and the charging problem.
10:04 Fabio Ferraresi
Yes, and, and there is much to speak about that because in Brazil the presence of grid versus a big country is with some underdeveloped areas like Amazon, the agricultural areas, the thread goes where the grid doesn’t. And, um, you cannot recharge your, your truck properly in, in some areas if, if you had the, uh, an electric vehicle. So there, there’s more roadblocks in Brazil for electrification than in other countries, and but the main ones are, are the ones we said about; the total cost of ownership, and their, their refilling or recharging time.
10:48 Joe Delmont
The limitations on the grid is, uh, that’s an excellent point, Fabio.
So, uh, if we have those problems with electrification, what’s the situation with other fuels, like fuel cells and hydrogen?
11:07 Fabio Ferraresi
Well, fuel cells are a good promise. We see that as a future technology. You have a electric powertrain electric drive and you have that solution of the time for recharging and the total cost of ownership of a fuel cell by 2050 should be a little above the ICE diesel engine, so it may justify to use a fuel cell.
There are other technologies coming. We saw this week TUPY and AVL working in ICE powered by hydrogen. Announcing that with the results to be seen early in 2022. So, there is a lot of things happening. We are monitoring that and we see opportunities for many technologies should be implemented.
Also, greenfields like HVO and cleaner, uhm, fossil fuels like natural gas. There’s a complex scenario with lots of variables and most of them will take place in niches of markets and applications.
12:27 Joe Delmont
Are hybrids gaining traction anywhere in Brazil?
12:31 Fabio Ferraresi
Well, we see hybrid as a transition technology to gain efficiency when, and meet some legislation targets.
As we are behind the European, US, it’s likely that Brazil will jump straight to the major technology in Europe and US when we have those targets here. We don’t see, or we see a lower penetration of hybrids in Brazil than in other regions.
And now and we, when we talk about hybrid, we’re talking differently from what we talked before. Formerly, we talked about hybrid, that kind of powertrain that used the breaking energy to be charging a battery and then electric drive push the, um, the truck or the vehicle as the curves in the Formula One ones. But now when we talk about hybrid, we are talking about combinations of technologies to improve efficiency or extend the range. One example of hybrid we, we talk now is like a bus with an electric powertrain, electric drive, batteries and a range extender with ethanol engine, and a fuel tank that you can recharge the batteries using the ethanol engine.
So, there is a lot of combinations possible now. Even the better electric cars with the ICE engine. And you can use either of the solutions. There are many, many possibilities, but we should look for the, the final technology in the long range and in these applications will be very specific in specific applications.
14:29 Joe Delmont
Patience. What about other alternative fuels?
14:33 Fabio Ferraresi
Well, the, we have here in Brazil, the biodiesel, the biodiesel, is made from basically from soybean. And there’s a problem with that biodiesel, limitation to biodiesel, because it produces some grease, and collateral effects that affects the engine and complicates the life of the engine. And also, uh, to the limit it, it produces, more, uh, knocks and, and, and particulates.
But, uh, we saw we now Petrobras announcing that they will produce HVO, that is a clean version of a biofuel. And it’s a cleaner than the diesel. It’s cleaner than the biodiesel. It’s very flexible. You can mix that in at any proportion with diesel. And they announced that we will be at the price of the diesel at the pumps. So, if that comes true it is some very important news for the energy matrix in Brazil. Uhm, it may change the outlook upside down.
15:52 Joe Delmont
You’ve talked about HVO or hydrotreated vegetable oil as a fuel. How does this work?
16:02 Fabio Ferraresi
No, it’s it’s a fuel, hydrocarbon obtained by the hydrogenation of biomass. It’s, you can use several sources of biomass. It’s a, uh, shorter molecule and, and it’s cleaner, you know, and, and, and the engine producers are very enthusiastic about it, because it’s very good for the engine. It’s, it’s, It’s kind of better than, than, than the fossil diesel for the engine. It’s cleaner and, and, and it has a, it has a, a good, uh, good impact for the environment as well. Better than the biodiesel.
16:41 Joe Delmont
What is the availability of that?
16:44 Fabio Ferraresi
Well, the Petrobras announcing that to, to be produced in, in the coming years they are investing on the production. And, and by 2023 or 24 we will see how it goes. And by 2025 we may see some, some mix of this with, with significant impact in, in the energy matrix in Brazil.
17:08 Joe Delmont
P-8 will be required in 2023. How is the industry going to meet this requirement?
17:17 Fabio Ferraresi
PROCONVE P-8 is a requirement similar to Euro 6; so there the technology to, to meet this is similar to what we have in Europe and US. And the, the complication in Brazil, it’s the level of biodiesel here that is higher. Now we are at 12% and PROCONVE P-8 sets it at 15%.
This is a complication for the engine and the engine producers and OEMs are struggling with the homologation of these products. So, it will be similar to the European solutions, but with some adaption for this level of biodiesel for the future. We do expect that the HVO will be introduced and these complications will be eliminated.
18:13 Joe Delmont
Well, it sounds like this would be fairly effective, but how much will it cost?
18:19 Fabio Ferraresi
The cost will be similar to the European ones and these pre buy we will have, it’s smaller than the former one we had at the Euro 5 introduction, because when we started the implementation for Euro 5, we jumped from Euro 3 to euro 5 straight without having the step of Euro 4. So that was a big technology jump.
From Euro 5 to Euro 6, that is PROCONVE P-7 to P-8, we don’t have a big jump in technology; so, the, the, the additional cost of acquisition cost is not that high. And then the, the pre buy will be a little shorter, because the difference is not that much. But, still, there is a pre buy and difference that we, we will observe in, in, in, in next year.
19:15 Joe Delmont
Natural gas is another important alternative fuel that’s gaining in popularity in other countries. How do you think that will be used in the next few years?
19:29 Fabio Ferraresi
That’s important question. Brazil has a strong potential to produce oil and gas and our production of gas will be much higher than our demand, then our currently, the current demand. So, the price of energy produced by natural gas will be reduced and the price of natural gas to be used in vehicle applications will be reduced as well.
The problem of natural gas is the energy density. You require a lot of volume in the truck to transport the natural gas. So, for the long-haul applications this is a complication. But for buses, and short ranges, heavy applications, it is very possible and it will be very cost effective.
So, we, in our forecast, we put a significant penetration of natural gas for these applications and we see OEMs like Scania, uh, Volkswagen able to implement that technology as well as Mercedes and others. And some of them are pushing this technology and strongly working with fleet owners to sell trucks and study this application and build business’s interest in this technology for the future. So, this is promising technology because it’s cost effective, it’s cleaner than diesel, and it comes to be a solution.
On the other hand, some of the legislation and the environmental people they are pushing for electric because electric, in theory, is greener; especially if you talk about tank-to-wheel calculation. So, this, this depends on, on the legislation and all these political, uhm, discussion. But, there, certainly, there will be a penetration of natural gas for the future.
21:35 Joe Delmont
You mentioned the, the greener aspect of the, the fuel, Fabio. Ethanol has been around for quite a while. Are there any applications for that moving forward?
21:49 Fabio Ferraresi
In passenger cars, certainly. Ethanol plays important role in Brazil and it’ll keep playing; but, for medium heavy equipment it is not efficient. We don’t see economy that the total cost of ownership in heavy. It, it doesn’t work for, for medium, heavy vehicles and engines and also the, uh, off-highway equipment.
What we see for ethanol… there’s a possibility of produce hydrogen from ethanol and solid oxide fuel cells. And it be, it may be in the vehicle, as the technology, you fuel the ethanol and you convert that into hydrogen, and you use the hydrogen to generate electricity, and drive the, the medium, heavy, or off-highway equipment. Or you, you generate hydrogen in, in the gas station near to the application, and then you solve a logistic and distribution problem of hydrogen using the, the existing infrastructure of ethanol. But, we see companies like Nissan and others announcing this solid oxide technology application as, as for short term. But we don’t have that available yet and prove it in the field for, with the fleet owners and the applications.
So, there’s a lot of discussion on, on possibilities, and in the future the short-term future would be very interesting, but there is much to observe yet.
23:32 Joe Delmont
Well, it doesn’t sound like there’s going to be too much. Uh, application for that in the short term.
And, so, let’s look out a little bit and say go out to 2025. What do you see for fuel applications there, in that year, for medium and heavy vehicles?
23:54 Fabio Ferraresi
Well for 2025 we see a growth of natural gas applications pushed by OEM’s. We see the growth of electric for buses and deliveries. And we see some start of fuel cell applications; but, it’s very initial in 2025.
24:22 Joe Delmont
Do you see that mix changing much by 2030?
24:27 Fabio Ferraresi
Yes, yes, by 2030 we should have some significant inroads of fuel cells, and the growth of natural gas, stronger growth of natural gas, reduction of diesel in the matrix, and, but there is a lot to be discussed in 2030. There are initiatives like hydrogen powered internal combustion engines, and there is much to observe and our forecasting activity will be harder than ever.
25:03 Joe Delmont
Fabio, we’ve covered lots of ground today. How would you summarize your outlook for Brazil’s medium, heavy vehicle situation in the next five years?
25:17 Fabio Ferraresi
Well, we will keep growing the production of medium, heavy vehicles. There is demand. There is a conditions for that. And the matrix of propulsion systems and fuel will, will start changing. We’ll see some movement, interesting movement in 2025.
25:42 Joe Delmont
Thank you, Fabio, for your detailed report. You’ve given us a lot of information today and a lot of things to think about.
This data is pulled from two of the major Power Systems Research databases, OE Link — the database of OEM production and forecast data, and EnginLink — which provides engine production forecast and specification data.
Look for reports from Fabio every month in the PSR PowerTALK news report. Contact us for more information on production of commercial vehicles and off-road equipment.
26:21
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