Editor’s Note: This is an updated report from the Q2 2021 Truck Production Index report produced by Chris Fisher and Jim Downey, Vice President-Global Data Products, in July 2021.
Question: What is the global truck production picture? What is the outlook?
PSR Opinion: Overall, medium and heavy truck demand will finish the year on a strong note, and continued strength is expected into 2022. On-going supply chain disruptions will continue to impact production throughout the rest of the year and likely into 2022.
Question: What kind of global production volume do you expect for this year?
PSR Opinion: Currently, we expect global production volumes to increase by 5.6% this year with most regions exceeding 20% growth over last year. However, production in China is expected to decline by 12.2% this year compared to 2020.
Question: What level of medium and heavy commercial vehicle growth do you expect this year?
PSR Opinion: Most regions will experience double digit growth this year, with North America growing at 30%, South Asia at 45%, Greater Europe at 21%, and Central America at 36% compared to 2020. However, medium and heavy commercial vehicle production in Greater China is expected to decline by 12% this year.
Question: It sounds as though most regions can expect to see solid growth this year, except for China. What’s going on in China?
PSR Opinion: In China, heavy truck demand during the first half of the year was strong, primarily due to a truck pre-buy ahead of the China VI emission standard implementation in July 2021.
However, the cost of the emission technology for China VI vehicles is not offset with any significant improvement in fuel economy.
China also experienced a surge in demand last year prior to the change in emissions regulations and a government requirement eliminating all pre-China IV emission compliant trucks from the roads.
Question: What do you see for production of heavy trucks this year in China?
PSR Opinion: The industry is currently expecting production of heavy trucks to be approximately 1.4 million units. That’s a drop of 15% compared with 2020.
Question: What is the outlook for North America?
PSR Opinion: While the 2021 class 8 truck order boards in the United States are mostly filled and orders for next year are also expected to be strong, there are concerns surrounding higher levels of inflation. We believe much of the inflation we are seeing is a direct result of the ongoing supply chain disruption and worker shortages.
Freight demand in the US remains extremely strong and freight rates remain very high, primarily due to high levels of consumer spending and the overall strong economy.
Question: Are there any clouds on the horizon for North American commercial vehicles?
PSR Opinion: While the demand side is currently very strong, the supply side is where the issues lie concerning medium and heavy truck production. The on-going issues with the supply chain are expected to continue for the remainder of the year and likely into 2022 as OEMs continue to have difficulty sourcing various components such as semi-conductors.
On-going supply chain disruptions, worker shortages and possible negative effects from high levels of government spending could continue to fuel higher inflation moving forward.
The delta variant of the corona virus could also cause problems for the economy thus lower demand for commercial vehicles. At this point, it is too early to tell what the impact of this will be.
Question: What is the outlook for Europe?
PSR Opinion: During the first four months of the year, European medium and heavy commercial truck registrations improved by 28.5% compared to the same period in 2020. Order bookings remain strong primarily due to an improved economy.
Question: Is Europe facing any supply chain problems?
PSR Opinion: Actually, Europe is facing the same problems as other regions with various supply chain disruptions. While sourcing of semi-conductors continues to be a problem, the EU’s proposal to extend the restriction on steel imports into Europe remains a point of concern. While most of the steel is sourced in the EU, imports are needed to fill in the gaps especially during periods of high vehicle demand.
During the first four months of the year, European medium and heavy commercial truck registrations improved by 28.5% compared to the same period in 2020. Order bookings remain strong primarily due to an improved economy. Much like North America, the delta variant of the virus could disrupt the European economy during the last part of the year.
Question: Electrification is growing in many segments in Europe. What are commercial vehicle OEMs doing in this area?
PSR Opinion: Electrification is taking hold in Europe, primarily in the transit bus segment. At the same time, most major OEMs have introduced–or plan to introduce–electric trucks during the next few years.
However, higher up-front costs, battery weight and a lack of a charging infrastructure will limit electric trucks to short distance applications such as refuse, pickup and delivery and some regional haul applications.
Question: Acceptance for long haul applications is still a long way off, though, isn’t it?
PSR Opinion: Yes, I think so. Barriers such as cost, weight and charging infrastructure will need to be overcome before significant adoption in additional segments such as long haul can begin.
It appears more likely that Hydrogen fuel-cell vehicles will play a significant part in the long-haul heavy truck segment in the future. There are a number of joint ventures which have been established with the goal of not only developing hydrogen fuel cell trucks but also the fueling infrastructure that will be needed for the long-haul segment. It seems like the goal here is to have much of the infrastructure in place and significant truck production capacity available by 2030.
Question: What’s going on in other parts of Asia.
PSR Opinion: Medium and heavy commercial vehicle production in India is expected to reach 261,000 vehicles in 2021. That’s an increase of 55% over last year. Moderate growth is also expected in 2022 and 2023 before declining in 2024 partially due to it being an election year.
Question: Are there any clouds on the horizon?
PSR Opinion: Unfortunately, the medium and heavy truck segment will continue to face headwinds due to excess capacity in the market, increased rail freight usage, relative constant freight rate and booming fuel prices.
We’re also witnessing a change in product dynamics–the share of higher tonnage vehicles is rising. Because of this trend, fewer trucks will be needed to haul the same amount of freight.
Question: What about other parts of Asia?
PSR Opinion: While commercial vehicle demand is generally strong, the supply chain disruption is making it difficult for production to meet the demand levels. This is expected to continue through at least the end of the year.
Question: What’s going on in Japan and Korea?
PSR Opinion: Medium and heavy commercial vehicle production in Japan and South Korea is expected to increase by 16% this year.
While South Korean production is expected to increase by 28% this year, Japan production continues to lag and is expected to improve by only 14.8%. Japan has been hit particularly hard by the supply chain disruption.
PSR expects continued volatility in this region throughout the remainder of the year.
Question: South America has been suffering badly from several waves of COVID. What is your outlook there?
PSR Opinion: Medium and heavy commercial vehicle production is expected to increase by 36% this year over 2020 with truck production improving by 41%.
Increased vaccinations and an overall improving regional and global economy are driving the growth in vehicle demand.
However, continued supply chain disruptions are hurting production and this trend is expected to continue throughout the remainder of the year. The COVID delta variant may also impact demand in the second half of the year. PSR
Chris Fisher is Senior Commercial Vehicle Analyst at Power Systems Research
