Just My View on Electrification, Evaluation, Evolution of Trucks and a Thought on the Future of Start-ups

Created: 29.April 2021

Mike Smith in Singapore is a friend of mine. He trades shares in order to supplement his income. Recently, he asked me about an IPO of a fairly new truck brand that is offering electricity-powered vehicles. I thought that this is a good starting point to just give this some thought as to where these brands are heading, seeing how they enter the market with huge evaluations and are being said to challenge the established players.

BYO – Build Your Own
To begin, and I over-simplify, it is technically possible for any of us to put together a truck. Even the big brands depend on Tier 1 suppliers to provide them with parts and components, being specialist items. You can take an engine from one supplier, a gearbox here, the braking system there, Tyres are consumables and available in a wide variety. Batteries have become readily available and even in-hub electric motors are items that can be freely procured. One would still need engineering expertise, ambition and capital, but for the sake of the arguments here, let’s just say that it is possible to develop and sell a new truck brand.

Test Beds and Innovative Designs
Tesla is likely the reference when it comes to the possibilities one has when there is no established history, existing agreements or brand promise that locks you into a specific segment. Starting fresh, he did not have to think about the impact on the divisions related to Diesel engines. Other, established players may not be able to simply shut down entire departments in order to drop the internal combustion engine: unions would protect the rights of the workers (Note: this is not about labour rights but a discussion about new entrants to the commercial vehicle industry).

Traditional makers of commercial vehicles have to deal with their history. For instance, UD will have to maintain their part numbers and all systems intact for many more years to come, although they are now in a joint venture with Isuzu, having been sold by Volvo. Could it be that such a new, fresh start may also encourage new brand owners to be new brooms that clean better? Not having to consider the previous series and generation vehicles, the newbies can leverage to the latest available technology and address the needs of the market in novel ways.

Whenever I see a new brand making a debut, I am amazed by what the engineers have come up with and how they are pushing the envelope. There is no doubt: the challengers are exciting and they deserve the attention.

What’s the Issue then?
Sustainability is the issue! Selling a truck is one thing. Keeping it rolling is another. In many interviews I have conducted, fleet owners have highlighted that a decision to purchase a specific brand was motivated by the proximity to a workshop and spare parts availability. In one case, a truck distributor did not even bid on a RFQ on a larger fleet as their nearest workshop was two hours away and they knew that the client would not be willing to accommodate that, having other brands’ workshops in close proximity. Building a service network is hard work: one needs to build workshops, train technicians, have spare parts on hand and systems in place so that the truck population can be supported. And that is a chicken and egg scenario in the best of cases. Without enough trucks in the catchment area, a workshop isn’t financially viable and without a workshop nearby, transporters don’t sign the line that is dotted.

One of the newer players touted a 1 Million Mile (1.6 Million Km) warranty on their futuristic-looking trucks. Here in Malaysia, it could take 15 – 20 years to reach that kind of milage. Can you imagine how many parts you have to keep in stock in order to be able to fulfil such promise? Workshops would also have to have the tools on hand to carry out work under warranty. New trucks mean new tools and with each generation on the road, the number of tools increases. Again, these tools need to be maintained and technicians trained on even the old systems. Otherwise, how to execute the repairs?

A car has a five or eight year warrant nowadays. For the simple reason that the manufacturer is confident that the parts and components will not have any problems during that time. It is AFTER the warranty period that things get tricky. While some traditional brands have had a century of experience in managing the entire life-cycle of their products, the new players have yet to come of age and show how they perform beyond the first years, when parts are still new and not having experienced the stress of non-stop operations on rough roads by drivers that rush to get the job done.

The Joint-Venturing Giants
Media coverage on new players has been extensive, whereas their successes also shone a light onto the “older generation”, the seemingly complacent and slow to react players that have been around for ages. One thing that people may seem to forget is that the new players can communicate what they want, when they want it, as long as they are not listed on a stock exchange. That makes them talking about plans and ambitions easier. Everyone else is mum about their strategy as the slightest hint could be derailing investors or paint a picture of false optimism etc. On a country level, one does not even get the projected numbers for a single truck model out of the spokesperson of one of the five European brands.

Meanwhile, the reaction to the smaller, nimble innovators has been a series of collaborations among the giants. In recent times we have seen Volvo and Mercedes collaborate on the development of Hydrogen drivetrains, while Traton and Hino have a similar set-up and Iveco has partnered with Nikola. The latter, in my view is what we will see happening more often in the near future: big players letting the challenger develop solutions that fit into their portfolio and then absorbing them into their portfolio. It would be indeed very surprising if the established brands, with access to billions in financing, would just sit and let things get past them. On the contrary, they are just gathering momentum to steamroll their answers to the modern technology problems out. I would expect that the next generation trucks we will see is nothing like we experience at the moment. Remember the Future Truck from Mercedes? I don’t think many people saw that one coming.

The Crossroads
Where does all this leave is in terms of the newcomers that are getting a lot of attention and stock evaluations that are unprecedented? In broad strokes, and that is just my opinion, there are two scenarios:

The innovators, the small, but creative truck makers that emerge are being snapped up by the established players. Simply put, it is the make or buy decision and depending on the various strategic directions brands take, they will pick and choose those that are a best fit. Through this, the Old Generation will rapidly expand their already extensive service networks, hedge risks and integrate new technology that they would have to develop for a lot of money themselves. There will be some new brands that have unique IP and that is what it is all about.

Alternatively, as these start-ups start to mature, problems will set in when the trucks reach a certain age. Dependability, total cost of ownership and value on the second-hand market have yet to be established. If these newbies do not manage all these aspects carefully, then they are surely facing a collapse and will vanish, leaving behind vehicle owners that are holding a piece of history with nostalgic value. If one is to be judged by their last success, then there is also the matter of the second generation. By now, the established players are surely preparing their responses, as has for example Volvo with full ranges of electric vehicles. Your move, start-up.

Mike and I are in agreement though on a few things: Buying and selling stocks can be fun, profitable or loss making , EV vehicles will have a future but no straight line on share prices.

Note: This article is the personal opinion (not a thesis) of Stefan Pertz, based on observations made, interviews conducted and insights gained from working with industry players. The intention is to highlight issues and to provoke thoughts, not to diminish the efforts of any one player in the market. Should any reader disagree with the conclusions that I have drawn, I am more than happy to hear such opinion.