European truck manufacturers with much ground to gain in Chinese market

16 November 2017 4 min. read

European truck manufactures continue to rank well among Chinese businesses in the transportation segment. However, local competition is increasingly making inroads on the total cost of ownership, a key factor in purchasing decision making process in the premium segment,. While European brands remain dominant, finding ways to boost TCO may improve sales in a period in which switch-ups are on the rise.

Vehicle exports remain a key component of the UK and wider European economy. The industry is currently in a period of flux, as new technologies, including electrification and automation, open up new possibilities, and invite new competition. However, while disruption could hit the industry in the coming years, other trends, such as increased competition from regional manufacturing, particularly in China, may affect the European market. Meanwhile, the uncertainty of Brexit hangs as a cloud over UK manufacturers.

Bain's segmentation of China's truck market - four levels of value and qualityIn a new report from Bain & Company, titled ‘China’s Truck Market: New Opportunities for Europeans’, the strategy consulting firm considers the factors affecting demand in the Chinese transport sector for European-built trucks. The report is based on in-depth interviews with 350 stakeholders across all relevant provinces and customer segments.

Overall, the research shows that Chinese manufacturers are focused largely on the low-end segment of the market, with vehicles being offered at around €30,000, with a relative lifetime in terms of kilometres travelled per truck, usually between 800,000 and 1,000,000. The relative fuel efficiency of the vehicles stands at 45-50 litres per 100 km. The middle segment also tends to be domestic, with a price range of €30,000-50,000, while durability is slightly higher at 1.2 million km.

Among middle- and upper middle-segment customers looking to upgrade - most are still considering domestic brandsEuropean manufacturing tends to be in the upper-middle and high segments. The upper-middle segment generally consists of joint-ventures between Chinese and international brands, attracting price tags of €50,000-75,000, while the durability increases to 1.5 million and fuel efficiency to 35-40 l/100 km. The high segment involves prices upwards of €75,000, where lifetime kms are more than double that of the low-end segment, while fuel efficiency hits 35-40 l/100 km.

Uphill race

The research notes that the current period is likely to see increasing numbers of new truck purchases from companies in China. Around 20% of the middle segment, with around 30% planning to switch up, say that they are interested in European brands. The upper-middle segment, meanwhile, is about 20% keen to switch up, with a somewhat higher interest in European brands 40%. In the premium segment, around 10% are 100% interested in European brands for a switch, while the number wanting to switch to a Chinese brand stands at around 15%.Chinas truck buyers are less concerned about quality - more conscious of the cost of ownershipIn terms of what Chinese truck customers are looking for, performance / quality has taken a back seat, in the latest survey, with the operating costs – in terms of the total cost of ownership (TCO) – becoming increasingly prominent. The former has decreased from 53% of respondents in 2013 to 34% in the latest survey, the latter, meanwhile, has increased by 12 percentage points to 33% in the same period.

Fuel efficiency has increased in importance from 14% to 22%, while the importance of maintenance costs is up 4 percentage points to 11%.

European brands have a significantly higher Net Promoter Score in China than domestic brandsWhile there is an uptick in interest in Chinese brands, whose relative operating performance has increased in recent years, European brands continue to enjoy considerably higher Net Promoter Scores (NPS), at a difference of almost 39% (49% to 10%). European brands had a relatively even front in terms of NPS.

The firm suggests that focus on reducing the TCO has the potential to further strengthen European positions in the Chinese market, concluding, “While the quality of China’s domestic brands continues to improve, for the time being the Europeans’ keenest competitors in the premium segment, and potentially also the upper-middle segment, are other European truck makers.”