Commercial vehicles are automobiles designed with specific features and technologies for transporting passengers and goods. As a significant component of China's road transportation, according to statistics from China's Ministry of Transport, commercial vehicles have borne over 70% of China's freight volume in the past five years. They are a crucial pillar driving China's economy and infrastructure development. However, the commercial vehicle industry currently faces several pain points, including high pollution levels, sensitivity to Total Cost of Ownership (TCO), difficulties in recruitment, and a high frequency of safety incidents. The transformation of traditional commercial vehicles is urgently needed.

On March 24, 2023, Westwell united Frost & Sullivan (hereinafter referred to as “Sullivan”) officially released the “Commercial Vehicle New Energy Intelligent Development White Paper” (hereinafter referred to as the “Report”), based on the current development of commercial vehicles market. It analyzed the current market pains of commercial vehicles industry, and focused on how intelligent and new energy technologies help traditional commercial vehicles to break through the current situation and the application of such technologies in commercial vehicles market.

01 Current Status of the Commercial Vehicle Market

Now the sales volume of various commercial vehicles is closely related to the development of downstream industries. The sales of freight vehicles in China is obviously higher than that of passenger vehicles as China's logistics industry develops, increasing from 3.64 million in 2019 to 4.47 million in 2021, and it reached 4.45 million in 2020, mainly due to the vehicle replacement tide as a result of the implementation of China VI Vehicle Emission Standards. In 2021, due to the epidemic and other events, the global economy was impacted and the financial pressure of enterprises was large so that the intention to change vehicles of the public was relatively low, but the related demand is expected to be gradually released in the next few years.

In recent years, the demand for passenger vehicles has been relatively stable, mainly due to the gradual enhancement of China's infrastructure. Wider coverage of means of travel such as aircraft and railway and continuously lower traveling cost has caused the constant decrease of the demand on traveling by long-distance bus in China. At the same time, the epidemic has also reduced people's intention for trips and corporate budgets, leading to a slower growth in the bus market. However, the new energy-oriented urban transportation has gradually spread and the demand for passenger vehicles will grow slowly, with an expected amount up to 650,000 by 2026.

02 Pain Points in the Commercial Vehicle Market

1. Severe pollution caused by exhaust emissions from commercial vehicles

Global warming has become a core concern for countries worldwide. With governments setting higher decarbonization requirements for industries and regions with severe pollution and emissions, new energy has become an inevitable path for the logistics industry. As stricter standards are gradually introduced, controlling the carbon emissions from commercial vehicles has become a major pain point within the industry. Currently, heavy-duty trucks are critical in reducing emissions from commercial vehicles. In the calculation of carbon emissions from commercial vehicles, heavy-duty trucks constitute nearly 65% of all vehicle emissions, with heavy-duty truck emissions accounting for 83.5%, making them a crucial vehicle type for carbon reduction efforts.

2. High Sensitivity to TCO

Commercial vehicles are vehicles used for transporting people or goods, essentially serving as a tool for transportation. As a tool, their profitability becomes a primary concern for customers, focusing on creating greater value. Therefore, rather than adopting more advanced high-end technology, customers are more concerned about reducing the vehicle's Total Cost of Ownership (TCO). Truck TCO mainly consists of fixed costs (insurance, driver wages, toll fees), variable costs (fuel consumption, maintenance, tires), and depreciation. With the gradual increase in variable and fixed costs over the years, fluctuations in the TCO of commercial vehicles significantly affect downstream customer choices. How to reduce the TCO of commercial vehicles has become a prominent pain point within the industry.

3. Difficulty in Recruitment

As population aging and other issues develops in recent years, vast labor force in China has been declining year by year, so the recruitment difficult in traditional industries has become a common phenomenon. Due to the poor working environment and long working hours in the logistics and transportation industry, a lot of young people are reluctant to engage in such industry. With little infusion of young blood, from 2016 to 2020, the number of freight drivers in China decreased from 18.98 million to 15.1 million, with a decrease of 20.4%. There is currently a shortage of about 12 million truck drivers in China.

4. High Frequency of Safety Incidents

Traffic accidents refer to special situations that occur during the driving process due to the lack of coordination or unstable relationships among vehicles, drivers, and the road traffic environment. In 2016, there were a total of 145,820 traffic accidents in China, which peaked at 166,906 in 2018, and in 2020, there were 156,901 traffic accidents involving automobiles in China. The accident rate per million kilometers for commercial vehicles is currently around 3.5. In terms of accident severity, compared to passenger vehicles, commercial vehicles, due to their greater weight and higher handling difficulty, cause more severe losses in accidents, significantly impacting logistics transportation. Reducing the accident rate of commercial vehicles has become one of the core demands for logistics companies.

03 New Energy and Intelligent Technology

New Energy Technology

Commercial vehicle new energy technology refers to the use of non-traditional fuels or electric power to drive commercial vehicles, including pure electric, hybrid, hydrogen fuel cell, and other types.

Comparison across six major directions- environmental protection, technological difficulty, implementation capabilities, energy supplement efficiency, safety, and market attention- shows that currently, pure electric technology holds a significant advantage in the field of new energy for commercial vehicles. Compared to hybrid technology, pure electric technology represents a completely clean energy source, aligning more closely with contemporary requirements. In contrast to hydrogen energy technology, pure electric technology exhibits higher feasibility and can be more rapidly commercialized. Presently, the main challenge of pure electric vehicles lies in their low energy supplement efficiency. However, utilizing technologies such as battery swapping stations enables them to achieve energy supplement efficiency equivalent to that of hydrogen energy.

*Note: The environmental attribute considers the environmental performance of vehicles during their operational lifespan, excluding the source of energy. For instance, using battery swapping technology, the energy supplement efficiency of pure electric technology equals that of hydrogen energy. Higher scores represent better performance, except for technological difficulty, where higher scores indicate lower difficulty and easier implementation.

Intelligent technology

Intelligent technology refers to the integration of advanced sensors and other devices in vehicles, utilizing cutting-edge communication, computer, network, artificial intelligence, and control technologies to achieve real-time and continuous vehicle control, granting vehicles the ability for intelligent driving. Among these, autonomous driving technology encompasses perception, positioning, decision-making, and execution stages.

In the realm of commercial vehicles, intelligent driving can alleviate driver operational pressures and mitigate the challenge of recruitment. With technological advancements and improved regulations, drivers will potentially be entirely replaced by intelligent systems in the future, leading logistics transportation into an era of automation. Throughout operations, intelligent driving can enhance transportation safety, reduce accident probabilities, and boost overall operational efficiency.

04 New Energy and Intelligence Revolutionize the Plight of Commercial Vehicles

The adoption of new energy sources primarily addresses the dilemma of high pollution and heightened Total Cost of Ownership (TCO) sensitivity in commercial vehicles.

Compared to conventional petroleum fuel, new energy technologies are more environmentally friendly, often derived from renewable sources. They are not only cost-effective but also offer a stable price point in contrast to non-renewable petroleum fuels, effectively reducing energy expenses within the TCO of commercial vehicle transportation.

In addition to energy conservation and emissions reduction, new energy vehicle models are more conducive to intelligent deployment compared to fuel-based models. Unlike the complex mechanical structures of traditional commercial vehicles, the layout of new energy commercial vehicles is more straightforward and flexible, facilitating a more intelligent deployment. Furthermore, as these vehicles are entirely powered by electricity, they align better with the driving force of intelligent development, thereby advancing the compatibility of new energy commercial vehicles with the process of intelligence.

Intelligence in the commercial vehicle sector primarily addresses two major challenges: recruitment difficulties and frequent accidents. Leveraging advanced technologies such as sensors and big data, commercial vehicles can effectively reduce the industry's demand for drivers while ensuring the smooth operation of overall logistics transportation.

Intelligent Technology not only resolves the two major challenges faced by commercial vehicles but also extends their operational hours. Currently, the average daily working duration for commercial vehicle drivers is approximately 12 hours, including breaks and meal times. Theoretically, autonomous trucks can operate almost continuously for nearly 24 hours while ensuring transportation safety. This implies that logistics companies can accomplish a greater volume of transportation within shorter delivery cycles, enhancing overall business efficiency.

Presently, there's rapid progress in the intelligent technology of commercial vehicles, reaching a 28.7% penetration rate in 2021. However, the progression of new energy in commercial vehicles has been slow due to incomplete supporting facilities and ongoing iterations in battery exchange technology, particularly in heavy-duty trucks, accounting for only 0.7% in 2021. With the improvement of supporting infrastructure and maturity of battery exchange technology, the penetration rate of new energy vehicles in commercial fleets is expected to surge rapidly, simultaneously driving the upgrade and increased penetration rate of smart technology in commercial vehicles. Smart technology and new energy will be crucial directions for the future development of commercial vehicles, jointly propelling the thriving growth of the industry.

05 Market Size and Penetration Rates of New Energy and Smart Commercial Vehicles

1. Market Size and Penetration Rate of New Energy Trucks in China

At the moment, as the energy infrastructure of new energy charging stations is still in progress, the charging of new energy commercial vehicles limits its application field. The penetration rate of new energy trucks is relatively low, while it's relatively stable in 2019 and 2020, maintaining about 50,000 to 60,000. In 2021, following well-developed technology, Jiefang, Scania, and Daimler and other leading commercial vehicle enterprises launched their new energy vehicle types in succession. With further upgrading of technologies and the launch of new products of various manufacturers, it is expected that the new energy market will further larger. However, due to the cancellation of subsidies in 2023, the penetration rate of new energy trucks sales is expected to decline slightly in 2023, but market demand still exists. It is estimated that the sales volume of new energy trucks in China will reach 755,000 by 2026, with a compound annual growth rate of 34.7% compared with that of 2022.

2. Market Size and Penetration Rate of autonomous driving Trucks in China

Presently, due to legal regulations and technical challenges, autonomous driving technology has yet to be widely applied and is primarily utilized in specific closed scenarios. The penetration rate of autonomous driving significantly increased from 9.6% in 2019 to 28.7% in 2021, mainly due to the enforcement of the China VI emission standard in 2020 and 2021, resulting in a wave of vehicle replacements.

As autonomous driving effectively addresses current market pain points in trucking transportation, it is expected that its penetration rate will surge rapidly as technology further advances and legal regulations become more refined. The penetration rate of autonomous driving in trucks is projected to increase from 39.9% in 2022 to 72.0% by 2026.

3. Market Size and Penetration Rate of China's New Energy Heavy Trucks

Recently, the country has been actively promoting the "Dual Carbon" strategy, encouraging the vigorous development of new energy heavy-duty trucks, especially pure electric ones. Moreover, electric heavy-duty trucks possess distinct advantages, making them suitable for various applications in scenarios such as ports, mines, urban waste transportation, and large steel plants. With the support of policies and increasing demand, the new energy heavy-duty truck industry has been rapidly advancing.

The growth limits of new energy heavy trucks sales today are mainly subject to endurance and energy supplement time. Accordingly, the battery swap technology can well solve the energy supplement issue of new energy heavy trucks. In 2021, the recommended catalogue of the 12th batch of new energy special vehicles of the Ministry of Industry and Information Technology, has showed 26 types of battery swap vehicles. With mature corresponding technology, battery swap heavy trucks will own increasing types, and the sales of new energy heavy trucks in China will climb rapidly.

06 Best Practices in the Field of New Energy and Smart Technology for Commercial Vehicles

Presently, Westwell has introduced various types of new energy and smart technology commercial vehicles adaptable to diverse scenario requirements. Focused on closed roads, semi-open roads, and open roads, Westwell, based on its flagship product, the Q-Truck autonomous driving truck, has derived an upgradable intelligent connected electric heavy-duty truck. This technology deeply integrates into the entire container circulation process, driving the digital green transformation and intelligent iterative innovation in global logistics.

In terms of eco-friendliness, Westwell has constructed the PowerOnair automatic battery swapping ecosystem through the "Vehicle-Swapping Station-Cloud Platform" architecture. It aims to provide energy services for new energy and smart technology commercial vehicles. PowerOnair boasts five core advantages: rapid battery swapping speed, high automatic safety, strong environmental adaptability, high standard modularization, and enhancement of carbon value through the cloud platform. This assists the Q-Truck in achieving fully autonomous battery swapping, compressing the time required for a single swap to 5 minutes, overcoming the dual challenges of manpower and efficiency.

In the cases of landing benchmark, Westwell adheres to the concept of “Efficiency First, Value Landing”, and contributes to the new energy intelligent solution of global autonomous driving, so as to help Thailand Laem Chabang Port to increase efficiency with low carbon emission: since April 2020, the autonomous driving Q-Truck fleet in Thailand Laem Chabang Port has become the first batch of Chinese intelligent projects to be global under the epidemic, driving users to become the world's first terminal with mixed operation of autonomous driving and manned driving. In October 2022, the second batch of full-time autonomous battery swap Q-Truck and intelligent internet-connected electric heavy trucks have been successfully applied in Laem Chabang Port. As of December 2022, Q-Truck autonomous driving fleet has been operating at the terminal for total 26 months and completed over 190,000 TEU of ship operation containers. The working efficiency of autonomous driving trucks can be improved by 27.5% compared with that of manned trucks. Meanwhile, Q-Truck fleet adopts new energy pure electric driving, and a single vehicle reduces 10.7 tons of CO2 emission for the earth every year, equivalent to planting more than 700 trees each year.