China Is Quietly Reinventing The Truck Industry — Are The U.S. And Europe Missing The Boat?

One of the most recent warnings came from the very top!

“China's policies could flood our market with its vehicles, posing risks to our national security,” President Biden said in a statement, adding that this would not happen on his watch.

Western fears of a wave of highly subsidized Chinese battery-electric vehicles (BEVs) have been rising for a while. It is estimated that one in four EVs sold in the European Union (EU) this year will be made in China. Clearly, massive Chinese state subsidies have led to price distortions, giving Chinese manufacturers like BYD an unfair advantage over Western competitors. But that is only one part of the truth. By establishing a firm grip over the entire electric value chain, particularly the batteries, China and its carmakers have been catching up — and in many ways overtaking — Western incumbents on car performance and quality. And the import tariff of 27.5% on Chinese cars entering the U.S. may not be high enough, posing a real and imminent risk of losing traction in an industry that contributes some 9.7M jobs, or 5% of U.S. private sector employment. In Europe, it is 13M jobs, or a 7% share.

In the wake of the geopolitically charged race for leadership in passenger cars, however, there is another transformation quietly progressing: the electrification of medium- and heavy-duty (MHD) trucks and the build-up of the underlying charging infrastructure.

The implications will be massive!

Truck sector shapes global supply chains and drives decarbonization

For one, road freight transport is the backbone of trade and commerce globally. Trucks are responsible for transporting most of our daily necessities, from food to electronics, appliances, and clothing. In 2023, around 12.1 billion tons of U.S. domestic freight shipments (which total ≈17.8 billion tons overall) were moved by trucks. That’s close to 80%. This translates to values of almost $12.2 trillion from a total of around $16.3 trillion, or 75%. And according to predictions by the U.S. Department of Transport, tonnage and the values from truck shipments will grow by circa 70% and 60% respectively until 2050. The picture looks similar in Europe, where trucks currently carry almost 80% of all freight transported over land.

Let’s look at emissions next. Although they represent only around 4% of vehicles on the streets, freight trucks and buses are responsible for about 36% of on-the-road greenhouse gas emissions, or around 5% of global CO₂ emissions (2019). This sector is crucial for accelerating the decarbonization of transport, which — with emissions falling about 2% per year — isn’t progressing as quickly as required. To stay on track for the net zero emissions scenario of the Paris Accord by 2050, emissions will need to decline by 15% until 2030.

Consequently, back in 2021 at COP26, there was a Global Memorandum of Understanding (MOU) defining the goal of 30% sales of Zero-Emission (ZE) MHD trucks by 2030 and 100% by 2040. This was signed by 26 countries, including the United States.

In this spirit, in late March 2024, the U.S. Environmental Protection Agency (EPA) passed a sweeping rule to curb tailpipe emissions from trucks, busses, and other heavy-duty vehicles. While it includes no mandate for a specific ZE technology, the rule sets strict emission reduction targets through 2032 per sub-category, ranging from 30% for “heavy-heavy-vocational” trucks to 60% for “light-heavy-vocational” trucks.

In Europe, the European Commission already proposed a revision in 2023 of the CO₂ emission standards for heavy-duty vehicles. In early April, this was passed into law, requiring truck manufacturers to decrease the average emissions of new vehicles by 45% by 2030, 65% by 2035, and 90% by 2040.

In addition to these recent CO₂-slashing policies, the administrations on both sides of the pond have taken decisive steps to spur domestic production. While the U.S. Inflation Reduction Act tries to entice manufacturers with generous production tax credits, the EU has enacted its Net Zero Industry Act— setting a goal of meeting 40% of Europe’s demand for so-called net zero technologies from domestic production. EV batteries included.

The simple conclusion is that zero-emission trucks will arrive by the end of this decade.

As the truck market grows steadily, Chinese and European OEMs bank on battery electric

In 2023, there were roughly 2.3M and 1.4M medium- and heavy-duty trucks sold in the EU and U.S., respectively. The U.S. market for this segment is valued at $300B (2021) and expected to grow to $480B (2027) with an 8% CAGR.

As part of that, zero-emission truck sales continue to rise.

In the heavy-duty segment, China has been the dominant market for years, both in terms of production and adoption. In 2022, around 110,000 ZE HD trucks were sold in China, making up 81% of the global market. In the EU, light- and heavy-duty commercial e-truck sales grew 50% and 150% respectively from 2022 to 2023. The U.S. is still lagging, but the sales and purchase quotas (5-9%) from California will soon take hold.

For the U.S. market, there may be a mix of battery electric and fuel cell electric, with fuel cell being more relevant in long-haul. However, in China and in the EU the roadmaps are clear, and they are battery electric. In China, for instance, 96% of the 2022 heavy-duty ZE truck sales were battery electric.

As global ZE MHD truck sales pick up the pace, the technology has advanced significantly. Volvo Trucks, for example, recently announced a 280-mile (450 km) range for their 17-ton truck and a 190-mile (300 km) range for a 44-ton truck. This is relevant as 45% of goods transported in the EU travel less than 300 km. Scania is pushing for 50% sales of e-trucks by 2030 with a battery lifetime of 100K miles (160K km). In the U.S., the largest truck OEM, Freightliner, has announced its new 18-wheeler truck eCascadia with a range of 230 miles (370 km).

Clearly, this market growth will continue as the demand from road freight is expected to increase globally: 46% during the time between 2022 and 2040. And with that comes a massive overhaul of the underlying infrastructure!

Infrastructure investments of up to $450B are needed

According to McKinsey, (re-)building the infrastructure for zero-emission trucks will require combined investments of up to $450B by 2040. Much of those will likely be focused on China with its huge truck fleet. But it will spill over to the U.S., too, where the infrastructure investments for a scenario of 100% battery electric trucks are expected to reach nearly $100B. Consequently, the Biden Administration has recently developed a new four-step strategy, the “National Zero-Emission Freight Corridor Strategy,” for scaling the truck charging infrastructure through 2040.

With such large dollar amounts needed, this begs the question — can it be made cheaper? For battery electric trucks, the current focus in the Western world has been on cable charging. And the newest innovation is something called “Megawatt Charging System" (MCS), which pushes the limits of current charging capabilities to reduce charging time from > 8 hours to < 1 hour. Daimler Truck, the TRATON Group, and the Volvo Group created a joint venture called Milence to work on the commercialization of this technology.

China, however, has answered that question quite differently. In addition to cable charging, the country is rolling out battery swapping for commercial trucks — a technology that enables reduced charging times of just five to ten minutes.

China’s CATL is redefining the battery swapping standard for trucks

Battery swapping may start to sound familiar soon. In the U.S., Ample operates 12 battery swapping stations in San Francisco and just recently landed a $15M grant from the California Energy Commission. And in Europe, Nio opened their 30th European battery swap station late last year. But these are for passenger cars.

When it comes to MHD vehicles, the Western world is quiet. This is in stark contrast to the developments in China. In 2023, almost half of the country’s heavy-duty trucks were ‘swap-capable’, up from 34% in 2022. CATL dominates the battery supply for swap-capable trucks in China and has 85% battery market share for heavy-duty trucks, supplying to XCMG, SANY, FAW Jiefang, and others. Due to this ‘pole position,’ it is more straightforward to set the battery standards (282 and 350 kWh), which then allows for a universal, non-OEM specific infrastructure.

The battery swapping process for trucks occurs either from the ‘bottom/side’ or from the ‘back’. In China, the semi-automatic ‘back’ battery swap process has been deployed by SANY, the largest heavy-duty OEM in China and second in the world. However, in June of 2023 CATL released Qiji Energy — a heavy-duty truck chassis battery swapping solution from the bottom/side.

Battery swapping from the bottom/side: massive benefits across the value chain

This is a breakthrough for two reasons. For one, it does not add length to the truck, important in regions such as EU where there is a length limit. And secondly, battery swapping from the bottom/side makes the truck chassis compatible with literally all Western cab-over truck platforms.

Looking beyond the technology dimension, it is perhaps even more important to understand ‘who will win’ from this advancement. Simply put: everyone!

For fleet managers, some of the benefits include longer daily operating times for the vehicles, lower constraints to match driver breaks with fixed charging points (aka route flexibility), smaller fleet size due to higher utilization, and lower upfront CAPEX costs due to the batteries being leased. For the drivers, some of the above benefits spill over, but in addition (battery) safety will be improved. Malfunctioning batteries can be easily and quickly swapped, and this will correlate with higher standards around battery management. Lower charging speeds compared to cable charging can also improve battery life.

The utility or battery swap operator companies can charge a premium for this convenience and secure additional revenue streams, e.g. around energy arbitrage, by reducing grid demand during peak hours, capacity payments, and vehicle-to-grid ancillary services. Battery suppliers, such as CATL, will also benefit from the sales of more batteries, as the battery swapping stations will require about 45% extra/spare batteries per station. The OEMs will win by improving the customer experience, securing a brand premium position and in the end selling more product.

With these substantial benefits in mind, it is no surprise that in China, the number of battery swap stations went from 555 in 2020 to 3,567 by the end of 2023. And the projections from various press releases suggest an increase to 37,000 by 2025. This is a 10-fold increase in less than two years!

Study shows: 2.5 to 10% lower TCO with battery swapping than with MCS cable charging

To drill down even further on the economic benefits, EIT InnoEnergy and an international strategy and management consulting firm have examined the total cost of ownership (TCO) of battery swapping versus MCS for MHD trucks. The preliminary findings of their (soon-to-be-published) study are quite revealing. The assumptions were that 45% of the charging demand comes within a two-hour peak. So, the design of the study was to serve nine vehicles per hour for two consecutive hours at one charging location, 40 trucks per day in total. The truck driver could either use MCS, which would need to be aligned with a one-hour break and would take 40 minutes to reach an 80% charge. Or, they could choose battery swap and in five minutes reach 100% charge. The actual (nominal) charger capacity (kW) for both alternatives were equal as well as the electricity supplied. While this resulted in a ~30% higher CAPEX for the swap station, including additional costs for extra/spare batteries, there was a decreased grid demand of nearly 60%. More importantly, once this cycle continues over 24 hours, battery swapping would require only two stops of five minutes each compared to MCS charging with 3 stops of one hour each, leading to almost three hours more utilization, or a ~10% lower TCO. For the lower utilization cases (e.g., 10 hours/day) the TCO was still ~2.5% better for battery swapping.

The bottom line is: battery swapping is showing clear economic benefits and roadmaps toward industrial scale in China. And given its market size and dominance in the HD truck and battery sectors, what China does will have a profound impact on the entire industrial value chain globally.

Short window of opportunity for U.S. and European truck makers to adapt their roadmaps

Both the Biden administration and the EU Commission have taken important steps to provide regulatory certainty and create strong incentives for manufacturers to decarbonize quickly and scale their domestic cleantech production.

It is for the Western truck OEMs, however, to back the right horse technologically. There is a window of opportunity right NOW to adapt roadmaps and integrate that new technology. And, in effect, participate in the growth and have a say as the technology evolves further.

The alternative presents itself very clearly. Chinese OEMs will gladly bring their eTruck fleets together with the swapping solutions, win market share and control the build-up of the charging infrastructure.

Given Western anxieties over Chinese import waves of battery electric passenger cars, the question must be allowed: How do we like the prospect of an overwhelming Chinese dominance in a sector that moves 80% of our daily goods?