Foton Hugs Cummins Daimler Engine Project or Has Variables

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On June 7th, Cummins ISG heavy-duty engine was put into mass production at Beijing Changping Beiqi Foton Cummins Factory. At the same time, Foton Daimler Auman GTL Super Edition was officially announced. At this point, Foton Motor (600166.SH) completed its layout in the heavy-duty engine field, and finally got rid of decades of heavy anxiety on heavy-duty engines.

For the domestic production of Cummins ISG heavy-duty engine project, Ping An Securities gave a positive evaluation, and pointed out that the further expansion of cooperation between Foton and Cummins and the improvement of the company's supply chain will help improve its heavy truck product differentiation and market competitiveness.

In order to solve the supporting problem of the core engine, Foton started to contact Daimler as early as in 2003. He wanted to introduce a large-displacement engine technology through the establishment of a joint venture company, and to introduce the engine into the 2012 joint venture agreement. China, but still lagging behind Cummins.

Launched heavy-duty engine <br> <br> Prior to this, Fukuda heavy-duty engines are sourced from outside. Weichai Power announced that on medium- and heavy-duty commercial vehicles, more than 80% of Futian's engines were purchased from Weichai Power. At the same time, the company also supplied more than 80% of its engines to heavy-gas producers such as Shaanqi and Beiben. This reality led Futian to have a high degree of homogeneity in heavy truck products and market competition products, and weak product profitability.

Foton Motor's 2013 financial report showed that last year, Futian sales of heavy trucks reached 127,000 units, a year-on-year increase of 33%, which was much higher than the industry's 15% growth rate. However, Foton held a 50% stake and Futian Daimler, which mainly manufactures Auman series heavy trucks. The annual profit is only 40 million yuan, far below the 200 million yuan expected in the capital market.

“China's heavy truck companies have very weak independent research and development capabilities. Profits of the upstream and downstream industries are far greater than those of the entire vehicle company. Futian is no exception. The two core components of large-displacement engines and transmissions need to be outsourced, taking over most of the profits. "Industry analysts told the reporter of the "First Financial Daily".

In fact, from the split between Weichai and China National Heavy Duty Truck, more and more heavy truck companies in China began to search for engine technologies that are suitable for themselves and can take the initiative. For example, Dongfeng cooperated with Cummins and developed its own DCT11 technology. The D20/D26 engine technology developed by the company and the Aowei 11L engine technology released by Fudan were previously intended to introduce high-power engines from another partner, Daimler.

According to the joint venture and cooperation between Fukuda and Daimler AG in 2012, Foton Daimler Motors, with a registered capital of RMB 5.6 billion, has an investment of 9.905 billion yuan, and the ratio of the two companies is 50:50. The main production is Foton Auman. The brand's medium- and heavy-duty trucks, and Daimler's licensed emissions standards and power, respectively, have reached the Euro OM457 and 490-horsepower OM457 heavy-duty truck engines. The total vehicle production capacity is 200,000 vehicles/year, and the engine production capacity is 45,000 units/year.

The two sides agreed that the future Auman Heavy Trucks produced by Foton Daimler will be equipped with OM457 engines, and Foton will provide products. Daimler will provide technical and expert support to help the joint venture companies improve product quality and assist in the development of new products for the domestic market. In order to increase the competitiveness of Auman Heavy Trucks in China and emerging markets, it plans to start production in 2014. However, the Office of the Secretary-General of Fukuda once confirmed to the media that the Foton Daimler engine could not achieve production this year. “The factory building is still under construction and production may be postponed.”

Some insiders suspect that Fukuda Daimler's engine project may have changed. "The most likely reason is that Daimler is not willing to take Fukuda's engine technology." He said, "A possible variable is due to Auman. The scale of production of heavy trucks is limited. Daimler's OM457 engine has a high cost. If it is supplied solely by Auman, it will be difficult to see the return on investment. If it is sold abroad, it will be difficult for the high prices to form a market.”

<br> <br> scale significantly improved profits above analysts believe that Cummins ISG12 may be the alternative OM457 engine, the maximum power it provides OM457 engine can reach 490 kilowatts of power requirements. In addition, the ISG project jointly produced by Foton and Cummins can fully meet the current EU IV and V fuel emission standards, and can easily be upgraded to Euro VI standards in the future.

Ping An Securities believes that after the Futian Cummins heavy-duty engine is equipped, the profitability of Foton Daimler is expected to increase, and it will substantially increase the profit scale of Foton Motor. With the mass production of the Foton Cummins ISG series, with annual sales of 100,000 units, Futian Cummins can contribute 6 billion to 7 billion yuan in revenue and 600 million yuan in profits each year.

ISG series engines are produced in the newly-built heavy-duty factory of Beijing Foton Cummins Engine Co., Ltd. The new factory has a total investment of 2.2 billion yuan, covers an area of ​​66,000 square meters, and currently has an installed capacity of 60,000 units. According to the market, the production capacity can be increased to 12 Million.

According to the plan, ISG engines will be produced in Brazil and China's manufacturing bases in the future, and will be supplied to Fukuda Daimler's global factories. This means that the future Foton Cummins engine will digest production capacity in two markets, half in China and half in overseas.

Foton Motor's announcement on June 10 showed that the company is financing the expansion of the assembly line of the ISG series engine factory. The announcement pointed out that Foton has launched a non-public stock issuance plan with a maximum targeted financing of RMB 4 billion, which will be used by Futian Automobile India Manufacturing Co., Ltd. to increase capital for the construction of a commercial vehicle production base project, the Shandong Multipurpose Vehicle Plant light passenger construction project, and Beijing Foton Cummins. Engine Co., Ltd. product upgrade technology transformation projects and additional liquidity.

According to the above-mentioned industry insiders' analysis, the heavy truck industry's next-generation powertrain is based on 12L and 13L engines, and Cummins' 13L engines are still mainly produced by Dongfeng Cummins. In this sense, Foton Motor also has the drawback of upward development, unless the cooperation with Daimler's engine can continue.

Cummins is the largest foreign investor in China's engine industry and owns eight joint venture and wholly-owned manufacturing companies. In 2008, Foton Motors and the United States Cummins set up a 50:50 joint venture company, the two sides have been focusing on the production of ISF light engines, supporting the Foton high-end light trucks. In the ISG heavy-duty engine project, in the future, ISG will produce ISL (9.5L) and ISZ (13L) from Dongfeng Cummins, and ISM (11L) from Xi'an Cummins, to form the Cummins Chinese product family series, and to realize the fitting in the global scope. Sales.



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