In the first half of the heavy truck market growth pressure, Weichai power (000338.SZ, 02338.HK) still handed over a bright report card.
　　
　　Recently, Weichai Power released its 2024 report. During the reporting period, the operating income was 112.49 billion yuan, up by 6.0% year-on-year; Net profit attributable to the parent was 5.90 billion yuan, up 51.4% year-on-year.
　　
　　Weichai Power has closely grasped the "oil to gas" opportunity of heavy trucks in the past two years, and its natural gas heavy truck engine and vehicle business has become a major boost to its performance. With the domestic diesel heavy truck market share below 50%, can Weichai Power maintain its competitiveness in the field of natural gas heavy trucks in the future? Can it win more share in the fast-growing new energy heavy truck market?
　　
　　Natural gas heavy truck as a new driving force for growth
　　
　　Weichai Power's main business covers powertrain systems, commercial vehicles, intelligent logistics, agricultural equipment and other sectors. Among them, powertrain, complete vehicle and key parts business and intelligent logistics business are the two pillar businesses of Weichai Power, with a revenue of 46.684 billion yuan and 44.192 billion yuan respectively in the first half of 2024. Accounted for 41.5% of the total revenue, 39.29%, an increase of 5.29%, 4.73.
　　
　　2023 is the first year of the outbreak of natural gas heavy trucks. The growth of Weichai's powertrain, complete vehicle and key parts business in the past two years cannot be separated from the rapid improvement of the permeability of natural gas heavy trucks. According to Wind data, in 2021, the sales volume of natural gas heavy trucks is only about 60,000, accounting for only 4.2% of the market; By 2022, the rate of heavy truck gas has risen to 7.8%; In 2023, the sales volume of natural gas heavy trucks reached 152,000, and the rate of heavy truck gas jumped to 24.8%; By 2024, sales in the first half of the year have reached 109,000 vehicles, an increase of 104%, and the heavy truck gas rate has exceeded 35%.
　　
　　Natural gas heavy trucks have suddenly exploded in the past two years, and the penetration rate has soared, and many diesel engine companies and heavy truck vehicle companies are not ready. Weichai benefited from the diversified business layout strategy and had early reserves in natural gas-related products, allowing it to quickly invest in product follow-up.
　　
　　According to the annual report, in 2023, Weichai powertrain business achieved a rapid growth of 52.03% year-on-year, and 122,000 natural gas heavy truck engines were sold throughout the year, and the market share increased by 6 percentage points to 65%. 116,000 heavy trucks were sold, of which more than 26,000 were natural gas heavy trucks, an increase of 416%, accounting for 22.4%.
　　
　　In the first half of 2024, Weichai natural gas heavy truck engine and vehicle sales growth slowed down, but the performance is still good. As of the end of June, the company's domestic market share of heavy truck engines was 63.1%; Sales of 63,000 heavy trucks, of which 17,000 natural gas heavy trucks, an increase of 134.3%, the proportion increased to 27%.
　　
　　What is the future trend of the natural gas heavy truck market?
　　
　　1, natural gas diesel price spreads may gradually narrow
　　
　　The main driving factor for the "oil to gas" trend of heavy trucks in the past two years is the price difference between diesel and natural gas. Although the purchase cost of natural gas heavy trucks is higher than that of diesel heavy trucks, the operating cost of natural gas heavy trucks is much lower than that of diesel heavy trucks due to the lower price of natural gas fuel than diesel heavy trucks, and it is roughly estimated that the cost of higher than diesel heavy trucks can be recovered in about half a year.
　　
　　Whether natural gas heavy truck sales can continue to grow depends on whether the diesel and natural gas price differential can be maintained. Natural gas prices fell sharply in the first half of 2023, with the oil and gas price spread exceeding 4 yuan /kg in July, August and September, and the oil and gas price spread narrowed in July this year compared with the same period last year, and the price spread remained at 3 yuan /kg.
　　
　　According to the Gas Market Report (Q3 2024) released by the International Energy Agency (IEA), global LNG production performed poorly in the second quarter, with geopolitical tensions adding to price volatility. Prices in all major markets have risen in recent months, reflecting tighter supply and demand fundamentals. When the heating season enters in October, the increase in demand will push up the price of natural gas.
　　
　　At the same time, the consumption of diesel in the first half of 2024 was 103,820,800 tons, down 3.52% year-on-year, and the slow progress of industrial and mining, infrastructure and other industries, as well as the replacement of LNG heavy trucks for the logistics industry, dragged down the demand for diesel in the first half of the year, and the consumption fell significantly. The demand for refined oil products has weakened, but the supply is relatively sufficient, and the oversupply has a greater inhibitory effect on the price of gasoline and diesel, and the price has weakened.
　　
　　The tight supply and demand of natural gas combined with the weakening of diesel prices, the oil and gas price gap in the second quarter of this year has narrowed compared with the same period last year, if the oil and gas price gap continues to narrow will directly affect the consumption willingness of terminal natural gas heavy trucks.
　　
　　2, "old for new" does not subsidize natural gas heavy truck
　　
　　On July 31, 2024, the Ministry of Transport and the Ministry of Finance issued the "old for new" policy for operating trucks, supporting the early scrapping of operating diesel trucks with emission standards of national III and below, and providing subsidies for the new purchase of national VI emission standard trucks or new energy trucks. The subsidy will last until December 31, 2024.
　　
　　The subsidy is only for diesel and new energy trucks, natural gas heavy trucks are not included in the subsidy, and the elimination of old trucks and the renewal of new energy heavy trucks, the maximum subsidy can reach 140,000 yuan (early scrapping subsidy of 45,000 yuan + new energy heavy truck subsidy of 95,000 yuan).
　　
　　In the context of narrowing oil and gas price spreads and high subsidies for new energy heavy trucks, the penetration rate of natural gas heavy trucks is expected to peak, and the sales volume of new energy heavy trucks is expected to increase rapidly. According to Wind data, 27,700 new energy heavy trucks were sold in the first half of 2024, up 140.9% from 11,500 in the same period in 2023.
　　
　　New energy heavy truck opportunities and challenges
　　
　　Compared with fuel vehicles, natural gas heavy trucks still have many shortcomings, such as the explosive power of natural gas engines is less than that of fuel engines, especially when climbing or needing to speed up quickly, it may feel insufficient power, and natural gas engines are still in the technical iteration period, the failure rate is high, and the maintenance cost is high.
　　
　　However, with the narrowing of the oil and gas price gap, the future competition of natural gas heavy trucks will turn to product performance.
　　
　　Compared with manufacturers that have only developed natural gas engines in recent years, Weichai Power has laid out natural gas engine technology for nearly 20 years, and has a strong competitive advantage in technology maturity and product performance.
　　
　　In late May this year, Weichai released three new natural gas engines with different displacement, 13L, 15L and 17L respectively. Weichai WP17NG engine displacement reached 16.6L, maximum power 700 horsepower, peak torque reached 3200 nm, this data has been close to the diesel engine, in the field of natural gas engine is also a leap-forward breakthrough, to solve the natural gas engine in the need to climb the mountain or plateau area of insufficient power problem. With product competitiveness, the market share of Weichai in the natural gas heavy truck market is expected to further increase.
　　
　　The future demand for new energy heavy trucks is bullish, Weichai Power has systematically laid out new energy technologies including hydrogen fuel in this field, and the sales volume of new energy heavy trucks in the first half of 2024 is 2,840 units, doubling year-on-year.
　　
　　However, the new energy heavy truck market is still in the stage of synchronous development of multiple technology paths, and the recognition of different technologies and brands has not yet formed a unified market. In addition to traditional heavy truck companies like Weichai, Yutong, BYD, Remote (Geely) and other car companies rely on mature three power systems to vigorously develop new energy heavy trucks, and traditional engineering vehicle companies such as Sany and Xugong also vigorously develop, design and develop new energy heavy trucks.
　　
　　Weichai Power has not yet formed a strong competitiveness in the field of new energy heavy trucks, and it is urgent to strengthen research and development in the future to launch lightweight, long life and intelligent new energy heavy truck products in order to obtain more new energy heavy truck markets.