The Chinese heavy-duty-truck (HDT) market has faced a variety of challenges. Nearly a decade of rapid growth gave way in 2022, with sales plummeting 45 percent year over year. As the market finds its footing, several new trends are at play: the emergence and rise of new powertrains, partnerships exploring autonomous driving, an increase in exports, and customer pressure on pricing. What does it all mean for HDT OEMs in China? This article explores these trends in depth and in the context of the current market and suggests opportunities for Chinese OEMs both within the country and outside it.
The heavy-duty-truck market in China today
Several factors are contributing to the current state of China’s HDT market.
A stabilizing market
In 2023, sales in China’s HDT market rebounded somewhat from a dramatic dip in 2022 to about 900,000 trucks (including exports), driven by the recovery of the domestic market and an increase in exports. Excluding exports, the domestic market achieved 616,000 truck sales in 2023, benefiting from the rebound of key sectors, such as logistics, and the country’s economic recovery (Exhibit 1). Indeed, China’s GDP growth rate in 2023 was 5 percent compared with about 3 percent in 2022.
However, the market is not expected to fully recover to 2020 levels, marked by nearly 1.6 million truck sales, in the near future. Instead, growth will likely stabilize at around 800,000 trucks, excluding exports, based on McKinsey analysis of various economic scenarios. This is because of the slowing growth rate of China’s economic and the downstream market, a trend away from road and toward rail in China to improve the overall efficiency of logistics sectors, and the longer replacement cycle of HDTs with the improvement of product maturity.
But exports are an increasingly critical factor. In 2023, they contributed about 30 percent of the total market, or 269,000 trucks, representing a significant increase over previous years (Exhibit 2). Changes in both supply and demand contribute to this. And Chinese OEMs are shifting their strategic priorities to a global market in response to the intensifying competitiveness of the domestic market, which is influenced by current demand volumes and production capacities.
Emergence of new powertrains
Tractors are still the most popular type of HDT in China, accounting for about 43 percent of HDTs sold in the country in 2021, 48 percent in 2022, and 53 percent in 2023. Meanwhile, powertrains other than diesel are emerging, accounting for about 30 percent of market share in 2023 (Exhibit 3).
Compressed natural gas (CNG) and liquefied natural gas (LNG) accounted for the largest share (25 percent), boosted by low gas prices. In 2023, the diesel-to-NG price ratio rose to 1.9 times from 1.4 times in 2022, which improved the total cost of ownership (TCO) for drivers given the relatively weak macroeconomic outlook. Major truck OEMs have also increased their focus on gas trucks and developed competitive new products.
Battery electric vehicles (BEVs) achieved about 5 percent of domestic sales, with battery swapping taking about 48 percent of the total. Battery swapping has several benefits for players across the market.
- For drivers and fleet owners, battery swapping provides a flexible purchasing option that lowers the threshold for truck ownership. For instance, drivers can buy the chassis alone (excluding the battery) and obtain the battery through a leasing agreement. It also allows for shorter charging time compared with charging HDTs, which leads to higher uptime. Currently, the single recharge time for battery swapping HDTs is around five minutes in China, comparable to that of a diesel truck.
- For battery owners, centralized battery management at swapping stations can enhance battery life cycle, leading to increased profitability.
- For OEMs, battery-swapping HDTs are usually easier to promote than charging HDTs because of their cost competitiveness.
- For infrastructure builders, reducing the number of ultrafast-charging stations means fewer challenges to the grid; the charging capacity of an HDT ultrafast-charging station typically exceeds 1,000 kW.
Fuel-cell electric vehicles only accounted for about 0.6 percent (or 3,612 trucks) of China’s domestic HDT retail sales in 2023. The successful operation of battery swapping electric HDTs will delay mass adoption of fuel-cell HDTs, given their efficiency and cost advantages.
Changing prices
The average transaction price of domestic HDTs rose about ¥42,000 (about $5,800) from January 2018 to August 2023. This can largely be attributed to the rising proportion of CNG/LNG trucks and BEVs, given that the transaction price for CNG/LNG trucks is about ¥80,000 higher than diesel trucks and the transaction price of BEVs is about ¥300,000 to ¥400,000 higher, on average. The transaction price for diesel internal-combustion-engine (ICE) trucks has remained flat, McKinsey analysis reveals, despite increasing costs associated with new emission and safety regulations as well as overall truck improvements (for example, engine performance, cabin setup, and features such as displays).
Factoring in producer price index (PPI)—which saw a 6 percent increase in 2023 compared with 2018—as an estimate for inflation or producer prices, diesel ICE prices decreased, perhaps because of intensifying competition in times of low demand.
High market concentration
Market concentration remains high, with the top five OEMs accounting for about 88 percent of the market. This is expected to continue over the next five years. The largest players are also expected to gain market share at the expense of smaller players, which have lost market share in the past few years. Multinational OEMs captured about 1.0 percent of the domestic market, and localized products accounted for 0.4 percent in 2023.
Domestic market share growth is lagging behind projections, as trends toward premiumization are unfolding more slowly than anticipated and business owners feel uncertain about the economy. However, more multinational OEMs are localizing their offerings, and the cost competitiveness of these localized products will likely improve over time. As a result, the market share of localized multinational products is expected to increase.
Trends that may shape the HDT market in China going forward
The current state provides context for where the HDT market is headed. OEMs could consider focusing on trends that are shaping the future outlook.
Expansion of new powertrains
The new powertrains explored above will likely soon account for a substantial share of the market. CNG and LNG will remain significant in the short term, given their lower cost of fuel compared with diesel and their better emissions performance. The share of BEVs is expected to grow rapidly and reach 15 to 25 percent penetration in 2030, driven by government initiatives and incentives; advanced e-truck models launched by local OEMs; improved battery, e-powertrain, and autonomous driving (AD) technology; better charging and battery swapping networks; and increasing competitiveness in TCO. Battery swapping is likely to be the main type of BEV in China, accounting for 60 to 70 percent of BEVs in 2030 (see sidebar, “The effect of driver numbers on battery swapping”). While infrastructure has been a key barrier to uptake, ecosystem players are investing heavily in infrastructure.
Autonomous driving
Chinese HDT OEMs are pursuing high levels of autonomous driving through partnerships with tech and logistics companies, starting with specific use cases; for example, closed areas such as harbors and on-highway point-to-point long-haul transportation. For example, one of China’s leading AD truck companies authorized the commercial deployment of its AD pilot for HDTs along the Beijing-Tianjin interprovincial logistics route. This truck was codeveloped through a strategic alliance with a Chinese logistics firm and a domestic truck OEM. In addition, a Chinese truck OEM has been operating an AD pilot for HDTs commercially for about four years in a point-to-point use case at the port in Shanghai. This pilot was codeveloped with the AD technology subsidiary of the OEM’s parent corporation.
However, the road ahead presents considerable challenges, particularly in terms of achieving profitability, establishing regulations (especially for long-haul AD applications), and overcoming technological hurdles, which collectively have the potential to decelerate the development of autonomous HDTs in China.
Increasing exports
Leading Chinese HDT OEMs are actively seeking to capture additional growth opportunities and have announced ambitious goals for exports in 2024. This is due to several factors. First, there is currently large overcapacity for ICE trucks in existing plants given the significant drop in the domestic market size compared with 2020. Players may have an opportunity to capture more market share in other markets with price-sensitive customers. The shift toward alternative powertrains and new technologies (such as autonomous driving)—in conjunction with varying supply chain costs and incentives—opens up opportunities for players to become global leaders in new markets (for example, by localizing e-truck production in some Southeast Asian countries). Last, similar to trends observed in passenger vehicles, electrification creates additional export opportunities as leaders in other markets potentially lose their value proposition (for example, leading fuel consumption), possibly leading to new players entering the market.
Pricing pressure
Fleet owners are experiencing intense profitability pressure coming from downstream customers. Since 2020, express logistics companies in China have had to lower their prices to compete because of intense market competition triggered by low-cost e-commerce parcels. However, this pressure is expected to diminish and stabilize. And express players are diversifying their revenue streams instead of relying solely on a single e-commerce platform.
Strategic implications for OEMs
Given today’s context and emerging trends, OEMs could consider a few strategies both within and outside China.
China drivetrain strategy for all HDT OEMs
Based on new realities—such as current natural gas prices and trends toward battery swaps—both local and Multinational OEMs (either those already present or those planning to enter the Chinese market) may need to reevaluate their portfolios and powertrain strategies to adjust to new market realities and get a head start on trends such as electrification.
Global strategy for Chinese HDT OEMs
Chinese OEMs have gained market share in selective export markets and increased exports significantly. For example, from 2021 to 2023, exports to the Middle East and North Africa grew an average of 73 percent annually, while exports to Latin America increased 46 percent. Chinese OEMs are capturing market shares in other regions from other players to offset the ongoing downturn in the domestic HDT market. OEMs may consider adjusting their localization and production footprint strategies based on available incentives. For example, Indonesia offers incentives for electric-vehicle (EV) factory setups and reduced value-added tax for EVs with about 40 percent local components.
OEMs could have broader market opportunities for new-energy vehicle (NEV) HDTs in developed markets similar to recent developments in passenger cars (for example, Chinese OEMs are gaining market share in Europe and Southeast Asia). NEVs are a category of vehicles that rely on alternative energy sources and include BEVs and fuel-cell EVs. The rapid growth of China’s NEV truck market, coupled with a mature EV supply chain and ecosystem, creates potential opportunities for Chinese OEMs. This also opens up opportunities for suppliers—established global suppliers can attract a new group of OEM customers, and Chinese suppliers can partner with Chinese HDT OEMs to broaden their offerings.
China ecosystem for multinational OEMs
Market restructuring, driven by autonomous, connected, electric, and shared vehicles (ACES), creates openings for emerging entrants. It could allow smaller players to expand their market share and enable new technology players to enter the market (for example, for fleet connectivity and AD solutions). To ensure success in China, multinational OEMs need to review potential China-for-China ecosystem developments (similar to current trends in passenger cars) to keep up with developments by leading local OEMs on connectivity and AD, which are expected to bring significant benefits to large fleet customers.
The Chinese HDT market is undergoing significant change. As the market stabilizes and OEMs adjust to the new normal, there are opportunities for those that think strategically about their portfolios, powertrain strategies, and localization and production strategies.
