Asia To Africa Strategy Paying Off For Daimler Trucks

When Daimler Tucks Asia announced in June 2013 that it would export trucks from India to Africa, BMI suggested this could be a cost-effective alternative to domestic production in the region and that given the growth of the Asia to Africa shipping route, we would expect to see more autos trade in this direction ( see 'Daimler Trucks Taps growing Trade Route', June 5 2013). This view has been supported by Daimler Trucks Asia's announcement that its sales in Africa for the first two months of 2014 doubled year-on-year (y-o-y) and it will be continuously adding to the number of export markets.

The strategy began with Kenya, which we see as a good measure of success, given that the commercial vehicle (CV) market in the country is highly competitive and several manufacturers have invested in domestic production to achieve an advantage. By joining forces between Daimler India Commercial Vehicles and Mitsubishi Fuso Truck and Bus, Daimler Trucks Asia is able to sell trucks from the Fuso brand, which is well established in Africa, produced at Daimler's plant in Chennai, India and exported under its 'Asia Business Model'. This is also linked to our view that Chennai is well placed to become an autos export hub, with its port infrastructure being one of the key factors ( see 'Car Carriers In Sweet Spot Amid Asian Exports Boom', February 25).

In January and February 2014 combined, the company sold 1,060 units in Africa, compared with 580 in the same period of 2013. This also surpasses the 1,100 units sold in Q113. The number of export markets has also grown with Zambia and, most recently, Tanzania, added to the African destinations.

Chennai To See Increased Activity
Port Of Chennai Tonnage Throughput

Asia To Africa Strategy Paying Off For Daimler Trucks

When Daimler Tucks Asia announced in June 2013 that it would export trucks from India to Africa, BMI suggested this could be a cost-effective alternative to domestic production in the region and that given the growth of the Asia to Africa shipping route, we would expect to see more autos trade in this direction ( see 'Daimler Trucks Taps growing Trade Route', June 5 2013). This view has been supported by Daimler Trucks Asia's announcement that its sales in Africa for the first two months of 2014 doubled year-on-year (y-o-y) and it will be continuously adding to the number of export markets.

The strategy began with Kenya, which we see as a good measure of success, given that the commercial vehicle (CV) market in the country is highly competitive and several manufacturers have invested in domestic production to achieve an advantage. By joining forces between Daimler India Commercial Vehicles and Mitsubishi Fuso Truck and Bus, Daimler Trucks Asia is able to sell trucks from the Fuso brand, which is well established in Africa, produced at Daimler's plant in Chennai, India and exported under its 'Asia Business Model'. This is also linked to our view that Chennai is well placed to become an autos export hub, with its port infrastructure being one of the key factors ( see 'Car Carriers In Sweet Spot Amid Asian Exports Boom', February 25).

Chennai To See Increased Activity
Port Of Chennai Tonnage Throughput

In January and February 2014 combined, the company sold 1,060 units in Africa, compared with 580 in the same period of 2013. This also surpasses the 1,100 units sold in Q113. The number of export markets has also grown with Zambia and, most recently, Tanzania, added to the African destinations.

This choice of markets aligns with BMI's own views that substantial investment inflows into Zambia's mining sector, as well as plans to invest US$5.6bn in the country's road infrastructure, offer growth opportunities for the CV segment. We also believe that a similar focus on infrastructure investment in Tanzania makes its CV segment attractive ( see 'CVs Still The Best Bet For Growth', January 31). Indeed, the Fuso distributor in Tanzania, Diamond Motors, has been promoting the range of medium and heavy trucks to industries such as construction, logistics, mining, and oil and gas.

Daimler Trucks Asia is committing to this international strategy to the tune of EUR300mn in investment over the 2014-2018 period. Other African countries to be added to its export markets on a rolling basis include Malawi, Mauritius, Mozambique, the Seychelles, Zimbabwe and Uganda.

CVs Take The Lion's Share
Mozambique Vehicle Sales By Segment (CBUs)

Among these we see particularly promising opportunities in Mozambique, again linked to its infrastructure development. Investment in mining and more recently gas exploration is necessitating the construction of support infrastructure, with an estimated US$30bn in projects in the pipeline. As such, of the 35,500 new vehicle sales we forecast by 2018, the CV segment will account for around 62%, with average annual growth in the segment of 12-13% over the 2014-18 period.

Uganda also throws up opportunities with CVs accounting for the majority of the small new vehicle market and heavy industry driving demand on the back of economic growth, as in other African markets. However, it also offers challenges as Chinese firm Foton, which has been notably active in investing in domestic production in East Africa to fulfil existing contracts for Chinese engineering firms, has plans for a plant in Uganda to increase its competitiveness ( see 'Foton Bets Further On EAC Truck Demand', June 20 2013). In this respect, the established Fuso brand could be an asset to Daimler Trucks.

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