Driven by the improvement in sales of heavy-duty trucks, sales of engines have rebounded significantly in the second half of the year. Due to the stable price of raw materials, the engine also faced a favorable situation of rising gross profit margin. At present, there are disputes between the “electronically controlled high pressure common rail” and the “electrically controlled inline pump + EGR” two engine technology systems. Both have their own advantages.

Heavy trucks lift engine sales

In October, the production and sales volume of automobiles were 1.258 million and 1.2263 million, respectively, which fell by 7.64% and 7.92% respectively from the previous month, an increase of 79.79% and 72.48% year-on-year respectively. Affected by the "Eleventh" Golden Week, car sales in October decreased by around 10% from the previous month in September, but this year, the chain fell only 7.92% from the previous month, setting an ideal for the second highest point of production and sales in the year. This not only validates the "golden nine silver ten" law, but also reflects the continued prosperity of the automotive market.

Heavy trucks were the brightest car sub-sector in October, with a year-on-year growth rate of 141% over the crossover-type passenger vehicles (128% year-on-year) and mini-trucks (78%) that have continued to boom since this year. Although the low base effect caused by the switching of emission standards is the main reason for the excessive growth of heavy trucks, the heavy truck market has indeed come out of the trough and continues to improve from the absolute sales of about 60,000 vehicles for several consecutive months. Under the continuous improvement of the national investment plan and logistics transportation demand in the coming year, the heavy truck industry will maintain a good momentum of growth.

The continuous recovery of the heavy-duty truck market will surely be conducted upstream, and sales of heavy truck engine companies have apparently rebounded. Taking Dongfeng Cummins as an example, in October, the sales volume of heavy trucks was 13,400, an increase of 53.55% year-on-year, and sales had been more than 10,000 for four consecutive months. If November and December sales maintained at a level of 12,000, the next two Months will see a year-on-year growth rate of more than 150%, and will reduce annual sales by only 20% compared to 2008. The overdraft effect of the National III emission standards will be effectively digested in 2009.

Engine gross profit rate rebound

The favorable situation faced by engine manufacturers in the second half of the year did not show a significant rise in the prices of raw materials in the upstream market except for a significant increase in sales. Raw materials account for more than 90% of the cost of the engine. The remaining labor costs are about 4%, depreciation is about 3%, and power and fuel are about 3%. Steel is the main raw material for the engine. The cost of direct and indirect steel exceeds half of the total cost of raw materials. The price trend of steel products this year has been relatively stable. The price index of steel products in WIND's statistical circulation has not fluctuate. The highest July price has only risen by 10% from the beginning of the year, and the steel price is still falling.

The combination of the scale effect brought by sales growth and the stabilization of raw material costs has greatly improved the gross profit margin of engine manufacturers, which has led to a rapid increase in their performance quarter by quarter. We estimate that the net profit of Dongfeng Cummins in the first three quarters of the year was RMB 30 million, RMB 120 million, and RMB 200 million, respectively, an increase of 300% and 67% respectively. The heavy-duty truck industry will not repeat the tragedy of 2008. We believe that the engine manufacturers' performance in the fourth quarter will exceed market expectations.

Both technologies have their own advantages

On July 1, 2008, the third-phase emission standard for motor vehicles (National III standard) was formally implemented. New cars that did not meet the National III standard would be completely shut down for sale and registration. However, the industry’s debate on what kind of technical route should be adopted after the State III has not stopped. Among them, the "electronically controlled high pressure common rail technology" system and the "electronically controlled inline pump + EGR technology" system are the most controversial.

The so-called electronically controlled high pressure common rail technology is used in the common rail pressure accumulator injection system. The ECU (equivalent to the computer of the engine) receives signals from various sensors and uses the electromagnetic valve on the injector to allow diesel fuel to operate correctly. The injection pressure injects the correct injection quantity at the correct injection point, ensuring the best combustion ratio, atomization and optimum ignition timing of the diesel engine, as well as good economy and minimal pollution emissions.

The working principle of “electrically controlled in-line pump + EGR” is based on the State II mechanical pump. The electromagnet is used to control the rack and outlet valve of the mechanical pump, and a simple electronic-controlled fuel injection pump with an EGR exhaust gas reprocessing system is made. Reduce emissions.

The cost of the "electronically controlled inline pump + EGR" system is at least 10,000 yuan less than that of the electronically controlled high pressure common rail system. Its versatility with the State II engine also has certain advantages in terms of after-sales. Therefore, some low-end heavy trucks and Depreciation of the engineering heavy truck above has been widely used. China National Heavy Duty Truck Co., Ltd. first adopted this technology system, so we saw that Sinotruk’s sales in the second half of 2008 and the first half of 2009 were ahead of other manufacturers using high pressure common rail technology (such as Weichai, Dongfeng Cummins, etc.). However, the disadvantages of its high fuel consumption and poor consistency have also been questioned by the market, and even some technicians believe it to be “false country III”.

We believe that with the recovery of the logistics industry and the continuous price reduction of common rail products under pressure, the market competitiveness of electronically controlled high pressure common rail products will gradually emerge. In the long run, EGR products cannot meet higher emission standards, and the rising trend of oil prices is increasingly detrimental to the characteristics of sacrificing fuel consumption and meeting emission standards. Weichai Power, FAW and Dongfeng Cummins and other companies that insist on electronically controlled high pressure common rail technology will eventually receive the desired return.