Heavy-duty growth

China's Shaanxi Automobile is providing the muscle to help reshape parts of Africa, and digging out profit and market share in the process

At a copper mine in Katanga province in the Democratic Republic of Congo, 50 dump trucks bearing the Shaanxi Automobile logo are roaring alongside German-made MAN and Daimler trucks. Loud music played by the local drivers mixes with the engine noise and yellow dust being kicked up.

"This is the typical scene at our worksites in Africa," a Shaanxi Automobile Holding Group engineer says.

This Central African country formerly known as Zaire, is a rough, undeveloped place.

The Ebola virus takes its name from a river in the country, one of the places it was first recognized in the 1970s. (A relatively small outbreak there currently appears contained and is unrelated to the much larger West Africa outbreak.)

But it's the type of rugged region where Shaanxi Automobile often is successful.

The company started shipping vehicles to Africa in 2004 and now delivers more than 20,000 vehicles a year to the continent, with total value of more than $700 million.

The major products include dump trucks, light-to-medium trucks and tractor trucks for tractor-trailers, most of which are orders from Chinese construction companies, local machinery rental companies, and self-employed African contractors.

In Africa, Shaanxi Automobile has left its footprints in Algeria, Angola, Kenya, Congo, Ghana, Cameroon, Ethiopia, Nigeria, Mozambique and Tanzania. In Algeria, the company's share of the truck market has reached 70 percent.

Africa is industrializing and urbanizing, so the demand for trucks is huge, says Dong Yang, secretary-general of the China Association of Automobile Manufacturers.

In many sub-Saharan countries, there are barely any decent asphalt roads outside of the capital city, and many people still live in huts rather than modern concrete buildings, which means large opportunities for construction companies and therefore for machinery manufacturers like Shaanxi Automobile, he says.

Construction machinery is a hot seller in Africa, but the Xi'an-based company also offers a variety of vehicles and parts for sale: heavy military off-road vehicles, heavy and light trucks, large and medium-sized passenger cars, minivans, engines and spare parts.

Last year, the company, along with its 20 subsidiaries, delivered 100,000 trucks for both domestic and global markets. It has 260 service branches and maintenance centers across 60 countries and regions.

Since the company considers it too soon to establish its own dealer network in Africa, sales representatives with Shaanxi Automobile run between local dealers, Chinese trade companies located in Africa, and bidding meetings at construction companies to get deals done.

The company has built two plants in the continent, one in South Africa and the other in Ethiopia, to bring down cost and increase visibility.

The Ethiopian plant, located in Debre Zeit, got up and running with help from the Ethiopian Ministry of Defense. It can build 2,000 vehicles a year, and its primary products are military-purpose SUVs and machinery for civil use.

The South African plant is located in Pietermaritzburg, 70 km from the port of Durban, with an investment of $32 million and annual capacity of 5,000 vehicles. The plant is expected to hit high levels of production this year and its products are to be sold in more than 13 African countries.

Doing business in Africa also requires the ability to adapt quickly because the political environment can be quite unpredictable, the company says.

Starting this year, the Nigerian government raised the import tariff of vehicles to 70 percent, which takes a heavy toll on foreign-made heavy-duty trucks. Most Chinese brands that exported trucks to the country now export parts from China and assemble them in Nigeria to avoid the high tax.

Shaanxi Automobile's parts have passed local government tests and the company is expected to get its first order for vehicles assembled in Nigeria by the end of this year, officials say.

As in other international markets, Shaanxi Automobile primarily faces two groups of competitors in Africa: European-based truck makers such as Sweden's Scania AB and Volvo Car Group, and Germany's Mercedes-Benz and MAN SE; and Chinese competitors such as China National Heavy Duty Truck Group Co, Beiqi Foton Motors Co, FAW Group Corp, and Beiben Trucks Group Co.

"European trucks sold here are usually second-hand, but their price is still about the same as a new Chinese truck," Dong says.

The price disparity is partly due to the durability of the European vehicles, but mostly is because of the well-known brands, Dong says. "Chinese companies have yet to establish a solid reputation in the international market, so in the current stage we have to win customers over with lower prices. But given some time, Chinese truck makers will catch up, just like Korean automakers did in the last three decades."

Shaanxi Automobile is pushing toward this goal. The company decided last year on an ambitious goal of producing 200,000 heavy-duty trucks and 250,000 commercial vehicles by 2017 to generate annual revenues of 100 billion yuan ($16.3 billion).

Currently, engines for some popular export products are purchased from US engine maker Cummins. But the company also intends to make its own breakthroughs in key components. One way of doing that is through its partnership with Weichai Holding Group Co., with which it jointly owns Shaanxi Heavy Duty Automobile Co.

Weichai, based in Weifang, Shandong province, holds 51 percent of the joint company and Shaanxi Automobile holds the rest and runs its day-to-day operations.

Weichai is one of the biggest automobile and equipment manufacturing groups in China, racking up 100 billion yuan in sales in 2013. The group provides engines and other key components to a number of top heavy-duty truck manufacturers.

Last year, Shaanxi Heavy Duty Automobile Co sold 85,800 vehicles, making it the fifth largest of the heavy-duty truck makers in China in terms of volume, with a market share of 13 percent.

The company contributed 24.5 billion yuan to Weichai's total revenue of 58.3 billion yuan.

Several factors have strengthened the truck makers' prospects, Dong says. "Highways in China are developing fast, and the e-commerce and logistics industries have taken off. These all create big demands for trucks. Also, serious environmental problems in developing countries provide opportunities for new-energy heavy-duty trucks," he says.

Shaanxi Automobile started to produce compressed natural gas, liquefied natural gas, electrical and other new-energy heavy-duty trucks several years ago.

While it may yet be too early for African customers to adopt new energy trucks, the company will be ready when they join the worldwide trend, officials say.

For LNG-powered heavy-duty trucks, the owner can save more than 20,000 yuan a year compared with trucks that burn diesel, the company says. "Shaanxi Automobile has already invested big money in methanol-powered trucks, and they are now undergoing trials," company officials say in an emailed response to China Daily.

With the encouragement of Shaanxi province, Shaanxi Automobile and Weichai plan to invest 2 billion yuan in the research and development of Shaanxi Heavy Duty Automobile Co.

wangchao@chinadaily.com.cn