Sept. 01–There aren’t many people who’d mention 98-year-old engine maker Cummins in the same breath as tech darling Tesla. But Cummins is trying to change that.
Cummins Inc. for decades has specialized in producing profitable, yet uninspiring — to the average consumer, at least — diesel engines for commercial vehicles. Tesla Inc., meanwhile, has risen to prominence in just 14 years by making high-end electric cars that can drive themselves.
But Tesla CEO Elon Musk in April signaled that his company would be encroaching on Cummins’ space by introducing an electric semi truck. Although Musk has not elaborated, rumors are swirling that Tesla this month will unveil an autonomouslong-haul truck that can travel for up to 300 miles on a full charge.
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Tesla’s vague announcement, as well as the speculation that followed, has put Cummins on defense. Cummins touts a portfolio of low-emission diesel and natural gas engines, but it had not taken any major steps toward electric. Cummins in recent weeks has been scrambling to show that it is on board with electric — and, indeed, the company now says it has jumped out in front of Tesla.
Columbus, Ind.-based Cummins on Aug. 29 introduced AEOS, which it is billing as the first-ever all-electric truck. The concept vehicle, built by Roush, is designed to transport goods around urban areas at a driving range of around 100 miles per day. The unveiling came on the heels of a June announcement in which Cummins said it will produce electric powertrains for buses by 2019.
Analysts have been skeptical that Cummins can play in the same league as Tesla, a company that is laser-focused on electric-powered vehicles. Piper Jaffray analyst Alex Potter in April downgraded Cummins and competitor Paccar Inc. because of the threat posed by Tesla.
“Cummins makes diesel engines, but companies like Tesla (among others) are aiming to supplant (Cummins’) products,” Potter wrote. “These Silicon Valley disrupters are not confining their ambitions to sedans; instead, they have announced plans for electric semis, electric pickups, electric buses, and various other products that defy the preeminence of diesel engines.”
More ominously, Potter added, “when/if electric drivetrains are proven viable in the first commercial vehicle segments, we think incumbents’ (such as Cummins) valuations could fall rapidly thereafter.”
A team of Morgan Stanley analysts wrote that they can envision a not-so-distant time in which electric-powered engines become marketable.
“We believe an autonomous, electric truck can be a game changer for trucking carriers by significantly lowering operating costs, improving productivity and even driving industry consolidation,” they wrote in an April note, adding an autonomous electric truck could be up to 70 percent cheaper to operate than diesel-powered trucks.
“In our conversations with trucking carriers, we believe they would be quite open to using such trucks made by new, non-incumbent (manufacturers) as long as the performance, service and operating costs are superior,” the Morgan Stanley analysts wrote. “In fact, we would not be surprised if Tesla revealed large carrier and shipper partners during its truck reveal in September.”
Morgan Stanley projects that Tesla can produce 25,000 long-haul tractor-trailers per year. That relatively limited production capacity is one reason why Cummins has confidence that it will remain the company to beat in the commercial truck engine business.
Even if Tesla is ahead of Cummins on technology — an assertion that Cummins would dispute — Tesla is still in its manufacturing infancy.
Srikanth Padmanabhan, the president of Cummins’ engine business, noted Cummins last year produced about 1.1 million engines. Padmanabhan declined to specify how much money Cummins is investing in electric powertrains, but he said the company has been spending millions of dollars per year for about a decade on the technology.
“In the short term, they might have an advantage,” Padmanabhan said. “But in the long run, it is difficult to replicate this — replicate what we have in terms of distribution and support, replicating customer relationships.
“When you’re talking about a broad portfolio of products you have to deliver for a variety of customers around the world, then it will take the same growing pains that we’ve gone through the last 98 years. They have to go through some of that.”
Tesla declined comment.
Cummins is not going all in on electric. The company remains bullish on diesel, as well as its natural gas engines, which largely power vehicles such as buses and refuse haulers.
“Today, we have most of the natural gas market share here in the United States, but it still is very much a niche product,” said Jennifer Rumsey, Cummins’ chief technical officer. “This is a bit of looking into a crystal ball and forecasting the future, which, any prediction I give you will be wrong.”
Padmanabhan added that manufacturers and truck fleets are not yet clamoring for Cummins to rush into electric engines. Cummins has provided a specific timetable for producing electric powertrains for buses, which Padmanabhan said are already in demand, but it has not set any targets for electric truck engines. AEOS is only a demonstration vehicle.
“The right technology matters as opposed to pushing technology,” he said.
Even if Tesla develops a product that resonates with the trucking industry, it has a track record of failing to produce enough vehicles to meet demand. Anyone who orders the company’s new mass-market Model 3 sedan, for instance, will have to wait until at least the end of 2018 to receive it.
“The only dealership that you see for some of these other electric players are at the Fashion Mall (at Keystone),” Padmanabhan said, referring to Tesla’s Indianapolis showroom. “So, it’s the support network, it’s the ability to scale up. Scaling up takes time, which is what you’re seeing.”
Cummins has seemingly insurmountable scale compared to startups such as Tesla. The question is how long Cummins’ customers will continue to want what it’s building.
And, when those customers decide it’s time to go electric, will Cummins be the first name to come to mind?
Call IndyStar business columnist James Briggs at (317) 444-6307. Follow him on Twitter: @JamesEBriggs.
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