Cummins surprise announcement of its purchase of Meritor st stunned the market but has put a firm exclamation point on what has been a transformative year for the long established US diesel engine manufacturer.
The independent engine maker, synonymous with diesel power for decades, has been facing increasing pressure over the last decade as US truck makers aggressively pursued vertical integration, tightly tying their own engines and powertrain components to their trucks, which once were offered with the option of different engine brands, from Cummins to CAT and Detroit.
However with Detroit now owned by Daimler, CAT departing the on highway market and major brands such as Freightliner, Navistar and Mack becoming part of European truck makers, Daimler, VW and Volvo respectively, Cummins could see the writing on the wall.
Even Cummins’ long term loyal customer, Paccar has deserted in recent times with the arrival of its own European developed MX engine line.
In addition to this relentless push toward vertical integration by truck makers, the response to the increasing threat of climate change has seen governments around the globe announcing ambitious plans to phase out diesel in favor of cleaner alternatives.
Some saw this as an existential threat to the ongoing future viability of Cummins, but the company has been undeterred and has gone about reinventing itself, through a series of shrewd business decisions and acquisitions, including the Meritor deal, that have positioned it to remain a strong player in whatever fuels emerge as winners as the industry transitions to a zero-emissions future.
Cummins has been busily developing battery-electric and hydrogen-based engine technologies for years, all of which are widely viewed as the frontrunners to decarbonise trucks. However it has been busy on other fronts, as well, with some significant moves has made over the past year.
Despite the prospect of losing OEM makers as customers, Daimler, Isuzu and Hino all announced plans to use Cummins engines in medium-duty trucks.
For Daimler, the decision was made after investing $AUD6.8 billion ($US5 billion) in its own mid-range Detroit engine, and then opting instead to focus resources on developing its heavy-duty zero-emissions powertrain platform.
Hino, which has had its own well documented struggles to meet the latest US EPA emissions requirements, saw it completely abandon its own engine in favor of Cummins in America.
In addition to supplying Isuzu, Cummins also announced it is working with the Japanese brand to jointly develop an electric powertrain. These moves served to solidify Cummins as a force in the diesel-powered medium-duty segment going forward, even though it was working hard on electric drivelines.
While having a major focus on zero emission Cummins understands that diesel isn’t quite dead yet and it will take some time to transition to totally clean power plants, understanding that it will have to become more environmentally friendly if it’s to get a stay of execution from governments and society in general.
With Cummins seeing a significant role for cylinder deactivation in current and future large diesel engine platforms, Cummins bought Jacobs Vehicle Systems, best known for its Jake Brake engine retardation technology in a move to advance current and future clean diesel technologies. Cummins paid $AUD425million ($US325 million) for Jake in a move that the markets saw as a great asset to the engine giant.
Cummins has also been working internally to design a fuel-agnostic engine platform, which it announced in mid-February, citing its belief that it will allow it to offer a full range of lower carbon fuels, using a common architecture base engine sharing common parts.
“Having a variety of lower carbon options is particularly important considering the variation in duty cycles and operating environments across the many markets we serve,” according to Srikanth Padmanabhan, the president of Cummins Engine Business.
“There is no single solution or ‘magic bullet’ that will work for all application types or all end users,”, said Padmanabhan at the time of the announcement.
And then there’s the Meritor acquisition, which was the purchase which most surprised the market.
“Climate change is the existential crisis of our time and this accelerates our ability to address it,” said Cummins CEO and chairman Tom Linebarger.
“Our customers need economically viable zero-carbon solutions, and axles are a key integration point,” Linebarger said.
Linebarger noted electric axles are increasingly becoming a crucial connection point for fully integrated electric powertrains.
“We now bring the e-axle and traction section to the electric powertrain, which allows customers to think about whole systems and components, much in the same way they’ve been thinking about it from an engine point of view,” Linebarger said.
“We can provide to OEMs the whole range – full system and individual components. The electric axle is increasingly becoming the place those components are centred … the e-axle becomes the new engine block we can hook everything to,” he added.
Eschewing speculation that electric axles are just a bridge technology and a hybrid stopgap of sorts, that will help transition a segment of the industry to an all-electric future, Cummins president and chief operating officer, Jennifer Rumsey said she believed the e-axle technology is here to stay.
“We really see the e-axle as a long-term solution,” she said.
Linebarger added that a key attraction Meritor had, was that its e-axle is market-ready and not a future concept.
“Meritor has products ready today that we don’t have. We aren’t waiting for a future offering,” Linebarger said, saying that Cummins will accelerate investment in Meritor’s e-axle and traction systems business.
While the e-axle is a recent addition to the Meritor portfolio, it’s certainly not what the company is best known for.
Jennifer Rumsey sees a permanent home for Meritor’s brakes and traditional axle components fit into Cummins components business portfolio.
Asked if Cummins will maintain the Meritor product lines Rumsey said that this was the plan.
“We are really focused on providing key components that help our customers optimize their powertrain solutions,” she said.
“You’ve already seen us expand into other components you might not traditionally associate us with, such as the Eaton-Cummins joint venture that moved us into transmissions,” she said.
“We’ve been preparing for some time,” Rumsey said, referring to the company’s Destination Zero strategy that will see Cummins itself and the products it offers achieve zero emissions by 2050.
“You’re seeing some things now accelerating and happening this year as a key part of that and our announcement around our intent to acquire Jacobs Vehicle Systems is an example of continuing to add key component technologies we think are important to decarbonise and optimise our base engine solution,” Rumsey said.
“We view our acquisition of Meritor, as another way to extend our components business, the components we offer, and as a key element of our new power.”
However Cummins believes “new power” won’t immediately displace diesel, and to that end, Cummins is also investing heavily in transitional technologies, rather than focusing on one or two end solutions.
“If you look across the commercial and industrial markets we serve, our customers use those products in a wide variety of ways and environments,” Rumsey said.
“That means multiple solutions will be required and the pace and ability to adapt to zero emissions solutions will vary,” she said.
“Because of that reality and because of the real issue our planet faces with climate change, we need to start addressing that issue now,” she added.
“Our Destination Zero strategy focuses not only on technologies that can get us all the way to zero emissions but also decarbonising our engine-based solutions that are broadly available and able to meet our customers’ needs today,” Rumsey said.
“I think it’s critical we do both those, and it’s why you see us talking about a wide range of solutions that may be a bridge – to decarbonize and move towards zero – and a range of solutions that get you to zero,” she concluded.