Komatsu Aims to be Number One in Hybrid Construction Equipment

• 11-9, 2009

Although the company has lowered its anticipated annual sales figures, it is not overly concerned with the near-term dip in performance. The construction equipment giant is poised to sell its hybrid construction equipment throughout Asia, and aims for top market share.

“We didn't think sales would fall to this extent in Japan, the US, and Europe,” said Kunio Noji, president of Komatsu Ltd. at the press announcement of his company’s mid-year performance figures. Considering the results, his manner was unexpectedly calm.

The company's consolidated sales for April through September were 645.9 billion yen, down 46.7% from the same period last year. Operating profits in the same period were down a massive 87.6% to 19.7 billion yen. The projected annual sales figure has been revised downwards by 100 billion to 1.43 trillion yen, which would be a 29.3% decline from the previous year.

Sales and profits fall worldwide, but business in Asia stays strong

Following the financial crisis in the fall of 2008, demand for construction equipment fell precipitously. But this assessment was derived from activities in industrialized countries. In fact, Komatsu did so well in Asia, most notably China, and in Central and South America that the company exceeded its initial sales estimates. This explains Noji's calm demeanor as he announced the decrease in his company's sales figures.

For full view

The most remarkable development is the extent to which the China market has recovered its vigor. With the government investing 4 trillion renminbi (approximately 52 trillion yen) in the urbanization of inland cities and other infrastructure projects, demand for construction equipment is strong. “Our sales in China are growing at more than twice the pace of last year－demand has clearly revived,” says Mikio Fujitsuka, an executive officer and general manager of corporate planning at Komatsu.

In a bid to capture a larger share of this market, Komatsu introduced a hybrid power shovel in China this August. It is equipped with both a diesel engine and an electric motor, the former generating power for the latter. Additionally, when the revolving deck decelerates, a capacitor stores the kinetic energy for reuse as electrical power. Although it is priced at around 17 million yen, about 1.5 times the cost of a conventional power shovel, it is estimated to run on 25% less fuel on average. Operators can therefore expect to recover the higher cost in 5 years.

Since the August launch, Komatsu has moved ahead on plans to expand sales of this hybrid power shovel in China. In October, the company began production in China; it has also increased production capacity at its Shonan factory in Hiratsuka, southwest of Yokohama, where motors and other key components are made.

Komatsu has focused on China as a high-potential market for hybrid construction equipment for several reasons. One is that such equipment is in operation for much longer hours in China compared with industrialized countries, magnifying the benefits of fuel efficiency. For example, a piece of construction equipment is in use for an average of 1,500 hours a year in Japan, but for 3,000 hours annually in China. Moreover, fuel typically accounts for 17% of the maintenance and operating cost of construction equipment in Japan, but in China, low labor costs mean that fuel accounts for 55%. In such an environment, hybrids are the most economical choice.

Production capacity is presently limited, so the company forecasts this year's sales of hybrid power shovels to be about 500 units. With expanded local production capabilities, however, Komatsu aims for annual sales of more than 2,000 units, including sales of equipment made in Japan. While other manufacturers of construction equipment?including Caterpillar, the top maker worldwide?still struggle to set up mass production capabilities for hybrids, Komatsu aims to secure a place in China, a major growth market.

Aiming for Asia

Komatsu is also eyeing its future place in the fast-growing markets in the rest of Asia. In Southeast Asia and India, falling demand is expected to bottom out by next spring, in sharp contrast to the industry's meager prospects in the industrialized economies. “Truly, we are entering an age in which Asia, Oceania, China will dominate,” says Fujitsuka. For manufacturers of construction equipment, this means that the competition for market share will now be fought in the emerging economies.

Komatsu intends to introduce its hybrid equipment throughout the Asia market, and is considering manufacturing such construction equipment in Thailand and/or Indonesia. Says Noji, “Because annual hours of operation are even longer than in China, particularly in India, we may well see a day when most of the mid-size equipment in the 20-ton range will be hybrids.”

The company that wins in the Asian market will become the leading maker of construction equipment worldwide. By moving quickly to implement its strategy for hybrids, Komatsu clearly seeks to position itself as a front runner.

(Daisuke Takimoto, Staff Writer, Nikkei Business)

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