EXECUTIVE SUMMARY: Light Duty Natural Gas VehiclesLight Duty Natural Gas Vehicles Natural Gas Passenger Cars and Light Duty Pickup Trucks, SUVs, Vans, and Light Commercial Vehicles:

Dave HurstSenior Analyst

John GartnerResearch Director

EXECUTIVE SUMMARY: Light Duty Natural Gas Vehicles Natural Gas Passenger Cars and Light Duty Pickup Trucks, SUVs, Vans, and Light Commercial Vehicles: Global Market Analysis and Forecasts

NOTE: This document is a free excerpt of a larger report. If you are interested in purchasing the full report, please contact Pike Research at [email protected].

Published 3Q 2012

Light Duty Natural Gas Vehicles

© 2012 Pike Research LLC. All Rights Reserved. This publication may be used only as expressly permitted by license from Pike Research LLC and may not otherwise be accessed or used, without the express written permission of Pike Research LLC.

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Section 1 EXECUTIVE SUMMARY

1.1 Key Market Issues

Natural gas vehicles (NGVs) are gaining renewed interest from both consumers and fleets due to the current high cost of gasoline and diesel. Many parts of the world have substantial and growing supplies of natural gas (NG) resulting in the wholesale cost of NG reaching near record lows in some countries. Additionally, methane (CH4) has much cleaner emissions than either gasoline or diesel vehicles, which makes NG an attractive fuel for use in transportation.

NGVs are available both in passenger cars and in light duty (LD) pickup trucks, SUVs, and vans. These vehicles typically run on compressed natural gas (CNG) because the tanks for CNG are lighter weight and less costly than liquefied natural gas (LNG). NG must be cooled to -259F (-160C) to be liquefied and stored in insulated containers.

The global market for LD NGVs varies significantly depending on the region and country:

North America: The LD truck segment leads the North American market because the market largely consists of fleet purchasers rather than individual consumers. Fleet sales of NGVs are growing at a rate of 10.8% annually in North America. The vast majority of NGVs are vehicles that automotive OEMs have prepped with engine upgrades and then sent to suppliers to install the CNG equipment. Almost all of these vehicles are built to order. Honda is currently the only OEM to manufacture a CNG passenger car (the Civic GX) for the North American market, though the sales volumes for this vehicle are very small in comparison to the sales of other Honda Civics.

Latin America: Latin America is one of the few regions where the consumer market is larger than the fleet market. This market is also home to two of the largest NGV markets in the world: Argentina and Brazil (combined, they account for 25% of total NGVs globally). The other markets in Latin America combined have sales of less than 100,000 vehicles in 2012, but Pike Research expects to see strong growth (about 10% CAGR each) over the next several years.

Europe: The European NGV market varies widely between countries. Ukraine and Italy are the largest LD NGV markets (2012 sales will reach 151,487 and 159,046 respectively). In both countries, OEM factory-built vehicles from Fiat and other manufacturers run on CNG and the refueling infrastructure is largely in place to support a retail market for the vehicles. Other markets in Europe continue to struggle with growing refueling infrastructure fast enough to meet the needs of both consumers and fleets.

Asia Pacific: Pike Research forecasts the Asia Pacific market to grow to become the largest market for NGVs later this decade, thanks to strong growth in a variety of markets including: Thailand (24% CAGR), India (23%), and China (20%). Pakistan also has a large fleet of NGVs, but the market has seen a lot of volatility as the government looks to reduce strains on the country’s NG supplies. Smaller markets like Uzbekistan and Armenia have seen tremendous growth in NGV conversions of existing vehicles in the past, but are likely to face NGV market saturation by mid-decade, which will slow sales growth considerably.



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Middle East/Africa: The Middle East is home to the largest market for LD NGVs, Iran. Egypt also has a relatively strong light duty vehicle (LDV) market, particularly among taxi fleets. Outside these two markets, very little demand exists for NGVs in Africa.

1.2 Demand Drivers and Barriers

This report identifies four main drivers: economic benefits, environmental benefits, availability of fuel and vehicles, and energy security. The low wholesale cost of NG means that the fuel is relatively stable in cost and has a low price. This low cost, in comparison to gasoline or diesel, allows the incremental costs for the vehicles to be recovered and LD NGVs will typically have a lower cost of ownership than a comparable gasoline vehicle.

NGVs have substantially lower greenhouse gas (GHG) emissions, particulate matter (PM), and nitrogen oxide (NOx) than gasoline or diesel-powered vehicles. As governments look to reduce GHG emissions from LDVs, NGVs are seen as a tool to meet those requirements, particularly in Europe.

The breadth of vehicle models available and the growth of NGV refueling infrastructure remain key concerns for the market. In regions like North America, Europe, and parts of Asia Pacific, the growing infrastructure remains focused on servicing fleet customers. This focus will likely limit growth of passenger cars in North America and overall demand in the other markets. Many governments have incentivized the growth of NGVs by either offering reduced taxes on the vehicles or by increasing investment in refueling infrastructure. In most markets, vehicle development has focused on the small car (50% of global sales in 2012) and the minivan/MPV/van segments (30% of global sales).

Chart 1.1 Percentage of Light Duty NGV Sales by Segment, World Markets: 2012

Small Car51%

Midsize/Large Car16%

Pickup Truck1%

SUV2%

Minivan/MPV/Van30%

(Source: Pike Research)



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In many regions, NG is widely available as a domestic fuel, which eliminates having to import petroleum products. Using NG as a transportation fuel reduces dependence on imported crude oil or imported refined gasoline.

1.3 Market Forecasts

Globally, the market for LD NGVs, including passenger cars, light duty trucks and commercial vehicles, is expected to grow at a CAGR of 6.2% between 2012 and 2019, reaching 3.2 million vehicles sold in 2019. This translates into a cumulative total of 25.4 million LD NGVs on the road by 2019. LD NGVs make up about 97% of the total NGV market (2.08 million vehicles out of 2.15 million vehicles in 2012).

Chart 1.2 Light Duty NGV Sales by Segment, World Markets: 2012-2019

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2012 2013 2014 2015 2016 2017 2018 2019

(Mil

lion

Veh

icle

s)

Passenger Cars

Light Duty Trucks

(Source: Pike Research)

Asia Pacific is the largest market for NGVs, thanks to Pakistan and to growth in India, China, and Thailand, which are developing a robust refueling station network. Pike Research expects the Middle East and Africa regions to remain relatively flat overall (2% CAGR between 2012 and 2019), largely due to the volatility in the Iranian market. The Latin American market is expected to grow strongly as Argentina, Colombia, Bolivia, Peru, and Venezuela all work to shift some of their transportation toward using NGVs. Europe’s largest market is Italy, which is expected to have comparatively slow growth over the next few years due to economic woes. Ukraine is actively seeking alternatives to NGVs as the country continues to struggle with Russia’s Gazprom costs. Germany and Sweden are comparatively small markets today, but should see steady growth. Finally, North America is experiencing robust growth of 10% CAGR, but since the market is small, that growth is not expected to lead to a dominant market position by 2019. The North American market will remain reliant on growth in the fleet market.



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Section 9 TABLE OF CONTENTS

Section 1 ...................................................................................................................................................... 1 Executive Summary .................................................................................................................................... 1

1.1 Key Market Issues ......................................................................................................................... 1 1.2 Demand Drivers and Barriers ........................................................................................................ 2 1.3 Market Forecasts .......................................................................................................................... 3

Section 2 ...................................................................................................................................................... 4 Market Issues .............................................................................................................................................. 4

2.1 History ........................................................................................................................................... 4 2.2 Light Duty Vehicles ....................................................................................................................... 4

2.2.1 Passenger Cars ....................................................................................................................... 5 2.2.2 Light Duty Trucks .................................................................................................................... 5

2.3 Natural Gas Supply ....................................................................................................................... 5 2.3.1 Gas Mining .............................................................................................................................. 5 2.3.2 Hydraulic Fracturing ................................................................................................................ 6

2.4 Transportation of Fuel ................................................................................................................... 7 2.5 Natural Gas Imports and Exports .................................................................................................. 8

2.5.1 Europe ..................................................................................................................................... 8 2.5.1.1 Nord Stream Pipeline .................................................................................................... 10 2.5.1.2 South Stream Pipeline .................................................................................................. 10 2.5.1.3 Nabucco Pipeline .......................................................................................................... 11

2.5.2 Asia Pacific ............................................................................................................................ 12 2.6 Refilling Infrastructure Availability ............................................................................................... 12 2.7 Regional Markets ........................................................................................................................ 13

2.7.1 United States and Canadian Consumer Market .................................................................... 13 2.7.2 North American Fleet Market ................................................................................................ 16 2.7.3 Latin American Market .......................................................................................................... 16 2.7.4 European Market ................................................................................................................... 16 2.7.5 Middle East/Africa Market ..................................................................................................... 17 2.7.6 Asia Pacific Market ................................................................................................................ 17

2.8 Current Market Opportunities and Barriers ................................................................................. 18 2.8.1 Private Ownership ................................................................................................................. 18 2.8.2 The Manufacturing Process of NGVs .................................................................................... 19 2.8.3 Fuel Costs ............................................................................................................................. 20

2.8.3.1 Performance of NGVs versus Diesel/Gasoline Engines .............................................. 22 2.8.3.2 Maintenance on NGVs versus Diesel/Gasoline Engines ............................................. 22

2.9 Competing Technologies ............................................................................................................ 22 2.9.1 Ethanol .................................................................................................................................. 22 2.9.2 Liquid Petroleum Gas/Autogas .............................................................................................. 22 2.9.3 Hybrid and Electric Vehicle Technologies ............................................................................. 23 2.9.4 Hydrogen ............................................................................................................................... 23 2.9.5 Hydrogen Fuel Cell Advancements ....................................................................................... 23

2.10 CNG/LNG Training Issues .......................................................................................................... 24 Section 3 .................................................................................................................................................... 25 Technology Issues .................................................................................................................................... 25

3.1 Chemical Characteristics of Natural Gas .................................................................................... 25 3.1.1 Compressed Natural Gas ...................................................................................................... 25 3.1.2 Liquefied Natural Gas ............................................................................................................ 26



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3.1.3 Biogas .................................................................................................................................... 26 3.1.4 Propane (Liquefied Petroleum Gas) ...................................................................................... 26

3.2 NGV Engines ............................................................................................................................... 27 3.2.1 Dedicated Mono-fuel Engines ............................................................................................... 27 3.2.2 Bi-fuel Engines ...................................................................................................................... 27 3.2.3 Dual-fuel Engines .................................................................................................................. 28 3.2.4 OEM-prepared Engine Conversions ..................................................................................... 28

3.3 Refueling Technology ................................................................................................................. 29 3.3.1 CNG Refueling ...................................................................................................................... 29 3.3.2 Home Refueling Appliances .................................................................................................. 30

3.4 On-vehicle Storage Tanks ........................................................................................................... 31 Section 4 .................................................................................................................................................... 32 Demand Drivers ......................................................................................................................................... 32

4.1 Market-based Demand ................................................................................................................ 32 4.1.1 Economics ............................................................................................................................. 32

4.1.1.1 Cost Recovery Analysis ................................................................................................ 32 4.1.1.2 Relationship between Alternative Fuel Demand and Gas/Diesel Prices ...................... 33

4.1.2 Energy Security Issues .......................................................................................................... 35 4.1.3 Environmental Benefits ......................................................................................................... 35 4.1.4 Vehicle Availability ................................................................................................................. 36 4.1.5 T. Boone Pickens’ Impact on the U.S. Market ...................................................................... 36

4.2 Government Emissions Regulations ........................................................................................... 37 4.2.1 United States ......................................................................................................................... 37

4.2.1.1 CAFE Standards ........................................................................................................... 37 4.2.1.2 CARB Certification ........................................................................................................ 38

4.2.2 Latin America ......................................................................................................................... 39 4.2.3 Europe ................................................................................................................................... 39 4.2.4 China ..................................................................................................................................... 39 4.2.5 India ....................................................................................................................................... 39 4.2.6 Japan ..................................................................................................................................... 39

4.3 Government Incentives ............................................................................................................... 40 4.3.1 United States ......................................................................................................................... 40 4.3.2 Canada .................................................................................................................................. 47 4.3.3 Europe ................................................................................................................................... 47 4.3.4 Japan ..................................................................................................................................... 48 4.3.5 China ..................................................................................................................................... 48 4.3.6 Other Regulatory Incentives .................................................................................................. 49

Section 5 .................................................................................................................................................... 50 Key Industry Players ................................................................................................................................. 50

5.1 Original Equipment Manufacturers.............................................................................................. 50 5.1.1 Chrysler ................................................................................................................................. 50 5.1.2 Fiat ......................................................................................................................................... 50 5.1.3 Ford Motor Co. ...................................................................................................................... 50 5.1.4 General Motors ...................................................................................................................... 51 5.1.5 Honda .................................................................................................................................... 51 5.1.6 Hyundai Motor Co. ................................................................................................................ 51 5.1.7 Mercedes-Benz ..................................................................................................................... 51 5.1.8 Renault .................................................................................................................................. 52 5.1.9 Suzuki .................................................................................................................................... 52 5.1.10 Toyota Motor Corp. ........................................................................................................... 52 5.1.11 Volkswagen ....................................................................................................................... 52

5.2 Key Suppliers/NGV Converters ................................................................................................... 52 5.2.1 Advanced Fuels Technologies, Pty Ltd. ................................................................................ 52



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5.2.2 Altech-Eco Corp. ................................................................................................................... 53 5.2.3 BAF Technologies ................................................................................................................. 53 5.2.4 The Bosch Group .................................................................................................................. 53 5.2.5 BRC Gas Equipment ............................................................................................................. 53 5.2.6 Chesapeake Energy .............................................................................................................. 54 5.2.7 Clean Energy Fuels Corp. ..................................................................................................... 54 5.2.8 Cummins Westport Inc. (Joint Venture) ................................................................................ 54 5.2.9 Faber Industrie, S.p.A. .......................................................................................................... 54 5.2.10 Fuel Systems Solutions, Inc. ............................................................................................. 55 5.2.11 General Electric ................................................................................................................. 55 5.2.12 GNC Galileo ...................................................................................................................... 56 5.2.13 IMPCO Automotive ........................................................................................................... 56 5.2.14 Kraus Global ..................................................................................................................... 56 5.2.15 Landi Renzo ...................................................................................................................... 56 5.2.16 Leggett & Platt Commercial Vehicle Products .................................................................. 56 5.2.17 Hexagon Composites ........................................................................................................ 57

5.2.17.1 Lincoln Composites, Inc................................................................................................ 57 5.2.17.2 Raufoss Fuel Systems .................................................................................................. 57

5.2.18 Magneti Marelli .................................................................................................................. 57 5.2.19 OMB-Saleri, SpA ............................................................................................................... 57 5.2.20 OMVL SpA ........................................................................................................................ 58 5.2.21 NatGasCar, LLC ................................................................................................................ 58 5.2.22 Natural Drive ..................................................................................................................... 58 5.2.23 Productive Concepts, Inc. ................................................................................................. 58 5.2.24 Prins Autogassystemen BV .............................................................................................. 58 5.2.25 Swagelok Company .......................................................................................................... 59

Section 6 .................................................................................................................................................... 60 Market Forecasts ....................................................................................................................................... 60

6.1 Global Natural Gas Vehicle Forecast .......................................................................................... 60 6.2 NGV Sales Forecast, Middle East & Africa ................................................................................. 61 6.3 Latin America Forecasts ............................................................................................................. 62 6.4 NGV Sales Forecast, Europe ...................................................................................................... 64 6.5 NGV Sales Forecast, Asia Pacific ............................................................................................... 67 6.6 NGV Sales Forecast, North America .......................................................................................... 68 6.7 Light Duty Vehicle Segments ...................................................................................................... 70 6.8 NGV Incremental Costs .............................................................................................................. 73 6.9 Natural Gas Vehicle Refueling Stations ...................................................................................... 73 6.10 Summary and Conclusions ......................................................................................................... 74

Section 7 .................................................................................................................................................... 75 Company Directory ................................................................................................................................... 75 Section 8 .................................................................................................................................................... 78 Acronym and Abbreviation List ............................................................................................................... 78 Section 9 .................................................................................................................................................... 82 Table of Contents ...................................................................................................................................... 82 Table of Charts and Figures..................................................................................................................... 85 Section 10 .................................................................................................................................................. 87 Scope of Study .......................................................................................................................................... 87 Sources and Methodology ....................................................................................................................... 87 Notes .......................................................................................................................................................... 88



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TABLE OF CHARTS AND FIGURES

Chart 1.1 Percentage of Light Duty NGV Sales by Segment, World Markets: 2012 .............................. 2 Chart 1.2 Light Duty NGV Sales by Segment, World Markets: 2012-2019 ............................................ 3 Chart 2.1 Number of Light Duty Vehicles per NGV Refueling Station by Region, World Markets: 2012, 2019 ............................................................................................................................. 17 Chart 4.1 Cost Components of Transportation CNG Fuel, United States: 2012 .................................. 35 Chart 6.1 NGV Sales by Segment, World Markets: 2012-2019 ............................................................ 60 Chart 6.2 Percentage of Light Duty NGV Fleet and Consumer Sales, World Markets: 2012-2019 .... 61 Chart 6.3 Light Duty NGV Sales by Country, Middle East & Africa: 2012-2019 ................................... 62 Chart 6.4 Light Duty NGV Sales by Country, Latin America: 2012-2019 ............................................. 63 Chart 6.5 Light Duty NGV Sales by Customer Segment, Latin America: 2019 .................................... 63 Chart 6.6 Light Duty NGV Sales by Region, Europe: 2012-2019 ......................................................... 64 Chart 6.7 Light Duty NGV Sales by Country, European Emerging Markets: 2012-2019 ..................... 65 Chart 6.8 Light Duty NGV Sales, Ukraine: 2012-2019 .......................................................................... 66 Chart 6.9 Light Duty NGV Sales, Asia Pacific: 2012-2019 ................................................................... 67 Chart 6.10 Cumulative Light Duty NGV Sales, Uzbekistan, Thailand, Armenia, and Bangladesh: 2012-2019 ............................................................................................................................. 68 Chart 6.11 Light Duty NGV Sales by Country, North America: 2012-2019 ............................................ 69 Chart 6.12 Light Duty NGV Percentage of Sales by Segment, World Markets: 2019 ............................ 70 Chart 6.13 Mix of Light Duty NGV Segment Sales by Region, World Markets: 2012............................. 71 Chart 6.14 Light Duty NGV Sales by Segment, World Markets: 2012-2019 .......................................... 72 Chart 6.15 Cumulative Natural Gas Refueling Stations by Region, World Markets: 2012-2019 ............ 74

Figure 2.1 Natural Gas Production in Trillion Cubic Feet by Source, United States: 1990-2035 ............. 6 Figure 2.2 Hydraulic Fracturing Diagram .................................................................................................. 7 Figure 2.3 Natural Gas Pipeline Additions, United States: 2000-2009 .................................................... 8 Figure 2.4 Natural Gas Pipelines, Europe and the Middle East ............................................................... 9 Figure 2.5 Russian and European Natural Gas Pipelines ...................................................................... 10 Figure 2.6 Projected Routes of Nord Stream, Nabucco, and South Stream Pipelines .......................... 11 Figure 2.7 Costs of CNG versus Gasoline in Different Scenarios of Transportation and Distribution Grid Development .............................................................................................. 21 Figure 3.1 Bi-fuel Vehicle Diagram ......................................................................................................... 28 Figure 3.2 Diagram of Liquefied CNG Refueling Station ........................................................................ 30 Figure 4.1 Difference in Price between Natural Gas and Oil, United States .......................................... 34 Figure 4.2 Well-to-Wheel Greenhouse Gas Emissions for Various Fuels ............................................. 36 Figure 5.1 Fuel Systems Solutions Company Diagram .......................................................................... 55

Table 2.1 Gasoline Stations (Including Diesel Stations) by State, United States: 2007 ....................... 13 Table 2.2 NGV Refueling Stations by State, United States: 2012 ........................................................ 15 Table 2.3 NGV Refueling Stations by Province, Canada: 2010-2011 .................................................. 15 Table 2.4 Light Duty NGV Conversion Strategies by Region, World Markets: 2012 ............................ 20 Table 2.5 Cost of Natural Gas Compared to Other Fuels, United States: January 2012 ..................... 21 Table 3.1 Properties of Natural Gas Compared to Other Fuels ............................................................ 25 Table 3.2 Engine Components Typically Upgraded by OEMs .............................................................. 29 Table 4.1 Small Passenger Car Total Cost of Ownership Comparison ................................................ 33 Table 4.2 Corporate Average Fuel Economy Regulations, United States: 2012-2025 ......................... 38



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Table 4.3 Comparison of NAT GAS Act Bills ........................................................................................ 41 Table 4.4 Alternative Fuel Vehicle Incentives by State, United States: 2012 ....................................... 43 Table 4.5 Natural Gas Vehicle Incentives by Country, Europe: 2012 ................................................... 48 Table 6.1 Typical Light Duty NGV Component Costs by Vehicle Type, World Markets: 2012 ............. 73



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Section 10 SCOPE OF STUDY

Pike Research has prepared this report to provide participants at all levels of the LD NGV market, including vehicle OEMs, suppliers, trade associations, and gas providers, with a study of the market for NGVs and refueling technologies. The major objective is to determine the state of the industry and likely future growth of NG-powered passenger car and light truck demand. In addition, the report provides a review of major demand drivers, as well as key industry players within the competitive landscape.

The report’s purpose is not to present an exhaustive technical assessment of the vehicles and technologies covered. Rather, it aims to provide a strategic examination from an overall tactical business perspective. Pike Research strives to identify and examine new market segments to aid readers in the development of their business models. All major global regions are included and the forecast period extends through 2019.

SOURCES AND METHODOLOGY

Pike Research’s industry analysts utilize a variety of research sources in preparing Research Reports. The key component of Pike Research’s analysis is primary research gained from phone and in-person interviews with industry leaders including executives, engineers, and marketing professionals. Analysts are diligent in ensuring that they speak with representatives from every part of the value chain, including but not limited to technology companies, utilities and other service providers, industry associations, government agencies, and the investment community.

Additional analysis includes secondary research conducted by Pike Research’s analysts and the firm’s staff of research assistants. Where applicable, all secondary research sources are appropriately cited within this report.

These primary and secondary research sources, combined with the analyst’s industry expertise, are synthesized into the qualitative and quantitative analysis presented in Pike Research’s reports. Great care is taken in making sure that all analysis is well-supported by facts, but where the facts are unknown and assumptions must be made, analysts document their assumptions and are prepared to explain their methodology, both within the body of a report and in direct conversations with clients.

Pike Research is an independent market research firm whose goal is to present an objective, unbiased view of market opportunities within its coverage areas. The firm is not beholden to any special interests and is thus able to offer clear, actionable advice to help clients succeed in the industry, unfettered by technology hype, political agendas, or emotional factors that are inherent in cleantech markets.



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NOTES

CAGR refers to compound average annual growth rate, using the formula:

CAGR = (End Year Value ÷ Start Year Value)(1/steps) – 1.

CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given, the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well.

Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and sales are based on end-of-year figures unless otherwise noted. All values are expressed in year 2012 U.S. dollars unless otherwise noted. Percentages may not add up to 100 due to rounding.



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Published 3Q 2012

© 2012 Pike Research LLC 1320 Pearl Street, Suite 300

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EXECUTIVE SUMMARY: Light Duty Natural Gas VehiclesLight Duty Natural Gas Vehicles Natural Gas Passenger Cars and Light Duty Pickup Trucks, SUVs, Vans, and Light Commercial Vehicles: