Bombardier Inc. (BBD/B) is betting that the heavy-duty diesel has had its day as the dominant force in the $11 billion locomotive market as oil prices hover at pre-slump levels and emerging nations electrify their railroad networks.
General Electric Co. (GE), the world leader in large diesel locomotives, disagrees, predicting a bright future for engines that can weigh 200 tons and take days to cross continents with their cargoes of coal, iron ore and double-stacked containers.
Electric locomotives will have the bigger market at 4.5 billion euros ($5.8 billion) a year through 2016, according to Hamburg-based consultant SCI Verkehr. That’s just 20 million euros ahead of the estimate for diesel sales, which it says will be less prone to order volatility. Electrics will reign in Asia and Europe, leaving diesel-oriented companies reliant on non- electrified Asian lines and pent-up demand from North America.
“The only argument for diesel is the lack of electricity,” Janis Vitins, marketing director at Bombardier’s locomotives business, said in an interview at the InnoTrans 2012 rail- industry trade fair in Berlin. “But Europe is pretty much all- electric and the world is moving in that direction. If you go to Russia, China, even India, they’re all electrifying like crazy.”
Contrasting views on future demand have led to divergent product lines, with Montreal-based Bombardier, the No. 1 train maker, focused on the lighter Traxx locomotive, of which it has added an electric variant equipped with a “last mile” diesel engine permitting operations in non-electrified rail yards. GE has eschewed electric traction while targeting the mid-weight engine market with its PowerHaul model, which aims to boost haulage capabilities on lines where heavier trains are banned.
Dictated by Diesel
At Fairfield, Connecticut-based General Electric, the focus on diesel traction has been largely dictated by the company’s 100-year heritage in manufacturing engines like the 12-cylinder model that powers its biggest Evolution-series locomotive.
Developed at a cost of $400 million, Evolution engines can pull the equivalent of 170 Boeing Co. 747 jets while using 5 percent less fuel, according to GE, the world’s top manufacturer with a market value of $237 billion, up 25 percent this year.
“We see a mix of demand between diesel and electric,” Rob McKeel, general manager of GE’s locomotive business, said at the biennial InnoTrans show, the world’s largest rail expo. “Some routes are suitable for electrification, others aren’t.”
Bombardier, whose stock was down 9.1 percent for 2012 as of 10:21 a.m. local time, giving a value of C$6.5 billion ($6.6 billion), doesn’t power its own locomotives, with earlier Traxx models using engines from the MTU Friedrichshafen unit of Tognum AG (TGM), the German industrial group that’s being bought by Daimler AG and Rolls-Royce Group Plc.
In addition to three electric versions, the Traxx is also being offered as a diesel locomotive uniquely powered by four industrial motors rather than a single large engine.
A single engine is needed during idling and all four are deployed only 20 percent of the time, reducing fuel burn by about 15 percent, said Vitins, who describes the model as a “masterpiece” delivering a “paradigm change” for the industry.
New versions of the Traxx are aimed mainly at Europe, where the weight-per-axle of freight trains is limited to avoid damage to lines shared with express services. That’s led to a crowded market which includes Paris-based Alstom SA (ALO)’s Prima light diesel model, the electric or diesel Vectron from Munich-based Siemens AG (SIE), and the Euro 4000 and Euro Light diesels from Vossloh AG, one of the few locomotive makers not part of a bigger group.
In North America, the proportion of passenger trains is lower because people fly over the longer distances between cities, and axle weights don’t need to be limited so strictly.
GE has a 70 percent share of the U.S. freight-locomotive market, according to James Husband of Virginia-based consultancy RailSolutions Inc. Its chief rival is Electro-Motive Diesel, a former unit of General Motors Co. (GM) purchased by the Progress Rail Services division of Peoria, Illinois-based Caterpillar Inc. (CAT) from private equity vendors for $820 million in 2010.
The takeover has given EMD “new life and new investment,” said Gary Lacy, product manager at GE’s locomotive unit. That’s sharpened competition in a North American freight market where sales have shrunk from 900 engines annually to about 300 over the past two or three years, Husband estimates.
EMD is a bigger player in the mid-weight locomotive market, winning hundreds of European exports last decade with its Class 66 diesel. GE exited the sector after the demise of the Blue Tiger, a model built with the AdTranz venture of Daimler and ABB Ltd. bought by Bombardier in 2001, and is now targeting a return with the PowerHaul engine. The trains will be built in Turkey.
Erie, Pennsylvania-based GE Transportation had $4.9 billion in sales in 2011 and a workforce of 12,000, versus $9.8 billion and 36,000 workers at Berlin-based Bombardier Transportation.
Also major players in their home regions are China’s CSR Corp. (1766) and China CNR Corp., which made their InnoTrans debut this year, Indian Railways’s DLW unit and Russia’s Transmashholding.
Were it viable to entirely electrify freight lines in the U.S. and other countries where heavy-duty engines prevail, such as Australia, Brazil, Canada and Mexico, a wholesale switch from diesel traction would become inevitable, Vitins contends.
A diesel locomotive weighing 204 tons, or 34 tons per axle, delivers 2.7 megawatts of power, versus 5.6 megawatts for an electric model of 84 tons, or 21 tons an axle, he said, making the latter both more powerful and less restricted operationally.
Still, over the next 10 or 15 years a comprehensive move to electrics is likely to take place only in those markets with significant numbers of diesels that are also technology-savvy, such as Germany, SCI Chief Executive Officer Maria Leenen said by telephone, with the change taking far longer elsewhere.
“More than half of lines are still not electrified,” Leenen said. “It costs so much, and due to the financial problems with public budgets it will take even longer.”
Vossloh, Europe’s biggest maker of diesel locomotives, said any shift to electrification will take decades, not years, even in its home region, where new products include an extra-light version of the Euro Light model for diesel-only lines in the U.K. which at 75.5 tons weighs in at less than many electrics.
The Werdohl-based company is also “working intensively” on ways of incorporating an electric pickup on a diesel model to tap overhead supplies where they exist, it said in response to questions at last week’s InnoTrans show.
GE’s McKeel says heavy diesels will always rule in markets where the distances involved or the challenges of supporting power-cable networks make electrification a non-starter.
“The cost of the infrastructure is high and the maintenance can be tough,” he said. “When the copper price goes up new wiring might only survive for a week before it disappears.”
To contact the reporter on this story: Chris Jasper in Berlin via email@example.com