Cummins In Yet Another Joint Venture In China

Posted on September 16, 2005

In the latest move in its decades-long effort to expand its business in China, Cummins Inc. and Shaanxi Automobile Group Co. Ltd. have signed an agreement to form a 50/50 joint venture company, Xi'an Cummins Engine Co. (XCEC), to produce the Cummins ISM 11 L heavy-duty engine in Xi'an, the capital city of western China's Shaanxi Province.

The ISM is one of the flagship engines of Cummins heavy-duty product line and is available in ratings from 305 to 440 hp. It is targeted toward heavy-duty vehicles with gross vehicle weight between 26 and 44 tons, including trucks, long-distance coaches and double-decker buses.

The companies initially will invest $24 million into the joint venture company. Construction of the plant could begin as soon as the fourth quarter of 2005 and production could start as early as the third quarter of 2006, Cummins said. The market for heavy-duty trucks with payloads greater than 15 tons is expected to be around 200,000 units by 2010. The joint venture’s projected production is 50,000 units by 2010.

Shaanqi Group, headquartered in Xi'an, is a major producer of heavy-duty trucks (payload above 15 tons) in China. Shaanqi, which has been buying a small number of imported ISM engines from Cummins for several years, will be the largest customer for the engines produced by the joint venture. Cummins East Asia marketing organization will handle non-Shaanqi sales of ISM engine made at the new plant.

Cummins has had a presence in the China market for 30 years, and currently makes medium-duty and high-horsepower engines, as well as filters, alternators, turbochargers and generator sets through a number of joint venture and wholly owned operations throughout the country. Cummins began licensing its engine technology in China in 1981 and formed its first joint venture in the country in 1995. Today, Cummins operates 20 facilities in China - including six manufacturing sites - with all areas of the company's business represented in China. Eight of the 14 Cummins engine series have been produced in China. Cummins consolidated and unconsolidated sales in China exceeded $1 billion in 2004, representing nearly 10% of Cummins total consolidated and unconsolidated revenue.