Weichai Power (2338.HK) has announced a strategic long-term alliance with China FAW Group, marking a significant shift in its business relationships. This move comes after Weichai Power's previous partnership with China National Heavy Duty Truck (Sinotruk) began to unravel, leading to the formal abandonment of the VOLVO engine project that was originally a joint venture between Sinotruk, Volvo Trucks, and FAW.
The new collaboration between Weichai and FAW is expected to bring substantial benefits to both parties. According to the agreement, all FAW "Liberation" trucks equipped with more than 340 horsepower will now use Weichai Power’s WD and WP series engines. In addition, both companies are working on setting up new cooperation platforms to leverage their respective strengths and explore new market opportunities.
The original VOLVO engine project was signed on March 29, 2004, by Volvo, Sinotruk, and FAW in Beijing. The plan involved an investment exceeding RMB 5 billion, including the establishment of a joint-venture engine production base in Jinan. It was expected to reach an annual production capacity of 50,000 high-power engines from 2005 to 2008. However, as tensions grew between Volvo and Sinotruk, the project stalled just two years after the initial agreement was signed.
FAW Liberation’s General Manager’s Office recently confirmed that they will begin using Weichai Power engines for their heavy trucks rated at 300 horsepower or higher, including future models. This marks a clear shift in supplier strategy and signals a strong commitment to Weichai Power.
Automotive analyst Jia Xinguang noted that Weichai Power’s recent split with Sinotruk was not unexpected, and it was only a matter of time before they found a new strategic partner. Both FAW and Dongfeng have long dominated the heavy truck market, with annual outputs exceeding 100,000 units each. Weichai’s decision to move away from Sinotruk suggests a calculated effort to align with stronger industry players.
Despite the potential benefits, Weichai still faces challenges. The commercial vehicle market has been in decline since last year, and both FAW and Dongfeng have experienced falling sales. In the first half of this year, Dongfeng Commercial Vehicles saw a 32.43% drop, while FAW Group’s commercial vehicle sales fell by over 4%. Although Sinotruk managed a 40% growth, it was based on a very low base from the previous year.
Overall, the heavy truck market remains sluggish, which could pose challenges for Weichai Power in the near term. However, the new alliance with FAW may provide much-needed stability and growth opportunities.
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