Foggy Future: Cummins’ response to increasing regulation in the diesel engine industry

Facing increasing regulation with the onset of climate change, Cummins has turned its attention to developing new technologies and its supply chain to provide zero emissions power solutions to the transportation industry.

What would you do if macro issues challenged the long-term viability of your core business? Cummins, a leader in diesel engines, currently faces this situation with the increasing pressures of climate change. Much of Cummins’ 6.3 billion dollars in diesel engine sales is at risk in the coming years as countries continue to tighten emissions regulations and begin to announce future bans on diesel engines.(1)(2) To protect their position as a leading provider of power generation for both personal and industrial vehicles, Cummins has begun to develop an array of electric power solutions for the bus and heavy-duty truck market.(1) To successfully develop and deliver industry leading electric power solutions for the transportation industry, they are faced with the challenge to develop a new network of battery suppliers and OEM partners.

One of the major challenges facing Cummins has been to quickly build up its technological expertise whether that is through supplier partnerships, internal development or through acquisitions. To provide for its initial ambitions of providing electric power for buses and class 7 trucks Cummins has formed supplier partnerships for its battery cells. (3) Longer term, Cummins has begun to implement a vertical integration strategy to address shortcomings in their lithium-ion battery technology. In October 2017 Cummins announced the acquisition of Brammo, a leader in the development of battery packs for mobile and stationary battery applications. (4). As Brammo integrates with Cummins I would expect Cummins to use an increasing number of their own batteries in their products.

In addition to developing and integrating their upstream supply chain, Cummins has begun to develop partnerships with OEM’s for the distribution of these new products. In October 2017 Cummins announced an Electrified Power Partnership with GILLIG LLC, the leading bus manufacturer in the United States, to provide electric power for a new fully electric bus with a 200-mile operating range. (5)

Moving forward, if Cummins desires to be the leading electric power provider in the transportation market it will need to continue to improve its battery supply technology either internally, externally, or through further vertical integration as their current technologies are inadequate for the full heavy-duty truck market. Their current battery offering in their newly announced AEOS class 7 concept heavy-duty truck has a range of only 100 miles. (3). The power and capacity of the batteries in the AEOS are inadequate for use in the larger Class 8 market.  Class 8 trucks are used for inter-city transportation and carry heavier loads up to 1400 miles per fill up with their current diesel engines (6).  Research experts expect that the power density of batteries will increase five times in the coming years and be produced at one fifth the cost. (7) Cummins will need to keep a close eye on the battery industry as a variety of competing firms research and develop many competing technologies such as lithium-ion, lithium-sulfur, and solid-state batteries. (8) If at any point they identify a company with a superior product to their own lithium-ion batteries they should seek to acquire them as they did with Brammo.

In addition to developing their internal and external supply of batteries, Cummins will need to continue to develop their network of OEM’s for these new electrical power technologies. Currently, the core customers for Cummins’ diesel engine lines are OEM’s PACCAR, Daimler and Navistar (1). As electric trucks begin to take the road around the world, Cummins will need to create partnerships with these companies as they have for their current diesel engine business. However, this will be no small feat as there are already several competitors entering the electric trucking industry. For instance, current customer, Daimler, has already announced its class 7 truck the Urban E-Truck and Tesla is expected to announce its version of an electric class 7 truck later this week. (9)(10) The high level of initial competition makes it imperative for Cummins to move quickly in forging partnerships and to stay at the leading edge of new technologies.

Cummins has started the process of adapting to a changing transportation market but there is a long road still ahead of them and a great deal of uncertainty. If you were Cummins, what would you choose as the best path forward for its electric power solutions business; internal technology development, supplier partnerships or acquisitions?

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(1) Cummins, 2016 Annual Report, p. 40,, accessed November 2017.

(2) Alanna Petroff, “These countries want to ban gas and diesel cars,” CNN Money, September 11, 2017,, accessed November 2017.

(3) Joann Muller, “Cummins Beats Tesla To The Punch, Unveiling Heavy Duty Electric Truck”, Forbes, August 29, 2017,, accessed November 2017.

(4) Cummins, “Cummins Announces Acquisition of Energy Storage Technology,”, accessed November 2017.

(5) Cummins, :GILLIG And Cummins Announce Electrified Power Partnership at APTA,”, accessed November 2017.

(6) Aric Jenkins, “Will Anybody Actually Use Tesla’s Electric Semi Truck?”, Fotune, April 14, 2017,, accessed November 2017.

(7) “The race to move beyond lithium-ion”, The Economist, November 24th, 2016,, accessed November 2017.

(8) Jack Karsten and Darrell M. West, “Five emerging battery technologies for electric vehicles,” Brookings, September 15th, 2015,, accessed November 2017

(9) Cummins, 2016 Annual Report, p. 6,, accessed November 2017.

(10) Daniel Muoio, “Mercedes-Benz will test its all-electric truck on German roads this year – here’s everything you need to know,” Business Insider, February 16, 2017,, accessed November 2017.

(11) Robert Ferris, “Musk cites Puerto Rico efforts in delay for Tesla semi reveal,” CNBC, October 6th, 2017,, accessed November 2017.

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Student comments on Foggy Future: Cummins’ response to increasing regulation in the diesel engine industry

  1. I find this topic really interesting and it is an extremely relevant conversation at this stage. Logistics are on the rise and so are emissions. On saying this, I’ve always wondered whether electric vehicles, along their supply chain truly are greener than diesel engines. For passenger vehicles, possibly i would still agree but for high capacity usage such as trucks, my worry is the vast quantity of electricity that will need to be produced to power these vehicles. The electricity being produced would usually be through non-renewable resources and hence, is it impacting the environment less or more? On saying this, a recommendation could be a diesel – electric hybrid which would give the truck range as well as low average emissions. Considering the O-Zone hole is the smallest it has been in the past few decades, we are moving in the right direction and it is critical to make decisions such as this, to ensure we are able to improve the impact we are having on the environment. To answer you’re question of using internal technology, acquisition or partnership, in my opinion it would be interesting to see the progress they have with Brammo. If they are making good headway then they could leverage those resources, otherwise start with partnerships to test the pace of R&D in the industry before making another acquisition.

  2. Interesting topic!

    Your explanation and analysis of the dynamics made me reflect on many of our leadership and marketing cases because to really pivot and survive in this new industry, Cummins will have to fundamentally change as an organization. As I think about the critical tasks that Cummins needs to do as a Diesel Engine manufacturer, they are dramatically different from those that they need to do as an Electric Engine manufacturer. The technology is fundamentally different and requires a different supply chain, engineering base and even customer relationships, as you pointed out. Because some of their customers have electric engine technology themselves, there’s a chance that Cummins will move from a supplier to a competitor which might fundamentally change their business model. If I was part of Cummins’ management, I would have to think seriously about how much change is required for a transformation of this kind and whether we have the capability to actually make that transformation. I wonder if it’s possible that they’ll be able to manage being competitive in both industry or whether they would be better off investing in start-ups that can focus on the electric vehicle side and then be managed as a JV once they get large enough. I would worry that they would really be able to get over their perceived sunk costs in the diesel engine industry to really focus on a business that could destroy the diesel engine business, particularly when the time is right to actually sell off the diesel business. Sounds like the need a CEO eager to make broad strokes!

  3. This essay was very interesting. It reminded me of the Donner and United Inc cases, where the protagonist company was in between two different business models. I think in this case it would be dangerous for Cummins to lose sight of their diesel engine business and start focusing too much on the electric engine issue. My recommendation is they should look to acquire a company with a proven concept in this technology while continue to focus and execute on their core business. At the same time they could try to provide operational efficiencies and scale to the acquired company by giving them a greater purchasing power and influence with global suppliers.
    In line with this, I would stay away from developing the technology myself. This is outside of Cummins’ core competencies and I would be worried that they would lose focus and miss their execution targets on both sides of the business.

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