A good morning to you. Welcome to the Weichai 2018 First Half Announcement. First of all, I would like to introduce to you the management together with us on the call. We have Mr. Tan Xuguang, Chairman and CEO, and Mr. Zhang Quan, Executive Director and Executive CEO, Mr. Dai Lixin, Vice President, Directorate Secretary, as well as Mr. Wang Cuiping, the CFO. There are two parts to today's presentation. First of all, Mr. Tan will go through some of the questions that you have submitted, and then we will have an open session for Q&A. Would you please follow the moderator's instructions? First of all, Mr. Tan.
Good morning to you everyone. First of all, I would want to apologize to investors. I am not able, and we are not able to come to Hong Kong to meet face-to-face with you.
Because we need to, in Jinan, announce a cooperative project, and therefore, we can only be on the phone together with you. There are a number of you on the line, I was told. I would want to thank you for your participation. Today, I would suggest that we change the format a bit. First of all, I would want to answer some of the questions that you're concerned about. This will be more efficient in the use of time. Then, I will allow time for Q&A, to clarify some of the answers given, or where there are other questions, you can also raise that in the second part. So let us begin. The first question is the diesel industry. What are the main competitive barriers, and what are the core competitive advantages for the company's diesel engines?
You're all concerned about the future development of diesel engines. There are a few points which I would want to share with you on this. For passenger cars, the diesel engine in the future, there will not be any future development in the market because of new energy replacement. However, in commercial vehicles, in particular for industrial and commercial vehicles, there will be diesel engines still. But in the next 50 years or so, there will not be major changes, even though there is the mainstream engine and power that will be developed. You may ask, what are some of the competitive edges for diesel? You may ask. Well, let me introduce that to you. First of all, for diesel industry, our biggest advantage is systematic management of technology. That is, we can develop the diesel engine systematically. The engines have gone through a few phases of development.
At first, it was development and basically to build a single engine, and also to increase the efficiency of that engine. After that, we have done systematic analysis of the technology and theory of diesel engines. This year, we have been given the first-level award for systematic technology or analysis for diesel engine. So that is to say, the diesel engine as a core component of the complete vehicle powertrain, it is very important that it be of the highest quality. A lot of other companies are not able to attain this. There have been cooperative joint ventures set up last year. It was after 12 years of cooperation with this company, and that is actually rather late. Also for emissions, that is also important. The enhancement of low emissions. There have been great changes in terms of emissions.
Diesel engines is now directed by electrical controls. In the past long period of time, for this technology, that is electric control technology, there had been development. Actually, starting even from 2003, Weichai has been working together with Bosch. Now Weichai completely own this diesel electric control technology, the ECU system, which is the highest level in terms of standards in China, and it is the control technology that Weichai hold. The other companies, they work together with Bosch and other companies to come up with certain models. We actually do not need to do so. This is proprietary. It is our own control technology for diesel. A third advantage for diesel engine is in the matching technology. This is very high technology in a number of areas.
The diesel engine is a very important component, and it brings on high efficiency supercharging system and also after-treatment system, which are also barrier-building. The combustion is very important. The system, and the system that matches our customers' demands, this is very important. We have huge barrier, and our pricing power is 10%-20% compared to our competitors. This is our competitive edge, and we are therefore able to, on the one hand, raise our sales volume and also increase our pricing power. These are the three areas, and we are also highly reliable in our products. These are the three areas. Another question is in the first half, what is the market share? Can it continue to retain at 30% or so? We often look at industry statistics, and I can tell you industry statistics are always false. They are not true.
If I tell you it's 100%, and you look at the actual situation, you're actually not be able to find out the truth. Let me give you some numbers instead. From 2015- 2018, for the Qingdao FAW, in 2015, our supply rate was 23.6%, 2015. 2016, 32%. 2017, 56%, and first half of 2018, 57.7%. For Foton, we started from a very high rate, close to 100%, but it is still at a very high rate. Why do they choose us and not others? It is because of our competitiveness. For Foton, we have dropped in 2015, but we're back to 50% now. We will not go back to 100%. 50% is very good. When you look at the numbers, you will have to look at the numbers I provide and also project to the industry.
Last year, FAW, there have been some which have been backlogged to this year. That is to say, these statistics were calculated into this year. I don't look at those numbers at all. I look at the industry, and I work back and calculate and work out the numbers by looking at the real sales volume in the market. We, Weichai, our market share has been growing, not dropping, and I can tell you this. In the future, what are the projections, you may ask. In three years, it will grow from 30% to 40%. That is our future market share. Why, you will ask? I will have the opportunity to tell you very soon, actually. Another point for heavy truck engines. This market may be partially replaced by new energy.
As emission standards upgrade and increase, this is actually a historically major opportunity for Weichai Power. In 2005- 2010, why do I say that? Why is there this big development opportunity? That is, in March of this year, I have raised to the secretary a new suggestion, and that is on environmental protection. Right away my proposal was promulgated all over the world in July, and that is with relation to the China VI. It is segregated into level A and level B. All the way to 15 l, there will be adoption of China VI emission standard. As for non-road standards, that is off-the-road standards, we will continue to support China to formulate our own standards. There have been certain promulgations and announcements already. Why do we want to do this?
There is the North American standards, which will actually, the China standards will be even more stringent than the North American standards, because those standards were formulated 10 years ago or maybe even 20 years ago. If we want to sell to the European market and to the U.S. market, we will be actually producing at the new China standards. They also, if they want to sell into the China market, they will have to abide by this more stringent and higher standards. In the past 20 years of development, especially from 2005 to last year, our company has not accessed the capital market. However, our competitiveness is even greater than our competitors. We have a lot of cash on hand. We have invested a lot in our products. At present, our whole new products are all prepared.
In the diesel engine industry, the smaller companies, they may be whittled away and the high-speed large core engines, et cetera, the full range of that will be further developed, and they are ready to be attached. September 4th, there was a launching ceremony in Beijing of the Three-Year Action Plan for Winning the Blue Sky Defense Battle , and it is a launching ceremony for the Industries Alliance. At the time, there will be the Reform Commission and also the country's leader, as well as the leaders of the ministry. They will all be there. There will be 500 companies participating. What is this conference about? It is to tell everyone that we will continue with this effort of the new standards. The Three-Year Action Plan for Winning the Blue Sky Defense Battle , which is announced by the leaders of China, it cannot wait. This is jointly initiative by us and the Bosch Group. Next question.
I would like to know about the new market. What are the major assets and what are the development of off-the-road engines? We have two, 1 million targets. Perhaps you have noticed that from the media. Engines is what we started with. That's where we developed. Our strategy is very clear. In three to five years time, our standard is actually way ahead of others. Our biggest market, perhaps you do not know, it is huge. In the 10 years, for the off-the-road full range products, we are ready. For example, our construction vehicles, engines, you all know about that. It is some 80% in terms of market share. Next year, excavation engines or excavation vehicles. We will be selling the hydraulics powertrain for excavation engines. It is standing at 200,000 units and 50% or 20,000 units, and 50% or over 50% is from the outside.
That is foreign brands. On the other hand, we are already ready with the product. In January of next year, we will be selling in smaller quantities at first, then we will be expanding. Further, there is another big market, and that is for our high-speed engines. The 1,500 revolutions high-speed engines. We are now at 180 revolutions from the basis of 150 revolutions before. These are large bore high-speed engines. We have already developed and will be competing with world-class Caterpillar, Cummins, and MTU. We exceed them in terms of these engines. That is large bore, high-speed engines. There will be large production, and we will be selling into the North American market. As you know, for the standards of North America or the U.S., we will be able to meet those standards, and also there will be huge profit margins.
We are the only company from China which is able to do so. In acquiring PSI, the real intention is not just to acquire PSI, but it is to solve the problem of selling into the U.S. market. Starting from January 1st, there will be consolidation of the finances with PSI. So for marine use and for multiple use, there will be these production coming onto stream next year. For large bore high-speed diesel engines, there will be 20,000 in terms of production capacity for this year. You do not know, perhaps, that the more powerful the engines, the higher the growth margin and the more the technology they are in. You look at Caterpillar, Cummins, and MTU, this is their main product. That is large bore diesel engines. So we will be going into this market. Weichai will have high growth from this market.
This will be a main highlight for us. The next question, it is said that new energy will undergo a major revolution within five years, and the new energy business is an important part of our 2020, 2030 strategy. Yesterday, the company signed a cooperative agreement with Ballard and Westport of Canada. Can you talk about that? I know that the market is rather discussing this, and new energy in particular. New energy versus traditional energy. I do not think new energy will disrupt completely traditional energy. I have used two years to go around the world. I have come to this conclusion. However, new energy will resolve or become a major component in resolving the structure of energy. For instance, all our oil, petrol, is imported. For some of the markets which have to import oil, using new energy is possible.
For example, it is said that 2025, diesel is to be abolished, et cetera, or 2030, petrol will be abolished. That is all talk by the politicians only. Well, there is an old minister from China who said, "Be realistic," and I am very much in agreement. For urban vehicles, they will be using lithium battery. Yes, that is totally possible. However, lithium battery technology, yes, there is. It is ready. What I am saying is, for lithium battery, definitely it will give a good push to the use and adoption of EVs. For the last mile in the urban areas, that will still continue be using in the urban markets and in other areas, diesel engine will still be used. Cost is one issue.
Our trucks, the forklifts, the different models of trucks that we have, in the future, they will be abiding by China VI standard in emissions, and they will be diesel-powered. That is my point about diesel engine and new energy. For the government-bought vehicles, I think new energy would be the direction for that sector. It may replace the traditional energy. In the next part, I will be talking about a few high-tech issues about new energy. For 1,000 km, 2,000 km, and for heavy-duty vehicles, these will not be new energy disrupted. For the terminal, the ports use, those vehicles are different because on the one hand we have structural reformation, and secondly, we have lowering of emissions in the China market. These two, yes, they are requirements, and they will push the adoption of new energy.
But it doesn't mean that diesel engine will lose all vitality, that we will not be able to sell diesel engines. No, I'm talking about technology. I'm talking about science for diesel engine. At present, for commercial vehicles, some of them will be disrupted by or replaced by new energy, but the mainstream will still be diesel. Now, let me share with you some new science and technology. Let me talk to you about some of the fuel cells. Maybe you are interested as well, the science underneath. A few points here. First of all, I would like to talk to you about solid oxide fuel cells. Perhaps you have not heard of this. There has been some introduction on solid oxide fuel cells. I personally understand this, that for heavy vehicles, this is a very good solution.
For temperature, it had been a problem, and some people thought that that was insurmountable, but I can tell you there has already been breakthrough. Solid oxide will be used as an electrolyte. As for the system, the system can use natural gas. You have to understand that solid oxide fuel cells can use natural gas as well, as well as gasoline, diesel, and ethanol and various fuels to generate power. It is high efficiency, zero in pollution, and it is very flexible in its fuel use. So in the future, this engine can use diesel, can use natural gas, and other fuels, and also it is very high temperature tolerant. According to our projections, our BTE will reach this very high level, 50%, and according to our technology, it can reach some 70%, and what has been certified is the 55%.
This is already very significant for this new technology, solid oxide fuel cell. Another cell is hydrogen fuel cell. Perhaps you have heard about this. It uses proton exchange membrane as the electrolyte, and the system works at a low temperature. Now, this is very different from the solid oxide, which works at a medium to high temperature. This one works at a low temperature, and it uses hydrogen as fuel to generate the power. There is zero carbon emission, zero pollution, because the reaction product is only water. From the pollution point of view, and overall speaking, it is basically zero pollution and zero carbon emission. There are two issues which are difficult to resolve. First of all, for hydrogen extraction. It is not that anybody can extract hydrogen.
For Shandong, for instance, we have a lot of oil and also waste hydrogen, some 960 tons, which is sufficient for all the public vehicles on use for Shandong province. For Guangdong province, let's say, if they really want to produce this hydrogen fuel cell, it's difficult because they do not have that high volume of supply of waste hydrogen as Shandong has. There are a number of factors. First of all, for our company, we have the technology and the R&D. Secondly, the Shandong province. There are some major efforts to resolve pollution in, for example, Jinan and the Three-Year Action Plan for Winning the Blue Sky Defense Battle that is launched there. Also, we have a high supply volume of waste hydrogen in Shandong, including Jinan. We have these advantages. Therefore, hydrogen fuel cell is a lot more attainable. We actually have the breakthrough for this fuel cell.
No problem at all. Actually, yesterday we have signed an agreement. Also, we are sending two directors to this company, and we will be producing the next generation of hydrogen fuel cells. The country's standard is 1.6. We are already over 2 in terms of standards. By 2025, we will be able to produce 4,000 kWh . In terms of our technology, we have been working with Shugong for a number of years. This is in the area of HPDI technology, which basically uses high pressure injection of diesel and also of natural gas in the engine cylinders in order to ignite the natural gas with micro diesel to increase the power, the torque. Note this is almost at the level, or at the level, that is comparable to diesel engines.
At present, these natural gas engines in the market is not comparable to diesel engines. I'm saying that they will be raised with this technology to diesel engine levels, and also it will significantly reduce pollutant production. There will be two stages to this development. For the first stage, for this HPDI technology, we will increase from the 38% to 45% from the status that we have now. We definitely will be developing this with good support. These are the three technologies and the three markets that I want to tell you about. This is to illustrate that diesel will continue to be used in the market in future. Also, basically these are the three technology. First, solid oxide fuel cell, hydrogen fuel cell, and also the HPDI technology which we are developing. Thank you. Next question.
What is the company's plan for Shaanxi Heavy Duty Automobile? What is the target of market share and profitability, and will you increase your shareholding? A lot of you are asking whether I will expand our shareholding. My question is, why? Why do I want to do that? 51%. What is holding? If there is development, it is control. If there is no development, there's no need to control. There's no control. I have talked to the main leaders of Shaanxi province, and there's agreement reached. We will be constructing a 500,000 unit heavy-duty motor production in Shaanxi. What platform will be used? My answer is whatever is good and profitable. That will be the way. The team in Shaanxi, I'm very happy with them. Their profitability was very high. You look at the figures. You look into it. There is high-quality growth in Shaanxi.
I'm very happy with the development there. Shaanxi, yes, we will be strengthening it and expanding it. Through effective management, we will increase its profitability. Incentives. Through an incentives mechanism. For some of the major team leaders, they are given a share in the profit. As for the incentives. In the future, how much will it be? How exactly would it work? We will handle that out. As for the holding, the secretary general in Shaanxi said. In the Fortune China 500 companies, I will be expounding on this further. Next question. Linde Hydraulics. Why has the sales and revenue doubled in recent years? It is because of the markets or internal competitiveness? What is the development in the market, such as for excavators? Linde Hydraulics is a strategic project for us, you all know that.
It's able to reach 580, and this is very unique in the market. After the acquisition, you cannot just claim that you're best in technology. You have to also be good in your sales. That had already been improved and adjusted by me. We are able to sell into the China market because I've made a commitment. We have to work according to the technology of Linde Hydraulics. You cannot take out the technology of the company after the acquisition. No. Basically, we will invest in Linde Hydraulics, and build our integrated hydraulic power system. We are one family. The technology is also in our assets. For all hydraulic engines, it is basically for this. This is something that the Germans did not think of in the beginning. Especially for the construction vehicles, it is low carbon emission directive. On the first MBA.
Well, there have been some adjustments in the time of the diesel engine new plant coming onto stream. But definitely it will be coming onto stream for the integrated hydraulic power system, and there will be a CNY 20 billion sales in the future for hydraulic power. KION is the next question. The first half was average in terms of performance. How are you going to grow this in the future? KION orders in the first half of the year actually increased 17% year-on-year. It is not big, but on the other hand, the small increase in revenue is because the supplier was not able to meet the demand. They were not able to deliver what we needed. We are therefore bringing the production to Jinan. We have reached a consensus between us and France. Because of this, cannot deliver the supply had been a problem.
That was the reason. We want there to be synergy between KION and Dematic. We want this to be a system, a smart system that will be leading in the world. Selling to Amazon, that kind of price. Selling to China. Therefore, in Jinan, I want there to be a plant built that is right and appropriate for the solutions that is to be launched in the China market. This is my thinking. Next question is the overseas market development of our traditional business. Is this an important part of our strategy? What are the plans and progress, please? In the first half of the year, our engine segment exported 12,000 units. Export. That is 52% increase year-on-year. The main engine factory exported 18,000 units, which is 22% increase year-on-year. A total of 30,000 units were exported.
You are probably more concerned about our direct export. This year over 20,000 and next year over 40,000, and 2020 over 50,000 or 100,000 units to be exported. Second point, our strategic focus. We will be using the Power Solutions International North American platform to develop big ways into the U.S. market and also the commercial vehicles. We will be moving into those markets. For U.S. truck companies, they want our diesel engines for the 5 l model. This is something that is unexpected to them. I will be going to the U.S., and they have come to China to feel our market, and I will be doing that in the North American market as well. For Central and North Asia, we have also formed markets in Belarusian region. The Belarusian plant will be in production by November. The Belt and Road countries and regions need this.
We are working with the MAZ Group to provide full range of products. At the same time, we will be investing in the engine factory in Russia. Whom we will be working with, I am not going to tell you now. On the 12th of September or thereabout, in Vladivostok, Mr. Putin and Xi Jinping, our country leader, will witness the signing of the agreement. Follow closely the media and our news releases, please. In Southeast Asia, the Fast Gear factory has also realized the sales revenue, and this is to provide in the Association of Southeast Asian Nations countries a full support in products and services. The Vietnamese market, we have already invested in that. There is a huge market there, as well the Association of Southeast Asian Nations free trade zone markets. The tariffs will be completely canceled in the Association of Southeast Asian Nations free trade zone. We look forward to that.
In India, we consider there are problems politically between India and China, but we are exploring the Indian market to produce and sell into the same market. If there should be problems in the future between India and China, we will not be amiss. Another market is the Middle East and North Africa market, which is zero tariff zone, and they need these diesel industrial commercial vehicles. We will be exporting to this market. These markets and platforms resolve part of the problem of the products that are China IV and China V standards. In the future, China VI standards, low emissions, we will be compliant with that because they are different. Their cooperation model is very good. On the other hand, they are using some technology that is a little bit more backward.
The generator engines now for heavy vehicles, basically it is very much about power and emissions, whether it is for cold chain, e-commerce, express delivery, short haul. They sacrifice nothing. It is really a highly efficient, and the efficiency, effectiveness is needed all through. The time has passed. It is a new age. I think in the future, this will be highly in demand in terms of our exported vehicles with the demand coming from all these areas in the overseas market. Another question for July and August. Heavy truck continued to decline year-on-year. How do you see September and also the second half, please? For heavy truck. I see that the analysts have given us all sorts of questions, this and that, but you do not understand.
For heavy truck industry, starting from the second half of 2016 to the first half of this year, I think the inflection point had not come. Now, you pay attention to this. 2016. There was clearing of inventory. Last year was about 1 million vehicles, and this year would be about 900,000. I totally believe that I am correct in my judgment. In September, according to our orders compared to August, it has slightly increased. About 15% increase. Heavy trucks will not be declining as in 2015. There are a few points I would like to share with you. First of all, it is the Three-Year Action Plan for Winning the Blue Sky Defense Battle, which is a standard that we have to live up to. China III or below trucks will be replaced, especially in the Beijing-Tianjin-Hebei region. Well, some people say replacement is not all that easy, et cetera.
But I can tell you, with the government leading the way with subsidies and with legal requirements, this will come to pass. It will be realized. China V, the decline will not be all that big. This is very simple and straightforward. China III or below, what do you do with the vehicles? It is very real. They will have to be replaced. They will be phased out. That's the first point. Secondly, for the trade war between China and the U.S., this is the first $50 billion. I was not on the list. 10% for the next $100 billion of the trade war, and my margin for export to the U.S. are all over 40%. The U.S. will have to import components, parts, and also raw materials from China. In fact, I am increasing my strength.
I would want you to take notice of a China policy, and that is to increase the strength of the infrastructure sector to supplement the shortcomings. This is to accelerate our construction of roads, et cetera. I think for the new era, it is an era of development of railways and rail transit. This will be another wave of construction. Thank you. Next question. How do you see Three-Year Action Plan for Winning the Blue Sky Defense Battle and the upgrade of China VI standards, and how will this impact our company? How are you prepared? What are some of the advantages, and how do you increase your market share, please? Actually, I have already answered these questions just now, so I will just highlight a couple of points. For China VI emission standards, yes, there will be replacement of some tractors, for example.
1.5 million units of these trucks, and the engines were priced very low, about CNY 5,000-CNY 6,000 or CNY 7,000 . Now, these are big, heavy trucks. In the enterprises that have been supplying the market at low cost as a small size engines, they will be replaced. They will be eliminated, these backwards companies. Another elimination is in China III standard or below polluting vehicles, as I have mentioned. The third area is our R&D. This is strategic for us, and it is a huge opportunity for us. It is positive. Next question. The company disclosed the announcement of a major shareholders increase in holdings and the purchase of A-share. How do you see this? Are you confident about the market? What is the purpose of this behavior? Well, this is so simple. I think the market will definitely, our stock price will definitely double.
The capital market is undervaluing us, and when the stock price doubles, I will sell off. It is so easy to answer this question. Our profit, as we increase, we want to at least attain 10% of profitability, raise that too. And definitely, we will reward our investors also by dividends as well as by stock price. It is only natural that I will repurchase our shares. Thank you. Next question. The Secretary of the Party of the China National Heavy Duty Truck Group has been vacant. Will you also serve in that role? Hopefully, you will answer positively, and if it is true, and how would this impact Weichai Power? Will you leave the chairmanship? Well, I do not know, actually, is my answer. I have thought about being the secretary, but they will not let me, so it is difficult for me to answer this question.
The Jinan Government will make this decision. It is not up to anybody else. I will receive the notification if it is indeed me. And if I am the person to be the secretary for the party committee, I will tell you. So what about Weichai Power? Our integration. I will be, in any capacity, any way, working for the investors and shareholders of Weichai Power. Thank you. Next question. Since listing in 2004, this is the 15th year now in entering the capital market. What is the biggest achievement you think so far? My biggest achievement is for all the diesel engine development in the market, to be able to complete that. Now it is all series on the road, off-the-road development for us. And I have also developed a golden powertrain system, providing value to our investors. And globally also, I have done a series of acquisitions.
It is all about the standard and level, and productivity of the engines. It is not just about acquisition for its own sake. Some people ask questions about this. For some of the companies, I tell them, your purpose for acquisition is so that there can be consolidation of the financials, and you can get into the global 500 strong companies. For me, it is about raising the standards. I will reach $50 billion in capitalization. The day will not be far away. In June of this year, the fifth board of directors of the company had emerged. How will this bring on new, good surprises for the investors? We have two targets. There is a 2020 and 2030 strategy. You all have read about that. We want to become an investor-respected global company. We have the technology, the core technology for engines.
To attain $100 billion revenue and profitability over 10%. If we can reach these targets, then I think that would be satisfactory for global investors. Thank you. The last question. Some people say that the key factor for determining the pattern of China's heavy truck market is not the China's automakers, but Weichai Power. How do you see this? This is logical, reasonable, but it is not all that straightforward. Some people say FAW or Second Automobile Works, they will merge. Also, there are rumors about China National Heavy Duty Truck and also Weichai. But actually, I can tell you, for the development of China's auto market and the integration and merging of the companies to raise competitiveness, it is a necessity. It is inevitable. No one can stop that. That is all I want to say. Thank you very much. We will now have an open session.
Thank you. Ladies and gentlemen, we will have a Q&A session. Would you please press star one to raise a question. No further questions. Let's rest. Star one to raise a question.
This goes to show that my standard is very high. I have answered all your questions.
Press star one for the question. First of all, [Shen Jinlian] of CITIC Securities.
Thank you, Mr. Tan. [Shen Jinlian], I have two questions. First question. There are some off-the-road exports apart from the domestic market. I would like to know for the markets, we are more concerned because the profitability from this sector is big. That is to say, will there be a situation repeating the 2015- 2016 situation with more pressure? And also for next year, even for heavy trucks, there may be a decline.
If there is going to be a decline, would you be able to be stable in your profit growth, or would it be at par with the industry? That is the first question. As for the second question, Mr. Tan, you mentioned earlier that in acquisition, especially for companies as big as KION, we can see that the acquisition has been very good in the past few years. And for companies such as Dematic and KION, how do you integrate their management? And for example, their core KPIs, what are those for them? And how do you extricate the synergistic value with these acquired companies, please?
You are asking about next year's market. Whatever pressure there is, to me, the pressure will not be big. Our consolidated profitability will be as such. There are three issues here.
First of all, our off-the-road vehicles and our big engines, they will be growing significantly. Our heavy vehicle will be increasing in sales to offset the industry's decrease. Thirdly, our overseas markets, we are growing at a very high rate. And France, the U.S. PSI, all these are going to provide huge contributions. The second question about KION and Dematic acquisition. It was an independent listed company, KION, originally. According to the regulations and laws of Germany that we have acquired the company, we now have the controlling stake in the company. The German insurers, their characteristic is not that they are not working hard, is that they follow procedures and process. If we want to change them, there is only one way, and that is to land in China. That is to say they want to come to China. 34,000 trucks in China.
They will have to improve on that rate set to increase the price of CNY 7,000 to CNY 10,000 for the hydraulics. So our communication with that team is fine. No problem there. But their following the procedures way is difficult to change. Well, they live in the European ecosystem and culture. Even with the CFO leaving, we have to pay him, actually compensate him for his resignation. This is not the way in China. It is different for them. For a lot of Chinese companies going out and investing, why did they fail? Because they did not understand. KION has a basis, and that is in Goldman KKR as their investors. They had a KPI, a whole comprehensive KPI. That has not changed. It continues. There are a couple of reasons why there has been a decline in their price. That is the Dematic orders had not materialized.
Why is that? Because at the time of purchase, the COO got CNY 30 million . He actually got, received CNY 30 million. So he got rich, and as a result, he is not motivated, the CEO. Also, the market being so active, there is a lack of supply. They were not able to catch up with their production and supply. That is another reason for their issues. That, I think, is not valid because I think it goes to show that they have not planned ahead well. The Weichai team and the current team will have a joint meeting. In fact, there have been some changes to their team as well. So please be assured it will be fine.
Morgan Stanley, Kevin [Wang].
Mr. Tan, greetings. Thank you very much for your excellent sharing. I have a question about replacement demand.
You mentioned that the Three-Year Action Plan for Winning the Blue Sky Defense Battle will bring on hugely a replacement demand. I would like to know whether the company in 2018-2019, for the heavy truck market, what is the replacement volume, please? What are your projections, please, in terms of replacement? Is it going to be 700,000 or 800,000, or what, per year? Secondly, about the China heavy truck. Do you have certain statistics concerning the reserves?
Do you not have all the calculations? I think you already understand this very clearly. What are you asking about? Is that not so? Let me tell you. Let me explain to you. Actually, I have already mentioned this just now. My total volume for engines will continuously be growing year on year on year. Secondly, for heavy trucks, let me tell you.
For the good years, 1 million- 1.1 million, and that is with environmental protection, raising of standards, it would not be below 700,000 or 800,000. So I have answered your question. I do not know whether you are happy with that.
Thank you, Mr. Tan.
JP Morgan, Karen.
Greetings, Mr. Tan. I am Karen. Thank you very much for your excellent and detailed presentation just now. I think the answers have been. This is [inaudible] . Yes, for heavy trucks. In July and August, you said that there has been a decline in demand. I would like to ask two questions. First of all, we have mentioned very often, just now, the Three-Year Action Plan for Winning the Blue Sky Defense Battle and the replacement demand it elicits. I would like to know, do you have any views on roads being replaced by rail?
Also, last year with the low supply of natural gas, it seems that it is still a problem. How do you see this shortage of supply of natural gas? Will it be improved in the next two years? Will you pay me or next time when I am there, can you buy me lunch?
Yes. First of all, rail replacing roads is impossible. Partially, maybe. Around the world, there is no such concept of replacing heavy trucks. No. Rail replacing roads? How can you solve the problem of delivery point to point? It does not work. What about the major cities and different parts of the city? 60%-70% will have to still be delivered by trucks. This is the direction, of course, rail development, but in the short term, it is impossible for there be replacement. Now, I am learning so, but of course.
Another question is natural gas. This is definitely going to be a market for heavy trucks. For heavy trucks in the market, we believe that this will be about 15% of total. At present, this is about 10%. For natural gas of China, our technology is in LNG, the core technology is there. In the future, when the country brings in LNG in big ways and natural gas is able to reach an equilibrium in supply and demand, then I think natural gas will still have its market, where natural gas is very ample in supply, such as Xinjiang. It has a lot of natural gas supply. There will be transport from these areas to the rest of China. I hope I have answered your questions. Thank you.
[Kai Wei of Cinda Securities.]
I have two questions. First of all, heavy-duty business.
In the past three to four years, at the peak of the business, the profitability fluctuation has been big. Now, if heavy trucks come down in sales, will it also impact hugely the profits? Also, for in the China market, there is huge development opportunity for electrical vehicles. I would like to know in this area, what is your thinking? Also in the next few years, what is the plan for the huge China market?
For heavy trucks, the profitability has been stable, but in 2015, it was at a low, and now it has come back to a high, and we are increasing its margin. For Shaanxi Heavy Duty Trucks, we have been consolidating it. It is not true that it is not profitable at a certain level of production.
For this year, the target is CNY 1 billion, and it will be in terms of profit, and it will be coming back to normal. It has never been a problem, really. As for Dematic, we are very clear that for forklifts for KION and Dematic in Jinan, we will be building a plant to sell into the market with appropriate products fitting for the China market.
[Wen Tan of Tianfeng Securities. Wen Tan of Tianfeng Securities]. The question has been canceled. Press star one for questions. [Ping An Securities, Wang Yifan].
Two questions. For regulation, what did you say? Can you please slow down? I want to ask a question. For off-the-road engines, I want to find out from the regulations concerning emissions. It happened before for diesel commercial engines.
The off-the-road vehicles, with its huge size, how do you enhance it and raise its standards, improve on it? Including ASP, et cetera, what are the plans? The third question, in the supply chain, you are very strong in your negotiation power. How do you see the Bosch relationship going forward? How do you see the kind of monopolistic position, and how do you see the relative change in positioning going forward?
The first question is on improvements. As you know, the whole Communist Party is rallying around Mr. Xi Jinping. It is not like 10 years ago anymore. What you want to do, you can do what you want. It is not that anymore. Mr. Xi had come up with the Three-Year Action Plan for Winning the Blue Sky Defense Battle , and this will not be changed in the future by anyone. So off-the-road engines, 3 million nationwide.
But diesel engines, 1.5 million to 2 million units. What we want is not just quantity. For off-the-road, we want to raise the standard. Where people cannot attain those standards. Where the small enterprises can all do it is meaningless for us to do it as well. Of course, for our market share, we cannot be 100%. We cannot be the only supplier in the entire market, on the other hand. Secondly, your question about Bosch. We do not rely a lot on Bosch anymore. They provided us a software system and some components, and that is in their control strategy. Yes, that is one thing. In front of Bosch, our positioning is strong. Tomorrow, there will be a meeting with their Fourth and Ninth and Sixth and Ninth, and in September, Bosch will also participate in the campaign launch.
In the afternoon, right after in Beijing, they will come to Jinan for meetings with us. We have been enjoying very good relationship of cooperation with Bosch. Our engines, the chip is German. Also our military vehicles, the chip is self-proprietary developed together with a domestic company.
Commercial vehicles. What is the production and the plan for that, please?
Passenger cars. Passenger cars, we will be in this sector. I also told Mr. Tao as well. If I am number one in everything, our peers will not be happy. But passenger cars will be new energy cars, and it will be hydrogen. In terms of hydrogen passenger cars, it may well replace lithium battery in the future. But it is not possible for, let us say, 49 ton heavy-duty truck. It will need 11 ton of battery. Can you imagine? A battery 11 tons heavy? Impossible.
So we have passenger car business, and we have the two plants. Perhaps in the future, there may be three. We will be planning and thinking it through before we come back to you to share our plans.
Now, the last question, please. [Mr. Xu Hongtao] of Chong Hing Securities.
Thank you very much for the excellent presentation, giving us insight into the industry. I have three questions. You talked about your plans and also overseas expansion, KION, Dematic, and the production expansion and also domestic expansion. So I would like to know whether you will be coming to the market for financing, given that. Just now you mentioned you want to reach 10% profitability and also $50 billion in revenue. I would like to know, last year was 6% point something profitability rate. So there is still some differential, still a gap.
So can you tell us, in the future, where is our revenue coming from in huge ways and also increasing our profitability, how are you going to realize that to 10%? Third question, how much of your time and energy is put into passenger cars, please? Also in new batteries, lithium batteries or other batteries, and fuel. How do you look at this, and how much time to allocate to it?
Starting from next year. Well, actually, that is a lot of questions for you. For CapEx, first of all. I know you have been to our plant in Weifang Industrial Park. We continue to replace and move some of our low-efficiency production outside of China. So we have no need for certain plants and some of those machinery, even.
We will have an end series installed, and that is for industrial power. We will be increasing our investment in these machines, 1,000 this year, 3,000 next year, 10,000 the year after. That is investing into the new machinery. I will need CNY 5 billion for these two years, CNY 5 billion in CapEx for this, with this new machinery in plant. You just now mentioned, when will I reach the $50 billion revenue? My planning is not that far-ranging in time. To reach 10% profitability rate. We have to form some strategies, and we will be able to reach the 10%. A third point is focus and my energy in putting into passenger cars. My time is calculated on an hourly basis now. Three characters for me. Strategy. Staff management.
Staff management, definitely, I will focus my energy on this, and also on the strategy and the market. Incentives is important for the team. This is very important in terms of team motivation. Also to smoothen out the way for the management. Any further than this with questions, I will ask for payment. Because of time, we will have to close the conference call here. Thank you very much for your attention, and we want to thank you for your support. Thank you.