Welcome back, everyone, to ABG Investor Days. My name is Henrik Hintze, and I'm an equity research analyst here at ABG. With me now, I have the CEO of OXE Marine, Paul Frick. Please, go ahead, Paul.
Hi. Good morning, everyone. Thank you for having me today. My name's Paul Frick. I'm the CEO of OXE Marine. I've been with the company for around four years. I've just recently taken over the CEO position, and prior to that, I was the CFO for the business. So let's start from the beginning. Who are we? So, we are the world's first high-powered diesel outboard manufacturer. So, and I will break that down for you. So for those of you who know the marine industry, we do diesel outboards, very, very easy.
For those of you who don't know the marine industry, I will take a step back and say that in general, in the marine market, boats are powered by either inboards, so Volvo Penta, Scania, brands like that, or outboards: Mercury, Honda, Suzuki, Yamaha. Those are the common brands in the market. So you have a bit of a paradox where the majority, by far, of inboard engines are diesel-powered, and the majority by far, talking 95% plus of outboards, are gasoline. So there is a gap in the market to have a diesel outboard for several reasons.
So the main reasons, and what we really focus on as a business, is that for starters, diesel outboard has a significantly lower fuel consumption and also significantly lower CO2 emissions compared to a gasoline outboard. So like for like, we're talking about 34%-35% reduction in CO2 levels. The engine we use is a modern automotive engine, diesel engine, so in our 300, it's a BMW six-cylinder aluminum block, so it's a modern engine from the automotive sector. Where gasoline engines, outboard engines, have not really evolved over time, and which means they're still very pollutive. From an efficiency point of view, we all know with diesel that it's a far more efficient engine for providing fuel efficiency and range to users.
This is important for the user group that we target. We also know that it's a growing trend these days. Energy efficiency is very topical, and even in the marine sector, which is generally a couple of years, if not decades, behind the automotive industry, it's starting to become more and more topical, where the boat users are not wanting to burn as much fuel as they have been doing. Then lastly, there are some regulation and some directives.
So from a NATO point of view, there's something called the NATO single fuel directive, and pretty much what that means is that, for fleet users, where there is a possibility to switch from gasoline, which is more flammable, meaning more dangerous and also less available, to switch to diesel engines where possible. So before, for many boat users and applications, there hasn't been a diesel outboard on the market, meaning that there's been no opportunity to switch, and now that has changed. So to talk you a little bit through our technology, so you get an understanding or insight into our world, this is what a regular outboard looks like today.
So it's a gasoline engine, with which is vertically mounted, meaning that, the pistons are over here, moving up and down to the side, with a crankshaft over here, going down to what's called a bevel gear or dog clutch, meaning that power turns in a 90-degree angle towards the propeller shaft. So if you add... We all know that a diesel engine produces significantly more torque, and torque moves boats through the water. So if you add more power up here, you put way more pressure here, meaning that this, this becomes the Achilles heel of the design.
Quite simply, that means that if you want to put a high horsepower engine on your outboard, it means that this could break and become a very unreliable part of the engine design. So what did we do differently? Well, we took the concept of an inboard, where it's horizontally mounted, meaning that the pistons sit up here like they do in a car, moving up and down, with your crankshaft going out the back. Then we have a primary transmission over here, which moves the power in a straight line down to a gearbox, which is a hydraulic gearbox, significantly more robust than the bevel gears you saw in the previous picture, and with a belt transferring the power from the gearbox down to the propeller shaft.
So this means everything's turning in the same direction, and it also means that power doesn't have to move down to the propeller, so it's a more efficient setup from an engineering point of view. In general, there's been very little innovation in the segment. So the first outboard was invented by Ole Evinrude in the early years of the twentieth century. And it is one of the most polluting engines on the market in general, if we generalize, and it's not regulated as there is an exception for it when it comes to emissions. So this is when we talk about things like EPA emission standards and IMO in a European context. So there is an exception for it.
We follow the diesel inboard kind of emission standards, meaning that we are far ahead in terms of thinking about the environment and thinking about the impact that our engines have on the market. You can also see from the design that we build our engines in a modular format. So this, for example, is what's called the transom unit, is a common component across our product range.
This lower leg is built so that no matter what happens in the future, no matter what technology changes, with introduction of hydrogen combustion engines, for example, and other alternative fuels, we can keep the same layout of the engine and change the power head and really keep this, which is our patent over here and our IP, the lower leg, as we call it. And we can use whatever changes in the automotive industry and adapt so that we always stay up to date with technology changes. It also means from a scalability point of view that we—as we have different product ranges, it's built in a modular way, so not every new product will be designed from scratch.
This is not really the case with traditional design, where everything has to change as you change your horsepower. So as a company, who are we? I mean, we're obviously listed on the First North Growth Market. We've been listed since 2017. For a small company, we have a very good and supportive shareholder base, as well as board of directors who are very involved in working with us as management and giving us guidance as we grow the business. Someone who might be known in these corridors, at least, Jonas Wikström, is our chairman of the board.
We also have Christian von Koenigsegg, who sits on our board and gives a lot of input to us when it comes to how we work with technology and what changes we make to our product. Also a large shareholder of the company. We have Martin Polo, who is the CEO of Outdoor Network. Outdoor Network is our largest shareholder of the company. They're based in Florida, and it's a business that's we call a marine trade player or owner, involved with owning Yamaha Central Florida in the U.S., as well as Boats.net, a retailer of online boat spare parts. They have been very instrumental in taking a technology company and guiding us into how to commercialize in the marine market.
And then lastly, Jon Lind, who's also held several positions, leadership positions in the Swedish business environment, who sits on our board. Before we get into the products and the numbers, I think the best way that I can give you insight into what our daily business looks like is to go through a couple of customer cases, because it will give you a feel for how we are doing in the market and who are our customers. I've just come back from. We had the trade show last week, METS, largest marine trade show in the world, as well as a customer day with our at our factory in Poland.
Really, the insight from the customers is at the core of our business and where we are listening the most carefully on how what they need and what we need to focus on to grow our business. So if we take this, for example, this is a typical what we call a service vessel. This operates in the North Sea of Scotland, and it's there to service offshore wind farms. So this customer has six boats, a fleet of which would be 12 engines, and they're using it in their daily operations to go out to sea and do the offshore wind farm servicing.
Another key segment for us, which would be a similar type of vessel, would be the oil and gas industry, where you're not allowed to have gasoline in many parts of the world around oil rigs offshore, and that's really because of a safety factor. Gasoline has a much lower flashpoint, which simply means it's much more flammable than diesel. So diesel is a much safer fuel to have on board. Here's another example of a landing craft. This is operating in the United Kingdom. So here, this user needs torque, power to carry heavy loads across the channel or from island to island on this boat. You can see it has a ramp over here.
It can load a vehicle, and really, and plus, they need the space on board to carry more cargo. So for them, it's the fuel efficiency, it's the torque and the power to move the vessel. So this kind of boat, when we talk about fuel efficiency from a gasoline to a diesel, they could be saving anywhere between 30%-50% of their fuel that they usually use to operate the vessel. It's a significant difference for them, so other than the operating aspect of their boat, it really comes about saving money for their business and running a better business. So that's the main way these sort of customers think when they make their purchase decision.
Here we have a charter boat in the British Virgin Islands. Here, the user was interested in obviously having a more environmentally friendly product with lower CO2 emissions, but also, very importantly, access to fuel in remote locations, availability to get diesel, as well as fuel efficiency and power to move a catamaran around the water with two diesel outboards. These engines have over 2,000 hours on them and have been in operation for around two years or so. A dive boat over here, also in the U.S., typical application, carrying heavy dive equipment, safety on board, carrying many passengers to dive sites and back, and obviously wanting the range to travel further to reach dive sites and as well as fuel savings when running their business.
So all around, a lot of factors that are appealing to this customer. Here in Sweden, in Gothenburg, here's a workboat. One of the appealing factors here is that they actually use the heat exchanger from the engine to take in heat into the cabin and heat the cabin in the cold Nordic climate. Very popular with aluminum workboats, as they're called. A towboat in Asia, same thing, torque and fuel efficiency, to go out and operate in those environments and tow boats back to shore when they're needed. Probably our largest growing sector, the governmental sector. So here we have an example of a Bureau of Customs in the Philippines, where we've delivered 60 engines, and they have a fleet in operation at the moment.
Recently, we also, via our customer in Philippines, received an order to supply 80 engines to the Philippine Coast Guard. So in these sort of environments, what's encouraging to see is that we have a market with over 140 engines in operation, soon to be in operation on the second order, and where we have a customer working with a fleet mentality. So we work very closely with them, training them. They come to Sweden, get trained here. We have a very good uptake in knowledge of the product, and that helps them make sure that the fleet is in operation and runs smoothly with the central location of spare parts and to service that fleet. Hurtigruten has been one of our first customers.
They have a fleet of 45 RIB tenders that are in operation and across all their tours. For them, it really was the environmental aspect that they were interested in, as well as the range to go on these excursions. Charter boats in Hawaii, similar aspect: safety, range, and operation. Then lastly, a growing segment in the recreational sector, which we'll get to soon. So for yacht tenders, as they're called, which are boats that accompany larger yachts, what's very appealing is to have a common fuel source because the yacht operates on diesel. So for this recreational segment, which normally would favor gasoline outboards from a price point of view, it's appealing for them to run diesel because of the commonality of fuel with the mothership.
And then the last example I'll go through here, this is in the Nordics. We've signed an OEM agreement with Nimbus, and here in this test application, we ran this boat on HVO 100 because it brings the recreational user a possibility to lower their CO2 consumption or CO2 emissions by up to 92% when running on HVO versus having a gasoline outboard. So it means that even though there is an emergence of other types of electric outboards and things like that, range still becomes an extremely limiting factor, especially out on the sea, where you have a big boat that's getting pushed through the water, consuming a lot of energy.
We refer to ourselves as transition technology, as we have a solution on the market today, which is significantly better than the alternative products. So users can choose already today to have a better option for the environment. So if I group up these USPs, and to summarize, you can see that, for the commercial sector and the governmental sector, our product brings a lot of unique selling points to the segment and which makes these two segments our core segments that we focus on right now as a business. Recreational, there are some aspects that become appealing. For those users who don't use their boat often, price becomes an issue of the engines, and diesel engines are always more expensive than gasoline.
But they, our product is similarly priced to if a boat user would choose an inboard engine of the same price. So for them, they can compare it against a gasoline, which could be one option, but if they compare it against an inboard, it's very similarly priced. So, we're trying to give them the best of both worlds, diesel and outboard, to give them more space on their boat and give them the range... I'm gonna move into the innovation part. So other than being a diesel outboard company, we have more innovation elements of our business that we're bringing, and that's a hybrid that we're working on at the moment.
That will be a diesel-electric hybrid, as well as a jet option, instead of a propeller shaft, and I'll go through that technology soon. Before I do that, to mention sort of where the recent successes that we've had, for those of you who follow the business, in Q3, we had two large orders, an order to the Philippine Coast Guard. These are the first three boats that have been commissioned. Then, secondly, to a United States governmental agency, where we had an order of $5.8 million.
These are really important orders in the governmental sector because it gives confidence to the market that there are users who are already taking the decision to try diesel outboards and have confidence to put it in use in their fleet. And this, obviously, in a small global marine industry, news travels, and it is really good for us to have these reference cases. I will... How much more time do we have? Not much. Okay, let me speed up. From a product range, we—our first generation is the 150 to 200.
Now, we have the 300, and the products that we're coming out with in testing is this jet variant, which is used for shallow waters, and the hybrid, which is in concept phase and soon to go into on-water testing. I'll skip through these slides, and just focus on the hybrid very quickly. Why this technology is interesting because, for the boat builder, it means that you have, with upcoming regulation, they'll have the possibility to maneuver close to shore and harbors on electric only, and out at sea, when you need the range, you'll be able to switch to the diesel. Also, you'll have the possibility to use the diesel engine, to pull off excess kilowatts to charge the battery as you drive.
So kind of a, not a plug-in hybrid, but more a self-charging hybrid concept that you have in the automotive industry. Lastly, two slides on the numbers. The market for global outboards, according to the research that's available, is around $11 billion, set to grow to $17 billion by 2032. At the moment, diesel outboards is less than 1% and is a growing segment with new other competitors coming to market and set to grow to around 11% if we just extrapolate and estimate. That means that our market position over here, we intend to keep or grow in the future, meaning that our market and is there, and the growth and the trends are there. The main factors is that there's a shift from inboard to outboard.
There is an emergence of moving away from gasoline to other fuel sources, diesel, electric, hydrogen, other types of fuels, and that makes-a nd then lastly, a shift towards higher horsepower. So that means that in all three aspects, we're well positioned for these trends. And then last slide, just to talk about our development. So last year, we did SEK 148 million in turnover. So we have been growing steadily year-on-year with a dip during COVID, but the average trend is growing. This year, we continue our growth trajectory with achieving 36% gross margin in Q3 2023.
And this is really due to more direct business that we're doing, which is higher margin, growth in the parts and accessory segments because we have more engines coming into population and use. So we have a higher demand for spare parts and accessories, meaning that we're able to grow the segment. We're pleased with the development of the business, and we continue to work extremely hard to continue this growth. Let me pause there. Thank you very much.
Thanks a lot for that. Let's move on to some questions.
Sure.
So looking at the market penetration within outboards, diesel is very low, as you mentioned. What could you just tell us a bit about why is that still so low? Has the technology not been available for very long, or what has prevented that to grow, and what makes you confident that it will start growing more going forward?
That's a great question. I mean, first of all, there hasn't been much disruption in the marine segment. It's coming now. The technology has not been there. It has always been a challenge to have higher horsepower in a compact format that you use on water. If you go back just four or five years, the highest horsepower outboard on the market would have been a 250 globally, and now the Mercury has a 600-horsepower outboard that's available. If you go to places like Florida, where there is extremely high interest in outboards in the boating market, you will see what I mean, where it's quite common to see five or six 600-horsepower outboards on the back of a recreational vessel.
So the leisure boating industry has really picked up, meaning that the demand for outboards has picked up, and the higher horsepower demand has picked up. On the commercial segment, there is a decline in inboards. A lot of the inboards are essentially engines that come from truck or automotive industry, and these industries are pulling back a lot on diesel. So it's not easy also to have an inboard on your boat. It's difficult to service. You have to climb inside your hull of your boat and get there. So if there is an option that can be hanging on the back of your boat that you can reach, it is a more attractive option.
Finally, just quickly, could you talk a bit about the competitive landscape within diesel? Like, do you have competitors, and what's going to make you stand out in the diesel outboard market?
Yes. We have some new emerging competitors, so there's two in the United Kingdom in a similar horsepower range, 300. We believe we have a first-mover advantage. We have more product in the field, to our knowledge, than they do, meaning that our brand is out there first, also meaning that we work with these users and learn through being on the market, which is, as we always say, you can design a product, but until you put it in the hands of your customer, that's when the real testing starts.
So we're a little bit further on that journey, and that's our focus, where we're for now not focusing on large R&D projects, but really focusing on industrializing what we already have and refining it further and further for the users and making sure that their experience is what they require for the product.
All right. Thank you very much for that. That's all we have time for. Thank you all for listening.
Thank you.