Good morning, ladies and gentlemen, and good morning or afternoon to those of you joining us via the live webcast. Welcome to the CNH Industrial Capital Markets Day here in New York. I'm Federico Donati, Head of Investor Relations, and we are absolutely delighted to have you here with us. This event is being broadcast live on our website and is copyrighted by CNH Industrial. Any other use, recording, or transmission of any portion of this broadcast without the express written consent of CNH Industrial is strictly forbidden. All of today's presentation material will be uploaded to the Investor Relations section of our website at cnhindustrial.com. By clicking the banner on the homepage, you will be automatically redirected to the appropriate section. For attendees here in the room, we have provided a tablet that you'll find on your table.
During the day, as each speaker takes the stage, the respective presentation slide will be accessible for you to read as well as being projected on these three screens behind me. For those following the webcast, you will see the slides in real time with the option of revisiting the prior slide. Let me now draw your attention to the usual safe harbor statement displayed behind me. Please note that any forward-looking statements we make today are subject to the risks and uncertainties mentioned in the safe harbor statement. Additional information pertaining to factors that could cause actual results to differ materially is contained in the most recent 20-F and E1 annual report, as well as other periodic reports and filings with the U.S. Securities and Exchange Commission and the equivalent authorities in the Netherlands and in Italy. Now, the agenda of the day.
Our Chairperson, Lady Heywood, will start with opening remarks and will provide context for today's presentation. We start with that of our Chief Executive Officer, Hubertus Mühlhäuser. Hubertus will present CNH Industrial corporate strategy, entitled Transform 2 Win, which provides a clear direction of how we intend to execute a transformation of our businesses. It will provide a framework upon which our five business presidents will expand. Derek Neilson for agriculture, Carl Gustaf Göransson for construction, Gerrit Marx for commercial vehicles, Annalisa Stupenengo for powertrain, and Oddone Incisa for financial services. Our Chief Financial Officer, Max Chiara, will summarize how our strategic plan translates into financial targets through 2024 and provide the financial context in which we will move forward during the transition period. We will end with closing remarks from our CEO, followed by a moderated Q&A session.
A 10-minute coffee break has been scheduled after the construction segment presentation. We will ask you to be mindful of the time in order for us to stay within our schedule. I would now like to invite our Chairperson, Lady Heywood, to take the stage. Thank you all.
Good morning, everyone. My name is Suzanne Heywood. I have the honor of being the Chairperson of CNH Industrial. It is with great pleasure that I welcome you here today to our Capital Markets Day. I want to take a few minutes before we begin just to give you an introduction to our company and share a little bit of a summary of the company with you, which will set the stage for what the management team will be sharing during the course of today. CNH Industrial is a global leader in capital goods, with a strong presence in both on and off-highway applications. CNH Industrial has 12 strong global brands, each recognized as leaders in their respective fields.
These brands provide farmers with precision technologies to help feed a growing world population. They assist in building cities and infrastructure of the future. They deliver sustainable transport solutions for goods and communities with future-proof powertrain solutions. CNHI has a continuous history of innovation, creativity, and consolidation that stretches back over 175 years. CNH Industrial is recognized also as a sustainability leader, having been named as the industry leader in the Dow Jones World Index and the European Sustainability Indices for eight consecutive years. We are committed to continuing on this path, enhancing the company's growth and profitability while maintaining high levels of sustainability to help deliver even greater long-term value for all our stakeholders. Our employees put our belief in sustainability into practice every day in everything that they do.
We are signatory to the Business Roundtable's recent announcement, which you may have seen, which stated that in addition to generating long-term value for shareholders, a company should also consider customer expectations, it should invest in its employees, it should deal fairly and ethically with its suppliers, it should support the communities in which it works, and it should protect the environment. These values are already at the heart of CNH Industrial. Our sustainability commitments align both with this statement and with the United Nations sustainability goals. Our ambition is to be carbon neutral, to deliver and develop a fully recoverable life cycle thinking for our equipment, to ensure zero serious injuries, and to be fully engaged with our workforce. That is very much central to all the presentations that you'll see today.
We've already seen meaningful results from the transformation work at CNH Industrial, and again, you'll see that as we go through. The strategic business plan that the management team has developed with the full support of the board of directors is based on four key pillars. Effectively, these are the four things that we challenged the management team to do, and you're going to see the results of that today. We asked them to come up with a plan that would deliver superior stakeholder value. We asked for a plan that would drive future opportunities. Not just thinking about today's world, but thinking about the future world for CNHI. We asked for a plan that would execute across the cycle, so would be robust in all different points of the cycle. We asked them to review the portfolio and to really think about how the portfolio fits together.
Over the next few hours, we'll explain how we intend to achieve these goals, but we'll also give you detailed metrics that will allow you to track our progress in achieving them. In conclusion, I'd like to thank you again very much for joining us here today. I hope and trust you're going to find it both interesting and informative. After a short video, I would like to invite our CEO, Hubertus Mühlhäuser, to come and explain our strategy through to 2024.
[Presentation]
No applause? Good morning. Good morning, everybody. It's great to see such a big crowd, and thank you, Suzanne, for your very, very kind introduction. For those of you who don't know me, I'm Hubertus unpronounceable Mühlhäuser. I'm sorry for my last name. I've been the Chief Executive Officer of CNH Industrial for exactly one year right now. Before I start laying out our strategic direction, let me step back a little bit and share my observations after one year at the helm of this beautiful company. Obviously, there were things that I knew already before I joined, such as the strengths of our brands and the market positions in the agricultural space, as well as FPT's strong engine lineup. Please do remember that I had to compete against my current colleagues for several years in my prior professional life.
However, what I learned in the last 12 months is a confirmation that there is a very, very strong, I would call it, foundation to build on, albeit, with areas of improvement. However, this would everybody expect. When reviewing our technology and innovation position, and you see that at first on the slide here, it became very obvious for me that we had a fairly strong innovation pipeline across all the segments, and that we were addressing many of these key disruptive trends that we talk about. However, I think we also had to acknowledge that we were under-invested in some of the areas, and this has to be corrected going forward, and we do correct this with this strategic plan. What really impressed me coming into CNH Industrial was our best in class, I would call it, operational and commercial capabilities.
World-class manufacturing was rolled out to all our facilities, and I think you heard me talking about it, and I think it is the strongest program that I found in the industry. However, on the flip side, we also had to recognize that we were optimizing an overly complex, I would call it, product range, and that we had and still have excess manufacturing capacity, which is a drag, I would say, on our profitability. Going forward and with this plan, we need to address both. We need to simplify our product lineups, and we need to have a more efficient use of our asset base.
Third point, looking at our strategy and brand portfolio, it's very fair to say that we have several strong leadership positions at product and brand level with an amazing heritage and loyalty, I would say, for our most of our brands. Just a personal note, there are very few brands in the world where people sing songs about. We do have those brands. I've also learned that there was a need to focus the organization and to sharpen our strategic positioning in order to achieve the full potential of our segment portfolio. Fortunately, that's the final point on that slide here, I also found a very strong, and I would say collaborative management team, both on the corporate and the operational level with a true partnership culture, I would call it, that is very open, receptive to change.
On the flip side, we have become a very large global organization with many hierarchical levers and a lot of processes. I felt the very strong need for us to become more agile, customer-centric, in order to reflect the spirit and the culture of the strong entrepreneurs that have created this strong company. A year ago, when I joined CNH Industrial, I also set out for myself and the entire organization three very clear priorities. Today, I'm very proud to say that we have delivered on all of them. The first priority, as you see here, was to continue to deliver on our operational margin performance. We have clearly shown to you that we did this through consistent margin improvements over the last four quarters.
The second objective was I made a priority to develop a strategic roadmap and a transformation plan that is, A, supported by the organization, and most importantly, that we can deliver on. Of course, including the answer that the board and Suzanne have asked of the future composition of our portfolio, which we'll share with you today. Finally, my third priority was to build out a leadership team and an organization that is capable to create and deliver on an ambitious transformation plan in a rapidly changing environment. You will see this leadership team in action today. Summing up of these three priorities and all our achievements today, we're excited about the significant value creation potential that this plan embodies today that you see, and that is ahead of us and all our share and stakeholders.
Speaking of the leadership team that can deliver, we have reorganized our global executive team early in the year and have given full profit and loss accountability to our segment presidents, and they are supported by strong functional leaders. We have done this with a good blend of existing strong talent, along with talent that we brought in from the outside, like Andreas Weishaar, who is sitting there in the front row, and Gerrit Marx, who is sitting there, our Head of our Commercial Vehicle segment. They brought fresh perspectives to our company based on their in-depth industrial experience. You will see evidence of the strengths of this leadership team today when the segment presidents present their strategies.
Later in the Q&A, and I invite you also to ask questions to our functional leaders that are not on stage, but they're all with us here today in the room. Let's now talk about the strategic plan and the strategic transformation plan. As part of our strategy review, as Suzanne has said, we looked ahead and analyzed the economic and social macro trends that impact our business. I go from the left to the right here. We see a world population that is constantly growing and that will comprise nine billion people by 2050. While this population is growing, we will experience a simultaneous calorie increase by 2030. This will drive an increased demand for food, and that in turn, is going to act as a strong driver for our agricultural segment.
In parallel to this population growth, we see a rural exodus with more than 1.5 million people moving into urban areas every week. There are already today in the world more than 140 cities with more than 300 million inhabitants, and this number is growing. The infrastructure need that we see to support this urbanization is increasing and will drive an enormous need for infrastructure development, and this will benefit our construction business segment. Another macro trend that we see, that we identified, is the degree to which the population is increasingly connected. What was once geographically distant networks of suppliers and customers is now instantly connected in volumes and speeds that we have never seen before. With same-day delivery, hub-and-spoke distribution networks, and all this exciting stuff that offer access to many products and services almost instantaneously, and it's an increasing strain on our transportation infrastructure.
We must find ways to transport goods, and this will increase demand for our transport solutions, and we have solutions to offer. Finally, and perhaps most importantly, there is a real existence and threat of climate change. As responsible corporate citizens, we must constantly work to adjust our business practice to the reality that we, as inhabitants of this planet, are changing the environment we live in. We do have a responsibility to conduct our business in a way that does not negatively impact the environment. Our Chairperson, Lady Heywood, laid out very clear objectives as to how we aim to accomplish and confront this macro trend. For us, we see sustainability as a business enabler for CNH Industrial that will help us to provide real competitive advantage going forward.
As a matter of fact, you will see that sustainability is the underlying theme in all the business segment strategies that we will present today. After looking at the macro trends, we then went, I would say, one level deeper, looking at the specific mega trends that will impact our industries over the coming years. We have, and I personally have referred several times to these mega trends in the last quarters, and we will continue to refer to them in today's strategy presentation as they are impacting all of our business segments. Again, from the left to the right, digitalization and connectivity is the new normal. Digitalization in turn is the enabler for autonomous and automation in autonomous vehicles. We are addressing this trend throughout all our strategies. You see a nice example in front of the stock exchange.
Servitization and the services around our physical products have an ever-increasing importance, and we see new business models emerging as a result of this trend, allowing us to significantly increase our aftermarket service business. You will see this later on in the presentation. Finally, the changing climate forces us to think about alternative propulsion system. There is growing public awareness of this trend and the need for action, and it provides even more pressure to become carbon neutral in the near future. It requires OEMs such as CNH Industrial to proactively come up with solutions rather than being forced by legislators, politicians. We owe this to the next and the future generations. It is with this backdrop that we have developed our transformation strategy, which we call Transform 2 Win.
You see this house here, I will shortly populate this house, talking out our purpose and values, our corporate objectives, our functional segment strategies, and finally, I will finish my presentation with our portfolio strategy. Please note that we have taken a five-year planning perspective, so all the financial projections that you see will point to the achievements in 2024. To provide an interim check, so to say, we will also share the 2022 financials. Looking at the strategy. Top of the strategy is, of course, our purpose. Powering sustainable transformation. This purpose provides the why we are in business and is consistent with our position as an established sustainability leader as heard by Suzanne. The values define the way we want to conduct business and what culture we want to have going forward in CNH Industrial.
Entrepreneurship, which means for me to challenge the status quo, fight against bureaucracy, but also to take calculated risk. That is a key value that defines our corporate culture and reminds us constantly of the strong entrepreneurs that created our world-leading brands. Additionally, we value people with passion, that are setting ambitious yet achievable goals for themselves and their teams. The strategic plan that we present today will come to fruition supported by the values of relentless teamwork and an excellence in implementation and execution. Our strategy that we present today has three themes that you see here that will drive both the corporate objectives of this plan and all our strategic initiatives. This gives you the what we want to achieve overall. The first strategic theme, top left, is centered around innovation and thought leadership.
This will drive a lot of investment and strategic initiatives into our technology and brands. In turn, this will result in market share gains, it will lead to a net sales growth of 5% annually throughout the plan period. The second theme is around industry benchmark performance. You've asked for that for a long time, we are addressing this by improving and simplifying our operations, also all our product lineups. The strategic plan that we present today and the corresponding initiatives, very concrete initiatives around that theme, will give us an adjusted Industrial EBIT margin increase of 400 basis points to 10% EBIT margin and an 18% CAGR in our adjusted EPS, moving from the midside of our guidance this year, $0.86 per share in 2019 to $2 earnings per share in 2024.
It's also an important one, we want to make best use of our assets and optimize our capital returns. All initiatives around capital productivity will increase the return of our invested capital by 600 basis points from 14% in 2018 to 20% in 2024. Needless to say that the achievement of this plan will deliver superior shareholder and stakeholder return. As a heads up for those of you that follow later on the segment presentation, you will find the levers of Grow, Perform, and Simplify, as well as Optimize throughout the subsequent presentations by my colleagues. This will allow you to better understand the corresponding initiatives that will drive shareholder returns, and you can understand what is self-help and what is market health. We have really separated that. Let's switch gears and talk about the how we will achieve this.
We have already started corporate-wide transformation initiatives, as was outlined by Suzanne, that are of course embedded into our presented functional strategies. Throughout the plan, this will be delivered by our functional leaders. Let me run through the main headlines of the content and impact of those functional initiatives. To start with our digitalization strategies, foresee that over the course of this plan, 85% of our new products will be digitally born and connected. This is of paramount important as the connectivity is the driver and enabler for automation as well as for our service business. Speaking of the service business, this will drive the potential to grow our aftermarket sales and service business from today's 16% to, in the future, 20% of future revenues, and it will outgrow our equipment sales twofold. Of course, it will improve our margin mix.
The investments that we make in the digital and aftermarket infrastructure under the leadership of Luc Billiet. Luc, where are you? There you are. They're significant. They will support this growth ambition. Now, looking at the supply chain and its excellence. In this plan, we are achieving net annual sourcing savings of 1% of our procurement spend year-over-year. The continuation of world-class manufacturing will drive productivity improvements of 4%. Tom Verbaeten, who took the leadership of the supply chain organization earlier this year. Tom, where are you? Is already in full implementation mode with his global teams and is very happy to answer all questions around that subject later on. Furthermore, the company, all its business segments, have fully, I would say, embraced the 80/20 simplification methodology that we started to roll out already in 2018.
As you know very well, the 80/20 methodology that we use addresses customer, in our case, dealer line simplification, as well as product line simplification. In the area of customer line simplification, we will consolidate our dealer network over the course of the plan by 10%, creating one that is stronger and, we would say, more viable. Simultaneously, we will simplify our product lines, we will reduce complexity by reducing stock keeping units and variants by more than 50% over the five-year time plan of the plan. You will hear a lot more on 80/20 and its profit and loss impact from the segment presidents in their respective presentations. As stated in my opening address, we also need to address our manufacturing footprint and network. In effect, we have looked at more.
We have looked at our entire footprint in the world, manufacturing facilities, R&D centers. We got Alan Berger here in the room, our Chief Technology Officer. We also included him in that review. The parts depots and all other regular offices. In the plan period, we will rationalize our operational footprint by 1.2 million sq m. For the Americans in the room, and we are in New York, nearly 13 million sq ft over the next five years. This will allow us to increase the utilization from today's 66% to 85% in 2024. This will further help us in the improvement of margins, of course, and capital returns. Finally, for sure, one of the most important points, we can only deliver on this plan if we have a fully engaged workforce.
We will make sure that all our employees are fully engaged and are living up to those values that I explained early on. We also see diversity as a key enabler of this plan and have embarked on a corporate-wide initiative to strengthen diversity and inclusion within CNH Industrial. Let's switch gears now and look at the how for the segment strategies and how transformative above and beyond those functional strategies they will be. Important to note is that we view all of our 2024 segment targets as mid-cycle, as we'll also discuss in the segment presentations and of course, in Max Chiara's financial summary. Let's go from the left to the right. In Agriculture, our strategic thrust and ambition is to become the leader in sustainable agricultural solutions.
The key priorities of that strategy for that segment is that we will support this goal by doubling down, as you would expect, on precision farming solutions, the better positioning of our differentiated brands, and the provision of superior product performance and quality. All of this will lead to market share gains, and it will lead to 5% net sales CAGR over the planning period. An increase in net adjusted EBIT margin of 500 bps to, we believe, 14% is a realistic target for us, and a return on assets improvement of 1,300 bps to 33%. As you probably have seen this morning, we announced the acquisition of AgDNA, and this is, I would say, another stepping stone in our digital farming strategy, which is part of our overall investment of $5.6 billion in the ag segment alone.
Please note that this investment number on this slide and all the others are the sum of CapEx and R&D. The strategic thrust for our construction equipment segment is to, as we call it, develop focused leadership positions. The key priorities that drive this strategy are the continued delivery of the turnaround, earning the right to grow in products and markets. I'm looking at Carl Gustaf, and he knows he has to earn the right to grow. Of course, to better leverage the channel synergies that we do have with our agricultural business segment. Once the Construction Equipment business is showing a, we would say, sustainable track record of margin improvement, we also intend to pursue opportunistic M&A and to be an active participant in consolidation. With the presented plan, we will achieve a 7% CAGR of net sales.
Now, Ann, we discussed about this before, arguably from a low base today. With tailwind from our high growth markets in India and South America, and both leaders of our high growth regions, Stefano Pampalone and Vilmar Fistarol. Where are you? They're here with us today, and I think they can also support this plan and answer some question. The plan that we present today for the construction equipment segment sees a 570 bps margin improvement to 9%, while our return on assets will improve to 24%. In the segment, we plan to invest a total of $1.2 billion. Not included here are the investments made by our supply partners. Please note that. To the next segment. Our commercial vehicle segment will become, as we say, the global leader in sustainable transportation.
The key priorities that will enable that thrust will be the repositioning, as we talk frequently about, of the heavy-duty truck line, the extension of our leadership in alternative propulsion by, we would say, aggressively expanding liquefied natural gas, LNG, and entering into the fuel cell segment and realizing global growth through partnerships. We firmly believe that this will allow our Commercial Vehicle business to increase the EBIT margin by 380 bps to 7% and to lift our return on assets in that segment to 14%, finally earning its cost of capital. We have also communicated a very, very important, for this segment, strategic partnership with Nikola today. We believe that this will leapfrog our commercial vehicle segment and will position IVECO as a true disruptor in the trucking industry. It will open up for us the very, very important U.S. market, where IVECO was so far not present.
Those positive long-term effects are not yet reflected. The Nikola acquisition, not yet reflected in the strategic plan. I think, Gerrit, you agree with me, they represent significant upside to this segment going forward. The overall investments into commercial vehicles will be $4.2 billion. This is including the Nikola partnership that we have announced this morning. Looking at our powertrain segment. Powertrain is today already a leader in alternative propulsion, and we will enlarge its portfolio with focused investments in revolutionary diesel technology as well as in electrifications and of course, also fuel cells, allowing it to continue to drive non-captive sales, and you're going to hear a lot more from Annalisa today on that strategy.
All of this will result in a 5% net sales CAGR and an adjusted EBIT growth of 110 bps and a further improvement of already a stellar performance return on assets to 32%, with an overall investments into our powertrain segment of $1.9 billion over the timeframe. Finally, we will provide customer-centric financial solutions that will support our business segments on the FinCo side. We will do this by launching new products and markets, fully taking advantage of the digitalization within our industries. This will lead to a portfolio CAGR of 4% for the FinCo and a net income CAGR of 3%. Now the full house. To summarize this powerful, we would say, Transform 2 Win strategy, we will reposition CNH Industrial as a thought and technology leader in the industries in which we operate.
It will lead to a significant step-up of our financial performance, and it will allow us to outgrow our competition and to regain market share. Our segment presidents will outline in far more detail the substance of their transformation plans shortly. However, before we do this, let's take a look at the composition of CNH Industrial's segment portfolio over time. As Lady Heywood outlined in her introduction, we challenged ourselves to think about the right portfolio composition going forward. We challenged our thinking across three dimensions, we would say. First, and you see that on top left here, we looked at a strategic lens to evaluate our portfolio by looking at market attractivenesses and competitive dynamics. We looked at our portfolio from an investor lens. We're trying to sit in your chairs here and take your view and reflect investor preferences.
Finally, given that we now know finally the investment plans for our segments, we thoroughly analyzed those investments, evaluating the true synergies between our different segments and where it really made sense to be under one corporate roof and where it would make sense to go separate ways. All of these different lenses and perspectives came to the similar conclusion. Looking at the portfolio composition now with a strategic lens, we concluded that while all the mega trends that I referred to are impacting our segments, their impact is very different in the on and the on-highway business. Furthermore, we found that very different market and competitive dynamics exist for the on versus the off-highway business with different strategic starting points that we have, requiring the need for more flexibility to seek and actively participate in needed industry consolidation.
All of this led us to the conclusion that from a strategic point of view, we need to have a distinct and differentiated management approach and focus and accountability for the on and off-highway business. The second lens, which as I said, we call the investor lens, came to a pretty similar conclusion. As most people here in the room would agree, the capital markets preference is for focused business models and companies, the so-called pure plays. There are varying investor expectations for the on and off-highway companies. As a result, CNH Industrial currently gets the conglomerate discount, not fully reflecting our inherent strengths, we would say, and the sum of our parts. Our conclusion, therefore, from an investor lens was that we should create two focused enterprises. Finally, we looked at our portfolio from a synergy perspective.
This review, I must tell you, was very enlightening for all of us once we understood the strategic investment plans and needs of the different segments. Here we were looking first, and you see that on top right there, at the inter-segment synergies between the on and the off-highway business. Looking at these famous mega trends that I referred to earlier, which are all affecting the segments. We saw, however, low investment synergies in automation, digitalization, and servitization, while only alternative propulsion struck us to be a majorly synergistic area between on and off-highway. We deal with this later on. On the operational and commercial synergies, we found limited to no synergies on the distribution, on the engineering, as well as on the manufacturing side, though there are obvious synergies, you would say, around procurement and the administration side, of course.
When we looked at those synergies within on and off-highway, we saw that there was an overwhelming synergistic potential between ag and construction equipment, as well as between commercial vehicles and Powertrain, given that the relative cost share of the engines is higher in trucks than in off-highway, and the majority of the volumes goes into trucks. On-highway is typically leading with emission regulation, and these changes make it critical to our CV business to be close to the engine business. As a result of these findings, we concluded that we had to transform our portfolio in order to be able to win. The creation of two global leaders in their respective industry was, for us, the only viable path forward, and that's the reason why we call it Transform 2 Win.
If we look on the upper side here, the off-highway business will be focused on becoming the partner of choice to feed and build the world by creating the global leader in sustainable agriculture with a highly synergistic construction equipment business. The pro forma sales will be $15.6 billion, of which 75%, so the vast majority, are in the agricultural space, and a pro forma adjusted EBIT of $1 billion. We have also concluded, and that's below, that we need to spin off our commercial vehicle segment, consisting of light commercial vehicles, medium/heavy-duty trucks, and buses, as well as our powertrain segment.
This newly created on-highway company will build on its leading positions in Europe for commercial vehicles and worldwide for powertrain to become the global leader in sustainable transformation and will become the partner of choice to power and connect the world with pro forma net sales of $13.1 billion and a pro forma adjusted EBIT, as you can see here, of $500 million. We believe that today's partnership announcement with Nikola will further add to this company's credibility. It will grant access to not only revolutionary fuel cell technologies, but also to the important U.S. market for IVECO. Max Chiara, our CFO, and myself will go into more detail on the technicalities of the spin, of course, later today, and we are open for Q&A, of course, there as well.
I think it's fair to say that we are really excited by the opportunity that this overall Transform 2 Win strategy will create over the years. With the three building blocks of margin growth, portfolio changes, and organic and inorganic growth opportunities that are grounded, as you will see today, in concrete actions and a clear execution commitment that you will hear from me and my colleagues during the day. Therefore, we believe that we are truly at a defining moment, as one analyst put it yesterday, in CNH Industrial's history. With that, I'm happy to turn it over to Derek Neilson, our President of our Agriculture segment. Please welcome Derek after a short video. Thank you very much, and more to come. Thank you.
Thank you, Hubertus. Good morning, ladies and gentlemen, and may I add my welcome to those of Suzanne and Hubertus. My name is Derek Neilson. I am the President of the Agricultural segment. The short video you have just seen has opened a window into our world. A world of powerful machines. Our business is simply not about selling pieces of equipment. Rather, it's about working alongside our customers in fields the world over to help them feed an ever-growing population. It's incumbent upon us to enable farmers to maximize yields from every single acre. Looking at the agricultural market, our addressable market for farm equipment is worth some $80 billion annually. We expect the ag equipment market to grow during the period of our strategic plan at single-digit level, driven by positive fundamental market trends of population growth and changing diets towards more protein consumption.
This will, in turn, drive an increase in demand for commodity production. Given the limited availability of arable land, the main levers for production growth will be an increase in per-hectare yield. Realizing higher yields ultimately require farmers to invest in equipment, either to increase mechanization levels in developing markets or in mature crop markets to step into farm digitalization and more precise field operations, which will drive, in turn, a more favorable mix in equipment and service demand. Together, these positive trends could drive double-digit industry growth in the planned period, but we are conscious of possible further market constraints linked to tariff risks, subsidy reductions, and political instability in some of our key markets and countries. CNH Industrial's agricultural brands have a solid presence in all regions with a global manufacturing footprint that optimizes logistics flow and hedges naturally against foreign exchange fluctuations.
Our well-established dealer network is perfectly designed to be close to our customers. This is clearly demonstrated by our strong market share position in all regions, as you see on the slide behind me. Whilst Europe and North America are the largest revenues by revenue, our position in the fast-growing South American region is very strong and very well established. We continue to grow in the rest of the world, particularly focusing on the Asian growth markets, where mechanization levels continue to increase rapidly. Our global presence and footprint allows us to partially balance the impact of the regional ag cycles. Whilst North America and Europe are still in the low part of the cycle, South America and the rest of the world are experiencing medium to strong growth, allowing us to offset the downturn in the North American market to some extent.
All of us in the agricultural segment are firmly behind our mission to be a high-yielding partnership delivering sustainable growth. We strongly believe that farmers are at the center of everything we do. Quite frankly, they are the reason our brands exist. A great many of us working in the agricultural segment hail from a farming background, and together with our dealers, we listen to and engage with farmers every single day. These strong relationships assist us in developing and investing into products that will improve farmers' productivity, enable them to become more efficient and effective to satisfy the growing global demand. For our customers, sustainability is today a tangible concept, as every decision they take impacts the future of their livelihoods. Preserving scarce resources such as soil fertility and the availability of water will ensure that generations to come will continue to farm profitably on their lands.
We are committed to helping farmers steward the resources and helping them to transition to using on-farm solutions, such as natural gas to power their equipment, with the resulting reduction in greenhouse gas emissions. Sustainability for us is much more than a word. It guides our thinking and day-to-day actions. As Hubertus mentioned earlier, we in agriculture have defined seven key pillars to grow, perform, simplify, and optimize our business. The four levers linked to growth comprise of brand positioning, further enhancement of our product portfolio, digital transformation, and the further development of best-in-class aftermarket solutions. Two pillars are linked to our perform activities, namely the development and investment in further professionalization of our dealer network and focusing on our passion for quality and reliability in line with farmers' increasing expectations.
The last element is the optimization of our industrial footprint to strengthen our global presence while keeping close to our customers. We will continue to build on the strong D&A and heritage of our outstanding and well-established brands. Going forward, we will strive to further strengthen the clear positioning of each of our three brands through our revised product lineup and go-to-market approach. Continuous customer dialogue has driven us to further clarify our brand's positioning in the market, including both the scope of product portfolio and service offering. Starting with Case IH, supported by its strong heritage in North America, will remain a powerful and highly productive full liner for professional producers. Leading-edge innovation and technology will enable the brand to become a tech leader, providing customers with a best-in-class experience.
New Holland will continue to grow on the back of its strong harvesting and hay and forage expertise, operating as a full liner, servicing all customers' needs from orchard and vineyard farmers through to mixed livestock and arable farmers, including small and rice growers around the world. New Holland Solutions focus on innovation, sustainability, and outstanding superior cost efficiency. We will invest heavily in our STEYR brand to strengthen its position as a premium European brand, leveraging its longstanding passion for quality and reliability, with cutting-edge features and styling across a full range tractor portfolio aimed at the most professional and demanding farmers in Europe. As a premium short liner, STEYR is open to partnerships with implement brands that are complementary to its superior positioning. With this powerhouse of our three brands and continued investment in a professional dealer network, our go-to-market strategy will have significant impact in the marketplace.
In terms of product lineup, we already have a very strong and complete portfolio, and many product updates and developments are already in the pipeline. We will prioritize efficiency and productivity, enhancing features like automation and digitalization for future investment. Harvesting remains a passion within our company. Our combine harvesters today provide the best total cost of ownership and highest degree of automation in the industry. We will continue to develop features which will further boost productivity in the short harvesting windows, minimizing losses, delivering best-in-class crop processing to ensure top quality, because quite frankly, every grain counts. Our next-generation combines will help us increase our leadership position in harvesting in Europe and South America, and to expand our position in North America and the rest of the world.
In tractors, we continue to leverage the leadership position of our FPT engines, thank you, Annalisa, to power and drive our tractor portfolio. As pioneers in alternative propulsion, we will shortly launch a fully sustainable mid-range natural gas-powered tractor. Last week at the Farm Progress Show in Decatur, Illinois, we presented our new cash crop high-horsepower tractor, signaling the start of our cab refresh program, which provides best-in-class visibility, comfort, and control systems. Our new cabs are now enhanced with digital technology, offering a real suite of field and fleet applications available both on and off board. All of our tractor portfolio above 100 horsepower will be upgraded to next generation by 2022, thus allowing farmers to further improve the efficiency of their field operations. We are also focused on the sub-100 horsepower range, where we target annual production of over 100,000 tractors based on a global platform.
As Hubertus mentioned, applying 80/20 methodology, we target a high level of modularization and standardization to leverage scale advantages. Enhancements will also take place across the crop production and hay and forage offerings as we continuously strive to provide growers with the most efficient and reliable machinery to support their operations. In addition to that strong organic development pipeline, we're also seeking interest in partnerships and bolt-on acquisitions, thus taking an active role in future industry consolidation. We will leverage our solid position in certain products, seeking further expansion, and to close gaps on margin and penetration where we are less strong. Agriculture is a primary industry, accounting for the largest productive use of land, feeding growing populations, and is fundamental in helping achieve sustainability goals, given its impact on greenhouse gas emissions.
CNH Industrial actively supports sustainable farm management waste systems, leveraging biodigesters to produce alternative fuels derived from animal waste and byproduct mass from crops. By building upon FPT Industrial on-road experience in natural gas engines, we are committed to unleashing the full potential of the circular economy. This targets the full utilization of farm waste through biodigesters for the production of biomethane, which is used to power farm machinery and supply the transport industry. We firmly believe this will be a disruptor in our industry, and I hope you noticed today our stunning biomethane tractor when you entered the building. That confirms this disruption is imminent. In the short term, our medium horsepower natural gas tractor will enter series production. Pre-series testing is already underway, seeing farmers leverage their biodigesters to satisfy their own fuel requirements, thus becoming energy independent.
Those farmers running those pre-series tractors are highly satisfied with the testing programs and are already inquiring as to the future of natural gas-powered products, such as expanding the tractor portfolio and other equipment such as forestry harvesters. Today, our smart equipment tech solutions deliver unparalleled productivity benefits for farmers. We combine the performance and reliability of our world-class equipment with digital functions to enable smarter farming practices. Our next-generation high horsepower tractor platform comprises market-leading precision and technology, connected services, and a user-friendly interface to allow farmers to optimize day-to-day field operations. Together, these digital technologies can increase farmers' productivity by over 10%. Unveiled at the Spring Farm Shows in the U.S. earlier this year and launched at Farm Progress this past week, we are confident we will gain market share quickly and exceed customers' expectation with this new tractor and its digital capabilities.
Our market-leading combines benefit from New Holland's IntelliSense and Case IH harvesting control systems. Quite frankly, these have been setting the standards for smart harvesting since their introduction in 2018. The superior control system and farm automation and sensing technology ensure that farmers benefit from the highest throughput, minimal losses, and highest grain quality. Productivity gains of between 10%-20% are achievable depending on the operator's skill level. Following the launch of these automated harvesting systems, we have made rapid and tangible market share growth in all markets in which we operate. These market-leading technologies you see today are just the beginning of the journey to unlock the full potential of the digital farming of tomorrow. We have set a digital farming development program with the clear ambition to develop comprehensive suite of digital connected services to help customers run their farming operations in a more productive way.
Compared to today's conventional farming, we expect to enable some 20% productivity gains through the entire crop cycle in all key applications: fleet, field, and farm. I know that many of you in the audience today perceive us to be significantly behind the industry in precision farming technology. The truth is, however, that we have a strong competitive offering in field applications such as guidance and control systems, as well as sensing and field monitoring. We intend to further develop and expand our offering, as proven by this morning's announcement of our acquisition of AgDNA, a leader in farm management information systems.
We are well-positioned to take advantage of fleet and farm segments, which represent an opportunity for us to rapidly grow, something we are clearly addressing in the near term, as you will have seen in our products and applications launched at Farm Progress, and this will be further expanded on at the Agritechnica show this November. In the coming months, we will position ourselves as a leader in the digital evolution by closing any gaps in an overall precision farming offering. All of this will enable us to provide farmers with a more competitive offering. Be assured that we are pursuing a segment-by-segment plan with a very detailed roadmap for the development of our digital-enabled offering. This overall plan is to provide farmers not only with leading-edge offerings, create superior value, but also allows us to command a leading share of the value created in this segment.
We will continue to invest heavily, as presented by Hubertus earlier, in this segment and strongly believe that we'll more than double current revenues from our digital and precision farming solutions by 2025. Double. While achieving a greater than 30% EBIT margin in digital solutions. To achieve the digital farming objectives and in line with our open platform approach, we have built an ecosystem of partners that you see on the screen today. Field applications such as fully autonomous operations and more precise equipment are at the center of our R&D activities, including those of the autonomous tractor and the automated harvesting machine. Fleet services which support remote monitoring and improve operational efficiency are core to our offering. In addition, our partners provide our customers access to the most updated technology and best-in-class farm management solutions, as well as agronomic decision-making support. Moving on to AGXTEND.
AGXTEND is our incubator aftermarket brand for leading innovation technologies, basically allowing farmers to enhance their efficiency and profitability. The brand is based on an open approach to innovation, working with best-in-class startups, ag technology companies, and tech drawn from other industries. Our dealer network and field sales team help bring together startups and farmers, thus enabling the targeted development of the initial concepts and to fully realized solutions. The AGXTEND portfolio strives to provide best sensing and control solutions across soil, environment, machine sensing, implement control, and plant and crop. Thereby maximizing the sustainability of all operations while reducing inputs and drastically reducing chemical use. This product offering will increase significantly as we go into 2020. We are extremely optimistic about this exciting brand, having already received multiple innovation awards at most of the major European agricultural shows, and we will see it entering the U.S. very soon.
Alongside our global brand and portfolio improvement initiatives, we have developed a targeted plan in each region and specific market to ensure capturing all growth opportunities. In Europe, as I mentioned, we want to grow the key customer segments in markets where we are currently underrepresented, such as tech-oriented premium customers in Germany, for example. Through enhancing the positioning of Case IH and STEYR brands as innovation leaders and as premium brands in their respective customer segments, we are confident that we will be able to gain ground quickly. We also aim to become European number one in the combine market, driven by New Holland brand, thanks to its best-in-class combine portfolio, and I emphasize best in class. In North America, we will see the largest rollout of our new products.
In parallel to this, we will also work to further professionalize and consolidate our dealer network to create strong partners. They will have the capabilities and means not only to meet increasing customer requirements but to exceed them. In South America, the focus is on further strengthening key accounts and go-to-market approach. We have worked on a very detailed marketing assessment, segmenting customers by size. Our primary focus will be on some 2,000 large customers who represent an opportunity to increase our share of wallet by applying together with the dealers a new go-to-market approach. We are currently number one in crop harvesting in South America with over 50% market share in combines. Building on that success, we want to expand further our leadership position and attain outright leadership in the sugarcane harvesting.
In EMEA region, we have a market-by-market approach targeting growth, highly prioritizing leverage on our strong footprint in India, both in terms of global sourcing and further local market penetration. We fully intend to double our market share in the Indian market by 2024. In parallel to this, we are proactively assessing the market to complement our product portfolio through partnerships. In my concluding slide, you see the revenue and profit walks structured in the contribution coming from Grow, Perform, Simplify, and Optimize initiatives, as mentioned by Hubertus earlier. Just for information, this is the format which is consistent across all segment presentations you'll see later today. Specifically for the agricultural business, you can see that until 2022, our focus is on self-help initiatives, improving our profitability. After 2022, our investment in growth initiatives will become fully effective, allowing us to grow in a second wave.
Over the period, our strategic plan will invest some $5.6 billion in ag with a strong focus on product enhancements in light of the future mega trends. In terms of revenue, we are targeting a 30% growth to $16 billion in 2024, with an intermediate target of $14 billion in 2022. We are targeting an EBIT margin of approximately 14% over the cycle and aim already achieving 12% by 2022, driven by those self-help initiatives that I mentioned earlier. In the next few years, we will prioritize initiatives related to optimize and perform, which will drive efficiency and profitability, such as footprint optimization, investment in dealer professionalization, and quality excellence. In parallel, we will continue to invest in our grow initiatives to drive product, digital, and automation enhancements, which will be fully deployed by the midpoint of the plan.
This will support revenue growth in the second part of the strategic business plan cycle. Also world-class manufacturing and sourcing excellence will continue to run across the entire five-year period, supporting the realization of our ambitious margin targets. With the implementation of this robust and comprehensive plan, we are confident of accelerating our agricultural business to the forefront of the industry, fully realizing the full potential of our very prominent brands. With this, I conclude my presentation, and thank you for your attention. I'd now like to hand over to Carl Gustaf after a short video. Thank you.
Good afternoon, ladies and gentlemen. I'm very pleased and happy to see so many of you here today. I think we can speak about a full house. We are here, as Hubertus said, to present the powerhouse of CNH Industrial. I am Carl Gustaf Göransson. I am the President of CNH Industrial Construction segment. I'm here today to give an overview of the Construction Equipment business and the opportunities within our strategic footprint. Throughout the presentation, I will be talking about our business, earning the right to grow by excelling at the fundamentals where we are strong and have a proven D&A and track record. Ultimately building on that to grow our business strategically by focusing on attractive customer segments, supported by strengthening our product portfolio in these areas. Let's have a look at the business.
The construction equipment business is a fragmented industry, valued at around $100 billion annually, where the top five OEMs account for some 40% of our sales. The majority of the market today is in North America, Europe, and China, India is growing rapidly. The bulk of our business is in North America, a market now at its peak. We do have strong positions in other areas as well. In India, for example, we are number one in compactors. In South America, number two in wheel loaders, and in Europe, number two in graders. World markets are in different stages of their cycles. At the moment, Europe and North America are at or near their peaks, South America is in the trough, The rest of the world is growing, thanks predominantly to India. GDP, construction spend, and infrastructure projects are the main drivers for growth.
Let's look deeper at the business. The construction business market in which we operate is just currently south of one million pieces of equipment. As a business, we have enjoyed a strong global market position in the past, and our ambition is to return there with a focus to become a leading industry player. We do have a 175-year heritage, a strong name, and a loyal customer base. We recently focused our business on three key segments with the goal to be closer to the customer and their market needs by targeting our product development resources around the segments you see on this slide. These segments are compact and service equipment, general construction, and road building and site preparation. Clearly, we have a strong position in compact and service equipment, which is primarily backhoe loaders, skid steer loaders, compact track loaders, and mini excavators.
This is also where a major part of the market is sized. We have a strong share in North and South America, but we have smaller positions in Europe and the rest of the world. This is also where our 80/20 initiative is currently focused, and this is how we'll boost margin on these products. In the general construction segment, we are focusing on two major products, excavators and wheel loaders. We have great products in this segment, but in some markets, our share has lagged. Some of our margin performance in this category is muted since we source excavators from an OEM partner and share margin with them. Finally, we are present in road building and site preparation sub-segment, where our focus is on products doing all the preparatory work up to the point where the asphalt is laid. Dozers, graders, compactors are the key products in this segment.
As you can see, this is a smaller part of our portfolio, but an area we can increase scale, improve product simplification through the 80/20, gain market share, and consequently increase the margins. Okay. Our mission is clear, and this is the philosophy we apply throughout our business. We have talked about our business earn the right to grow, and I believe this can only be achieved by winning our customers' loyalty. Ultimately, our efforts are focused on ensuring that the customer is satisfied. If we can achieve that, then we'll earn and maintain their loyalty, and we do have loyal customers. That said, we will now shift gears and present what we intend to do when it comes to providing reliable, intuitive, sustainable solutions. Let's take a look at our strategic pyramid that summarizes our journey ahead to 2024. Here you have it.
Our main aim is earning the right to grow by continuously working on our efficiency and our performance. We see the construction equipment business consolidating further in the coming years, and we intend to actively participate in this consolidation, focusing on core business and strengths that we have as a company. Our long-term aim is to become a top five player by addressing three key areas. One, expand in attractive customer segments. Two, strengthen our core product offering. Three, excel at our core processes. Let's look at the attractive segments we will focus on. In construction infrastructure, we have a strong base in current offering, and we see this segment growing worldwide. Rental, as one, is growing, and the new economy will further accelerate the concept of a so-called one-stop shop integrated solutions driven by customers.
Here we're developing complete concept from product to service and distribution to capture a higher share of the rental segment. It's clearly a great opportunity here. The other one, industrial applications such as waste handling are being driven by increasing urbanization, as you heard in the beginning, across the world. We do have a core of products upon which we are going to build to gain share in this area. Moving to the product segment of the pyramid. Based on the attractive segments, we will focus our R&D spend on three main areas. These are wheel loaders, excavators, and finally, compact and service equipment. The pyramid has five main areas on which it's anchored. One is manufacture network, one is quality, one is aftermarket solutions, product simplification through the 80/20 principles, and leveraging the great synergies we see with ag where we see opportunities.
Let's start with these five building blocks, and specifically, let's turn our attention to the synergies we have within the ag segment of CNH Industrial. It's a great opportunity, as I said. For construction equipment, this synergy creates three main drivers to deliver revenue. The first is the go-to-market approach of selling construction equipment through both the ag and construction dealer channels and by providing complementary products for farmers. Today, we have 400 dual Ag and CE dealers. The second, as Derek mentioned, is the technology and innovation. We provide fleet management services, technological platforms, displays, drivelines, telematics that benefit from a joint development. Investment into areas such as automation can be mutually shared and leveraged, clearly. Thirdly, operations. We have, for example, one shared factory up in Fargo, North Dakota.
When it comes to parts commonality, we do share today already 15%-20% common parts commonality, and we have shared logistic systems and aftermarket services. Let's now look at the 80/20 initiative, as you heard already here. We started this program in CE, at the end of Q1 in North America, and we are now rolling it out worldwide, on a worldwide basis. Why is 80/20 important to us? First, it drives complexity reduction, focusing on high volume products where we are most profitable and can make money. Second, we create simplicity and efficiency for operations, which is a key contributor to excellent manufacturing quality. This is a fundamental change to work for us and our extended enterprise and our dealers and our suppliers, and we are aware of this, and it will take time, but we're definitely on the right track.
So far, some key decisions taken and under execution within the program are, for example, a rationalization of 44 models, going from 172 models to 128 models. Bundling of available product options, so-called quick pick ordering. Introduction of differentiation of policies, A customers versus B customers. Implementation of a differentiated price strategy for B products. We believe that with this program, we can achieve a SKU reduction greater than 60%, and we're looking at a 300 basis point improvement. As also mentioned earlier, we apply the same methodology within distribution, which will be key to our success. Today, 100 of our 500 dealers worldwide represent 75% of the revenue we have. By implementing the five objectives detailed on this slide that you see here, we are on track to drive benefits throughout extended enterprise and our dealer network.
We are aware of this task, and it's enormous, and it will take time, but we are long-term with our dealers. That's the key to be successful. For instance, in Europe and North America, we will drive consolidation through the distribution network, whereas the rest of the world, we will see in providing more coverage. Dealer management and profitability is a key priority for us, and we will provide further strategic support for our network to facilitate the conversion from, we say, prospect to sales. When the clients are entering a construction dealership, no matter where they are in the world, we want them to have a unique yet highly brand distinctive experience. We will inspire our dealers to aim for the highest standards, and ensure that they are fully invested in this process. Our dealers, ladies and gentlemen, they are essential to our success of the strategy.
As you will recall, quality is at the center of our strategic pyramid in the middle, literally. We have been actually, as we've already said, working with world-class manufacturing for many years, and now we're applying this excellent concept to our product development and quality. We believe that with focused efforts on quality, we can actually claim industry leadership, which is a key driver of customer loyalty. The key pillars for this are the introduction of world-class engineering processes, driving quality focused development from product design to production. The management of so-called end-to-end customer journey with new customer advocacy department, ensuring high standards from supplier to dealer. The Net Promoter Score or NPS to drive customer experience and improvement in the resolution of product quality issues backed by a stronger and agile product management process, increased cooperation of cross-functional teams, better prioritization, and faster resolution of key issues.
We say this will enable us to reduce the number of claims by 25%, time to repair by 20%, and our cost of non-quality to a level below 1.5% of sales. I know this is a bold target, yet I am confident that with the 11 initiatives we have running now, we will have success in this, and we are going to claim leadership in the industry. Market also means aftermarket. Aftermarket is the center element for both profitability and customer satisfaction. If this works, the rest will work. We are aiming to strengthen our aftermarket solutions performance with modern e-commerce to drive and simplify parts sales. We will broaden our product portfolio with reman products. We will create a better and stronger attachment offering for our products. Digital, as you heard, is growing in importance.
With connectivity as standard on all heavy equipment and optional on the light products, we aim to significantly increase our connected fleet. We have today some 14,000 units connected, and they are generating good insight and value for us to understand how our machines are operating and what they can do and how they perform. We intend to grow this number to 100,000 units. Our connected solutions will help increase value, uptime, and productivity, and ultimately customer satisfaction. We are also improving our fleet management interface. Example of our product offering will include proactive service solutions driven by dedicated control rooms, as we say, in North America and in Europe, to remote diagnosis services to target an uptime of 95% of our products, target a total cost of ownership, including fuel, of 20%.
Finally, increase the productivity of up to 25% through maintenance control features, including, for example, automated blade control and dig for dozers. Let's go to the product piece. Very exciting. You have already seen some stuff here in the streets, which I will come back to. Let's talk about portfolio. We have projects focusing on innovative, sustainable solutions, as I said, that are meaningful and efficient for the customers and ultimately our industry. In compact, we have a new miniature concept, an innovative dozer created from a conventional compact track loader unit, which will be launched in late 2020, but we'll present this one at the trade show in CONEXPO in Las Vegas. We will also be launching the new B-Series of the compact track loaders and the skid steers in early 2020. As you know, we invented the backhoe loader. We did.
Over the years, over the course of the coming two to three years, we will introduce the next generation of backhoe loaders while also evaluating different propulsion solutions of this equipment. For wheel loaders, we developed our TETRA loader, which was unveiled at Bauma in April show, and hopefully, I believe you have the chance to see it outside. I'm very proud. I've never seen people taking so many selfies of a wheel loader before. That's very positive for us. This new concept fully embraces CNH Industrial's commitment to CNG and LNG alternative fuel technology. However, the TETRA concept, as you have seen, represents much more with its futuristic design and cabin interior, outstanding visibility, and technology advanced features. Moving to the next, crawler excavators, a key product for us, part of our strategy of the core.
We are working intensively with our partner Sumitomo on developments for the E generation of excavators to be launched at the end of next year. We will start local production in India in Q2 next year, 2020, of these excavators. As you know, India is one of our core key markets where we have a top three position with our current product offering. The market is growing rapidly, and we are going to be present with distribution and production. It's a great opportunity for significant growth. We will focus on specific application segments, as I said, in the pyramid and geographies to drive our growth. The rental business, as I mentioned before in North America, represents a significant opportunity for us. Does waste management and infrastructure projects both in North America and Europe. As already mentioned, India will be a growth for us.
Finally, let's take a look at our financial targets. These are aggressive for sure, as you have seen on previous slide, we believe that we are on a path to get there. We are looking at investing over $1 billion in our product and service offerings over the next five years, which may at first seem low given our sales ambitions. Keep in mind that 30% of our products are sourced from other OEMs, so those product investments don't show up directly in this number. As mentioned earlier, we see that investment through the lower margins that we share with the OEM partners. We set an ambitious goal to grow our top line by some 50% while tripling our profit margin. This plan may seem audacious, but I am personally fully convinced that we can deliver on this plan.
In broad terms, we could break that down by saying about half comes from 2020 simplification and focus on product quality and the balance of volume growth driven by new product and services offerings that will excite our customer base, including our expansion and presence in India. As we move into the execution phase, we are excited and motivated to drive our business forward and participate as an industry consolidator. Thank you very much, ladies and gentlemen. We are now going to break for 10 minutes. I remind you to keep the timing for 10 minutes. When we come back, we will hear from Gerrit, who will talk about commercial vehicles. Thank you very much.
Sorry. This microphone doesn't work. Hi. Ladies and gentlemen, can I kindly ask you to return to your desk, please? Now will you take me? Yeah, I have already said. Can you return to your desk, please? We are starting. Thank you.
Ladies and gentlemen, good afternoon and welcome back. I see the room is still full packed, and I hope that I can give you more color on the announcements you've heard this morning on our first strategic investment in the area of fuel cell. My name is Gerrit Marx, and I'm President of the Commercial and Specialty Vehicle business since early this year. A brand in any industry can only develop and grow its presence when it understands and anticipates the spirit of its time, which is what IVECO and our founding brands have done remarkably well for more than a century. Listing the companies that merged and created the Industrial Vehicle Corporation known today as IVECO, you see some of the most iconic and legendary brands in the early transport industry. Fiat, Lancia, OM, Unic, all very proud and very historic names in the early transport industry.
They were all founded by visionaries, by entrepreneurs who were financial and emotional investors in their ideas and convictions around the transportation of the future. Their products and services were truly disruptive and innovative for their time, always crafted around the customer. Giovanni Agnelli, Vincenzo Lancia, and many more are still ingrained in our IVECO culture today. Back in 1975, IVECO was created upon these very foundations as a combination of different brands, markets, and cultures merging into what was the very first large-scale European truck group, together facing the challenges of their time and the decades to come. Customer-centric innovation has always been the most powerful driver in IVECO's history, demonstrated by being among the very first to launch industry-defining technology breakthroughs. As an example, in powertrain, IVECO has always leveraged FPT Industrial's groundbreaking technologies that have since become industry standards in the markets where we play.
Annalisa will further expand on this later today. IVECO today is a full liner across all commercial vehicle and bus ranges. We are strong in niches, leading in alternative powertrains, and with our 2019 lineup fully connected to the Microsoft Azure cloud. Light commercial vehicles account for over one-third of the 2018 revenues, and we are a clear leader in the European professional chassis cab segment. The new Daily model year 2019, which we have launched in the first quarter of this year, is continuing this success story. Medium and heavy-duty trucks represent 43% of our revenues. The recent launch of the new IVECO S-Way, our heavy-duty truck, prepares the ground for us to regain market share in this heavy segment. The S-Way, with its new features, aerodynamics, connectivity, new caps features combined with our second-generation LNG technology, will reposition this important vehicle for the future.
I will share with you later the whole new level to which we are going to take this heavy-duty segment very soon. Buses are generating 17% of revenues, enjoys a solid second place in Europe, driven by city and intercity buses. Here again, thanks to our robust and efficient powertrains, including natural gas and also full electric offerings from FPT Industrial, we are very well-positioned. Accounting for about 6% of our revenues, our specialty vehicle business comprises of Astra heavy-duty quarry trucks, defense vehicles, and Magirus firefighting vehicles. These specialized products satisfy the very specific and demanding missions of our customers when the stakes are really high. We are globally present with a strong European base, but not yet engaged in the North American market, which is now entering the tougher part of the market cycle, as shown here on your right side.
Regardless of the cycle dynamics impacting mainly the diesels, new disruptive powertrain technologies will enter the North American market. So do we. More of this later. In terms of market trends, we expect Europe to be close to the top of the cycle, with some softening to come soon, possibly or likely countered by ever-tightening emission regulations in 2025 and 2030, calling to continuously upgrade the fleets that operate in Europe, targeting emission neutrality by 2050, which is a clear goal set in Brussels. We feel very well positioned to accept this challenge in our way forward. South America is a mixed bag with strong market growth from very low levels in Brazil, while there is higher uncertainty in Argentina around the near and long-term trajectory. Overall, however, the South American region is going to recover.
The rest of the world has ample upsides for us, which we will explore and target one by one, and this also includes our presence in China, where we have a strong partnership. When engaging in partnership and collaboration discussions, we seek geographical expansion, game-changing technology, and synergy and scale of our segments while preserving one of our core assets, if not the core asset, which is being among the leanest and most agile players in our industry. Global climate change, geopolitical conflicts, demographic shift, future availability of fossil fuels, and a self-aware circular economy all call for a fundamental change in how we operate. Our industry is experiencing an ever-accelerating rate and growing magnitude of change fueled by megatrends such as electrification, servitization, alternative propulsion, automation, and all the things you've heard earlier today.
We embrace these trends as a chance to redefine and recreate our position in the markets where we play. They represent opportunities for us to be even more customer-centric, and I mean end customer-centric, meaning targeting to our customer's customers, not only the fleets we serve. Electric mobility and alternative propulsion are the [Non-English content] in this game going forward. We have to become emission neutral or even CO2 negative with biofuels decarbonizing the air we breathe. With our CNG and LNG technology capable of running on biomethane, we have already paved the way in Europe. Electrification by battery technology will enable the short-haul and distribution, while for the long haul, fuel cell technology is going to gain momentum for sure. In a well-to-wheel approach, biogas and biofuels and hydrogen-powered electric trucks represent the only true green solution with zero impact on the industry.
Only if, or better when, the energy sources for that energy are becoming renewable as well, but we have to start somewhere. IVECO will keep investing strongly in these technologies as we want to become an active and positively contributing participant in the circular economy for the generations to come. Autonomous commercial vehicles will follow the path of passenger cars as we engage in Level 2, 3, and 4 of autonomous driving as well as platooning solutions, always, however, with a driver in the cab who has been and will remain a very crucial asset for the fleets in the coming decades. We do not see large-scale robo 5, Level 5 robot trucks on our streets anytime soon, with the exception of limited safe areas, for example, geo-fence point-to-point deliveries. It's a digital chess play that has its purpose in harbors, airports, and in cities on fixed routes.
The future of IVECO trucks goes hand-in-hand with connectivity and new services tailored around the customer. Digital and telematic solutions through real-time data, not only offer greater efficiency, predictive maintenance, and overall productivity benefits, but they are the key to unlocking a world of new, highly personalized services, precisely tailored to our customers' vehicle missions. Our new Daily is a fully connected panel van. The newly launched IVECO S-Way has closed the gap to other key competitors in the segment as widely recognized by the public after the launch back in July in Madrid. Digital and telematic solutions maximize vehicle uptime by conducting proactive diagnostics and taking preventive actions, planning maintenance, and service interventions efficiently to minimize the number of workshop visits. Our segment mission summarizes all of the above.
We put the driver and our customer's business front and center while exploring the full stack of technology to achieve emission neutrality by 2050. Sustainability not only for the environment but also for the driver's job, without whom our economy just wouldn't work. We have developed a new meaning of TCO, adding a loop, which you can see here on this page. The TCO has always been the most important driver in industry, but it was not enough. We have incorporated all the aspects of a modern transport solution like driver satisfaction and productivity, social responsibility, and sustainability in the loop. We have moved from a mere list of expenditures, very important ones, around fuel consumption, purchase price, residual value maintenance, and uptime, without which none of our industry segments will work in a competitive way, to a more comprehensive perspective, which you see here on this slide.
We have incorporated the traditional TCO elements in the overall ecosystem with social, economic, environmental sustainability to create a loop where all the elements interact continuously, influencing each other. This is how we think about sustainability and the total cost of ownership in a circular economy. As previously mentioned, we have a different positioning for each of our product lines with a significant but also exciting challenge ahead of us, the repositioning of our heavy-duty trucks, which will take time. For light commercial vehicles, we enjoy a solid market share and probably best-in-class financial performance with leadership in Europe in the cab chassis segment over three and a half tons for professional customers. In the medium-duty segment, our Eurocargo is renowned in Europe and in many export countries for its robustness and versatility.
The bus division, I will come back to the heavy-duty in a minute, is the example we want our heavy-duty trucks to follow. Five years ago, IVECO Bus was a challenged business, but thanks to new products, new technology, and management focus, we have transformed it into Europe's second-biggest bus brand with best-in-class margins and leading technologies. We now lead in the city and intercity applications because of its innovative natural gas and electric powertrains. The heavy-duty truck segment is where IVECO has been facing the clear need to reposition and redefine its presence in order to again tap sustainable profit pools. This was already started several years ago with the addition of the natural gas engine technology to our product lineup, where we are today European leaders with more than 50% share of market.
We are continuing along this path with a relentless focus on service quality and connectivity and a step change in electrification. Our strategy is to strengthen the overall product positioning and lineup. Product upgrades and adoption of new specs accompanied by regulatory requirements will drive our investments in the years to come. Our strategy develops around six linked and interrelated building blocks or puzzle pieces. Firstly, in product evolution, we will continue renewing our product offering with continuous enhancement and new products, as we have shown with the new Daily, the new IVECO S-Way, and the intercity buses. We continue to focus on regulatory and competitive features together with powertrains from FPT Industrial. Heavy-duty truck repositioning is our focus area to fix. We continue what we have started already. Not in a linear, I might say predictable way. We will go in nonlinear, in a larger transformation.
In total quality and 80/20 simplification, the repositioning of the heavy line and the continuous success of our other lines like the light, medium, and buses will be driven by total quality and the 80/20 simplification of our business. We aim to deliver customer and driver satisfaction across the entire customer journey and across the entire life of our products. Service excellence and aftermarket will continue to be a key decision driver for customers. Our plan is based on well-defined initiatives, increasing quality, experience, and the entire spectrum of services, thus demonstrating our customer centricity while leveraging digital solutions. Alternative propulsion is and will remain a differentiating factor for IVECO, and later I will come back to our first big investment in this journey revealed today.
Connectivity and digital services are already a reality in our segment, and we are ready to offer leading innovative solutions in line with driver and customer needs. On July 3rd, we launched our new IVECO S-Way heavy-duty truck line. It has received enthusiastic feedback, really enthusiastic feedback from both customers and industry media. With more than five million contacts and several hundreds of thousands of views on YouTube in recent weeks, which has been, by the way, for us, this is a record, and we're going to build on from there when it becomes about brand awareness in the new media. This is helping to drive, obviously, as well, a very positive order book.
We are really proud of the team which developed this new truck in less than three years, and an investment of no more than $250 million, of which more only some $100 million were actually external spend. This again demonstrates our roots and culture of being one of the leanest and most agile OEMs in the market. You might take this as a good example for IVECO science and art of engineering, with the science rooted in physics that apply to all of us and the art ingrained in our teams to deliver the very best with available resources. The other building block of our global strategy is service excellence founded on four key pillars. Customer centricity is at the heart of all of them. On the product service and offering, we are focusing on total cost of ownership and uptime along the machine's entire life cycle.
On digital capabilities, we are working to enhance consistency and ease of data usage across IT systems, combined with telematics data collected from our connected vehicles in the field. We wish to become the easiest to work with and the easiest to innovate with truck OEM by making selected data sets accessible to new partnership ventures, thus disrupting the value chains around us. Think of our fleet as APIs, digitally and flawlessly integrating into the changing ecosystem of our time. In the network with our partners, we are working on new ways of collaborating with our dealers and service partners in order to move to a real strategic long-term partnership. We will develop their abilities as service advisors and are reinforcing both our and their digital interfaces to facilitate and standardize the entire customer journey.
On efficiency, we continue to work on appropriate stock levels, introducing automation and artificial intelligence in our processes to accelerate productivity and improve our and our dealers' performances. As mentioned, we have been pioneers and are amongst the leaders in alternative propulsion segments in bus, light, and heavy-duty trucks. With regards to CNG and LNG, we currently offer the widest lineup, and with the introduction of the IVECO S-Way LNG, we will offer by far the best performing, longest autonomy heavy-duty truck in the market, with a range of over 1,400 kilometers on one load. The concept truck outside gives you a vision of where we want to take this technology in the next decade and beyond. Our forecast in terms of LNG market in the heavy-duty truck segment is pretty conservative, assuming around a 6%-8% of LNG on a total segment in Europe by 2024.
With IVECO to continue enjoying a leadership position with its 50% market share today. On electric, especially with the HEULIEZ BUS brand, which you have seen in the video, we are currently leader in this segment's offering of electric buses. New products are in the pipeline, both for electric vans and electric trucks for the distribution and short-haul applications. Following the prototypes we launched back in 2006 for the Turin Winter Olympics, together with other concept studies, IVECO and FPT Industrial are now entering a completely new era of hydrogen fuel cell electric vehicle technology and propulsion. After having pioneered LNG technology, and this is important, and the development of a European-wide refueling network for long-haul trucks with the aid of strong partners, we are once again driving the introduction of yet another complementary game-changing technology.
While today LNG delivers significantly lower well-to-wheel emissions in the medium to long term, fuel cell and battery electric technologies will deliver the ultimate goal of zero emission trucking. With our LNG technology, we have proven to be the European disruptors, taking the lead in industry transformations, including the fuel supply, which is very important, and life cycle ownership of the assets we sell. With regards to the hydrogen and fuel cell electric technology, IVECO and FPT Industrial are proud and excited to have announced this morning at 6:00 A.M., a strategic and exclusive heavy-duty truck partnership with the Nikola Motor Company based in Phoenix, Arizona. This partnership will accelerate industry transformation towards emission neutrality of Class 8 heavy-duty trucks in North America and Europe through the adoption of battery and fuel cell technology.
Fuel cell technology is a logical next step to liquified natural gas-powered engines, as it can also build on the existing refueling networks for methane, which, when upgraded, will enable the on-site production of hydrogen. Hydrogen obviously can also be produced through electrolysis of water powered by green energy, or can be distributed through pipelines of existing infrastructures. Within this overall framework, Nikola's range of zero emission heavy duty trucks powered by proprietary hydrogen fuel cell technology will be the first to market distributing and commercializing vehicles with performance that is absolutely comparable to diesel trucks. CNH Industrial will take a $250 million strategic stake in Nikola as the lead Series D investor, comprising $100 million of cash and $150 million in services such as product development, manufacturing engineering, and other technical assistance, as well as supply of certain key components to accelerate the production timeline.
The range will comprise the Nikola ONE, a U.S. Class 8 sleeper cab truck, the Nikola TWO, a U.S. Class 8 day cab truck, and the Nikola TRE, or THREE, a European cab over heavy duty truck. On the other hand, Nikola will contribute technologies including, among others, class leading fuel cell expertise, e-axle, onboard hydrogen fuel storage, and power electronics. The strategic near-term project milestone is the combination of proven IVECO S-Way truck technology, the bones, and the battery electric powered Nikola TRE cab over concept with the systems developed in Phoenix. This new model will be engineered both for the U.S. and the European market. The testing phase is foreseen for late 2020, while first customer deliveries are expected in 2021.
We want to do it right and base our joint work on thorough customer feedback, inviting them to actively co-create and co-engineer in clinics, starting soon, later this year, this groundbreaking new vehicle. Medium-term goals include the industrialization of the Nikola TWO fuel cell powered Class 8 truck for the U.S. market, with testing to begin in the second half of 2021. In the long term, a European 50/50 joint venture is envisioned and agreed, covering both battery electric vehicles and fuel cell electric vehicles. Launches are expected within 2023, and Nikola will leverage IVECO's European sales, service, customer financing, and warranty channels to accelerate access to the European market. More information, and there will be questions, I'm sure, will be shared later this year during a joint press conference to explain this whole partnership in greater detail and explain also the timelines and the products.
We are totally excited to partner with Nikola and benefit from Nikola's founders mentality with a very clear zero emission intent. This will be a positive addition to the IVECO and FPT Industrial culture for sure. In terms of product evolution, we are planning to continue on this path of product renewal and innovation with new models, new engines, new embedded technologies, and new services for our customers and drivers. By 2022, all ranges will have an electric version, and thanks to the partnership with Nikola, we will anticipate by two years the delivery of battery and fuel cell electric heavy-duty trucks.
We welcome challenging emission targets in the near and the long term. This is not only the right challenge to approach it in a circular economy, but it will shake up our industry, change supplier landscapes, and enable the most agile and the most focused players to benefit from such opportunities of discontinuity. Our plan, which is shown here on my last slide, foresees over $4 billion of investments, half of which is product related. None on this slide, none, especially on the right side, reflects any benefits from any partnership. This is an entirely organic plan. We base our inorganic optionality I talked about on this solid base case plan, delivering the core of our business as outlined before.
In the first three years of our plan, we expect revenues to be more or less stable across the cycle at around $11 billion with a focus on profitability, mainly driven by what I outlined around repositioning, product upgrades, and cost discipline. It's important to also refer to the industry cycle maturity in the markets where we play. Thank you. I would like now to hand over to Annalisa, President of Powertrain.
Thank you, Gerrit. Ladies and gentlemen, good afternoon. My name is Annalisa Stupenengo, and I'm the President of CNH Industrial Powertrain business. As we saw in the video, FPT Industrial develops, manufactures, and commercialize engines, transmission, and axles for both CNH Industrial segments and third-party customers. Established in 2005, FPT Industrial was created with more than 100 years of innovation behind it. We patented many industry first, including direct injection, common rail, and variable geometry turbochargers for diesel engines. All now industry standards. In 1995, we started developing stoichiometric combustion technology for natural gas engines, and since then have become the leader in CNG, LNG engine technology for industrial applications. Our focus since 2000 has been on the development of after-treatment system, alternative propulsion and fuels.
We patented a high-efficiency after-treatment system that allows highly regulated on and off-road customer to avoid complexities such as diesel particulate filters and external gas recirculation systems. We further expanded our natural gas innovation leadership. We were first to launch a hybrid natural gas engine, and a natural gas engine with diesel-like performance. Now, we dominate the European market. Today, this innovation leadership result in a superior market position. On-road, gas engine with diesel-like performance, battery, electric, and hybrid powertrains on both buses and light commercial vehicles. Off-road, pioneering alternative fuels in tractors and wheel loaders, as you have seen in display in front of the stock exchange today. Marine, where we set a new world speed record. Power generation, we developed a plug-and-play solution to minimize installation cost and OEM time to market.
Our Cursor X concept, a picture of which you see on the slide, represents our new way of thinking with innovative technologies and their credible introduction. With the aim of industrializing multi-power, multi-application, modular, and mindful solution, our goal is to further expand our portfolio by introducing disruptive engine technologies and zero emission propulsion solution to meet stricter emission regulations. Our innovation-driven approach enable us to rank first in highly regulated countries, and second overall globally. With more than 8,000 employees and approximately 100 dealers, we are present in all market and regions with a significant manufacturing and R&D footprint, 11 plants and eight R&D centers. In 2018, our product leadership generated sum of $4.6 billion of revenues, with 70% of sales in Europe, followed by the rest of the world with 20%.
We are a full liner in all on-road and off-road segments, with more than 100 applications to cover worldwide emission regulation. With five engine families from 55 to 910 horsepower from 2.3 liters to 20 liters, different architectures including three, four, and six-cylinder in-line and V8. With diesel and natural gas version for all applications, FPT Industrial has a supremacy that no one else can match. With this broad engine portfolio and the full liner offering on on-road drivelines, we can power every kind of industrial application in every on-road and off-road power generation and marine segment. With 68% annual turnover derived from on-highway application, we have revenue split consistent with the 65%-35% global powertrain industry value breakdown. Looking ahead, we believe that a standard product-centric approach will not be enough to fulfill future requirements.
The marketplace will be dominated by those who have the capability to release unique product and service solution as a result of disruptive actions. Three main trends will shape the future powertrain ecosystem: new regulations, evolving customer requirement, and new technology. Number one, from 2025, CO2 emission requirements will be increasingly demanding with global convergence toward highly regulated emission standard, bringing key regions such as Europe, NAFTA, and China to adopt similar standards. Furthermore, 13 major global cities have announced zero emission transport access zones with divergent policy, and we cannot exclude further such local initiatives. These facts are driving the shift to alternative fuels and powertrain electrification. Number two, customer requirements demand greater productivity, which means high-performance vehicles. For example, in the last decade, off-road performance increased by 25%. Lower total cost of ownership and maximize uptime through added-value services.
Number three, new technology introduction, where digitalization and smart ability will allow the development of more intelligent engines, able to perform advanced diagnosis, mission and usage-based analysis, coupled with predictive powertrain control. Connected and smart powertrain components will increase customer expectation and create a demand for advanced technical assistance services. Disruptive methods will be the enabler to increase our leadership. Tightening global emission standard are expanding the highly regulated market where we enjoy sustainable competitive advantages. Today, these markets represent 60% of the total industry. By 2025, they will account for 90%, and 30% of the market will have ultra-low emission and CO2 requirements. As an innovation leader, FPT has the natural right to win in a tighter regulatory environment. Hence, we are confident that with this regulation as a tailwind, we can benefit and grow our market share.
This emission scenario will generate rapid powertrain industry consolidation, and we are ready to face this future. Given the new requirements and how these new targets will drive the evolution of powertrain system, what will be the discriminating and differentiating factor? How will these emission targets be met from a technological point of view? To deliver future-proof, sustainable powertrain solution is the answer. Our mission is consistent with our way of thinking. Innovation derived from disruptive thinking applied to standard technology is the natural evolution of our heritage. As a natural consequence, our strategy is based on a threefold approach: extended products and solution, updated and evolved product portfolio, and optimized operational capabilities. These have the ultimate goals of offering best-in-class powertrain, accelerating alternative propulsion technologies, and increasing non-captive sales. Solution extension will be one of the major contributors to our growth.
From 2020, a significant number of new vehicles and machine will have factory-fitted connectivity smart boxes. Leveraging digitalization and connected engines, we are designing a new service model through remote assistance and predictive powertrain diagnostics. This new service model will improve product lifecycle management and increase customer loyalty. Our aim is to expand the service offering portfolio in maintenance and repair contracts, in reman, and developing predictive algorithms enabling remote and preventive assistance, predictive maintenance, and pay-per-use, all integrated in OEM telematics. This action will both secure our current aftermarket business and double turnover in DIT, assuring consistent growth. We will expand our conventional powertrain product offering by launching new engines, by increasing verticalization, and lengthening of the value chain. For example, we are planning to produce and assemble battery packs to ensure on and off-road packaging flexibility.
A second building block of our strategy is the update and evolution of the product portfolio. In particular, we will invest in diesel and natural gas engine optimization, and in pure battery and fuel cell propulsion. To optimize development and investment and reduce customers reaching cost and time to market, all new developments will be modular and scalable. Approximately 50% of non-captive business growth will be from modular and configurable products. Optimize fixed cost, asset and cost management while improving quality is our third strategic building block. We will optimize our manufacturing footprint and target over 85% capacity utilization. To maintain our innovation leadership in sustainable powertrain technology, we pursue a portfolio approach. This approach allows us to address the greenhouse gas emission challenge from different angles, and to continue an evolution towards zero emissions. Allow me now to elaborate on this approach using the depicted well-to-wheel analysis.
First, we intensively focus on improving the efficiency of diesel engines, as diesel will continue to be a dominant on and off-road fuel sales also for the next decade, given its versatility and the distribution capillarity. Secondly, we continue to focus on natural gas, as this technology is already today a realistic and widely available alternative, which reduce CO2 emission by up to 92% versus diesel when using biomethane or even negative values when generating it from manure. As presented by Derek, natural gas engine technology is an essential component in the circular economy and receive strong acceptance and support from customers. Thirdly, we invest in e-mobility, both on the basis of battery electric propulsion and hydrogen fuel cell. When applying renewable energy sources, e-mobility is the only technology with the potential to be zero carbon from well-to-wheel and also carbon neutral from tank-to-wheel .
As Gerrit outlined, battery electric vehicles are gaining share in light-duty application, while hydrogen fuel cell are anticipated to become a reality for heavy-duty applications and long distance haulage in the near future. We will therefore continue to invest in internal combustion engines, applying both standard and disruptive technologies, and in zero emission propulsion solutions. On the basis of our outlined portfolio approach, our product development roadmap drives the three propositions forward. To increase the fuel efficiency of diesel and natural gas engines, we further focus on improving the engine design and develop a new after-treatment solution. We also work on disruptive technology for internal combustion engines. For long-haul heavy-duty application, this technology has the potential to reduce CO2 emission by 30% compared to diesel engines, while also providing product cost and payload advantages compared to electrified engines.
As Hubertus mentioned in his opening comments, we will announce more details about this exciting development shortly. As a third pillar, we focus on next-generation powertrain for zero emission vehicles. At the 2018 IAA Hannover Truck Exhibition, IVECO and FPT Industrial unveiled a fuel cell powertrain concept, which has been recognized as thought leadership and hence today has been awarded with the European Community Development Grant. Together with our partners, we will drive this five-year project under the umbrella of the European Union Horizon 2020 program for research and innovation. In addition, as Gerrit mentioned, the partnership with Nikola will further reinforce our fuel cell capability and support our leadership ambition in this future technology. I would like to dive a bit deeper into our position and the effort we have invested in natural gas engine technology.
This is a crucial development step on the evolution pathway from diesel to zero emission powertrains. Natural gas not only reduce CO2 emissions but also nitrogen oxides by up to 65%, particulates by up to 98%, and noise levels by up to 80% compared to diesel. Natural gas also brings total cost of ownership advantages due to the lower fuel cost compared to diesel. As already mentioned, FPT Industrial pioneers the biomethane technology in 1995, covered by 22 patents. Today, our leadership is universally recognized. Today, we have sold some 50,000 units with approximately 70% market share in Europe, and we have the widest natural gas engine portfolio in the industry. As leader in LNG and CNG and biomethane propulsion for on-highway application, we see a clear path for off-highway adoption, as illustrated by our two natural gas concept.
As a consequence of all the development priorities which I mentioned before, we see ourselves in an outstanding position to expand our business and grow our top line. Compared to today, in share of powertrain, the total value creation of a vehicle will increase as fuel efficiency, adherence to stricter regulation, and sustainability became significantly more important as key product characteristic and selling propositions. In this process of verticalization, business enlargement through auxiliary products and solution is one pillar to enlarge our current core business. Going forward, new offerings for e-mobility solutions, such as battery packs, are a second pillar to bring further top-line growth. Finally, aftermarket and telematic solution, which further improve customers' productivity, are a third pillar for growth, as these services will open new revenue stream for us.
As a result, by 2024, we are targeting additional value creation where approximately 35% of net sales, which is well-balanced across the described pillars. With our focus on value creation and superior solution, we are targeting to expand our current customer portfolio of some 100 OEMs by an additional 50 OEMs. Currently, we are already in a good negotiation with around 50% of these new customer and feel very confident about achieving our growth plan. Let me now summarize our strategic targets and priorities. The first part of our plan until 2022 will be transitional, and particularly intense as we invest heavily in developing new solution and products. We will rebalance our product mix, and in this phase, prepare the company to sustain growth in the second phase of the plan.
Further to this action, we will also work on customer-based diversification, thereby increasing business resilience to offset potential industry changes and regional cycles. Revenue will grow 17% compared to 2018, with EBIT 6% higher versus 2018, supported by the action in the Aftermarket solution, digital services, verticalization, and continuous attention to cost optimization. From 2022 to 2024, all new products and service come into fruition and our alternative propulsion offerings enter the market, we are targeting revenues at over $6 billion, an increase of 33% compared to 2018, with a 7% compound annual growth rate, and EBIT margin it in double digits. This revenue growth will be generated and sustained by an overall increase in investment, the majority of which is relating to the mega trends, such as regulatory trends, alternative propulsion, and digital technologies, which impact our business alongside product and service offer expansion.
Over the course of the five-year plan, we expect to invest $1.9 billion with an average of 1.2% increase in our investment-to-revenue ratio compared to previous levels from 5.9%-7.1%, and this is in line with our peers. There are many external factors which make the road ahead challenging. We are, however, fully committed and well-equipped to deliver on this ambitious plan. Thank you for your kind attention, and now I leave the stage to Oddone, President, Financial Services.
Good afternoon, everyone.
I'm Oddone Incisa, and since 2013, I'm heading the financial service segment. I'm going to provide you today with a concise overview of our business, as well as the main strategic initiatives for the plan period. Start from page two, where we have a snapshot of what our financial service is today. You see we have a portfolio of $26.3 billion at the end of 2018, including $4.8 billion in non-consolidated joint ventures with primary banking institutions in Europe. Those are BNP Paribas and Santander for Spain. The portfolio is well diversified across regions, as you can see from the slide. The North America portfolio is exclusively composed of agricultural and construction receivables. Where most of the on-highway portfolio is in Europe, 99%-92% of it. A significant part of this on-highway portfolio is in the JV. It's guided by the non-consolidated JV.
If we look at the portfolio split by segment, the off-highway business accounts for 75% of the total, and our penetration rate is 44% in agricultural customers and more than 30% in construction equipment. Final customers are predominantly supported with loans and financial leases, and to a lesser extent, by operating leases offered by CNH Industrial Capital. If we look at the on-highway business, more than one out of every four commercial vehicles is sold with a financing instrument provided by the captive organization, and again, this is mainly to the joint venture. Our mission is continue to be providing sustainable financial solutions and supporting the sales of our brands to dealers and final customers, while governing the credit process for the entire company and maintaining superior portfolio quality.
We do so, as you can see, with our brands, CNH Industrial Capital and IVECO Capital, and with multiple business models ranging from on-book financing to JV to vendor programs with primary banks, depending on funding availability, size of the market, and regulatory requirements in individual jurisdictions. Talking about funding, while we have increased the amount of unsecured funding through bond issuance in the Americas, we remain one of the largest originations of asset-backed securities in the equipment space. We are also relying on a solid and mutually satisfactory experience with our long-term JV partners in Europe. Captive finance has a central role in the relationship between dealers, OEM, and customers. Connectivity on our equipment and digital-enabled service can only increase that focus by providing dealers and customers with a seamless experience when enhancing our commercial segment's intimacy with customers and customer behaviors.
New forms of ownership and usage are also becoming more and more common for professional user of equipment. We are addressing the basic need with digital platforms. The role of the captive goes beyond providing a regular payment to the customers and increasingly includes insurance and services that have been integrated with connectivity. These provide a lower cost of ownership for our customers while easing the equipment sales, maintenance, and renewal cycles. Financial service can leverage the unique knowledge of CNH Industrial equipment and a continuous relationship with our dealer network funding internal and external services, including partnerships with bank and insurance companies. Proximity to the industrial segments, dealers, and customers, understanding of their respective needs, and the ability to provide the right products are distinguishing elements of our success.
Following on from the previous slide, digital apps are one of our key transformational drivers and are widely used in our interaction with dealers and customers. Digital process enable a streamlining of our operations, including among others, e-signature of contracts, remote audit of dealer stocks, and online communication with our collection agents. We are conducting a significant upgrade of our IT platform in North America, which will allow an increased use of APIs in a variety of situations. Most of our dealers and distributor financing operations are run on a proven and flexible ERP platform. This allows for a quick and reliable implementation in new legal structures, if and when this will be needed in the frame of our corporate portfolio actions announced today. Dealers and distributors for off-highway and on-highway segments will have continued access to our financing facilities from day one after the expected company separations.
As outlined before, financial services is continuing geographic expansion to address the global sales of our company. We successfully started fully fledged financial service operation in our off-highway business in India in 2018, and we expect to restart retail financing for the on-highway business in Russia in 2020. We are also planning to strengthen our presence in China, where we today operate through a vendor program with a strong local player. Our final objective is to reach geographical coverage of more than 90% of CNH Industrial equipment sales. Now, let me walk through the financial service targets for 2024.
By the end of the plan period, our portfolio will grow by more than 30% to $34 billion on the back of our net sales growth in our industrial segments, continued geographical expansion, and significant growth in our penetration, moving from 44% to 50% in agricultural business and from 27% to more than 30% in commercial vehicles. In terms of profitability, our target is to maintain our profit on a range of 1.8% of managed assets through cycle. Touching $600 million mark on pre-tax profit in 2024, up 15% from 2018. This concludes my presentation, and now I would like to invite Max Chiara, our Chief Financial Officer, to the stage. Thank you.
I'm pleased to share the same backup plan as Oddone with my paper. Ladies and gentlemen, good afternoon here in New York City and connected through the webcast. I'm Max Chiara, Chief Financial Officer and Chief Sustainability Officer of CNH Industrial N.V. I'm going to wrap up the presentations illustrated so far by the CNH Industrial management team into our Transform 2 Win financial targets at corporate and segment level. Will also address certain key highlights related to our plan to separate our business. As a precautionary note, I would like to call your attention on slide two of the presentation, recapping our key disclaimers. In particular, with this SBP presentation, we are starting to report return on asset metrics, as you have seen from the previous presentations.
Specifically, we will show a ROIC calculation for our combined industrial activities and a return on asset for the individual segment reporting, such that investors can appreciate going forward the efficient use of the capital invested into our business. Finally, we have also highlighted in the slide our assumptions on industry, foreign exchange and macro environment for the plan period. In the last three years, CNH Industrial performance have substantially improved and successfully led us to the recognition of the investment-grade rating. Industrial activities adjusted EBIT margin 2016 to 2018 was up 150 bps to 5.7%, demonstrating a resilient performance despite a persistently challenging macro and industry environment. We have two very strong business in agriculture and powertrain, and we see the recovery underway in construction and commercial vehicles.
We have also diligently worked to normalize the below-the-line items, namely interest expense, foreign exchange expense, and income tax rate, to further accelerate our bottom-line improvements. Moving to the balance sheet, we have successfully extended the maturity schedule of our industrial activities between 2016 and 2019 from three to six years, while successfully de-leveraging our industrial activities to parity debt. We have maintained a healthy liquidity buffer, which was further improved by the recent successful renewal of our revolving credit facility. Consequently, we have achieved the investment-grade status with the three Tier 1 rating agencies. Finally, since company inception in 2013, we have returned cash to our shareholders with $1.5 billion cumulatively paid in dividends and $0.3 billion cumulatively paid in company shares buyback.
On slide four, before going into the financials, allow me to wrap up our sustainability targets to substantiate the aspirational goal that have been highlighted by Lady Heywood very clearly at the beginning of our presentation. After having constantly been ranked at the top in the Dow Jones Sustainability Indices in the last eight years and several other recognitions, we have now set 10 challenging targets for 2024 to illustrate our strong commitment to sustainability. Just to highlight a few here, we are actively engaged in reducing CO2 emissions associated with our manufacturing processes, logistics, and the usage of our vehicles. We are developing a decarbonization strategy to shift towards a more environmental-friendly product portfolio, and our goal is to have 25% of our product portfolio available with natural gas powertrains. Regarding occupational safety, we take preventive and protective approach to minimize the risk of injury in the workplace.
Our 2024 target is to halve the employee accident frequency rate over the 10-year timeframe while targeting zero serious injuries. We recognize the importance of minimizing the impact on the environment through a life cycle approach. Active engagement with our stakeholders worldwide is crucial for creating shared value over the long term. Our sustainability target is aligned with the 17 sustainable development goals set by the United Nations for 2030. This is how we intend to continue to work for a better sustainable future. Let me now switch gear and illustrate the SBP framework, where ultimately we expect to realize our full potential through profitable growth, improved earnings resilience, and unlocking significant shareholder value. Our SBP has been initially developed with a strong focus on individual segment initiatives and functional improvements.
In this regard, we have adequate capital resources to implement the investment commitment in each one of our businesses and execute on our plan ambition. In the execution of our plan, we will not compromise on our proven earnings resilience, as well as our commitment to maintain a strong balance sheet and to further improve our credit rating. We have a clear path to continue delivering cash returns to our shareholders. The outline plan will lead us to achieve a best-in-class performance, as detailed on slide six. We project net sales of industrial activities to grow with a CAGR in excess of 5%, which is above GDP trend and above industry average, translating into a net sales target of $35 billion in 2024.
We expect to more than double our industrial activities adjusted EBIT, achieving a margin of approximately 10%, and an adjusted EBITDA incremental margin performance of about 25% over the five-year timeframe. Between 2020 and 2024, we expect to generate cumulative operating cash flow of $11 billion, helping us build a net cash position of $1.7 billion by the end of the plan period. In doing that, we expect to achieve an industrial activities net debt-free position by the end of 2021. We have prepared a fully invested plan with capital expenditures equal to 3.7% of net sales on average annually from 2020 to 2024. A total amount of $5.9 billion will be invested in our business, with CapEx amounts consistently above D&A for the next five years.
Notwithstanding the higher capital intensity, the ROIC of our industrial activities will grow at an approximately 10% CAGR over the period to achieve 20% in 2024. At the bottom line level, consolidated adjusted net income will grow 2.2 x over the period to $2.7 billion. Adjusted diluted EPS will move from $0.86 per share, which is the midpoint of our 2019 guidance, to $2 per share, implying an 18% CAGR during the period. All these improvements will allow us to move closer to our best-in-class peers. Turning to slide seven as a recap to the segment presentations. Please note adjusted EBIT margins by segment indicated here are before corporate cost allocations and eliminations. In light of the portfolio decision announced today, it is important to go through the individual segment targets to ensure accountability over the long term. Here are the five-year targets by business.
The agriculture business will reach in a mid-cycle industry scenario, a 14% adjusted EBIT margin with a return on asset of 33% by 2024, thanks to the realization of the various initiatives presented before by Derek. Major drivers in our top-line growth come from increased penetration across our product portfolio, supported by improved product mix and a new revenue pool in aftermarket and emerging digital solutions. In construction, both adjusted EBIT margin and return on asset will triple to 9% and 24% respectively by the end of the plan. This represents the most ambitious performance improvement, driven in large part by our 80/20 simplification execution and market share recapture actions, including the launch of the 10 new products that Carl Gustaf mentioned during his presentation. Net sales growth generated by increased penetration in developing markets such as India and South America, and by aftermarket improve activity.
The Commercial and Specialty Vehicles will more than double adjusted EBIT margin to approximately 7%, driven by its differentiated strategy, focusing on alternative propulsion and driver-centric approach. Top-line CAGR is only 1%, as we have modeled the industry to soften in Europe in the next three years before stabilizing around the long-term average. We expect to double the return on asset to 14% by 2024. Powertrain will expand its adjusted EBIT margin to 10% with a return on asset of 32% by the end of the plan by completing the transformation to a full-fledged alternative propulsion solution provider, including natural gas, battery, electric, and fuel cell-powered vehicles. Moving on to slide eight. In a nutshell, the Transform 2 Win execution is targeting the achievement of a superior ROIC, EPS, and TSR above peer average.
With the aim to create solid and resilient foundations of our plan targets, we have initiated approximately 30 strategic initiatives per segment. We delegated execution of different layers of the organization in line with our management matrix. These initiatives are clustered into the three categories: Grow, Perform and Simplify, Optimize, as we have been able to appreciate from the segment presentation illustrated before. In particular, Perform and Simplify and Optimize initiatives are also enabling our efficiency program, which I'll talk about on the next slide. Let's now do a deep dive into our efficiency program that will support our Transform 2 Win strategy. The efficiency program is targeting a lower operating cost structure and an optimization of our asset base by utilizing four operational gears to set a better environment for the initiatives to run faster and cleaner.
First, as a reminder, the rollout of our new organizational structure was started in January 2019. In a subsequent effort to optimize the span of control and reduce the organizational layers, we expect to achieve a best-in-class and talented organization that fully shares our objective to become more customer-centric, lean, and agile. Actions under this chapter have already started in the second quarter of 2019. Second, the thorough analysis of our fixed asset will lead to a 10% optimization in our asset base, encompassing manufacturing plants, R&D centers, parts depot, and commercial premises. Third, we are also looking to optimize the efficiency of our current assets, particularly in our pre-owned truck base. In light of the successful launch of the new generation heavy-duty truck platform, S-WAY, and as a way to foster its successful market penetration, we have identified specific actions that our commercial organization is committed to achieve.
Lastly, as already communicated as part of our 80/20 initiatives, we are rationalizing our dealer network to create a best-in-class service capability, which will translate into an enhanced customer experience and increased profitability. In totality, these initiatives will result in one-off charges of between $ 450 million and $ 500 million, the impact of which will mostly occur in 2019 and 2020. Program savings will contribute to the total benefit of the Transform 2 Win strategy with full run rate realization expected by 2022, which is our midpoint in the plan. On slide 10, during the preparation of our SBP with the aim to align the organization's goals to the strategic goal of creating a superior shareholder return, we have also introduced a new metric, TSRI, in order to operationalize the TSR concept into an actionable tool for management decision and performance.
TSRI complements our key decision metrics for our strategic business plan in evaluating the full portfolio of our 150+ strategic initiatives, allowing us to select and prioritize the top 50 value creative initiatives, which generate the highest return to our investors. This approach will consent us to further instill shareholder value thinking into our organization, processes, and ultimately investment decisions by thoroughly considering how each investment contributes to our future enterprise value and generates cash flow. Consequently, TSRI has been rolled out as additional performance metric beyond the traditional NPV, IRR, and payback to assess investment decision and effectiveness. Let's now transition to investment and ROIC on slide 11. We will invest $13 billion in CapEx and R&D over the plan period, with CapEx moving up to 3.5% of net sales in 2020 and stabilizing at around 3.7% in the following years.
Research and development costs will experience a more linear path with a steady growth from 4% of net sales expected in 2019 to 4.5% average during the plan period. The plan stats just described will bring us in line with peers' best-in-class historical investment levels. Investment in our product roadmap will represent the largest portion of our efforts at 60% of total, followed by dedicated investment in mega trends, representing approximately 20% of total, among which we will cumulatively invest more than $1 billion in digital solution, about $1 billion in alternative propulsion, and about $500 million in autonomous vehicle technologies. With the remaining investment essentially allocated to maintenance, ICT, and capacity optimization spending. The investment in both R&D spending and CapEx are based on market projections of our current pipeline of product launches and in committed capital included in the plan.
Depending how the market perform, especially in the early years of the plan, the investments will flex up or down across the portfolio and by segment. Notwithstanding this higher capital intensity, our ROIC of industrial activities will grow over the period to achieve a total of 20% in 2024. On the next slide, number 12, I would like to spend a few minutes explaining how the initiatives will play together to drive a superior financial performance at operating level through the next five years. This chart represent the walk of our industrial activities adjusted EBIT through the period 2018 to 2024. First of all, we have separated the plan into two sub-periods, clearly characterized by distinctive drivers of performance to increase management accountability.
In the first phase ending 2022, the majority of the cumulative $ 800 million adjusted EBIT improvement will come from self-help initiatives rooted in perform and optimize that together will positively contribute $ 600 million, allowing industrial margin to improve by 200+ bps to about 8%. This period is not highly relying on growth initiatives. With the management commitment to execute on the plan expressed today by my colleagues, I'm confident we can achieve this target, delivering a positive impact starting with 2020. In the latter part of the plan, we expect that the grow initiatives, in which we have invested into since the beginning, will commence to pay off with a positive contribution of about $ 500 million, complemented by a second layer of perform initiatives on our cost structure of about $ 300 million, supporting profitability to reach almost 10% adjusted EBIT margin by 2024.
In a nutshell, our plan is realizing its full potential in the latter part as a function of the projected superior growth initiatives fostered by the ramp-up of the investment curve early on in the plan and building on the more agile and lean environment generated by the simplify and optimize initiatives in the first part of the plan. Moving on to the next slide with adjusted net income and adjusted diluted EPS targets. Bottom line, we expect an acceleration in our earnings trajectory fostered by a sound level of investment for growth with adjusted net income to grow to $2.7 billion, achieving an adjusted diluted EPS of $2 per share by 2024.
In an effort to provide enhanced visibility to our investors in the interim period through the effective separation of our businesses, we are also identifying an adjusted EBIT initial target for 2020 of $0.95-$1 per share with an expected year-over-year improvement of more than 10% versus the midpoint of our 2019 guidance. On slide 14, our industrial activities cash flow. We expect to continue to reduce our net debt of industrial activities during the timeframe of the plan and become net debt free by the end of 2021 on the back of a sound operating cash flow generation defined as true cash from operation before CapEx.
Operating cash flow and free cash flow trajectories will be more pronounced in the latter part of the plan, mainly driven by an increase in adjusted EBITDA, up 30% between 2022 and 2024, when our early investment acceleration will pay off, further reinforcing our position for a stronger investment grade rating. Despite an increase in working capital requirements as a result of our revenue growth trajectory, our plan builds on initiatives like 80/20 and asset optimization to improve efficiency of our current assets.
Moving on to next slide. We have highlighted the main initiatives we will entertain to strengthen our balance sheet as follows. First, we expect to continue delevering gross debt in our industrial activities concurrent with our objective to further improve our rating. Second, we expect to maintain a strong liquidity level at $13.5 billion by 2024 to protect our balance sheet and support organic and inorganic investments.
Third, we intend to launch an annuitization program of our $1.2 billion U.S. pension plan, which is fully funded today, with the aim to de-risk the plan going forward and expect non-cash, non-recurring pre-tax charges of about $300 million over the period. While we plan to contribute cumulatively $ 200 million during the plan period into the U.K. pension plan. Lastly, due to recent sustained pre-tax profit achieved and the expectation of sustained profitability in the future, we anticipate the recognition of deferred tax asset in certain key jurisdictions, at least $ 500 million of which will happen in 2019. We expect to further stabilize our tax rate with our adjusted ETR anticipated to be in the mid-20s range towards the end of the plan. Turning to slide 16 now, I would like to talk about our capital allocation priorities and cash deployment strategies.
First, we see the continuous strengthening of our balance sheet to ensure a sound level of liquidity during the entire plan to constantly support our business needs and further improve our credit rating. Second, we want to foster growth via execution of our organic investment strategy in megatrends and new product service offering for a cumulative $5.9 billion. We expect certain resources to be dedicated to specific bolt-on acquisitions, complementing our product portfolio offering and or to leverage on new strategic opportunities as we have just announced today. Lastly, we want to protect the return of capital to our shareholders through a consistent annual dividend growth of 18% CAGR and opportunistically through the execution of our buyback program. These three priorities are equally important in our mind to maintain consistency with the stated goals of our Transform 2 Win strategy.
We consider our strategic business plan as ambitious and yet very robust. Our base case assumes a degree of achievement of results for our initiatives of 60% of its full potential on average, factoring in our view of the cycle in each of our businesses. We have run several simulations and alternative scenarios at various degrees of industry demand levels and initiative effectiveness to test the plan robustness. As an example, looking at the left-hand side matrix, flexing upwards the execution effectiveness from the 60% plan baseline could offset industry demand deterioration from the mid-cycle levels that we have assumed in the plan. Conversely, plan robustness can be assessed also from a perspective of the portfolio of our initiatives, whereby some may hit and some may lose. The matrix on the right-hand side shows the offset potential among the various initiatives to deliver on our plan adjusted EBIT target.
Let's now turn to slide 18 to examine in more detail our plan for the separation of the businesses. Our intention is to separate the assets of CNH Industrial between the off-highway portion of the business and the on-highway portion. By doing this, we will unlock the fair value of our portfolio. As Hubertus mentioned, we are modeling Specialty Vehicles to stay with off-highway business due to them being impacted by essentially similar cyclicality, macro and megatrends.
The foundational criteria put in place for this to happen are starting with the off-highway business retaining investment grade status, as well as the on-highway business maintaining an appropriate and efficient capital structure and liquidity position post-spin. We can preserve operational effectiveness by structuring a long-term supply agreement on powertrain related components to off-highway, and by guaranteeing continuous financial services support to both entities as a clear competitive advantage in tailoring the financial product offering to our customer needs.
The complexity of the spin-off is supposed to be modest, as our segments already are very much standalone businesses, also from a manufacturing footprint point of view, and the corporate umbrella is relatively lean. In addition, the management of the company has been exposed to similar circumstances in the past and is accustomed to work in shared service situations. Turning to slide 19, we have here some extra details on the transaction.
The company intends to adopt a pro rata allocation of on-highway shares to existing shareholders. We expect the transaction to generate several benefits, among which a dedicated management focus to deliver higher TSR, attract a differentiated investor base, and the preservation of the operational synergies within each individual business. With limited synergies caused by the duplication of corporate overheads. We have also hired selected advisors to help us proceed forward expeditiously towards our goal of completing the transaction January 1st, 2021. Having the separation of the entities effective at the beginning of a new financial year, will allow us to avoid redundant and resource intense financial reporting in the interim period. In conclusion, the Transform 2 Win strategy will lead us to our 2024 targets by ensuring solid and focused execution of a balanced list of specific initiatives.
The execution of the plan implies an acceleration of investment into new technologies, robustness of our earnings and cash flow, and a disciplined capital allocation. By leveraging the building blocks underpinned by these key strategic drivers, the company will be able to reach the 2024 plan targets of 20% ROIC, $2 of adjusted diluted EPS, and a TSR above our peer average. While the plan is focused on mid-cycle aspirational targets to be achieved over the next five years, the ultimate decision to separate the business will not represent a distraction, and the focus of our management team will be to deliver on the plan from the get-go. We firmly believe that our initiatives are planned well, with sufficient buffer, and that the execution of the strategic initiatives will benefit both off-highway and on-highway beyond the spin-off.
Thank you very much for your attention. I would like to invite Hubertus back to the stage for his closing remarks.
Thank you very much, Max, and hello again and thanks for your patience. It has been a very, very long morning, but we hope a very interesting one. Before we go into the Q&A sessions right now, I just want to take a couple of minutes to review the key highlights from today. With our Transform 2 Win strategy, I hope that you agree with us that we are delivering on our purpose, and that we are truly powering sustainable transformation for all our stakeholders. We are transforming, as you can see here, CNH Industrial to realize its full potential. We set ourselves robust targets, we have clear priorities, and we have initiatives that can deliver, and we have a relentless organization set up that guarantees the flawless execution of all our initiatives.
In parallel, as Max has said, we are transforming our strategic portfolio and we will execute on the spin. Let me briefly talk about each of those elements on this slide. First, let me iterate the robust targets, 20% return on invested capital, more than doubling the EPS to $2 earnings per share and an above average total shareholder return. These are the financial metrics you should take away. We've also set very clear set of priorities and targets for our initiatives. I talked to some of you individually already. I hope that you agree that it's very helpful to basically cluster them into the grow, perform, and simplify, and optimize categories, because that also helps you to track us a little bit. To implement our strategy, we have set ourselves both an organization and processes that will allow for a very efficient execution.
We have a strong governance that organizes and basically ensures a drumbeat within the organization for those strategic projects that are the enablers for the success. We basically review every existing and new strategic initiatives with our internal total shareholder return concept that has been outlined by Max. Finally, we continue to align our short and long-term incentives of this plan with management incentives, because we do believe that this consistency is very, very important. Over the next 15 months, as Max has said, we will deliver on this transformation of the portfolio. We will share, as you see that after the announcement today, the leadership position for the on-highway and the off-highway companies, roundabout in the beginning of next year. We will have an extraordinary shareholder meeting where we hope that our shareholders are, of course, supporting the spin.
In the second half of next year, you will see the two separate companies being on a roadshow. Perhaps we have similar events like this today. By the end of 2020, with a view to be live as two publicly traded companies in the beginning of 2021. Finally, I'd like to remind us all that the Transform 2 Win strategy will create two global leaders in their respective fields with a world-class portfolio of leading brands and a vision to feed, build, move, and connect and power the world. To summarize for you, the investment thesis of this plan is really first based on top-line growth through innovation and disruption, as you have seen with the fuel cell trucks. It's about margin improvement, secondly, through performance and simplification initiatives. Thirdly, it's a story around unlocking the portfolio value.
All of this, as you can see here, is based on a very solid plan with very clear accountabilities and, I hope that you experience that today, a very aligned management. We know what we have to do, and we know that we can deliver. Going forward, we want to be seen as the creators of superior stakeholder value. Before we start the Q&A session, I'd like to take a moment and thank all our employees here in the room, but also the hundreds and thousands that are watching and listening in right now. I have to assure you, they have worked tirelessly and relentlessly in order to develop this strategic plan and to stage today's event. They let us shine today on stage, and therefore, I ask my colleagues to give them a big round of applause. Thank you very much.
Going forward, we will be hosting various conferences and road shows. Actually, we start tomorrow with Evercore, I guess next, right? Please reach out to our investor relations team. Federico, you're going to be available for everybody who is interested to have a meeting or call. We're going to be very open to your calls. Before I now turn it to Federico Donati to basically open it up for Q&A sessions, I would ask you to give us a couple of minutes. We're going to rearrange the deck here, so to say. We're going to get chairs on. We're going to have the segment presidents with me here on stage. Also, Suzanne is our Chairperson. We're going to have half an hour, 45 minutes Q&A sessions. As always, we would allow one question per participant and a potential follow-up question, depending on the time.
With that, thank you very much. One very last word. I could have welcomed many people today, but there is one person which is very important today, and that's our largest customer. It's the CEO of Titan. It's Dave Meyer. Where are you, Dave? Where is he? Selling more than $1 billion of our wonderful equipment in America, but also in Europe. Dave, we're very happy that you're here today, and I'm sure there are going to be also questions for you, but you're not allowed to answer today. Thank you very much, give us a couple of minutes now. Thank you. Thanks for coming.
[Presentation]
Are all of them?
Absolutely.
Good.
We're ready.
We're ready for questions.
Hi, good afternoon. Ashish Gupta from Stephens. Over here.
Where? Oh, there.
Yeah. Just the first question would be, what's embedded in the EPS guidance for 2020 in terms of the end markets? How are you thinking about ag versus construction and trucks? Thank you.
We normally don't give the guidance out so early. I'm not going to disseminate the entire story here. Basically, we anticipate the situation not to move far away from where we are today. We have benefits expecting to come from new product introductions with carryover impact into next year that will definitely drive a positive trajectory in our earnings. We also have the benefit of these 80/20 initiatives and the other self-help initiatives that we are in process of launching that will also provide additional benefit into next year. No improved end market guidance for now.
Would you be able to just clarify, is it mostly more of it being driven by expenses or revenue growth?
It's primarily self-help.
Thank you.
Here.
Yes .
Hi. I noticed in the small print in the CFO presentation that the 2025 targets are based on hitting end markets at mid-cycle in that year.
Yes.
Mid-cycle over the plan period.
Can you explain exactly what you mean by that?
We looked into the 15 year - 18-year long-term average of TIV development for each segment in each industry. Basically, on the majority of our segments, we are below those lines. It's a mid-cycle plan, fundamentally, with very few exceptions. We have some markets in compact equipment, for example, in North America, is running above its long-term average, and we expect the curves to flex down a bit, but not going below the long-term average over the plan period. There is something that is important for us to consider, is that we are particularly active in the agricultural penetration in that business, which has been dramatically down for the last few years in livestock. The maybe demand is maybe moving down, but there is a potentially positive mix coming our way.
To give more clarity, we basically have per segment, as you have seen, the positioning of our individual regional segments into the cycle. The size of the bubble gives you the importance of the business to us. As Max just said, we believe that in the course of the next five years, we're going to be on average mid-cycle. Do you have another question?
Well, I'm not sure I understand. Europe truck is at peak-
We have projected-
North America
A decline in Europe, both for light and for heavy for the next two years. Then the curve to flex below the long-term average.
Which is a reason, by the way, why the commercial vehicle truck business, as we project, is kind of flattish. It has a 1% CAGR over the plan period. I think noteworthy what we have said is we do believe that we will disrupt the European and the American truck market due to the partnership with Nikola. There might be even better, more fantasy on the top line, which we have not built into this plan purposefully.
Okay.
The penetration on alternative propulsion will play an important role.
Yeah
In shifting the mix
Yeah
Within the demand.
Yeah. On the alternative propulsion, there was one slide, I hope you saw that. We've not gone crazy on the LNG penetration in Europe. We just modeled in a 6%-8%, Gerrit said 7% on average, which I believe is extremely conservative given the high rate of adoption that we see right now in Europe. If you're considering that China moves to 20% LNG penetration in the next year, I think there is a lot more to see in Europe, and we are the leader of that one. That's also not factored in as fantasy in the top line growth for the commercial vehicle side.
Steven Fisher, UBS. Thanks for the presentations today. At a couple of points during the presentations, we heard references to the targets being bold. I think one of your executives said aggressive. What aspect of these targets and this plan would you consider to be aggressive? Is it more the growth side of things? Is it more the self-help plan, some combination of just the overall numbers?
We believe it's a good balance. Is it aggressive? No. We believe it is an ambitious, yet achievable plan. I think we said this throughout. We feel very confident that we can deliver on that plan. There was one slide in the presentation that probably answers your question with facts that was presented by Max. The colorful slide where you kind of see where we position that plan. In that plan, we're assuming that we're only achieving 60% of our initiatives. I think that gives you a little bit an idea, how much better we can be and how we can flex that plan. We honestly believe that with the robust work that went into that development here, and again, it's not only the people here on stage. We had hundreds of people developing that plan, and we have real activities.
When we go out of this room here, we have, in every segment, 30 key projects that are worked on and that we are tracking, and I said this in the end. We've really built up a very good strategic monitoring that we feel very confident that regardless what the market environment is going to be, that we will deliver on this plan. Specifically, since the first years are really self-help initiatives where we perform and simplify our operations and optimize our capital and asset structures.
Thank you.
You're welcome. Perhaps from the back there.
Howdy. Thank you. Rob Wertheimer, Melius Research. You touched on this in the presentation, but I wanted to ask about the timing of the payoff from R&D. Whether you receive the full benefit of the investments, the bold investments that you're making in the back half or whether it's after. If there's anything in the pipeline currently that's going to help your margins over the next two or three years, how you feel about the spending that's been done in the last five years prepping you for now?
Whatever is in the pipeline right now is reflected in our five-year plan, obviously.
Yeah.
There are initiatives that will have a shorter payback that will be, let me say, fully at run rate by the time we get to the second part of the plan. There are other initiatives that have a longer tail, which will continue to provide benefits beyond 2024. Such, for example, in the transformation to the alternative propulsion, a full-fledged benefit on a fuel cell.
Yeah. I think we also said this in my opening remarks. What I found was really a pretty good pipeline. We had already a pretty good product pipeline that we're addressing the key trends. When Derek talked about the CH26 high horsepower digital tractor introduction this year, this is, of course, embedded into this plan. We have had just very recently the introduction of our new combines, and Dave Meyer can talk about that. That combine is gaining share this year because of its superior features versus all our competitors in the area of automation and digitalization. The S-WAY was mentioned by Gerrit. The fact that we have now finally launched a heavy duty truck where we can make money with, and also that is LNG powered, is, of course, all positive benefits that we are harvesting already right now.
Thank you.
Yes, Adam.
Thanks, Hubertus. Adam Seiden from Barclays. Suzanne, you spoke to the mission of the board, gave the executive team at the onset. I was wondering if you could talk about whether the board was aligned with the strategy of a separation all the way through from your taking your leadership position there and how that pacing came about?
We went about this in a very deliberate way. As you know, Hubertus came in as CEO in the fall of last year. As a board, we were very determined then to take a step back and ask Hubertus to look with the management team at the business in a very thorough way, so that we had a detailed understanding of what the potential would be of each of the different parts of the business. Of course, we had Gerrit, who came in in January. We didn't, as a board, want to rush to any sort of decision. Of course, this has been a question whether or not the business should be separated in some way, which has been around for a while.
We wanted to take the time with Hubertus and with Gerrit and with the other key colleagues who are here in the room to really understand what the potential of that business could be. That's one of the reasons why, as you saw today, the decision that we took as a board based on that analysis is this is a spin. This is not a sale, this is a spin. That's because we really believe in the future of both of these businesses. I think that's been underlined as well today by the investment which we're making in Nikola. We didn't go into this with a decision taken. We went in with some questions, which I think have been there for a while. We actually came out much more, I think, enthusiastic about the potential for that business as a kind of standalone entity.
We're now very excited about the spin.
Excellent. That's great. Thanks.
Very good. Yes, you.
Hi, good afternoon, everyone. I was hoping you could do a little bit more.
Can you say your name and sorry?
Oh, sorry. This is Chad Dillard from Deutsche Bank.
Yes.
I was hoping you could dig a little bit more into the cost savings. Just quantify how much will be realized over that five-year time period. Also, comment on just how much is structural versus variable. From the manufacturing footprint reduction, can you just talk about just how to think about that from a regional perspective?
Yeah. I will give this question to Max. However, you can see it in the document because everything that is structural and comes from the footprint is into optimize and everything which is around product line 80/20 simplification is in our perform categories. Max.
As Hubertus clearly described in his presentation, we have a track record of cost saving programs that we have achieved in the past, such as world-class manufacturing to the tune of 5%-6% of annual incremental savings each year. We are now modeled a run rate of incremental savings of about 4% on the world-class manufacturing side. On the procurement side, we are expecting to be able to bring home about 1% of our APV annually as incremental cost savings. Those are two significant buckets that make up a relevant portion of the performance simplified. Combined with the 80/20 initiatives and the benefit of the efficiency program of $500 million, we expect to be able to basically get $600 million by 2022 of self-help initiatives.
That's helpful. On the parts and service side, can you talk about how you're aligning your distribution partners to realize that goal and in that total amount on the revenue side, does that include the digitization telematics opportunities?
Yes, absolutely. Perhaps, Derek, do you want to talk about that a little bit, how we involve the Dave Meyer of the world in our digitization efforts?
Yeah, if we look specifically in the agricultural business, our parts penetration is comparable with our main competitors. There's a modest gain to be taken there. For sure, with the introduction of the digitalization, the services, the solutions, that gives us another opportunity to capture growth in there as well. Again, and we're also exploring, and we had an announcement only recently where we started to work on the, let's say, gray component sales, different lines of sourcing for parts components as well. Again, it's fairly well balanced between realization of penetration, digital opportunities of the future, and other means to sell parts through the network as well. Again, we start from a reasonably, in fact, a very good base in ag, less favorable in construction, but a good base in terms of penetration of parts sales versus global revenues.
Gerrit, from your side, anything to add for the commercial vehicle side?
Yep. Our parts penetration is very comparable. What we are now doing with the S-WAY, the fully connected truck, we have every data that sits on the CAN bus in the cloud. We're going to do this preventive and predictive maintenance.
We're going to push from P art sales to M&R, maintenance and repair contracts, which are giving us long-term repetitive revenues across the entire life cycle of the product.
That's the transformation we're going to do now with the connected vehicles also, obviously, in buses and vans.
Yeah. I was talking about the investments into our aftermarket infrastructure and digital structure.
Correct.
Luc Billiet, I said, is leading that effort. Perhaps, Luc, you can explore a little bit.
Yep. We have today 16% of revenues are we doing in the aftermarket. We want to go to 20%, and we can split it up in three buckets. 2% is which what Derek referring to more parts portfolio. We want to go into more reman and other product lifecycle initiatives. 1% is digital, which we're not selling today, and 1% is services with the M&R after going three to five years contract. That's the split.
Okay. Next question.
Martino De Ambroggi , Equita. Suzanne, you already answered to the question, but is there any scenario, I understand that you are still thinking about it, but is there any scenario you totally rule out for the two businesses tomorrow? Should we wait for the demerger before seeing, I don't know, you talked about consolidation, you want to participate to the consolidation in the Construction business and so on. Should we wait until the finalization of the demerger before thinking about new initiatives? Back to the first, is there anything that can be absolutely ruled out?
Well, I take the first one of that one.
I think what you see in that plan is that we're not waiting now for the spin before we become active in bolt-on acquisitions. As a matter of fact, we have announced a bolt-on acquisition on digital agricultural just this morning AgDNA. You're going to see more announcements coming over the next weeks and months. That is for both business for the on and for the off-highway business because we both see these businesses as leader in their field and active consolidators. I think the bullish step in the partnership w ith Nikola from Commercial Vehicle shows that we want to basically play in that on-highway segment, and we want to disrupt this segment. I'm going to be very interested in reading the press tomorrow, what our competitors have to say about that move.
I really think that this is going to be a wake-up call for many of our Western competitors, what we do there with Nikola. You're going to see us continuing to plow ahead. We're not waiting for a spin. We continue to develop both companies. Then I think what is also very important, next year, we're still going to be together. We're going to be fully accountable for the first year of that business plan. Then going forward, the two individual companies, of course, are going to implement those strategies that you have seen. That's the reason why we went through these segment strategies. You will not see a completely differentiated business plan next year. No. You will just see basically carved out financial numbers. That is the strategy for the on and off-highway business that you've seen today. I hope that clarifies that.
Suzanne, anything to add from your side?
I think the very important thing is these businesses are operating in incredibly fast-moving markets, and there are a lot of things happening. What we're not saying today is that we're now going to halt and wait for the spin to happen. We're going to continue to look for opportunities to strengthen both of the businesses, and we're going to implement the plan alongside doing the spin. I think that's very important because the world is moving too fast for us to wait for this to happen.
Okay, good. Let's move to the left side. Please, first row here. Yeah.
David. Hi, David Raso. Little unfair you weren't there. Michigan five years ago, we had targets of $38 billion of revenue in 2018. Markets did what they did, we were $10 billion short. The margins actually were pretty close, just the lack of volume, the EBIT that ended up being half of the target. Just trying to think through if the macro environment disappoints us the next couple of years, where is the management's head on how they would address it? Is this a commitment in spending the next couple of years that sort of regardless of the market volume, we have to be out to 2024 and beyond? There's some leverage you can pull to protect some of these savings?
The money's not going to go out the door on day one, right? We're going to watch very carefully how the market develops in the short period.
We're going to take our bets, our very well-thought strategic decisions over time. Obviously, we have a tight timeframe to bring them into actions, but we're going to need to juggle between the short-term need and the long-term need.
Yeah. I think that.
We feel very accountable about holding ourselves to the targets that we have given out for 2019, and now the targets, at least at the bottom line, that we are showing for 2020.
I don't want to comment too much on the last five years plan, but I think the major difference to this plan now is that we're not dreaming up very positive market environments. Our ambition is to regain market share. We have lost market share, and we want to regain leadership positions in innovation. That's the reason why we make those investments. Therefore, we feel very good, even in a kind of sloppy market environment that we are undoubtedly in right now, that we will be able to regain share. That, of course, in turn, is going to drive sales. I think that's one big difference to the last plan. The other one, I think it's an extreme robust plan right now.
The framework that we set up of the strategic implementation with all the initiatives, the consistent monitoring, I think we have stepped up there a little bit because we have learned from the last time. As you know, we have also reorganized our organization to create more individual accountability in our executive team. We're a smaller team right now, but we basically have very clear accountabilities. Behind every segment and behind every initiatives, there is a name that is responsible for that and a team that's developing it.
One difference, obviously, coming off of 2013 was a very high ag market.
Absolutely.
The ability to miss as much is not there. Just so I'm clear on how you're leading the company, if the volume started to deteriorate versus the plan, is the thought to try to still push for that market share, or is it preserve the EBIT margin? Is it a return on capital? I'm just trying to get a sense of where is the bottom line on that is your key target to hit if everybody's going to be accountable.
I think you also need to have a good balance, and it's a bit hypothetical because we're going to be in different situations in our different segments. I think as Max has said, if the world is falling apart, we will not be stupidly throwing money out of the window. You can't eat market share. We need to basically earn also net income. That is very clear. I think it's going to be a good balance, as we have done in the last quarters already. I think we've balanced very nicely our spend. You saw us continuous spending on R&D, but still being profitable and with staying kind of the market uncertainty that we have right now in the ag business, for example, in North America. I think you see the same management going forward and the same logic going forward.
Thank you.
I hope that's clear enough.
Yes.
Yeah, again, I remember the comparison with the previous one. I think this time we are spreading the initiatives much more than just expecting the market to grow and capitalize on industry plus market share growth in there as well. You saw in the agricultural presentation, we're expecting 1% CAGR over the period. We think the mix of the product will be more than the unit industry, and we intend to take a larger market share in the, let's say, more profitable products, more profitable opportunities, as well as the digital, which is a new sort of value stream or revenue stream for us to take on as well. The cost efficiency, which again, if the industry doesn't come, then we continue working on gross margin improvement as well. It's much more spread bias.
For sure, as we see things develop, we'll adjust the spending accordingly based on those multiple projects. Whereas we were maybe a little more focused on three or four objectives last time, our projects were much more diverse now to sort of balance those uncertainties going forward. Thanks.
You guys had just mentioned that the spin comes with some very limited dyssynergies. If you could just quantify that a little bit for us relative to some of the $100 million corporate cost-cutting announcements that you've made. Secondly, if you could also, you have the good chart in there of the top 15 initiatives really contributing to 60% of the value contribution. We obviously got a lot thrown at us today. If you can just isolate maybe the top three initiatives for us or kind of the lowest hanging fruit.
You'll take the first part.
Yes, please.
In connecting the dots between what we said during the second quarter and the presentation today, you understand now that the $100 million that we announced there are part of the efficiency program that we fully fledged announced today. That piece is already in motion. We have already started to reduce our headcount, particularly on the white collar side since May, June, and we are now seeing a run rate of reduction coming to fruition. That comes independently from market being there or not. In terms of the second question.
Still on the first question, on the dyssynergies, we don't want to throw out a number right now. The dyssynergies on the general expense side are going to be fairly limited, I would say, because again, we have pretty much all the management that we need here, and we're just splitting left and right. We're going to create some more valuable jobs on the on-highway side by promoting some people into higher positions. The other dyssynergies that you saw there on my slide was around procurement. There was one thing that I didn't say. The interesting thing is, and that's very good to have one very steady anchor shareholder. Whenever we go to suppliers, they kind of add up all the different volumes that they do with us, but also with FCA and with Ferrari.
I think there is an understanding that we can pool volumes. Needless to say that we're going to do this going forward. Despite being an on-highway and off-highway company, I'm very sure that Tom Verbaeten, who is leading the supply chain, we're going to be very sure that our suppliers understand that we're pooling our interests here and that we basically cooperate on the sourcing side. Then in terms of the key initiatives, what we're trying to do here in the presentation is, when you see the step chart with the grow, perform, and optimize categories, you have a couple of bullet points, and those bullet points mention the per segment most important initiatives. I think overall, and Max, you can help me out there, the most important one, I think, is 80/20 right now.
I think that brings across the board the biggest lift in savings, 200 basis points. Followed by the purchasing side, by the manufacturing optimization side. These are very important initiatives that we are driving and that we are centrally monitoring.
Hi, Ross Gilardi from Bank of America Merrill Lynch. One of the challenges of breaking the company up always seemed like was how do you secure engine supply for the ag business, given the relationship with FPT and so forth. I want to understand how you're thinking about that. In your five-year plan, you've got FPT, or sorry, FPT growing faster than you have commercial vehicles growing. I think you've got FPT growing five and commercial vehicles growing one. It implies either you're going to go for more external sales or you're going to go more off-highway going forward. How will you think about that and how will you balance that against securing capacity, engine capacity for the ag business? And can you just talk a little bit more about the supply agreement? Will FPT be-
FPT. We call it FPT.
FPT.
Future Powertrain.
Yep. Will they be the sole supplier for ag? Can you talk about the duration of that supply agreement?
A lot of questions in sequence. First of all, the decision where to put powertrain was really a very difficult one, as you can understand, because it's highly synergistic. We often on highway. Secondly, if you look at the last five-year strategic business plan, FPT has overachieved that plan. They really have delivered. It's a great engine business that we have there.
That being said, in the end, we were kind of driven by a couple of items. One is the majority of the volume is on highway. We are also one of the strongest off-highway players, but still the majority of the volume is on highway, and you want to have that. Secondly, we said that the emission regulations hit first on highway, and that's the reason why the commercial vehicle side wants to be close to that engine. Thirdly, the relative cost of an engine in a truck is higher than it is into a construction equipment or into an agricultural equipment. That's the reason why in the end, we led to believe that it's the right thing to put it together with our commercial vehicle business.
That being said, it's very, very clear that going forward, FPT is going to be a strong independent engine supplier, as it was the whole last five years. The success of FPT is really success that FPT had with the non-captive sales, the sales outside. These are sales that go into on-highway and off-highway applications. I think Annalisa will say yes right now. She's going to be a very, very strong partner to all our off-highway customers and of course, also to us.
I think we're going to be ensuring next year when we basically craft our TSA between the two companies, that we have a very, very long-term supply agreement with FPT in the first instance, 10 years, and I would see another 10 years following thereafter in order to make sure that we still get the best engines on the planet, because this is what FPT really delivers. That was a fairly lengthy answer, but we're going to have FPT engines in all our product lineup in the off highway. We have no intention to basically why should we take an inferior engine from a competitor if we have the best engine manufacturer within our partners? I hope that answers the question. She's going to continue to deliver world-class engines into off-highway applications.
Just in terms of FPT growing faster than the commercial vehicle business. You talked a lot about market share gains today. A lot of the on-highway truck makers obviously have got a captive strategy on engines also. Do you expect that to reverse, or?
That's partially wrong. Not everybody has a captive strategy. There are off-highway and on-highway players that have engines, and that basically buy from us, source from us. I don't know whether we want to disclose all companies here, but most of them you will know very well. I think Annalisa's plan, as she has laid out very clearly, you should say something about that. It is, of course, based on growth of the non-captive sales.
As I mentioned during my presentation, the growth of FPT will be based on the increase, the portfolio and the resilience of our customers. We are going to add more than half compared to today in terms of numerosity of the customer we are going to have. We are not considering to have a grow in the total industry. As I mentioned, the fact that we are going to stricter regulatory environment, our arena will be much, much more rich. Also, the investment that this new regulation will require from the small OEM will allow us to be very competitive, having already this solution available. You're right, we are targeting to grow further on the off-road application, where this new emission regulation will go quickly compared to the on-highway, where these are already applied.
Yeah. I think the success that Annalisa has created around the FPT business was around this growth in the non-captive sales. The way we're managing that business, of course, important to know for those other customers or competitors of us that are listening to it. We are really Chinese walls. Annalisa is supplying engines to our fiercest competitors on the truck and on the agricultural side, and we don't know what kind of development she's doing there. We're really trying to have, and the bankers here in the room is going to appreciate that we have Chinese walls there really in the development departments. I'm convinced that going forward, it's going to be the same thing.
We will continue to have the same approach.
Between the commercial vehicle and the FPT side. It's going to be a standalone company that will serve in-house customers captive, but also non-captive customers with Chinese walls.
Okay.
Hi, it's Joe O'Dea, Vertical Research. First, just on the decision around the 6% to 8% LNG penetration and how that's embedded in the targets. I think previously you've made some comments around potentially seeing better penetration rates than that. Overall, as you were coming up with a plan, what it was that kind of influenced you to thinking that maybe this would be kind of more achievable over that time period?
Yeah. That was all the sandbagging from Gerrit. No, Gerrit, please comment on that one.
No. Look, the market for LNG heavy duty long haulage this year is expected to double to 2% about on the heavy duty truck market. It is today in China, it's about 10%, and it's going to go to 20, as Hubertus said, very soon in China, because of obviously the independence of that country to have access to energy and to do on-road trucking, as well in an environmentally more conscious way. In Europe itself, it's driven by regulations. It's also driven by the superior TCO. It's low in CO2 emissions, when biomethane gets blended into the LNG, that percentage of blend is going to, and that's still under review, going to be accounted in the CO2 emissions of the truck OEM.
That is a predominant factor to actually achieve upcoming emission regulations with biomethane blended into LNG. That is an overall accelerator for that segment in Europe. I think 6%-8%, this is a conservative number. It really depends, but this growth we see in this year is a plus 75%-100% in that small segment, but it's doubling.
I think, Gerrit, it's fair to say that looking at market studies that come out every day newly, I think the 6%-8% is on the conservative side. That's kind of the bottom. There are other studies that are highlighting low single digits to 15%-20% even. We didn't want to be too crazy about that because, again, we wanted to have a plan that we can really deliver on, and we see this as potential upside coming. We want to be conservative on purpose on that side.
Just one other on liquidity. I think that was one target from the 2013 mergers, that we would see improved liquidity. We're here at the NYSE, where the minority of your shares actually trade. If you see anything through the potential in the spin to shift where the liquidity flows are, if that in any way is envisioned as an opportunity for the shares.
Definitely. One of the commentary that I added in my presentation is the adjustment to the investor base that is expected to happen with the separation. That obviously would drive realignment on the stock as well, where the stock is traded. It's too early to say how the two entities will be traded. Obviously, you have CNH Industrial today, you know very well where the company is traded. The separation will force the creation of a second entity. I think in that respect, it's too early to say.
Where it will be ultimately traded.
That's exactly the reason why we asked for 15 months, have very good advisors. Some of them are here in the room, and we're going to answer that question at the due time when we've done the analysis.
Thanks.
Yes.
Thanks. Tim Thein from Citigroup. First question for Derek, you talked a lot about both consolidation as well as professionalization of the dealer network. Maybe just talk a little bit about how the role that they play in terms of expanding the digital offering and ultimately revenue base for you and just what kind of investment needs you think will be a part of that.
Yeah. For us, it's a fundamental part of the plan. Just to be clear, we don't significantly see a change in the reduction of points of sales. We think we're relatively well-covered and fully competitive from an end sales point. We are looking for much more capable, robust dealers and partners that can invest heavily in this digital revolution and evolution as well. Mr. Meyer is a perfect example. He's a billion-dollar dealer. He has capital. He pushes us as much as we push him in terms of investment as well. Again, I think we've got good coverage, North America, Europe, South America, in terms of end points of sale. It's now to build the right partners to really fully capitalize on the digital growth opportunity there. We have a number of very good examples, where we've been successful.
Dave and his team in one of that as well. Again, I don't want to give an impression that we're going to over consolidate. I think we're relatively healthy where we are, but we have an opportunity with further consolidation. The investment portion is baked into the plan. All the numbers that Max's presented, there's a significant amount of capital in there to support our consolidation.
Yeah. I think for some of our competitors have very clear targets. They basically give minimum threshold levels of sales for dealers. We don't want to go there. We want to basically tailor our dealers according also to our brand positionings. That's the nice thing having more brands. Some of them are like Case, fully professional cash crop. You need to have a certain dealer size. If you are a New Holland customer, and you're a small livestock farmer, your dealer doesn't have to be a 1 billion organization as with Dave Meyer. We want to have a differentiated approach to our dealer networks. We look at the dealer standards more than just the sales number.
It will differ by region and by how we position our products, as I said in my presentation as well. We've spent a lot of time to understanding the right blend, the right mix, rather than just go with a blanket consolidation approach.
What is also very interesting, I think what Derek presented in his plan, I think you saw that there was an ambition to grow in combines in Europe and to grow also with STEYR. I think if you look at our European representation, we are the leader in all of the European markets with the exception of the Germanic and German-speaking countries there. I think that's basically where we're going to attack because we firmly believe that with our combine technology, we have the best combine on the planet, and our market shares in Germany do not reflect that reality. Our dealer network doesn't reflect it. Therefore, we are bringing dealers actively and getting new dealers on board also in Germany.
Dave Meyer is a prime example where we've taken one of the most successful dealers that we have in North America very successfully into Germany to grow with us jointly market share. You're going to see more of that happening. Around the STEYR brand, it was a sleeping brand in our portfolio. STEYR has the potential to really be a technology driver and an innovation driver, and it's an independent short liner. We have two long liners, and we have a short liner. If you see the squeeze out that all the long liners do with the short liners, you have a lot of very large implement manufacturers in Europe that need distribution and need a tractor. STEYR is a perfect partner for that, and Derek said that. We will gain share because of that strategy. We're actually really excited about that.
That's why we feel very confident about our CAGR ag on the basis.
Hi, Brian Sponheimer. I'm with GAMCO. You mentioned having an efficient leverage ratio for the Spinco company. I just wonder if you could elaborate on that, and then if we're thinking about the businesses after they separate and the capital intensity of the off-highway business versus the on-highway, which will have FPT, can you maybe directionalize that?
Yeah. What I mentioned was an efficient access to capital markets. That's the minimum that we aspire to on day one for spin for the on-highway business. That's what we want to achieve as a minimum. Let me say, the ultimate position of the two business, it's too early to say where they will sit from a capital structure perspective. We need to go through our exercise and come back to you with a more definitive position.
Yeah. Just the respective capital intensity of the businesses, the R&D, the CapEx, et cetera. Your thoughts.
Definitely, we want that business to be well capitalized and funded with sufficient liquidity.
Yeah.
Adequate liquidity.
Capital today. FPT is a high investment business with a lot of capital employed. However, the return on this invested capital that we have is above 30% already today. You see that it's really a function of both the capital that you employ and the profitability that you make. Needless to say, I think we know what we have to invest into the truck business. The issue that we have is on our heavy-duty truck side, we just have to make them more profitable. I hope that Gerrit really explained a very clear pathway, how we can turn that piece of our commercial vehicle business into profitability. I hope it became also very clear that in all the other business lines in commercial vehicles, we are already benchmark performance. In light commercial vehicles, we are generating nice returns. Buses is industry standard.
It's really just in this heavy-duty truck segment where we are kind of not at benchmark and profitability, and hence have this drag on capital productivity. I honestly hope that you have seen today that we have activities to change this dramatically going forward.
Yeah, Larry.
Hi. Good afternoon, everybody. Thank you. Larry De Maria, William Blair. Curious, first of all, the AgDNA announcement. Does that represent any kind of fundamental shift in strategy, maybe to be more captive on the ag tech side? Secondly, curious, as you went through this process, even over the last couple of years, did you ever seriously consider selling CV business, given that there is fairly significant investments, over $4 billion, but their sales, partially because of the cyclical downturn, only going to increase about $1 billion. Were you ever close to selling this or considering that?
I would say that Derek takes the first question on AgDNA and our commitment to precision farming, and then Suzanne and I take the second one.
Again, I would try and envisage the AgDNA as we already have within our two brands, Case IH and New Holland, a suite of tools in the toolbox that can be used in terms of digital applications. AgDNA just gives us more tools in the toolbox. It's going to be sold through a factory fit, through our systems. For example, in Case IH, it comes through our AFS Connect, and our PLM Intelligence through New Holland. Again, it's just further enhancing the tools in the toolbox that we currently provide. What we find with AgDNA, because we've scouted the market for prospective partners or bolt-on acquisitions for the last period, it's sat very well with the applications. I said earlier in my presentation, we have very good field applications.
What AgDNA will bring a very positive complementary suite of tools to go in there as well. It doesn't stop there. We're going to continue bolting on until our suite of tools is industry-standard best in class, and it gives the most value we can get from that digitalization.
They've just developed a very, very nice software. It's very easy to use. It's very, very well received by the customers and by the dealers. We're going to move forward and close that gap very, very fast right now that we had a perceived gap with our own AFS and PLM services. On the second question, honestly, I think the question was answered. Our commercial vehicle business is not for sale. We firmly believe that this is a great business. We want to just set it up for success, and we wouldn't basically sell a business at the same time we invest a quarter of a billion in it. I think that answer was given already by Suzanne. I don't know whether you want to add something to that?
Well, just to say, we started this process as a board. We asked the questions at the start of the year. Through the course of that process, I think pretty much every possibility we looked at some point in time, including the various permutations of how you could put those businesses together or separate them, whether or not you'd want to sell them. I think the answer that we came to was a very, very clear answer. Once we could see what the potential was in the commercial vehicles business, which I think was laid out very, very clearly by Gerrit when Gerrit came in, working very closely with FPT. It made much, much more sense for that business to be a standalone business. I think we're very committed to it as a board.
I think as Exor has said this morning as well, very committed to continue to be an anchor, a reference shareholder in both of the businesses going forward.
Yes. Renato Gargiulo, Fidentiis.
Well, about your sales target of 5% growth over the plan period, what are your underlying assumptions on pricing? Could you give any indication about your expectations for the agricultural equipment and also on the other segments? Also on profitability, how much of your expected improvement in profitability is attributable to product mix, given that you have announced a quite important investment plan on your product portfolio? Thank you.
I'll try to answer your questions because we don't give out for a plan period this kind of details. Again, the logic that you typically apply when you develop a plan, you assume that any inflationary cost increases offset with pricing. The only pricing that we have built into the plan right now is the carryover impact from 2019 to 2020. That's what we expect to get as a pricing function. The rest is kind of flattish and will rebalance the inflationary cost increase that we may experience down the road.
The positive mix impact you have into this growth bucket. It's baked into that, but again, it will be too much detail to carve out how much of that. I think we've been already extremely over-transparent perhaps with the investor world. A little bit of fantasy you need to have to basically see the relative portion, which is mixed in the growth bucket for the EBIT improvement.
If I may, a very quick one. On the construction equipment business, you were talking about bolt-on acquisitions. Would you completely rule out any, let's say, bigger deal or transformational deal given that its critical mass is still relatively lower compared to many competitors?
Rome wasn't built in a day, and we want to do it step by step. First, we have to show that this turnaround is sustainable and Carl Gustaf and team have to earn the right to grow. You're going to see us doing smaller buy and builds, and then transformational deals might happen or might not happen at a later point in time. First, this business has to deliver. We have been very, very clear with the business segment leadership on that one, and we want to see that turnaround first. We can talk further. At the roadshow next year, perhaps we are a step ahead, and then we can talk about more. Our ambition is to be an active consolidator long term in that segment. If you look at all our segments we're operating in, they are already highly consolidated.
This is the least consolidated segment that we're in. That's also the reason why we think that with $3 billion, we do have the critical mass to have a base for consolidation. In Agriculture, I would question that, but in construction equipment, I think there is a critical base that you have, and you can be profitable with $3 billion. We have to show that we're profitable, then we basically do buy and build. Now, one last question.
Yes.
Yes. [Erickson Vaningen] from BNP Paribas. In the past, you set up agreements with Sumitomo and Hitachi in the construction equipment segment.
Yeah.
I wondered how the transformation would impact these agreements and how you see these agreements evolving in the future.
Yeah. Well, we look at these agreements in detail. Actually, we have a very, very close relationship with Sumitomo, and I think Carl Gustaf has said that we move our crawlers and the manufacturing with Sumitomo into India, and that's exactly that partnership that we're talking about. We kind of like all these partnerships because at the same time, we don't have to invest so much ourselves. We do it in partnership. The margin is a bit less, and it's a trade-off of lower margin. At the same time, lower spending capital employed. We do 8% ROA right now. Going forward, it's clear that we have to have a decent margin based on a solid capital employed. We are reviewing these partnerships right now.
Basically, I believe going forward, if something is really core to our offering, we also want to own, at least have as equity and skin in the game. That's kind of a pretty open answer to that question. Yeah. Anything to add on that one, Carl Gustaf?
Okay.
What about the simplification of the 80/20 simplification might have an impact on your agreement with Sumitomo, for example?
It has impact, but it's in our hand to basically say what we want to sell and what we don't want to sell, and if we don't want to offer specific variants, we're just not taking them. The impact of 80/20 is far more relevant to those products that we do in-house. The skid steers, for example. Our Wichita plant, our Fargo plants. They will feel this far more because the ripple effects in the value chain, as everybody here in the room knows, is far more if you own those companies rather than just taking products from them.
Okay.
Okay.
Thank you.
With that, we'd like to thank you very much. We hope that you liked today's Investor Day, Capital Markets Day, and let's see you soon at some of the investor conferences. Latest then, next year, for the two roadshows of the two strong leaders in their respective fields. Thank you.