Turbo penetration is likely to experience substantial growth in the coming decade due to rising fuel economy–related regulatory requirements. Due to a brutal cost structure, there are limited avenues for auto manufacturers (VCR) to achieve these targets, and turbochargers present a viable option.
As shown in the above graphic, China and the US are among the lowest turbo-penetrated regions of the world. Both regions also have extremely ambitious fuel economy targets. The United States must improve its average fuel economy by 54% by 2025, and China must improve that metric by 39% by 2020. Therefore, both countries are likely to be its fastest-growing markets at least in the next five years.
The graphic also shows the locations where Honeywell’s powertrains and turbochargers are produced. Local R&D and production shops keep Honeywell (HON) well-positioned to effectively capitalize on these trends in the coming years.
The United States is the largest market for Honeywell’s Aerospace (XAR) unit, accounting for 48% of total sales by region. Honeywell notes that although the US market is mature in comparison to other high-growth regions, it is likely to grow by 2% annually until 2018 due to a relatively subdued space and defense market.
Internationally, the company anticipates a growth of 10% annually until 2018, mostly driven by high-growth regions such as the Middle East, India, Indonesia, and Malaysia. In particular, the company continues to do well with high APU (auxiliary power unit) win rates in low-cost airlines such as Indigo, Vietjet, and Ethiopian Airlines.