Frictions in supply, adding additional disruptions due to the war in Ukraine, have disrupted the European truck market. Delivery times are exceptionally long and truck registrations are expected to decline further in 2022. With order books reaching much of next year, we expect a delayed recovery in 2023 despite expanding headwinds.
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The European truck fleet has grown less than shipping volumes since 2015. Among the top shipping countries, Poland (20%) and Romania (45%) showed the expansion in rolling inventory between 2015 and 2021, following the shift from foreign shipping to the East. This has made Poland the European market leader in overseas road shipping, with 1. 2 million registered trucks (> 3. 5 tonnes), in addition to those of many Subsidiaries in Western Europe.
The full expansion of the fleet has slowed the pandemic as corporations retain trucks that want to be replaced. This is expected to continue into 2022 and, combined with a limited entry of new trucks, may imply limited truck capacity.
Evolution of the truck fleet in relation to shipment in ton/km (EU 27), index (2015 = 100)
Among the 3 largest European markets, the largest initial decline in new truck registrations in 2020 was observed in the UK. Registrations have shown only a slight recovery so far, still around a quarter below their 2019 level.
Truck registrations in the Netherlands continue to decline by more than a fifth and more than a third below pre-pandemic levels in Belgium. Surprisingly, southern European countries (including Italy and Spain) have recovered well from their low levels. However, new truck registrations have declined in those countries since the 2009 currency crisis, resulting in a relatively old installed base, so this recovery may only be the result of a recovery effect.
% of rolling inventory replaced through new trucks consistent with the year in Europe’s truck markets
The low inflow and declining replacement rates of new trucks are also causing a resumption of fleet ageing in European countries. be 90% successful by 2022. Despite lower price lists for new trucks, the Euro VI percentage may have been higher, with replacement rates remaining low for the third year in a row.
Share of the cleanest emission elegance Euro VI (first generation: 2013) in the total number of kilometres covered on German motorways
Listings were still a fifth below pre-pandemic grades in 2021, as particularly high costs combined with weakened customer expansion and developing uncertainty contributed to a slowdown in order intake. Despite a long era of reduced deliveries for customers, this did not result in any noticeable order cancellation. We know that three years of insufficient production and the uptick in road shipping volumes can also lead to pent-up demand for replacements, which could mean a chance to catch up in the truck market in the coming years.
Energy power is one more incentive to upgrade rolling stock. New models from Scania, Volvo and DAF (the latter also uses the option to make the traction unit larger to aerodynamics) seamlessly enable 10% fuel economy by replacing an eight-year-old seven-year-old truck.
Market costs for new trucks and trailers have increased particularly in the compact truck market. An average traction unit of 400 sets trades between €100,000 and €110,000, a build-up of about 15-25% over pre-pandemic levels. The increase in the costs of uncooked fabrics (additional construction during the war in Ukraine) has led to an increase in the costs of vital parts such as steel, plastics and rubber (tires). Prices are also higher due to more expensive next-generation models (such as the more aerodynamic DAF XF/DG), which also have their own effect and limited production capacity. either the manufacturer and the express characteristics of a transaction.
Due to the nature of superior elasticity, value increases from used trucks tend to be more pronounced. Trucks that have been used for less than 3 years are popular and may even have the same value as new equipment. As soon as the market normalizes, stocks will face a correction.
European production of medium and heavy cars > 3. 5 tonnes
Although demand drives production naturally, the source remains the constraint for truck brands and distributors in today’s market. After pandemic-related shutdowns, brands have had to restrict production due to chip shortages. A large number of almost finished products were stored for production. as much as possible. In 2022, the war in Ukraine added to the production constraints. MAN (part of Traton and VW) specifically faced an instant shortage of cable harnesses, leading to a production disruption at the Munich and Krakow sites in March and April. 2022. Volvo also encountered new difficulties in the aspect of the source that restricted production. Although the chip shortage has been partially alleviated and the current part of the year would possibly be better, the overall annual production figures for ECU trucks are not expected to increase in 2022.
Meanwhile, delivery times can still be up to 12 months. The liberation of Russian production spaces as a result of the sanctions imposed has allowed some consumers to get orders earlier, although this is substantial. Daimler’s exports to Russia, for example, accounted for only about 1% in total.
Daily figures announced DAF trucks
Assuming origin situations in 2023, e-books of orders will allow brands to increase production in 2023 despite economic obstacles. Although shipping capacity remains limited due to the slowdown in order reception, there does not seem to be any signs of noticeable cancellations. Traton reported a decline in order intake for Europe in the first quarter, possibly due to muted orders at Scania. Globally, market leader Daimler was still talking about an e-book of “record” global orders in May 2022.
New truck registrations > 3. 5 tonnes EU EFTA UK
Heavy-duty vehicle registrations in the EU, EFTA and the UK (>3. 5 tonnes) rose to 341,500 in 2021, an increase of almost 15% year-on-year, but still below the 10-year average. In the first five months of 2022, enrollments were still one-fifth below their pre-pandemic base and just below the 10-year average. After a drop in production, new registrations will also fall slightly in 2022 (335,000). Manufacturers are also expected to finalize and deliver parked cars with advanced chip materials by 2022. According to giant order books and the slow improvement in chip shortages, 2023 looks like a better year, even if order intake continues to decline.
The European truck market is governed by six corporations and seven brands: Daimler (Mercedes), Paccar (DAF), Volvo Trucks, Traton (Scania, MAN), Stellantis (Iveco) and Groupe Renault. came close in the long run. Mercedes (Daimler) remains the market leader in medium and heavy trucks (>3. 5 tonnes), followed by MAN, DAF and Volvo. DAF increased its market share in the heavy-duty vehicle segment (>16. 0 tonnes), where Volvo and Scania also have a higher share.
If transportation demand continues to stagnate and order reception slows, the market may return from exceptional to general until 2024. New and impending frictions in fragile global supply chains remain a threat. As the trucking industry is connected to materials from Asia, Covid-19 policies may also lead to increased uncertainty. In operations, high paint shutdown rates combined with a tight labor market and the threat of moves also pose threats to ambitious production schedules.
Volvo Trucks, Daimler Truck and Paccar are 3 of the six corporations that dominate the European truck market. A look back at its functionality and economic prospects:
Brief:
A confident start to the year for Daimler Truck
Daimler Truck is off to a good start through 2022, with a build-up to unit sales, revenue and adjusted operating profit in the first quarter of the year. YoY), revenue of €10. 6bn (+17% YoY) and adjusted earnings before interest and taxes (EBIT) of €651m (+11% YoY) % YoY Encouragingly, at the Annual General Meeting (AGM) of Daimler Truck held on June 22, corporate monitoring indicated that the first quarter could be the weakest this year due to delivery bottlenecks, which also affected last year and were felt most harshly between January and March.
Daimler Truck believes that general macroeconomic situations continue to support global demand for advertising vehicles by 2022. The company expects advertising business unit sales to increase in diversity from 500,000 to 520,000 in 2022 (from 455,400 sets in FY2021). ). The truck maker continues to target significant growth at organization point in fiscal 2022 and has increased its full-year sales target from €48 billion to €50 billion after first-quarter effects. from €45. 5 billion to €47. 5 billion in the past (and from €39. 8 billion in FY2021). In addition, Daimler Truck expects a “significant build” in adjusted EBIT in fiscal 2022. The updated outlook reflects the latterly expected effects of the Russian invasion of Ukraine and part-time driver shortages, while additional uncertainty of a possible new Covid-19 pandemic remains. On February 27, 2022, Daimler Truck suspended all business activities in Russia until more is done and took a fee of €170 million, with a further planned fee of €200 million to be taken later.
The company’s control also said in its AGM that, due to bottlenecks in the supply chain, there was a significant amount of unfinished truck inventories at the end of 1Q22, and some critical parts were still missing. Daimler Truck expects those inventories to remain high in the coming quarters, still to gradually decline until the end of this year. In this context, the e-book of orders is very important according to the company. Management believes consumers are falling so far behind in renewing their fleets that they are not in a smart position to postpone new purchases, despite the deteriorating overall macroeconomic outlook. Overall, so far, Daimler Truck has not noticed any order cancellations and remains positive for the rest of the year.
Paccar: still anticipates market expansion this year
Paccar reported strong figures for the first quarter of 2022, with global sales and net revenue of $6500 million (up 11% year-over-year), adding sales and net revenue in the truck, portion and other segment of $6100 million (up 13% YoY). Paccar delivered 43,000 trucks during the quarter. According to the company, truck unit sales reflected higher deliveries in Europe, partially offset by declining unit deliveries in the U. S. In the U. S. and Canada due to shortages of chips and semiconductor components across the industry. Paccar expects shortages to continue in deliveries in 2022.
The company’s truck revenue was $4. 7 billion in 1Q22, up 11% year-on-year, basically due to higher learned truck prices. In the United States and Canada, Europe and Mexico, South America, Australia and other countries, truck sales increased through 1%, 29% and 18% year-on-year for the quarter, respectively.
In terms of profitability, pre-tax earnings in the Trucks, Parts and Others segment were $627 million, up 19% year-over-year for the quarter. -in the year.
At the time of the first quarter announcement, the company’s outlook for fiscal 2022 expected retail truck sales in the U. S. to be expected to be in the U. S. The U. S. and Canada were between 260,000 and 290,000 sets, up from 250,000 in 2021. In Europe, Paccar expects the trucking industry in 2022 to register cars over 16 tonnes to succeed in 270,000 to 300,000 sets to 278,000 in 2021. In South America, Paccar forecasts that trucking industry records in 2022 will be successful at 125,000 to 135,000 to 127,000 in 2021. Parts sales are expected to grow up to 12-15% consistent with the year, reflecting strong freight demand.
Volvo Group also sees a call to advance its available offer
In the first quarter of 2022, Volvo Group achieved sales of SEK 105. 3 billion, an increase of 12% year-on-year and 11% year-on-year after adjusting currency fluctuations and ud Trucks’ divestment. Volvo Group’s truck department contributed SEK 69. 6 billion in the quarter under review, up 31% year-on-year on a comparable basis from the effect of UD Trucks’ divestment, and up 23% year-on-year also currency effects. In 1Q22, the company posted an adjusted operating source of revenue of SEK 12. 7 billion, up 7% from a year earlier, with a margin of less than 12. 0% respectively from 12. 6% in the same quarter last year. The accumulation in the source of adjusted operating income reflects the effect of higher costs and sales volumes, partially offset by higher curtain and freight costs, as well as declining profits from joint ventures.
Adjusted operating revenue source for truck department SEK 8700 million, up 16% year-on-year, with a department margin of 12. 5% respectively (compared to 12. 8% in 1Q21). Volvo Group’s unadjusted operating profit SEK 8600 million, down 29% year-on-year, due to Russia-like expenses incurred in the quarter. The company had total assets of SEK nine billion similar to those of Russia and made provisions for SEK 4. 1 billion. The source of operating income in 1Q22 also reflected a positive effect of SEK 1. 3 billion similar to exchange rate fluctuations.
Volvo Group noted that shipping activity in most regions was smart and demand for trucks was higher. The company said it has giant order books and that existing delivery times are long, making the company more restrictive in its ordering niche. This had a negative effect on order intake in the quarter under review (truck order intake decreased by 43% year-on-year in 1Q22, excluding UD Trucks) compared to higher grades in 1Q21.
The supply chain remained tense, basically due to shortages of semiconductors and other components, combined with a lack of shipping capacity. This led to production shutdowns in 1Q22 that are expected to be repeated in the future. However, in 1Q22, truck deliveries increased by 6% year-on-year. year-on-year to 55,600 cars (a record in the first quarter). Volvo Group also highlighted charge inflation and expects inflationary pressures to continue. On a more positive note, volvo group placed an order from Maersk in March for 110 Volvo electric trucks, the company’s largest advertising order for electric trucks.
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Senior Sector Economist
Senior High Yield Credit Strategist
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