European truck market slows, while the electric journey accelerates

As volumes in European road transport eased, road haulage companies have left extraordinary years of high demand and limited supply behind in 2023. For many market players this initially was somewhat a relief rather than a struggle as companies had problems with trucks and staff shortages. But a slowdown in transport demand has changed this dynamic over the course of the year. Free capacity has increased, and there’s underutilisation in the short run.

Although excess capacity still remains limited, investment plans for 2024 have been scaled back and companies are now focusing on necessary replacements.

Curbed production and postponed replacements have left their marks on the fleet. Due to pandemic and war-related supply chain disruptions, truck production has been hampered in recent years. Some brands - such as Scania and MAN – even suspended order intake. And long lead times and price increases have also led to the postponement of replacements among fleet owners. In the period 2000-2022, annual replacement rates in major markets Germany, France, and the UK just hovered around 7% to 8%, some two percentage points lower than in previous years. Consequently, the average European truck turned older, while new generations offer double-digit fuel efficiency gains. A higher fleet age also means downtime goes up due to more maintenance, and that's costly.

Despite the rebound in 2023, this gap is yet to be made up. Some companies will decide to adjust their fleets to lower demand, but at least some underlying pent-up demand still remains. This provides additional upside potential once the business climate improves.

On the back of eased supply chain frictions and strong order books, truck manufacturers fully resumed and indeed raised production and deliveries through 2023. DAF even produced at record levels. With still extended lead times, European registrations are to see their highest level since 2008, with just under 420,000 new medium and heavy trucks (EU + EFTA + UK). This results in a strong double-digit increase, though mainly driven by the earlier order intake. While production is still running at full speed, market conditions are in decline. Effectively, a slowdown in slow motion is happening.

Slowing order intake shows that appetite for investments in new trucks has started to retreat. This gained ground over the course of 2023. Order intake of Volvo trucks - for instance - decreased from the second quarter onwards compared to 2022. Although order positions still manage to fill available production slots, we expect this to materialise into lower deliveries as 2024 unwinds, especially in the second half of the year.

All in all, we expect new truck registrations to come down to just above 350.000 (-15%). However, this figure is still close to its 10-year average.

We've seen an increase in the price of new trucks and we see no noteworthy retreats from these levels. Raw material prices also rose and the European consumer price index has increased by some 15% in two years. The cost of regular 400 pk diesel tractors can now easily exceed €100,000 per tractive unit, although this is also linked to the introduction of a new generation of advanced and more efficient trucks which also include required safety features.

At the end of 2023, raw material prices such as steel, rubber, and plastics have eased, which gradually also lowers the input costs for truck production, although wages are still on the rise. In addition, competitive pressure could lead to rationalisation, meaning that buyers are expected to gain bargaining power amid declining demand. In this environment larger players may be keen to see if they could close attractive fleet deals again.

Supply chain problems have left tracks in the market composition as well. DAF managed to continue producing relatively well through 2022. Its newly introduced models with fuel-saving aerodynamic fronts (XF and XG) are also well received, which contributed to a rise of market share. Volvo introduced its electric trucks in an early stage and seems to benefit from that with a high market share in new electric registrations.

MAN – particularly large in Germany - encountered production interruptions in 2022 and had to suspend orders, which had a detrimental effect. Clients might also wait for the brand to introduce new models and a fully electric (long-haul) option.

For the past three years, production and delivery of new trucks were limited by disruptions in the supply of parts. Constraints of semiconductors and several other parts, such as axles, receded in the run-up to 2023, and manufacturers focused on building resilience. But supply chains remain more vulnerable than before against the backdrop of continued labour shortages, more extreme weather, geopolitics and the drastic change of supply chains associated with the energy transition. ‘Just in time’ no longer prevails over ‘just in case’ although buffers have also become more costly with higher borrowing rates.

The composition of European truck sales is set to change significantly over the next ten years. European truck manufacturers are being pushed to decarbonise quickly. They have to abide by CO2 reduction targets of 15% (by 2025) and 30% by 2030 compared to the 2019-20 baseline. This has already prompted a drive in the production of electric trucks. But it’s worth noting that roughly half the progress in reducing emissions comes from improvements in diesel technology.

This autumn, the European Parliament agreed to raise the target still further to 45% by 2030, so manufacturers will have to step up their efforts even more. It’s still unclear what the ultimate role of biofuels and e-fuels will be, but it’s definitely good for progress on EV production.

Battery electric trucks are seen as the most efficient zero-emission configuration right now. Manufacturers, including Volvo and DAF, are starting production, and the range of electric trucks is also improving. Daimler Trucks introduced a long e-variant of its Actros tractor with a range of 500 km to enter the market in 2024, while Scania also kicked off the production of electric trucks for ranges of up to 400 km.

Sales of electrified trucks gained traction in 2023. Most e-trucks hit the road in Germany, the UK, and the Netherlands on the back of subsidy schemes. In the Netherlands, this covered some 8% of new registrations as companies prepare for zero-emission zones for distribution in city centres from 2025. A demand-side push for electric trucks in the European Union is coming from CO₂ reporting standards. Larger companies will have to report their Scope 1,2 and 3 emissions, which also includes transport activity from 2024 onwards.

Electric trucks still have a substantially higher price of €250,000-400,000 than diesel trucks. With the continued development and extension of ranges, prices are not expected to drop for some time yet. However, the expected resuming downward trend in battery prices and upscaling could be helpful in due course. With serial production of electric trucks and ex-factory delivery, a step up in technology and quality will be delivered. A higher total cost of ownership needs to be paid and holds most haulage companies back from investing in electric trucks for their own accounts. Investment in e-trucks requires analysis of operations and requirements, coordination, and cooperation with clients. This is more easy for larger shippers who also take the lead themselves, though.

In order to meet the European CO₂ targets, manufacturer branch ACEA presumes the installed fleet of zero-emission trucks will have to expand to 400,000 trucks by 2030, from less than 4,000 now. This means the current level of European sales, which is less than 2%, will quickly have to reach a double-digit market share.

In order to facilitate the uptake of electric trucks, appropriate charging infrastructure is indispensable, as public fast charging points for trucks are sparse. In most cases, electric trucks will initially be confined to shorter (fixed route) trips and therefore heavily rely on (overnight) ‘depot charging’. To support the transition on longer distances, such as 200-300 km one-way, public charging is critical. Long-haul international transport is not in scope yet. Hydrogen might be a suitable solution in the future.

European joint venture of manufacturers Milence aims to create a network of 1,700 fast charging points by 2027, but a multiple of this figure is needed to facilitate the CO₂-reduction ambitions for manufacturers. The figure of 40,000-50,000 charging points across Europe by the end of the decade is mentioned. And in addition, charging speed is important. This should be 350 kW or, ideally, megawatt charging, as refuelling should be done during truck drivers' breaks, and waiting is not an option.

The adopted European AFIR infrastructure regulation should be supportive here. This requires EU-member states to create a network of fast-charging points for heavy duty vehicles along every 60 km of the network of corridors (TEN-T network) and every 100 km of the comprehensive network by 2030.

The process of selling and ordering a new truck has been subject to change. Since the pandemic and supply chain disruptions, manufacturers have directed the ordering and delivery process. And they will want more control over this as regulatory pressure mounts. Manufacturers are obliged to reduce CO₂ emissions of the average production output by 15% in 2025 and even 45% in 2030 compared to 2019-2020 levels. Manufacturers will need to prioritise electric trucks if they're going to comply with CO₂ reduction targets and avoid significant fines.

Daimler Truck

According to Daimler Truck, the truck market during June-August 2023 and year-to-date (January to August 2023) continued to reflect high demand, with the North American market for heavy-duty trucks (class 8) growing by nearly +6% in June-August 2023 year-on-year (YoY) and by around +16% YoY during the first eight months of this year. In the EU30 area (EU+ UK, Switzerland and Norway), the market for heavy-duty trucks increased by more than 42% YoY in June-August 2023, also influenced by the mandatory introduction of the smart tachograph version 2, which led to some pre-buying. The demand in the region year-to-date was up by nearly +27% YoY, according to the truck manufacturer.

Against this backdrop, in the third quarter of 2023, Daimler Truck sold 128,861 vehicles worldwide (-4.5% YoY). The company mentioned that unit sales declined in the Trucks North America segment mainly due to bottlenecks at the suppliers’ side. In the Mercedes-Benz segment, there was also a modest decline in unit sales, mainly due to the introduction of the Euro VI emission standard in Latin America, including a material decrease in Brazil, the largest regional market. Conversely, in the EU30 region, the Mercedes-Benz sales were up by 6% YoY in the third quarter of 2023. In the Trucks Asia segment, unit sales were down by 8% in the third quarter of 2023, impacted by market developments in Indonesia and by bottlenecks on the suppliers’ side.

In the third quarter of 2023, the truck manufacturer had revenue of €13,860mn, up 2.6% YoY, and adjusted EBIT (earnings before interest and taxes) of €1,340mn (up 5.3% YoY). During the first nine months of 2023, Daimler Truck had revenue of €40,940mn, up 13.2% YoY, and EBIT of €3,718mn, up 43.3% YoY.

Zero-emission trucks

Daimler Truck continues to pursue a dual-track strategy with hydrogen and battery-powered vehicles. In September, Mercedes-Benz's GenH2 fuel cell truck completed a record run of more than 1,000 kilometres with one tank of liquid hydrogen. According to the company, the development of the GenH2 truck continues on track, and the vehicle is expected to enter serial production in the second half of this decade.

In October, Mercedes-Benz Trucks launched an electric long-haul truck, eActros 600, a battery-electric truck with a range of 500 kilometres without intermediate charging. The vehicle's battery has a capacity of over 600 kilowatt hours, and the batteries can be charged from 20% to 80% in about 30 minutes at charging stations with an output of around one megawatt. The start of the serial production is slated for the end of 2024.

Daimler Truck, Cummins, PACCAR and EVE Energy are partnering to accelerate the production of battery cells and expand the battery supply chain in the United States. The planned joint venture is aimed at producing battery cells for electric commercial vehicles as well as for industrial applications. Total investment is expected in the range of $2 to 3bn for the 21-gigawatt-hour factory.

Volvo AB

In the third quarter of 2023, Volvo AB had net sales of SEK132.4bn, up 15.2% YoY (+9% YoY, when adjusted for an exchange rate impact), and adjusted operating income of SEK19.1bn, up 61.0% YoY. During the first nine months, the company had sales of SEK404.6bn, up 19.3% YoY, and adjusted operating income of SEK59.3bn, up 54.7% YoY. In the third quarter of 2023, Volvo AB more than offset cost inflation with price increases and continued to manage the disruptions in the supply chain.

In the third quarter of this year, Volvo AB experienced a decline in an order intake for new trucks of 27% YoY (to 47,202 vehicles), which the company attributed to a “normalisation” of demand and continued gradual opening of the order books. Conversely, Volvo AB’s deliveries increased during the period by 4% YoY to 55,274 trucks. The truck manufacturer expects major truck markets to remain strong for the remainder of this year as the company continues to fulfil deliveries on its substantial order book. However, Volvo AB expects lower market levels for 2024. In the third quarter, the company also noted supply disruptions which had an adverse impact on productivity and operation expenses but limited resulting impact on the truck manufacturer’s actual deliveries.

Zero-emission trucks

Over 12 months to the end of the third quarter of this year, Volvo Group had deliveries of 4,141 units of fully-electric commercial vehicles across its business lines and had an order intake of 5,985 units. Renault Trucks has been taking heavy-duty electric orders since the third quarter and was due to start serial production at Bourg-en-Bresse in France in November.

The truck manufacturer sees an increasing demand for clean, efficient and safe urban transportation. In October, it announced that it would join forces with Renault Group and CMA CGM to target this demand with an all-new generation of fully electric and software-defined vans. The vans' production is planned to commence in 2026.

PACCAR

According to PACCAR’s management, the company achieved a record net income for the third quarter of 2023. In the third quarter, the truck manufacturer had net sales and revenues of $8,696mn, up 23.2% YoY, and net income of $1,229mn, up 59.7% YoY. In the Trucks segment, PACCAR had sales and revenues of $6,636mn in the third quarter of 2023, up 27.7% YoY, and pretax profit of $961mn, up 123.2% YoY.

In the nine months ended 30 September 2023, PACCAR had net sales and revenues of $26,051, up 25.9% YoY, and net income of $3,184mn, up 52.3% YoY. In the Trucks segment, during the first nine months of 2023, PACCAR had sales and revenues of $19,878mn, up 30.5% YoY, and pretax profit of $2,804mn, up 148.3% YoY.

In terms of unit sales, during the third quarter of 2023, PACCAR had deliveries of 50,100, up 12.8% YoY, including +12.7% YoY in the United States and Canada, +9.0% in Europe and +20.9% in Other regions. In 9M23, the truck manufacturer had deliveries of 153,100 units, up 14.0% YoY, including +16.5% in the United States and Canada, +7.8% in Europe and +19.0% in Other regions.

PACCAR’s management said that its Kenworth and Peterbilt trucks benefited from the replacement of older vehicles with the new, more fuel-efficient ones from 2023 to date, as well as from the infrastructure spending in the U.S. The company estimates that the Class 8 truck industry retail sales will be in the range of 295,000-315,000 vehicles in FY23 and in the range of 260,000-300,000 vehicles in FY24, implying a decline year-on-year. PACCAR expects the European truck industry registration in the above 16-tonne segment to be in the range of 310,000-330,000 trucks in FY23 and 260,000-300,000 trucks in FY24. In South America, in the above 16-tonne category, the company expects the market to be in the range of 105,000-115,000 in FY23 and in a similar range in FY24. PACCAR also noted that DAF’s market share in the Brazilian above 16-tonne truck segment has increased this year to 10% from 6.9% in the same period of the prior year.

Iveco Group

In the third quarter of 2023, Iveco Group had consolidated revenues of €3,757mn, up 6.7% YoY, including net revenues of Industrial Activities of €3,671mn, up 5.8% YoY, driven by positive pricing dynamic and better sales mix. In 3Q23, the company had adjusted EBIT of €213mn, up 91.9% YoY, with the respective margin up 280bp YoY to 5.7%, and Industrial Activities adjusted EBIT margin up 310bp YoY to 4.9%.

Iveco Group also mentioned that it is continuing efforts to shorten order books to healthier levels in preparation for the Model Year 2024 order opening, with 26 weeks of production already sold for light commercial vehicles and around 20 weeks for both medium and heavy-duty trucks. As a result of this effort, Iveco’s worldwide truck book-to-bill was 0.73 at the end of the third quarter of 2023. During the quarter, truck and bus deliveries were down 8% on a worldwide basis but flat in Europe year-on-year and up 13% YoY for medium and heavy-duty trucks, offset by lower light commercial vehicle delivery volumes during the period.

The company’s third quarter 2023 performance prompted an improvement in Iveco’s full-year financial guidance, including expected growth in net revenues of Industrial Activities to between 8% and 9% YoY (from between +5% and +8% YoY previously) and consolidated adjusted EBIT to between €770mn and €800mn (from €750mn to €800mn previously