Boston, Vienna Daimler Truck deliberately chose the location for the first Capital Markets Day in almost two years. The Dax group invited to what was once the world’s largest power plant in Boston on Tuesday. “Daimler Truck is driving the transformation to sustainable drives,” said CEO Martin Daum in front of around 50 analysts and reporters. “We have a clear plan. And we want our shareholders to benefit.”
The plan is to change from a chronic underperformer to a stock market star. After the world’s largest manufacturer of heavy trucks and buses had already noticeably raised its sales and profit expectations for the current fiscal year late Monday evening, Daimler Truck is now promising its shareholders significantly higher profits in the longer term.
Specifically, the adjusted return on sales of the commercial vehicle manufacturer is expected to increase to twelve percent by 2030 – assuming “sunny conditions”. The Swabians announced this on Tuesday as part of a capital market day in Boston.
In 2022, Daimler Truck was only able to achieve an adjusted margin of 7.7 percent in the industrial business. This year, the Swabians are already aiming for a profit margin of up to ten percent. If this jump succeeds, it would be a novelty. Because the vehicle manufacturer has failed for decades to convert its size, which is unique in the industry, into strong earnings. Smaller competitors like the Volvo Group or Paccar have always been more profitable.
CEO Daum wants to change that quickly – by making the former secondary business of the luxury car manufacturer Mercedes-Benz even bigger. The company’s revenues are expected to increase by 40 to 60 percent between 2025 and 2030. Daimler Truck does not name a specific target amount, but it can be roughly derived.
Based on the previous year’s sales of 51 billion euros, the group should be aiming for an increase in revenue to 71 to 81 billion euros by the end of the decade. Depending on the assumption, the sales target could be significantly higher, according to internal sources. The group has identified three areas as growth drivers: the service business, electric trucks and the potential technological breakthrough in autonomous driving.
Daimler Truck: Core product electric truck
In the short term, the increased focus on maintaining, repairing and financing vehicles and selling spare parts offers the greatest opportunities. Compared to its competitors, Daimler Truck has long neglected its service area. Significantly higher margins can be achieved here than with the pure sale of trucks and buses.
Daimler Truck is now systematically changing its course here and is currently opening a branch in Europe every three months. In addition, since the end of 2021, the Group has been offering its own leasing and insurance products in more and more markets. The contract volume is already more than 24 billion euros. Since 2019, service revenue has already increased by 15 percent, according to Daum.
In the medium term, the Dax group also hopes for a boom in electric trucks. The group calculates that battery-electric semi-trailers could be cheaper than comparable diesel vehicles in core markets such as Europe from 2024.
>> Read also: Electric trucks should be cheaper than diesel trucks by 2024
This assumption applies to the so-called total operating costs for trucks such as those in the Actros series. The expenses for fuel and electricity, maintenance, repairs, tolls and the resale value are considered – and not just the purchase price. The latter will probably always be higher for battery trucks than for combustion engines, which in turn should drive up Daimler Truck sales.
The group based in Leinfelden-Echterdingen does not want to completely abandon the diesel engine, which has been dominant for a hundred years. In a transitional phase, the diesel will continue to play an “important role”, also due to the lack of charging and refueling infrastructure for emission-free alternatives.
Dividend at Daimler Truck to increase sharply
In the long term, Daimler Truck swears primarily by electric drives. By 2030, around 60 percent of new vehicles in Europe, Japan and the USA will use a battery or a hydrogen-based fuel cell as an energy source. In long-distance transport in particular, hydrogen is set to become the energy source of choice for freight forwarders from the middle of the decade.
For special vehicles such as concrete mixers, the Unimog or SLT heavy-duty trucks with a total weight of up to 250 tons, neither batteries nor fuel cells should be considered. Daimler Truck is therefore considering converting its heavy diesel engine for applications with a very high power requirement so that it can also be operated with green hydrogen.
“Until now, Daimler Truck’s hydrogen strategy has focused on fuel cells,” said Daum. However, there is another alternative for certain fields of application: “If the hydrogen combustion engine receives political support, we can act quickly and provide our customers with the appropriate vehicles.” It is already being tested on the Unimog. The series is often used in winter service or in horticulture.
>> Read also: Daimler Truck expects rapid growth in electric buses
Meanwhile, Daimler Truck expects significant income from other new technologies. The group assumes that from 2030 it will be able to generate more than three billion dollars in sales and one billion dollars in profit with autonomous driving systems. The Swabians are pursuing a dual strategy here: on the one hand, the acquired start-up Torc is researching autopilot solutions for trucks, on the other hand, Daimler is equipping the Google subsidiary Waymo with its vehicles.
The shareholders should also benefit more from the booming business. Daimler Truck wants to buy its own shares worth up to two billion euros. In addition, the company intends to pay out up to 60 percent of its net income to the owners as a dividend in the future – previously it was 40 percent.
Savings should also make this possible. Fixed costs are expected to fall by 15 percent by 2025. Daimler Trucks intends to cut more than 2,700 jobs in Brazil, for example by outsourcing logistics.
Daimer Truck relies on joint venture with Toyota
Daimler Truck also relies on partnerships. The group is developing fuel cells with its rival Volvo Trucks, and the joint subsidiary Cellcentric is “open to other customers”. In battery cell production in North America, another cooperation is about to be concluded. And the development cooperation with Deutz should be expanded.
Daimler Truck only wants to advance the use of the hydrogen combustion engine on its own. “The hydrogen internal combustion engine is a slightly modified diesel engine, the rest of the drive train remains the same,” explained Chief Technology Officer Andreas Gorbach.
One challenge is the reorganization in East Asia: while the Group is the market leader in North America with its Freightliner brand and is also doing good business in Europe, the Asia division developed disappointingly.
Despite an increase in sales and turnover of nine percent each, the operating profit in 2022 collapsed by 60 percent to 171 million euros. The margin of the Trucks Asia division, which includes the Japanese brand Fuso, fell from 7.2 to 2.6 percent.
Daimler Truck wants to counteract this: by merging Fuso with Hino Motors from the Toyota group. According to Daimler, the Japanese market is simply too small for so many independent players.
The merger should combine forces. Important from a Swabian point of view: the legal risks that lie with Hino, since the company had stated its exhaust gas values too low for around two decades, remain with Toyota. The new joint venture will not be burdened by this, according to group circles.
When asked about new competitors such as Tesla, whose electric truck Semi is to go into mass production by 2024, Daum emphasized that the competition was taken seriously. In the USA, however, they have a market share of 40 percent for heavy trucks – this is not easy to beat.
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First publication: 07/11/2023, 2:01 p.m. (last updated on 07/11/2023, 5:45 p.m.).