The world’s largest truck manufacturer emerges from Mercedes’ shadow

In the first months of his 2012 re-election campaign, a jacket-less Barack Obama stood in front of a natural gas-powered truck at a North Carolina plant. What the United States needed, he told the crowd, were more “fuel-efficient American trucks” to reduce the country’s dependence on oil and protect its businesses from volatile commodity prices. raw.

The company the president chose to visit, Daimler Trucks, was then and remains the leading manufacturer of heavy-duty vehicles in North America and the largest in the world. It has been producing trucks for 125 years, and in the decade since Obama’s speech has put more non-diesel vehicles on the road than most of its competitors, with the exception of China’s BYD.

Yet while upstart rivals Tesla and Nikola, neither of whom have delivered a single zero-emission truck to date, have achieved mind-boggling market valuations in part because of their ambitions for electric and hydrogen trucks, investors haven’t hardly gave Daimler a second glance.

“Sometimes we would have liked to have had a little more [the] in the spotlight, ”admitted Martin Daum, who was alongside Obama at the event and who had led the German truck maker since 2017. Being part of a group including the much more glamorous Mercedes-Benz automaker, has he admitted, meant that the division was often overlooked. .

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This is about to change. Seeking to transform into a fully electric luxury automaker, Daimler will divest its truck business on December 10, selling 65% of the unit to the Frankfurt Stock Exchange. The company is expected to enter Germany’s flagship Dax index alongside its former owner, now known simply as Mercedes-Benz.

Unlike VW’s split of its Traton truck unit in 2019, when the parent group kept nearly 90% of the stake, Daimler Trucks’ large float exposes it to close scrutiny. In particular, its lackluster profit margins, rather than its electrification plans, will “now be much more focused,” said Kai Mueller, analyst at Barclays. Investors, he added, know that in this industry “scale is important, but operational efficiency is even more important.”

Some of the recent figures from Daimler Trucks don’t make the best read. It sold nearly 489,000 vehicles in 2019, more than its two closest competitors, Volvo and Scania, owned by Traton, combined. Still, these two rivals achieved operating margins of around 11% in the last pre-pandemic period, while Daimler Trucks succeeded at just over 6%. The high costs of its European operations, which have weighed on results for several years, continue to weigh on the company.

Barack Obama speaking at the Daimler Trucks Mt Holly manufacturing plant © John W. Adkisson / Getty Images

The company’s existing structure meant that unit management rarely had to answer for its underperformance, according to Michael Muders, portfolio manager at Union, one of the 15 largest shareholders in the Daimler Group. “These guys didn’t sit in front of the investors, it was always the CFO of Daimler who said, ‘Of course the results are not good, but we are working to improve that. ”

“There was no follow-up, no direct accountability,” said Muders, who backs the spin-off, adding that given the healthy profits generated by Mercedes premium SUVs, “there was no need to ‘be very aggressive and really turn the truck business around’.

Speaking to the Financial Times, Daum took issue with the claim that the truck division has always been a burden on Daimler. But he nonetheless tried to change the perception that the heavyweight giant is resistant to reform.

“We have all the ingredients,” he insisted in a four-hour presentation to investors this month, before senior executives answered questions from analysts and reporters on everything from school buses to software and battery technology.

“In a mid-market environment, we want to aim [profit margins of] 8 to 9 percent, ”he said, referring to the bumpy business cycle of the truck industry, which fluctuates with the global economy. “In sunny conditions, we aim to deliver more than 10 percent. “

Achieving this goal will depend on Daimler Trucks’ ability to make major changes to sites in Europe, particularly in its home country, Germany.

In 2019, Mercedes-Benz Trucks, the company’s Europe and Latin America division, was barely profitable, with a 0.4% margin, compared to 11.5% for North America.

Even though demand has skyrocketed after the worst of the pandemic, the unit’s profit margin is only 4.5% for the nine months ending in September. Karin Rådström, a former Scania executive who was recruited this year to overthrow the division, is clear about the diagnosis. “Our costs,” she said, “are too high to run the business.”

Further job cuts in Germany, as part of a program to cut costs by 15% across the group, will be needed, Rådström said, as will reducing the number of models.

Daimler’s biggest challenge, however, will be convincing investors that it can harness the post-diesel future, by accelerating the deployment of electric and hydrogen trucks and buses.

There are already around 40 Daimler electric trucks on the roads in North America, with more than 1 million kilometers on the clock in total. The company, which Bernstein said could be worth up to € 46 billion after the split, has also formed a joint venture with Volvo to develop hydrogen fuel cell systems. The hype, however, is reserved for much newer start-ups with their big promises to transform transportation.

“David Kills Goliath is always a better headline,” Daum said, noting that corporate customers need the “total cost of ownership” of zero emission trucks – the cost of buying and operating the truck over its life. life – to achieve parity with diesel models. before the market can really take off.

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Daimler doesn’t expect this point to be reached until the second half of the decade, and even that timeline depends on regulatory conditions and the expansion of charging networks and gas stations.

Daum, who has spent more than three decades in the industry, knows the pitfalls of ahead of consumer demand. “We already had a fuel cell bus 15 years ago,” he recalls. “Unfortunately, no one wanted to buy it”.

He doesn’t directly criticize newcomers to the industry, but was keen to quote a question from a reporter in 2017, who asked why it would have to wait until 2021 for Daimler to launch its battery-powered eActros when Tesla’s semi-truck would be built in 2018..

“We launched our electric Actros in 2021,” he joked. The Semi, meanwhile, has not yet hit the road.


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