Fri. Dec 3rd, 2021

In the early months of his 2012 re-election campaign, a jacketless Barack Obama stood in front of a natural gas-powered truck at a plant in North Carolina. What the US needed, he told the crowd, was more so “American Fuel-Efficient Trucks” to reduce the country’s dependence on oil, and to protect its businesses from volatile commodity prices.

The company the president chose to visit, Daimler Trucks, was then and remains the leading heavy-duty vehicle manufacturer in North America, and the largest in the world. It manufactured 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, except China’s BYD.

Yet while rookie competitors Tesla and Nikola, who have neither delivered a single truck with no emissions so far, have achieved striking market valuations, in part because of their electric and hydrogen truck ambitions, investors have barely given Daimler a second look .

“Sometimes we would like a little more [the] spotlight, ”admits Martin Daum, who was at Obama’s side on that occasion, and who has led the German truck manufacturer since 2017. Being part of a group that includes the much more glamorous Mercedes-Benz carmaker, he admitted, means the division has often been overlooked.

It’s about to change. Seeking to transform itself into a luxury, fully electric carmaker, Daimler will shut down its truck business on December 10 and drive 65 percent of the unit on the Frankfurt Stock Exchange. The company is likely to enter Germany’s flagship Dax Index with its former owner, which will henceforth be known simply as Mercedes-Benz.

Unlike VWs outgrowth of its truck unit Traton in 2019, when the parent group held close to a 90 percent stake, Daimler Trucks’ large fleet exposed it to intense scrutiny. In particular, its weak profit margins, rather than electrification plans, will “now be focused much more closely on,” said Kai Mueller, Barclays analyst. Investors, he added, know that in this industry “scale is important, but operational efficiency even more so”.

Some of Daimler Trucks’ recent figures do not deliver the best reading. It sold nearly 489,000 vehicles in 2019, more than its two closest competitors, Volvo and Scania owned by Traton combined. Yet these two competitors achieved operating margins of about 11 percent in the last pre-pandemic period, while Daimler Trucks managed just over 6 percent. The high cost of its European operations, which has lingered on earnings for several years, still weighs on the business.

Barack Obama Speaks at Daimler Trucks Mt Holly Manufacturing Plant © John W. Adkisson / Getty Images

According to Michael Muders, a portfolio manager at Union, a Daimler group’s top 15 shareholder, the existing company structure meant that management at the unit rarely had to account for its underperformance. “These guys did not sit in front of investors, it was always the Daimler chief financial officer who said, ‘Of course the results are not good, but we are working to improve them.’

“There was no follow-up, no direct liability,” says Muders, who supports the spin-off, adding that given the healthy profits generated by Mercedes’ premium SUVs, “there was no need to be very aggressive and really the trucking company around ”.

Daum spoke to the Financial Times and disputed the claim that the trucking division had always been a burden on Daimler. But he nevertheless tried to change the perception that the heavy-duty behemoth was resistant to reform.

“We have all the ingredients,” he maintained during 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 an average market environment we want to aim [profit margins of] 8 to 9 percent, ”he said, referring to the truck sector’s bumpy business cycle, which is ebbing and flowing with the world economy. “In sunny conditions, we aim to deliver more than 10 percent.”

Achieving that goal will depend on whether Daimler Trucks can make major changes to sites in Europe, especially in its home country, Germany.

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

Even though demand soared after the worst of the pandemic, the unit’s profit margin is only 4.5 percent for the nine months to September. Karin Rådström, a former manager of Scania who was brought in this year to turn the department around, is clear about the diagnosis. “Our cost,” she said, “is too high to bear the business.”

Further job cuts in Germany, as part of a program to reduce costs by 15 percent across the group, will be needed, Rådström said, and it will also reduce the number of models.

However, Daimler’s bigger challenge will be to convince investors that it can master the future after diesel by accelerating the deployment of electric and hydrogen-powered trucks and buses.

There are already about 40 Daimler electric trucks on the road in North America, with more than 1 m miles on the clock in total. The company, which according to Bernstein can be estimated at up to € 46 billion after spin-off, has also formed a joint venture with Volvo to develop hydrogen fuel cell systems. However, the hype is reserved for the much newer start-ups with their big promises to transform transportation.

“David hitting Goliath is always a better heading,” Daum said, pointing out that corporate clients need the “total cost of ownership” of zero-emission trucks – the cost of buying and driving the truck over its lifetime – to achieve equality with diesel models before the market can really rise.

Daimler does not expect that point to be reached before the second half of the decade, and even that timeline is dependent on regulatory conditions and the expansion of charging networks and filling stations.

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

He does not directly criticize newcomers to the industry, but made a point of quoting a reporter’s question in 2017, which asked why it would take until 2021 for Daimler to announce its battery-powered eActros set when Tesla’s Semi truck would be built in 2018. .

“We launched our electric Actros in 2021,” he believed. The Semi, meanwhile, have not yet taken the road.

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