Daimler Truck Profit Push keeps shares ahead of split
Daimler AG’s sprawling truck unit outlined plans to turn its unmatched global scale into better financial results before its fallout from Mercedes-Benz luxury cars later this year.
The division presented its strategy for electrification, autonomous driving technology and common operational improvements at a virtual event on Thursday, setting a target to achieve a double-digit operating margin by 2025 if the markets are favorable. Optimism that a Mercedes split will help close a profitability gap with Volvo AB and Paccar Inc. sent the stock 3.7% higher in Frankfurt.
âWe are prepared to make tough decisions to reduce our breakeven point and increase our performance,â said Martin Daum, CEO of Daimler Truck. âWe will reset profitability and target the benchmark in every region.â
Daimler has a truly global footprint that is unique among commercial vehicle manufacturers. While Volvo has just reduced its presence in Asia by sell his UD Trucks activity in Japan, Traton SE, the subsidiary of Volkswagen AG completes takeover of American truck manufacturer Navistar International Corp. in the next quarter. Electric vehicle specialists, including Tesla Inc. and Nikola Corp. is currently preparing forays into the context of the global crackdown on transport emissions.
âBeing the world’s largest truck producer, Daimler Truck clearly has the potential to perform on par with the most profitable truck manufacturers,â said Roman Mathyssek, consultant at Arthur D. Little. “Exclusion should lead to more flexibility, speed and more direct accountability to financial markets.”
Change of strategy
The first signs of a change in strategy at Daimler Truck appeared months before this week’s event.
Cooperation agreements with Volvo on fuel tanks, Cummins Inc. in medium duty motors and Waymo LLC on autonomous driving has indicated that the automaker will be more pragmatic than in the past when it comes to sharing development costs.
On Thursday, the company said it will expand its partnership with the Chinese battery maker. Contemporary Amperex Technology Co. and working with Royal Dutch Shell Plc on hydrogen refueling infrastructure. He also signaled that he could flank the Cummins engine contract with a similar deal for heavy-duty engines as the industry moves away from combustion technology.
Hope for hydrogen
Daum, 61, and his executives said Daimler sees the potential of hydrogen fuel cell trucks to complement electric platforms, signaling a broader approach than some rivals who predict battery-powered vehicles will dominate the industry.
Efficient allocation of investments across the company’s global network of factories will be key to finally delivering on the unit’s longstanding commitment to turn scale into greater profit. Daum acknowledged that securing European national operations “is the biggest challenge”.
Daimler hired Karin Radstrom of the VW Scania brand to spearhead the latest Mercedes truck turnaround. The restructuring will primarily affect white-collar jobs and target fixed costs and material expenses, Radstrom said.
There is “enormous potential in expanding our service business,” and it should be possible for European operations to generate double-digit profit margins in the medium term, she said.
In addition to Mercedes trucks, Daimler’s trucks and buses division includes Fuso in Japan, BharatBenz in India, Setra in Germany; and Freightliner, Thomas Built and Western Star in North America.
The company has relied heavily on Freightliner’s profits in recent years, with North America tending to generate a large portion of the industry’s profits. The outlook for other companies is more difficult to predict. Global bus demand, for example, has been doomed by the pandemic and it’s unclear when sales could rebound.
The division’s global sales increased 4% in the first quarter to 101,322 vehicles. The unit has targeted an adjusted sales return of 6% to 7% this year. It generated a 6% margin in the first quarter, down from 2.8% a year ago, on 8.67 billion euros ($ 10.5 billion) in revenue.
The unit continues to expect its profit margin this year to be near the top of its target range, but it has stayed true to outlook in part because the global semiconductor shortage will have a “significant” impact. on second-quarter earnings, said Jochen, chief financial officer, Dit Goetz.
In one presentation, the company presented plans to reduce fixed costs, capital expenditure and research and development expenditure by 15% by 2025 compared to 2019. This includes a reduction in personnel costs of 300 million d euros by 2022. This will also push to increase sales of heavy vehicles, which are generally more profitable than smaller ones.
âThe management team at Daimler Trucks presented in a very passionate, humble and committed manner the update of its strategy,â said Arndt Ellinghorst, analyst at Sanford Bernstein, in a note. “We see this as a good start to building confidence in the financial market.”
– With the help of Chiara Remondini
(Updates with Capital Market Day commentary in the third paragraph.)