The truck-making sector is highly consolidated, with the bulk of the market controlled by just four operators, according to Martin Daum, CEO of Daimler. The company claims around a 40% share of the North American heavy truck sector and a 20% share of European trucks.
High barriers to entry support Daimler
One of the reasons we favour Daimler is high barriers to entry protect market share from competition.
Heavy investment is required to manufacture trucks that can meet the varied needs of customers. Each segment of the market is too small to be served on its own, so large-scale manufacturing that provides parts and servicing to meet the needs of every segment is required. That presents a significant challenge to new entrants.
Concern about increased competition, including from cybertrucks – battery electric pickup trucks from Tesla – are likely to be overstated.
Focus on excellence
Overall, Daimler’s focus is on producing products that meet the customer’s needs and backing them up with excellent service. In terms of sectors, Daimler has identified an opportunity to grow market share in US vocational trucks, and is launching a refreshed product range.
Vagaries of US and European markets
Daimler’s European operations are less profitable than its business in North America, as the latter has the advantage of a homogeneous market. By contrast, Europe is composed of around 30 different countries with different trajectories, but there are significant export opportunities to developing countries not available in the US.
It is also easier to cut labour costs in North America than in Europe.
The current state of the truck cycle
Although pandemic-related issues such as supply-chain disruptions and pent-up demand have normalised, Daimler is forecasting more or less flat revenue and earnings before interest and taxes (EBIT) in 2024. This assumes sales volumes could fall by around 5% to 10% given difficult economic conditions following buoyant sales in 2023. The truck industry in the developed world is likely heading for a down cycle in 2024, but revenue from parts and servicing can help offset lower volumes. While Daimler sells around 500,000 trucks a year, at least 3 million are in operation, requiring parts and servicing. The company also has the flexibility to adjust its cost base in the face of lower demand.
To find out more about the global truck industry and the views of Daimler CEO Martin Daum, listen to the latest episode of the Good Value podcast.
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