This is Freightliner's flagship factory in
Cleveland, North Carolina. Freightliner is
a division of Daimler Trucks, the largest semi
truck manufacturer in America and one of the
largest truck makers in the world.
There's something amazing about building a really
large vehicle that's used every day by
corporations to deliver value to the average
American, as well as to other companies.
Anywhere from about 95000 to 284000 new semi trucks
are sold in America each year.
As of late 2022, sales were on track to end up
on the high end of that.
On average, a semi with a sleeper cabin can cost
about $150,000.
A fully loaded one can run above $200,000.
These are the companies that dominate the U.S.
market for them.
Every item that arrives at your doorstep has been
moved by a truck.
It's really the lifeblood that keeps
American consumers happy.
Now the business is going through a period of
tremendous change.
Truck makers are spending billions to
replace fuel burning diesel engines with
battery and hydrogen powered electric systems.
There is also a race to build trucks that can
remove the driver entirely, which could
reduce costs and truck downtime.
But a lot of this change is being forced from
outside the ranks of the companies that have
served this market for decades.
You can credit Elon Musk with making trucking cool
. As polarizing as he can be, but they've had to
respond because Tesla keeps pushing the
envelope and Elon Musk keeps making big, bold
promises that potentially could
transform an entire industry. Foul play has
also plagued the industry recently.
The founder of the once-hyped hydrogen fuel
truck maker Nikola Motors has been convicted
of fraud. And the prominent self-driving
truck startup TuSimple fired its CEO over
improper dealings with a Chinese firm.
Legacy truck makers, such as the
more-than-century-old Daimler are balancing
keeping their particular and often extremely
cost-sensitive customers happy in the present
while investing in technologies for which
there is no clear business case yet.
This is one of my favorite stations in the
plant because this is where it actually starts
to begin to look like a truck.
Heather Callahan is the director of logistics for
Freightliner. Freightliner's North
Carolina factory runs about 1.5 million square
feet. It has made about 800,000 trucks since it
opened in 1989.
You can see we are lowering the cab onto the
chassis. Almost every 10 minutes, a cab lowers
from the monorail and we marry it to the chassis.
And every truck is spec to that customer's needs.
Freightliner was founded in 1942 and was acquired
by Daimler Trucks in 1981.
The company holds about 40% of the U.S.
Class 8 truck market, mostly through
Freightliner. Daimler Trucks North America also
owns the Western Star truck brand.
Truck makers sell their products through a
dealership network, similarly to cars.
However, in the U.S., cars are usually bought
off dealer lots from a stocked inventory of
vehicles and driven home that day.
Semi trucks are usually ordered ahead and every
detail is customized to the customer's wants and
needs. And our customers are very particular about
that because many of them are extremely
experienced in the segment in which they
operate. They know what they like.
They know what works well for them.
Freightliner trucks have tens of thousands of
options. The length of the wheelbase where the
fuel tanks are located, how big the fuel tanks
are, all kinds of engine options, countless
options for the sleeping cab if there is one.
Freightliner's paint catalog has more than
3000 varieties of the color white.
This area of our factory is the cab line, and this
is really where the interior of the truck
starts to come alive.
We start with just the shell of the cab and from
there we start to install the electrical
components, the floor covers.
We put in upholstery, specified again to that
customer. And as the cab tracks along on this
line, we also install the windshields and the
seats and the dash.
The truck is an extension of both a driver and a
company's brand, so they put their name on this
vehicle and they do that very proudly.
And the truck that they're running says
something about their company and it says
something to the driver that they've hired to
drive it.
Freightliner's parent, Daimler Trucks, pulled in
sales of about $42 billion globally in 2021,
a 10% jump from 2020.
The North American segment pulled in $16.2
billion, a 14% jump over the previous year.
Daimler doesn't break out how many units
Freightliner sells, nor the number of Class 8
trucks. However, its North American unit sold
162,000 trucks of Classes 5 through 8 in
2021. Class 5, 6, 7 and 8 trucks are medium to
heavy duty trucks that weigh 16,001 pounds or
more. From 2020 through 2022, the conditions
brought on by the Covid-19 pandemic caused
freight demand to explode while
simultaneously severely limiting trucks, supply
chains and manufacturing capacity.
Since new truck inventories were so
heavily limited, used truck prices skyrocketed
to record highs.
In 2019, a typical used truck about four years
old, would retail for about $50,000.
At the peak of the Covid bubble, prices soared
above $110,000.
Demand for trucks is, I would say, unprecedented.
We've seen an incredible demand going through
Covid and continuing well into next year.
That demand actually exceeds our capacity and
it exceeds the capacity of the entire industry.
Industry reports in November noted that sales
were declining from the record sales seen in
September of around 55,000 units.
The commercial vehicle industry is highly
cyclical. Demand ramps up and then it tanks.
The cycles are not necessarily predictable.
Customers for trucks new and used are trucking
companies, and they come in two basic types.
There are fleets which are buying several
trucks, sometimes even 100 or 1000 at a time.
As of June 2022, there were just over 1 million
trucking companies in the United States.
More than 95% of those companies run no more
than ten trucks.
There are also owner-operators,
independent truck drivers who often own
their own company and their own truck.
These customers can spend as much as $200,000
or more on a truck, spec'ing it out and
personalizing it to their tastes with plush
interiors, flat screen TVs and wood trim in the
sleeping cabins.
Unfortunately, that's a small and probably
shrinking portion of the industry, but it's the
backbone.
That's the soul of the industry. Is the
owner-operator with a long and tall, chromed
out truck who spends a couple of weeks on the
road, doesn't get home very often.
Sometimes he lives in the truck.
That is his home.
Large fleets make up the vast majority of truck
purchases in any given year.
About 90% or more of the trucks sold are often
called aerodynamic trucks because they are
built to maximize aerodynamic efficiency on
the highway. These are different from some of
the more highly stylized trucks, often sold by
brands like Peterbilt that feature a lot of
chrome and more classic designs.
The four major truck brands compete directly
with each other. Each has proprietary
technology, such as in engines, that it can use
to differentiate itself from competitors.
Some brands do appeal more to owner-operators
such as PACCAR's Peterbilt brand.
Navistar is owned by Volkswagen's trading
division. Volvo Trucks sells trucks under its
own name, and it owns the Mack Truck brand as
well.
Freightliner is extremely focused on investing in
the future. We are the number one leader in the
industry today, but that means we have to be
prepared for the changing dynamic of the
business environment with propulsion
technologies for the future.
In 2022, Freightliner began delivering a
production version of a full battery electric
truck to its customers.
The truck is called the eCascadia, a play on
Freightliner's, top-selling Cascadia
truck.
We understand that diesel propulsion will be around
for quite some time, potentially towards the
end of the next decade.
But regulations and different types of
statutory requirements are pushing, rightfully,
zero-emission vehicles, and we want to be fully
prepared to be able to offer that technology in
the marketplace.
While there are uses for fully-electric trucks, as
in last mile delivery, some industry analysts
are skeptical fully electric trucks can work
in long haul trucking.
By law, the maximum a semi truck can weigh is
80,000 pounds.
Batteries for electric trucks can weigh up to
16,000 pounds, almost one quarter of the total
allowable weight.
And that is weight that cuts into the amount of
weight a truck is able to haul.
So it creates significant challenges economically
for trucking companies and they're not willing
to sort of give up their ability to haul cargo and
the amount of cargo they can have just for the
sake of being carbon neutral or having
electric vehicles.
Aside from weight, charging infrastructure
remains an ongoing challenge.
Semi trucks have far greater charging needs
than an EV that might be used by the typical
household. A car might spend most of the day and
night in the garage to be used only a couple of
hours a day for errands or commutes.
A semi truck, on the other hand, might be in
operation for nearly 11 hours per day.
Ranges on most of the medium and heavy duty
trucks available as of late 2022 are less than
300 miles.
Freightliner's eCascadia has a maximum advertised
range of 230 miles on a single charge.
It takes about 90 minutes to charge the
truck about 80%.
A bit of an outlier, Tesla has said its semi
can travel 500 miles on a single charge.
It began delivering its semi trucks to first
client PepsiCo on December 1st.
NATSO, a trade group for truck stops and
Chargepoint, a charging station company, have a
partnership to build charging stations at more
than 4000 truck stops around the U.S.
by 2030. That partnership is using $1 billion in
public and private funding. Daimler has a
$650 million partnership with BlackRock and
NextEra to build zero-emission charging
and hydrogen fueling facilities. The plan
calls for a network of charging facilities on
freight routes running along the East Coast and
West Coast and in Texas by 2026.
Even if we invest in significant super
charging facilities, which are quite
expensive, as much as $4 million, it means that if
I leave an area that doesn't have a
supercharger and I need to get topped up and
recharged, it really limits the range of how
far I can go.
That can't be solved alone by companies like
Daimler. It has to be managed through the
utility companies.
It has to manage the overall infrastructure
for the states and at the federal level.
When you electrify an entire truck fleet, you
basically need an electric grid that is
capable of handling this electricity need.
And specifically in the Netherlands, for example,
there's a situation that initially it's very
unlikely that the grid will be able to handle
it.
Hydrogen fuel cells are touted as an alternative
to battery EVs, and they do have some advantages.
They can be filled up like ordinary gasoline
fuel tanks while still being zero emission.
Still, there is little hydrogen fueling
infrastructure, nor a robust hydrogen fuel
supply chain. The trucking industry is
already known to be risky and volatile, and
success requires a very cautious business model.
Trucking is a notoriously low margin business,
operating really with a couple single digit
percentage in terms of profitability.
So a trucking company may take in $0.03 to
$0.04 for every dollar of revenue they generate.
So because these margins are so paper thin, the
risk appetite to go on and convert a fleet into
an electric vehicle just isn't there.
With paper thin margins, companies don't want to
get burned trying out a new product that ends up
having problems.
In 2009, truck maker Navistar debuted a
proprietary technology meant to reduce emissions
from diesel engines.
But the technology didn't work as expected.
Navistar faced lawsuits, including a suit from the
SEC, and lost about $4.7 billion between 2012 and
2016.
And so trucking companies are somewhat resistant to
shoulder out and just be the guinea pig.
Autonomous driving technology offers a
potentially tantalizing business proposition.
For the fleet operator, truck is a sort of
investing gear. It needs to earn money.
And when you look at the cost distribution for
fleet operator, roughly 30% of the total cost of
ownership is represented by the truck driver.
So getting the truck driver out of the
equation is basically a big opportunity to earn
money, to bring total costs down.
Further degrees of autonomy are more of a
longer term situation, mainly because of the
regulatory situations as well as the need to have
somebody control the truck once it gets off
the highway. Still need to have somebody alert in
the cab at all times.
And when you take that exit ramp off the
highway, then a person will probably need to be
in control.
These are unproven, untested technologies,
and trucking companies don't have a whole lot of
disposable cash.
To go to autonomous drivers clearly said.
I think that is also something that every
truck OEM is currently working on, either
in-house or in cooperation with the
third parties.
Most of the truck OEMs have a roadmap to bring
that in an early stage to the road around
2024-2025.
Shippers aren't willing to sort of foot the bill
for experimental projects.
They're trying to contain things like
inflation and they've really been burnt out
over the past two years due to all the supply
chain disruptions that everybody wants things to
kind of work and be dependable and
predictable. And eventually, and hopefully
in my lifetime, we will see a conversion of EVs
and more sustainable vehicles.
But it's not going to be an overnight transition.