Slowing Truck Sales In North America Are Obstructing Daimler’s Growth

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DAI
DAIMLER AG

Daimler AG stock is down ~18% since the beginning of the year due to multiple reasons, including the diesel emissions review, macroeconomic volatility especially in major oil-producing countries, the uncertainty following the British vote to exit the European Union, and mostly due to the consequence all this has had on Daimler’s financial outlook. Due to continual headwinds in the world’s major truck markets, the company has a tepid outlook for its Daimler Trucks division.

Daimler Trucks and Buses form a combined ~24% of the group’s valuation as per our estimate, and Daimler North America is around half of that.

Dai Q&A 13

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The demand for medium and heavy trucks remained strong all through 2015 in the U.S. on the back of robust freight activity, fleet utilization, and growing profitability for fleet operators as crude oil prices continued to decline at a fast pace. Unit sales in the North American Heavy Truck Market grew by 12% last year, but the demand has weakened in 2016. The weaker Class 8 registrations are due to the cooling off phase, as refilling of fleet took place aggressively in the last couple of years. Weak overall investment is expected to decrease demand for Class 6-8 trucks by ~15% in 2016.

Following stagnant freight volume and excess inventory, Volvo cut its outlook for the North America Truck market for the third time this year. Truck orders for the company fell 29% in North America in Q2. The company estimates that around 240,000 trucks will be sold in North America this year, down 20% year-over-year. The slowdown in North America is expected to impact Daimler, which accounts for ~40% of North America heavy-duty truck sales. The recent announcement of the Volkswagen-Navistar partnership could also threaten Daimler by breathing life into the ailing Navistar business. [1]

Daimler still expects both revenue and EBIT to grow this year, but the growth rate is expected to slow down from the high levels seen in the last couple of years. EBIT for 2016 is expected to see only a modest rise. Daimler is looking to continue to invest heavily in products and technology, which is why free cash flow this year is expected to “significantly” decrease from last year’s figure of 5.9 billion euros ($6.6 billion). The company is looking to increase its CapEx and research and development expenses for the next couple of years, which will negatively impact cash flow.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Daimler AG

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Notes:
  1. Volkswagen’s Navistar Partnership Will Open Gates To North America, trefis.com []