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Why are heavy-duty truck share prices stalling?

The continent’s truck market is led by Mercedes, which is owned by Daimler [DAI.DE]. The Daimler share price is up 28.48% to €74.25 at the close on 16 August compared with the start of the year, and 75.68% in the last 52 weeks, but it has only gained 3.53% in the last month.

While the Traton [8TRA.DE] share price is up 15.46% since the start of 2021 to €26.10 at the close on 17 August – and 55.95% in the last year – the Volkswagen subsidiary’s stock has been trading lower in the last month. The Traton share price is down 3.31% in that period, but up 3.98% from its July low of €25.10.

It’s a similar picture for fellow Swedish manufacturer AB Volvo [VOLV-B.ST]. Although the AB Volvo share price is up marginally since the start of the year to KR200.45 at the close on 16 August and 25.87% in the last 52 weeks, it’s down 4.11% in the last month. The AB Volvo share price recorded a year-low of KR192.16 on 20 July.


A tricky post-pandemic recovery

Despite strong unit sales in the first half of 2021, ongoing supply chain delays are causing disruptions and component shortages, and this has been slowing the upward trend of share prices in recent weeks.

In the three months to the end of June, AB Volvo sold 69,122 vehicles globally, up from 48,959 units in Q2 2020. According to CEO Martin Lundstedt, around 46,000 of the 69,122 vehicles were trucks – North American deliveries jumped 151% from 3,925 to 9,858. This was despite the computer chip shortage forcing production to stop for close to a month.

Truck orders for the region increased 85% from 4,176 to 7,740.


Vehicles sold by AB Volvo in Q2


Lundstedt has admitted the semiconductor situation “remains unstable with low visibility. There will be further disruptions and stoppages in both the truck production and other parts of the company in the second half of the year.”

Traton received more than 170,000 orders in the first half of the year, nearly double the 87,400 it received in H1 2020. Of these, 89,000 were received in the second quarter, versus 33,300 in the same period a year ago. Unit sales rose year over year from 77,700 to 126,000, with 66,000 units shifted in Q2 2021 compared with 31,700 sold in the year-ago quarter.

Traton’s growing book-to-bill ratio shows demand for heavy-duty trucks is healthy and there’s a backlog of new orders. But research from BofA suggests supply chain constraints are likely to affect lead times and this will lead to wider order backlogs and delivery numbers.

With orders having peaked – at least for now – the institution expects profits to peak next year.

ING analysts say that the supply chain constraints will stall new truck registrations for the European heavy-duty truck market. Sales for the region were down 27% year-over-year at the end of 2020. The largest drop in registrations was in the UK.


YoY decline of heavy-duty truck sales in Europe


While registrations have been rebounding – a 32% year-over-year increase for the five months to the end of May – they’re still some way off the pre-pandemic level. ING expects full-year European truck registrations to rebound by 18% to 350,000.

Like BofA, ING believes order books show the recovery will continue into next year.


The electric future

Looking beyond 2022, the EU is committed to reducing emissions from heavy-duty trucks. It has targeted a 15% reduction from new trucks by 2025 and a 30% reduction by 2030.

Uptake and production of electric trucks is yet to accelerate. For instance, AB Volvo delivered 98 units in the second quarter and received a further 194 orders. According to Daimler, the cost of producing a battery-powered truck is three times that of a standard one, and this has been hindering initial market ramp-up.


Number of electric trucks sold by AB Volvo in Q2


As the BofA research puts it, supporting uptake and meeting future production demand for electric trucks “will depend more on financial viability and utility than emotive factors”.

In July, Daimler, Traton and AB Volvo agreed to install and operate a pan-European public charging network for battery electric heavy-duty trucks.

All three stocks are held by the Franklin FTSE Europe ETF [FLEE]. The fund has a daily total return of 14.01% year-to-date.

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