Cummins Inc. (CMI) Earnings Call Transcript & Summary

Great. So let's go ahead and get started with the next presentation. So for those that don't know me, my name is Felix Boeschen. I cover some of the truck equipment and specialty vehicle names here at Raymond James. This afternoon, I should say, we're very excited to have Cummins with us. With us we have Srikanth who leads the Engine business, the flagship business of Cummins. We also have Jack Kienzler on the Investor Relations side with us today. But before we kick it off, I did want to just give a quick reminder to everybody. We want this to be as interactive as possible. So feel free to use the Q&A function on Zoom. I think it should be in the left upper hand corner, and we can weave those into the conversation today. But with that, maybe I thought I'd go ahead and hand it over to you, Srikanth, maybe for a little bit of an update on Cummins. Remember, this is a little bit more of a generalist conference. So if you could just help us set the stage a little bit, background on Cummins, some of the key end markets you touch and maybe what you're seeing in the current environment, and we can kind of take it more interactive from there.

All right. Thank you, Felix. And thanks, everybody, for joining us today. Just by way of background, let me tell you first about myself. I've been with the company for 30 years, and I've spent in 3 of the 4 business segments that we operate in. But before I get to myself, let me tell you, Cummins is an industrial company that just celebrated its 100th anniversary in 2019 February. We started in 1919 in Columbus, Indiana, and we have now expanded, and we are all over the world, with over 70,000 employees and revenues of about $24 billion in 2019 that we had. And we participate in a wide variety of markets in truck and bus in a large way, but we also participate in quite a bit of industrial markets as well, whether it is mining, construction, ag and a few other oil and gas and other markets as well. We also have quite a bit of aftersales and market presence through our distribution network that is predominantly wholly owned and a little bit of it is independent distributorships. But we ask ourselves, what is Cummins as a company, a marketing model? We would say it is a Tier 1 OEM supplier, plus an independent aftermarket. An independent aftermarket is typically a company like Bridgestone Firestone that they sell tires through a wide variety of network. A Tier 1 OEM supplier would be Intel, supplying chips to your PCs, who the PC maker makes them. The closest to us that who are an independent Tier 1 OEM supplier and an independent aftermarket is Bosch. If you think of us, who would be the component provider and also has an independent aftermarket, Bosch would be the company that could come to. We're located around the world, and we have big presence in North America, in China, and in India and in Brazil. And we opened up in all these places far before globalization was a big thing. In India, we opened up in 1961. In China, we opened up in 1936. And in Brazil, we opened up in 1972. So a huge, huge presence, and I've spent my time in 3 of the business segments, like I was talking about in Columbus, Indiana; in Tennessee; in Mexico as well as in England; and then back over in Columbus right now. Felix, if you may give me 2 more minutes, if I could just talk a little bit about setting the scene for what it is before we get into the questions. If you asked me 20 years ago, if I'd sat in this room and talk to you about what are the secular trends that we are having at that time, I'd have said it's globalization, it's emissions, it's infrastructure and lack and availability of power. We converted those tailwinds effectively for us to grow from almost a $13 billion company in 2010 to a $24 billion company at the end of the decade, earnings per share at about $5 at the time to $15 at the end of the decade, and EBITDA dollars from $2 billion to $3.7 billion. Fast forward 20 years that I'm sitting with you right now, and if you ask me what are the tailwinds that are behind us right now, could we capture those tailwinds to create a similar growth platform, the idea it would be, yes. It's what we call as CASE, connectivity, automation, shared subscription services and the E could substitute for either electrification or zero emission. And what is happening is, most of our OEMs are starting to see that they have to spend money on this in all these 4 things, and if they have to spend, they need to spend about 3% to 5% of their sales on these things. And so, as they are starting to think about [indiscernible] product changes and other things, they're saying, could we partner with somebody that could actually help us in this journey? And they are turning over to Cummins, and this is why the recent announcements that you've seen, one with Isuzu and the one that we announced last week on Daimler is starting to pay off the way that we have been talking about it for the last couple of years. The second point that I would make is that this change to zero emissions or road to zero is not a light switch event. It's going to take about 30 to 40 years before it all happens where the world is a decarbonized world. And as you've seen Shengjing Bank from China has said that as a country, they want to change by 2060. There is a new net zero paper for Americas to change to 2050, let's say, it has to be net zero, they have to spent $2.5 trillion today and another $10 trillion every decade between now and 2050 for us to get to this net zero Americas. What means that as the tail is long, we're able to capture with market share advances. We can actually get the benefit out of it as opposed to it being a light switch event. And the last point that I would make is that for us to be a credible player because of the fact that today's diesel power trains are about $40,000, if you will, the responding fuel cell electric powertrain today is $350,000, but we need to start investing today in battery electric and fuel cell electric if you are doing. But equally, we want to be able to move from this diesel to natural gas to low-carbon fuels to hybrids, which is mild hybrid and strong hybrid, then into range and extended electric vehicle before it gets to battery electric vehicle. And that journey is what we are going to be able to talk to you today about, to say, why this is compelling enough that we can actually even share, invest in the right technologies, invest slowly in new power technologies, and we provide a road map to zero emissions vehicles. That hopefully will set the stage for our conversation today.

Yes. So maybe I'll take it from there. First of all, thanks for that bit of intro. I think you kind of hit maybe all of my key topics already in your intro. So maybe I'll just start with something you mentioned, but obviously, as we think about the backdrop here over the next 3, 5, 10, 15, even 20 years, the OEs are faced with harder and harder decisions to make, where their R&D dollars are going as we think about electrifying power trains, but also there's still a very large part of diesel, obviously, in the market today. And so, I thought maybe to start off, we could talk about your big announcement from last week. And that is, obviously, the announcement with Daimler on the medium-duty engine partnership. So first of all, could you maybe unpack that partnership a little bit for us, what it entails exactly and then the time line of it over the next coming years?

Yes. Daimler and Cummins has been a partner for a number of years. 80 years since what we have had partnerships with. We started with break liner in the U.S. for a long, long period of time, they've been delivering partner for us. And we've been delivering products both in the heavy-duty world as well as in the medium-duty world. Those partnership or the MOU, the memorandum of understanding, that we announced last Sunday was primarily about the medium-duty cooperation around the world. It means that for future medium-duty engines that they've been producing now, they would stop their investments on R&D and as well as lower time on their production and they would move over to Cummins engines, both from a design perspective that we would provide as well as to production that would happen. Where it would start first would be as U.S. moves to CARB 2024 and EPA 2026, that's when it will happen in North America because already, they buy from us, there's no much vehicle integration that we need to do. It's almost like a drop in the [indiscernible] directly to and that's what would happen in that time frame. Equally, they produce there in Europe, and that's about 10,000 units or so, if you will, that will happen in North America. In Europe, this would be where they produce their engines in Mannheim, which is just about 30 minutes outside of Frankfurt. And they produce their medium-duty engines, heavy-duty engines, they do machining and they do foundry as well. And what we could do is we would open up a line there in one of their existing factory locations in that site and we would produce our medium-duty engines to start for Euro 7 regulations [indiscernible] could it be. This would be roughly about 30,000 to 35,000 units. They also ship their medium-duty engines to Japan, which is 2,000 units that we would probably do that, we'll continue that for the Japan needs. And then over time, in Brazil and in India, as they need as emissions change, there would need products that need to be serviced both for Brazil and in India as well. India is about 30,000 units that you would have. And Brazil would be about 40,000 units that you would have. And that's how it is going to play out over the next 7 years, Felix, in terms of what this partnership would be. This is not limited just to that. We are having conversations about other things, whether it's components that need to go or whether it is other kinds of engines that would be there as well as other new power technologies as well that we would partner with. And so, we are super, super excited about this particular partnership. Not only has it had the longevity, but we hope that in the new world as well to have that longevity.

Okay. So that was super helpful. I just want to make sure I caught all those numbers because you guys do some -- there is some pretty interesting stuff out there. I caught 10,000 North America, about 30,000 to 35,000 Europe and other 30,000 India. I think the piece I'm missing is Brazil. Curious how you gauge maybe the total incremental opportunity on the medium-duty side.

About 40,000 to 50,000 units is what Brazil is. And the way to figure that out is that how do they happen in terms -- because Brazil is -- for them, they've been in the market for a long, long period of time. And so we need to figure out the right cost structure that can help us -- help them as well as help us as well. And we have been there for a long period of time as well.

Okay. And then, obviously, this announcement is the second one. You mentioned this in your opening remarks. I'm curious if we bring the conversation maybe a little bit to a higher level, I think this is something you all talked about at your 2019 Analyst Day a little bit. And it's really this idea is that if you look at the top 20 OEs in the world, truck OEs, I should say, I believe, your market share at the time was around 16%. And you feel as though as again, these OEs have all these different choices to make on R&D spend, that number should go up over time. So I guess a 2-part question on my end here. A, can you give us an update maybe where that market share stands today? And then, b, you as the head of the engine business, curious if you could update us on how those conversations have tracked over at least the last 2 to 3 years. It clearly seems like Daimler is a big shoe to drop. Does it feel like this could be a catalyst for more to follow suit on that? Any sort of incremental color would be super helpful.

Yes. I think so. I think of this announcement similar to when General Electric made the announcement in 2000, saying that they are going to outsource IT. They said 70% of that would be outsourced. Of that 70%, 70% will be offshore and only about 30% of that will remain onshore, if you will. And I remember sitting in Cummins at that time, and our CEO at that time Solso saying if GE can outsource IT, why can't Cummins outsource IT, which is a much smaller company, if you will, and we don't have scale, we should not be in the business of doing some of these things. So there is going to be some leftovers there where people are going to say in the medium-duty space, Felix, Cummins produces last year about 0.75 million units or so. Also, second is Daimler, which produces about 100,000 units. They don't have necessarily, they feel like this is an appropriate thing to do. The rest of the players are all far less in terms of the number of units that they produce, but they do not have scale, but yet they've held on to it. It's because of the fact that their heart is in it as opposed to the head, right, because this is where we [indiscernible] and started. This is where Rudolf Diesel started at MAN and Augsburg, just 2 hours further south of there. And those kinds of things, even including the Japanese OEMs when you think of them, it is almost there, how do you call it, a pride, if you will, that we got to own the power [indiscernible]. My hope is that this will start shifting. The same thing happens in India and China. I go to India, I go to China quite regularly before the pandemic, and you see that they still fight for the last 0.1% on fuel economy because that they feel that that's what makes the difference for them, right? And as electrification, as connectivity, as automation happens, the research dollars are few and the research engineers are few, when they start to realize that this can happen, maybe we should also be thinking about it. So that's one thing that I just wanted to say. As for the conversations that you said, 5 years ago, if you'd ask me how many of my counterparts are not doing these divisions, I'd say a few. Today, on a regular basis, I probably talk to my counterpart of these places much more often. And it is both in the on-highway space as well as in the off-highway space. And that's the interesting thing that we don't necessarily talk much about the offer whether it is ag, whether it is construction, many of these players actually lack scale, but they've been in it because, historically, they've been in it. And now they are starting to think, what should I go and do. And now they are starting to think about smart machining, precision ag. Those are the things that I need to be worrying about, not necessarily all the powertrain stuff that I need to be worrying on the vehicle itself. And so, how we [indiscernible] place and how do we do? I'm starting to see far more opportunities that could actually come to fruition unless they [indiscernible] with you. And the reason is because emissions regulations are changing, and they need to make these decisions now for 2025, 2027. And if they don't, then they are going on with the status quo, which is where the difficulty is in.

Right. And I do want to talk about emission standards with you a little bit later on, I think, as it relates to your components business also. But maybe as we maybe wrap up this conversation a little bit, so this was obviously a big deal on the medium-duty side. And as you mentioned, you guys are already the 800-pound gorilla in that market. I think you could make an argument, medium-duty moves quicker on electrification, so maybe there were increase in centers to think about a third-party solutions provider. Curious if maybe you could talk to us about what you're seeing on the heavy-duty side. And how those conversations along the same lines increasingly stretched R&D budgets are trending for you?

Yes. In the heavy-duty space, Felix, I don't think of it as a homogenous market like medium-duty is. There's 3 markets, I would say, that is a DD8, as we say, in the U.S. market, which is predominantly a 10-liter market. And then there is a mid-bore heavy-duty and a big-bore heavy-duty that is there. My sense that is first, that is likely to happen is in the DD8, which is the 10, 11-liter space, where we make last year probably about 150,000 units that we make between North America and China, where we are the biggest players. And the closest second would not make more than 20,000 units a day, right? And so, as you start thinking about it, they don't have scale necessarily. This is where transit pass and several other applications are there. And then they need to go and invest for the 2025, 2027 and issues regulations, which will start happening for us right now, I would say, in that space of the heavy-duty market. The second point on the mid-bore, this is where most of our vertically integrated players have scale. And so, they would like to hold on to that as long as they can. While on the big-bore space, there are probably only 1 or 2 of us that can actually compete in this marketplace and much of the volume growth that we have in that marketplace is going to come from China, where we already have 1 or 2 products, and we are the leader in that market now and 40-liter and our 50-liter products. My sense is, as it goes to China, it will be where that will happen on the big-bore side of it. And then on the mid-bore, time will tell whether our DD8 10-liter product with electric hybrid could actually do what the mid-bore will do or whether it will be the mid-bore plus hybrid of what will make big bore [indiscernible], which I don't know exactly, honestly, and time will tell you in the next 7 to 8, 10 years as to how that shapes up. Because of the parts stream revenue that is quite high in that, people want to hold on to it, and I understand what they would want to do. But a common portfolio with one of these big players is what is going to make the difference in there.

Right. Okay. No, that's super helpful. We could talk about this, I think, for a lot longer. But in the interest of time, maybe we'll switch over to some other current events. I did want to quickly touch on before we get, I think, to a supply chain update that might be on top of everybody's minds. But I was kind of hoping you could talk to us a little bit what you're seeing on the North American truckload market, heavy-duty side specifically. It seems like those orders have been really strong. Again, it seems like in the near term, build rates are almost more impacted by supply chains than demand. But given that you do lead the engine business, curious what you're hearing from customers there. How are they thinking about maybe already securing build slots for the rest of the year? What's kind of your expectation for the rest of the year on the heavy-duty side in North America?

Yes. And I'll tell you what, though, much of it is very similar to what each of us are facing. When COVID hit, all of us were figuring out what do we need to do, where do we'll get our hand sanitizers, where do we go get more [indiscernible] and paper rolls and all that stuff that we did. And then for the next 6 weeks or so, we basically hunkered down and we sat in our houses and everything came to a grinding halt. And when that did pretty much for many small suppliers, they ran out of cash. Many big players, including us, decided that we need to conserve cash, make sure of inventory is right than others. And even ships and containers basically said that they will rest themselves for a while before they come back up. Little did we realize that the good side of the economy will continue to be good as opposed to the service side of the economy. Most of us were not going to restaurants and other places. But what were we doing? We were clickbaiting every place that is there to shop because you said my chair is not comfortable. My bed is not comfortable. I need a new, whatever, table that you needed to and we started seeing the good side of economy go, which meant that historically in such downturn, freight rates seemed depressed for quite a while. And freight rates actually got better. [indiscernible] vehicles and others started going up because of the food services that needed to be -- and you started seeing demand, which meant that these guys are actually more profitable trucking than ever, ever before. And as you know, trucking is like this, that they are like a herd where once somebody does something, everybody else follows through, which is what happened with the top 3 or 5 players, when they said that we are going to go and start buying stuff because we are worried that we will not be able to keep up with demand, and we need to have all the freight rates that we have and the profitability that you'll make. Both these put together, somebody else asked me earlier this morning, is how do you see this downturn, upturn versus the previous one. I'd say the last downturn 2009, 2010 because of the free buy, downturn in the economic downturn and the subsequent upturn happened 18 months from 2009 November. Whereas now, it's happening in 7 to 9 months, which means, essentially, we're just caught flatfooted. We're not able to meet the demand or suppliers are not able to meet the demand. And added to this is the semiconductor issue that we are having, which has caused us an enormous pain, both on the auto side, and it is starting to hit us on the commercial vehicle stuff as well. Because anymore, it's not a manual transmission, it's an automated transmission, which means it needs ACM, an engine needs an ACM. Infotainment needs chips. You name it, the truck now needs 5 or 6 chips that are required for running the entire vehicle, which used to be 10 years ago probably 1 or 2 that used to be there. This is also causing additional problems. So I think of it as problems whether it's semiconductors and big forgings and big casting-related problems, small supplier problems that are not able to ramp up fast enough. And then there are these players that are in Mexico, Indiana, the places where COVID is still ranging quite a bit, but sometimes absenteeism and other things are causing problem for people to be back up. All put together, it's a perfect storm. We have too much demand that we can't meet, and there is not enough supply that can pick up fast enough, which means my view is that this demand cycle could actually be extended a little longer because people are already put up for the end of the year. All of our own [indiscernible] are same. They've completely sold out for the year. And tomorrow, we'll get the February orders. My sense is this is going to be pretty high as well. And if that is the case, you're now talking into Q1 of next year for the orders that are being placed right now to be resolved, right? It's a good -- but the good problem to have, that it's going to be even longer than the cycle we had last year.

Right. Well, I was going to say, I mean, I think, if I asked you this question 9 months ago or so, I think you'd be glad to have the problems that you are having right now. But no, that was some helpful color. And you already started going into this. I mean, obviously, it seems the truckload market's on fire. Demand is high. People are ordering trucks. Now you have the added layer that, hey, build spots are getting ramped, I got to order more trucks, so I have it in '22. But the supply chain is here front and center now has a problem. I'm curious if you could update us on that. So you pointed to about, I think, 60 basis points of a headwind that you guys are facing from the cost side, that was on your earnings call. I think we're now a month after, how has the situation progressed since then? We've heard, obviously, to your point, on the chip shortages that's been in the news. But curious if you can address those what you're seeing incrementally better or worse, the same since then.

Yes. It just feels like it's a vacuum hole, right? Every day, we think of it is a problem that we have solved and something else turns up. And we are tracking about 37 supply issues right now. What we call as Class 5s and Class 4s that we are tracking. And these are suppliers that might be in India, that might be China, that might be in Mexico, that might be in the U.S. themselves that we are doing, which means that when they are not able to supply, premium freight goes up. That's one thing. The second thing is we hurry up and wait. We do what we need to do today, and then we don't have a part, so we are having more overtime and more inefficiencies in our shop flow, that causes [indiscernible] as well. And then because of this just general lack of productivity that happens which the entire supply chain causes a lot of inefficiencies that are there. The other thing that's happening as well, Felix, is that commodity costs are going up. Fuel costs are going up. And some of the other places where we pass through this, sometimes there is a lag in way that we do. But when costs are low, we tend to gain the benefit. When costs go high, we tend to actually lag behind in collecting those from our customers because they have already long-term agreements. And then in some places where we actually hedge, we hedge palladium, we hedge copper, we hedge platinum. Those things that we simply hedge, it allows us no matter what the commodity costs go up and down [indiscernible]. Some of it we pass through. Some of it we can't pass through, where -- and so that's the other places where the supply chain, this friction causes -- and the commodity cost increases, causes pain in the near term for us. So far, we've not had lost sales, but because of the fact that it's not just us. As long as I'm not the slowest rabbit in the forest, all I want to be is one step faster than the slowest rabbit in the forest, right? So that's obviously what we're...

Right. So far, so good on that.

So far. It's just stuff though, in this nonstop. I just get tired, people are -- to the maximum, we've been working like this for the last 12 months, and it's going to be another 18 months, and the entire supply chain is just [indiscernible]

Right. Well, maybe we could talk about maybe some more secular trends you guys are seeing, maybe shift toward that a little bit. You kind of framed this in your opening remarks. But obviously, emissions are big secular tailwind, I'm going to say, to Cummins. And there's 2 in the near-term that specifically come to mind, and that's China and India. I'm curious, obviously, China was a point of, I don't want to call it consternation, but maybe debate on your last earnings call, I'm curious if you could tee up for us what you're seeing on the demand side there. It seems like the year was still off super, super strong. I mean it was coming off of a record 2020, but you guys had maybe a little bit more of a cautious outlook on the second half. Anything else you can share from us as it relates to Chinese demand right now? How is that sort of tracking?

Yes. I wish I'm the betting man on China, right? Every time I've said something, I've been wrong, right? If you had ask me last year...

We'll keep that in mind. We'll keep that in mind.

This January last year on 24, Wuhan shut down. Till March 15, Wuhan was shut down. And if you set up the time for after 2 months of shutdown, within -- in 10 months, we produced 1.7 million heavy-duty, medium-duty trucks, I couldn't have imagined that. The fact that we are saying that this year it's going to be 20% down, 30% down to 1.3 million or so, seems reasonable from our vantage point as to where we sit, that this cannot go on. Excavator market that's just hierarchy. So what I don't know is where are these products going. What are the airports that are being built that go nowhere? What are the runways that are being built that are going nowhere? And what are the roads that are being built that are going nowhere? Even though people told us twin trucks were being scrapped. This was the reason why there were so many -- so much demand for the new trucks that are there. There were weight load limits that were put in, which allowed us to do. There was blue plate demands that we've put on the place, and that's why we are having light-duty demand go up. All these put together, it's also a change for us because they are going from NS V to NS VI on emissions in the middle of the year. And when they go to NS VI, this helps us on our components business because of our after-treatment business, [indiscernible] business, fuel systems business, these all add incremental revenue for us, both there as well as in India as well that we would have that stuff. And then the other thing that's happening is automated manual transmission is going up as well. As the adoption rates go up, we will start seeing more and more of our Eaton Cummins JV to start increasing production of their products that would get paired up with our heavy-duty engines as well. So on the one hand, demand is robust for the first 3 months. I don't know how long this could last. And with the shortages in chips and other things that are having, will we have some sort of a let down starting late Q2 because of the NS truck changes and as well as the supply chain constraints that there could be actually some sort of a slowdown. That's kind of how I'm thinking about it, but I could be wrong if we meet 6 months from now, you might come back and say, what the heck did you say then Srikanth?

Yes, we'll hold you accountable to that. But well, I did want to speak about because the Emission Solutions business, and you kind of just alluded to it, you obviously have 2 emission changes, one in China, one in India. I think, previously, you all had cited that as about a $600 million opportunity, at least over the next 1, 2, 3 years. I'm curious if you could update us on that opportunity stack. How much was already maybe realized last year? And then to what degree should we expect that to ramp this year and maybe into next year, if that line of questioning makes sense?

Yes. And one of the things in India, for example, we've said $300 million if we would do, 2020 already got about 1/3 of that. And so, the rest of it that we will at least get another 1/3 this year. And the rest could be because how strong the market recovery is because India has been just really anemic as you all know as to how it has been. And the market could -- the peak was sitting at 40,000 units. Would there be that this coming fiscal year for them, which is April 1 to next March? Probably. Or it could be slightly less, which means depending on what the market recovery could be is where the other 1/3 could come up pretty quickly, I would say, in terms of that. China on the other hand...

And that's on the India side, just to be clear.

India side.

Yes. Okay.

Right. China, on the other hand will start implementing fully their NS VI this summer. So it is still going to be a gradual ramp-up. There is some conversation that's going on about this blue plate, which is on the light-duty side, which they are forcing them to say anything less than 4.5 ton cannot have an engine that is greater than 2.5 liters. So there is some confusion that's going on that might change the light-duty side of the business to change in the next few months out until the end of the year. But NS VI will be broadly implemented in July time frame, Felix. And that's when we would start seeing some of that demand, partly because of the fact that it's prebuy, there will be a fall off. And then after that, it will pick up maybe later in 2025.

Okay, okay. But so it sounds like there's only been a small amount of that $600 million maybe realized already. And you're probably realizing more in '21, and '22 could be the real years as some of the Chinese regulations layer in.

Yes.

Okay, that's helpful.

Yes. Because in China, we've done all the $600 million, we'd say about $200 million we have recognized in 2020. And then we might expect additional $250 million in 2021 and the rest of the final $150 million in 2022 or so depending on how the market is back up.

Okay, that's super helpful. And then we have maybe 8 minutes or so left. And one thing I did want to do is touch on new power. And just, obviously, as we think about alternative powertrains and just adoption, I was really hoping we could learn a little bit from your perspective as you are probably one of the more customer-facing executives as part of the team. I'm curious if you could maybe update us, we hear a lot about hydrogen investments from you guys. We hear a lot about just battery electric vehicles, hydrogen fuel cell vehicles. Can you level set for us how are your key customers maybe thinking about electrification? We've, obviously, seen ESG in the news a lot more. It's become much more prevalent in the investing world. But when you go and talk to some of your key, a, customers and then, b, OEs, I mean, how are they approaching this transition?

Yes. I'm glad you said that. 2 kinds of customers that I go talk to, right? On the one side of it that I talk to OEMs, and these are the players like PACCAR, Navistar, Daimler and [indiscernible]. And they still think of these things as what does it help to do some pilots with their names in the press. Frequently, they're thinking about how do I get into limited production, and when should I get into limited production. And what are the kinds of [ limited production ]. But most of them are in what I would call as product receiving technology evaluation still. They don't get into stable design and say probably a few years from now, which means these OEs want to try different people to see who can work, who is not and all that. But what they always know is Cummins is always there. They've been there for 100 years, and they'll be hoping they'll be there for the next 100 years, which means that they can go to us when they decide about stable design. So they will try out 3 or 4 people, they will actually divide them the best. And then like an accordion, they will come back into very one to say, here's the top 2 suppliers that we go after. On the other side of the [indiscernible] and those people, what they are doing is, who could I partner with, that could actually give me a truck that I could try out so that they could see the total cost of ownership as to how they work, whether it is in buses that we do, whether it is in battery electric or in fuel cell electric because they just want to see how the cost dynamics work. That's where those guys are most interested in. And can I actually do in my yard, 100 trucks, 35 buses when they come over overnight, can I actually charge them? What are the issues that I would have? And what would I get to? And how it is going to be working out from an infrastructure standpoint that they would do? And then they're thinking if it breaks down, who could take care of it? And can you actually take care of it wherever you are? Are you capable of doing that? These are the kinds of questions that I get when I go to them. And then there are these third players that we call as national account, Fedex, UPS, Walmart, Amazon. These are players that have 10,000 trucks amongst them, and they could make a decision today to say, in these trucks, U.S. Post Office, you name it, these are players that would say, I want to try this for 100 vehicles because I got a good enough maintenance team, and I want to try this because I know where this is going eventually, and I need to do for my ESG-related goals, these are the kinds of things that I want to go and do. So -- and we partner with all 3 of them. Partner with FedEx, UPS, those kind of folks. We partner with [indiscernible]. We also partner with OEMs as we think about it in terms of how these get into their product portfolio, product plan so that eventually gets. So it's interesting depending on who you...

Yes. And so does it feel -- I guess, my question is, does it feel that some of the end market customers, if we talk about -- you talked about some of the Knight-Swift, those guys of the world. I mean do you see there being a discrepancy in time line almost? I mean how do you think about adoption? And then my hunch is this, and please correct me if I'm wrong, but we're obviously talking about the shift toward electrification. But it will be measured in decades, most likely. And so, in the interim, is that where you're really focused? I'm just trying to understand the bigger pieces here because on one hand, you have the new entrants coming in. You have maybe a different time line from the actual operators who have to make the decision to actually be viable from a TCO perspective, but then you maybe get a little bit of the best of both worlds, where would you have new power capabilities, but you can continue to serve the diesel side. So if you could maybe just expand and flesh that out a little bit for me. And then the core crux of my question was, do you see any discrepancy there between the owners of the trucks and then what maybe the OEs and component suppliers are working toward?

Well, that's a lot of questions.

Yes, sorry. I know there was a lot. You just stimulate in my mind here for a second.

Yes. I tell you there's a few things that I want to say. The transition to zero emissions is going to take some time, particularly in the commercial vehicle space, primarily because energy density matters, size matters and volume matters. And that plus cost, like today, a diesel powertrain is $40,000. A fuel cell electric powertrain correspondingly is $350,000. And if you ask these end user players, if you gave it free, I'll take it. But if you ask them to pay $350,000 for one of these trucks, they're going to say, no way I'm going to pay for it. School buses are classic example where there is actual money because of the VW gate that people are getting that they are using to go put it up for that. When you say it's $350,000 for a battery electric school bus, they won't say, I'm not going to pay for this, if I have to pay it on my own. But they would try 5, 10, 15 maybe. But when it ends to thousands of these, it's going to be different. I forget which study they did it, but heavy duty by 2030, it'd be 2% or 3%. That said, are there going to be markets that would go into battery electric, like pickup and delivery? Or there is going to be something in L.A. Port? Or there is going to be something in certain particular markets, what fuel it's going to be and California CARB regulations and others are going to force some of these things to actually happen as well. Our view, I -- my personal view is anything that can go electric will go electric. The question is, can I add on electric stuff, build a base diesel engine, but today, a B Series engine is 260-kilowatt. If I could start adding a 30-kilowatt, 50-kilowatt, 80-kilowatt and 100-kilowatt, that's when the cost parity is going to come up to say, if you have to add 100-kilowatt of battery, Srikanth, that cost of this base diesel engine plus powertrain is going to be equivalent to as costs come down on the fuel cell electric, then it might actually not, right? That's how it's going to be. The end users today, if you ask them to pay that much, they're not going to pay. They are going to figure out every which way to extend their existing life cycle of the trucks so that they don't need to go and buy it at that pace, unless somebody is going to give them an incentive to make that happen. Now the other point, Felix, we didn't mention, I think decarbonization of the grid is far more important and will take far longer time than the decarbonization of the tank-to-wheel that we're talking. When you think about well-to-wheel, decarbonization of the grid is what is going to cost us trillions of dollars and lots of jobs that are going to be created and lost. Then if they are ready, the transportation industry will be ready quicker than the grid industry. And that's why I think this is a cycle of 30 years to 40 years rather than a cycle of 10 years in my mind. This is why the long tail worked in our favor. And as we increased market share, as we're producing sane amounts of cash and give it the time to go invest in new power, then virtuous cycle comes together in my opinion.

Right. Very helpful. Well, if I'm not mistaken, I think that already takes us up on 40 minutes, I feel like we could have talked for a lot longer. But I do really appreciate both of you joining us for, I think, your first ever Raymond James Institutional Investors Conference. So thank you for that, and I think we'll wrap up here.

And I appreciate you guys listening to me. And hopefully, if you have questions, always send me to my e-mail or to Jack, and we will definitely come and talk to you guys individually. I'm super excited about this road to zero and the transportation and mobility changes that are happening. We're at an inflection point. Thank you.

Thank you.

Thank you.