Daimler Truck Holding AG (DTG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. This is Christian Herrmann speaking. On behalf of Daimler Truck, I'd like to welcome you on both telephone and the Internet to our annual results global conference call. We are very happy to have with us today Karin Radstrom, our CEO; and Eva Scherer, our CFO. Karin and Eva will begin with an introduction directly followed by a Q&A session. The respective presentation can be found on the Daimler Truck IR website. On our request, this conference will be recorded. The replay of the conference call will also be available as an on-demand audio webcast in the Investor Relations section of the website. I would like to remind you that this telephone conference is governed by the safe harbor wording you will find in our published results documents, please note. Our presentation contains forward-looking statements that reflect management's current views with respect to future events. Such statements are subject to many risks and uncertainties. If the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made. With this, I would like to hand over to Karin.

Thank you, Christian, and good morning, everyone. Thank you for joining our results call for the full year 2024. Before jumping into the numbers, I wanted to start with an update on my strategic priorities that I shared in our third quarter call in November. Regarding the succession for my previous role, I'm really happy that Achim Puchert has taken over as CEO of Mercedes-Benz Trucks on December 1. Achim is a great leader and has this great team in Brazil that has really turned around the business there. He is also a brave leader who doesn't shy away from difficult decisions, and he has a very good business knowledge, so I'm sure that Achim is the right guy to take Mercedes-Benz Trucks to the next level. My second priority was to review our business set up and market opportunities. Since November, we've already taken two important decisions. The first one is a reorganization of the Mercedes-Benz Trucks segment where we have merged our businesses in India and China into the Mercedes-Benz Trucks business effective from January 1. Regarding India, this means that the BharatBenz business is in the process of being integrated into Mercedes-Benz Trucks under Achim's leadership. Regarding China, we've already announced that we're assessing the future setup of our joint venture, and these activities are now also part of the Mercedes-Benz Trucks segment. So why are we doing this? Well, I'm convinced that this new structure will improve the ability of MB Trucks to push scale and commonality of parts and components across several product platforms while still maximizing our regional strengths. It will also help us to fully leverage global production and development network and improve our usage of best cost locations. And it enables Mercedes-Benz Trucks to even better leverage our global talent pool. And finally, we also see opportunities to increase the export of BharatBenz trucks into our global markets. Going forward, the results of the Mercedes-Benz Trucks segment will therefore also include the results from our operations in India and China. Further details can be found in the appendix to our presentation. I mentioned there were two important decisions already taken since November. The second is our Cost Down Europe program. With this program, we're aiming to reach annual recurring costs in Europe by more than EUR 1 billion at the latest until 2030. I want to say that we've already achieved a lot when it comes to cost reduction and performance improvement at Mercedes-Benz Trucks in the past years, and our Cost Down Europe program is the next step towards a leaner and more effective operating model in Europe. It will increase our resilience and give us more financial flexibility to invest in new technologies, products and services. In order to achieve this, we're going to reduce all types of costs from material costs, research and development costs to operations, sales, headquarters and D&A as well as IT and this also includes personnel costs. We started talks with the Works Council in February. And since these discussions are currently ongoing, we unfortunately cannot share details on specific measures in this call today. And we will get back to you as soon as we can. Coming... [Technical Difficulty]

The conference will continue shortly. Thank you. The line is open. You may proceed.

Okay. I'm back again, and I don't really know where I lost you. So I'll keep talking about my strategic priorities where I was mentioning the Daimler Truck strategy. We are currently revisiting and adjusting the strategy, and we will introduce a strategy update at a Capital Markets Day later this year. It will take place on July 8 in Charlotte, North Carolina, so please mark your calendars. The last priority is one that never stops. We are and will continue to work on our values and our culture to become even stronger as a global team with the ambition to build the world's best truck and bus company. With this, let's move on to the results overview for 2024. The overall key message is that 2024 is another solid year for our group. Adjusted group EBIT comes to EUR 4.7 billion, and adjusted return on sales in our Industrial Business is 8.9%. Earnings per share amount to EUR 3.64. This includes negative noncash onetime impacts of impairments on our joint venture, including related receivables in China and cellcentric as well as additional provisions for legacy legal proceedings. Eva will give you more details on that. As I said, it's a solid year. However, 2024 varied across our segments. Daimler Trucks North America and Daimler Buses continued with their very strong results. At Mercedes-Benz Trucks, we've seen a mixed picture. In Brazil, performance was strong. It was based both on our successful restructuring as well as good market conditions. In Europe, however, the performance was impacted by lower demand in our Central European core markets and by challenges in adjusting the cost base to these lower volumes. Performance and resilience were not satisfying. So we are addressing both issues with our Cost Down Europe program. Trucks Asia showed an operationally solid result in ongoing weak markets. Free cash flow of the Industrial Business was very strong in Q4 and increased to EUR 3.2 billion resulting in a net industrial liquidity of EUR 8.6 billion. We continue to be a highly cash-generative business. Now let's look at key market developments in the past year. In North America, the heavy-duty Class 8 market was slightly above average levels despite the impact from the longest freight recession we've seen. In 2024, heavy-duty market volume came to 308,000 units. Our Class 8 market share is 39.8%, once again reaffirming our clear market leadership. In the important U.S. market, our share was 40.8%. Our vocational strategy is paying off. We've increased our vocational Class 8 unit sales by more than 35% from 28,000 to 38,000 units and with this increased the resilience of our North American business by reducing our dependency on the on-highway market where we dominate. In Europe, heavy-duty total market has decreased by 8% to 315,000. 2024 was still above the historical average of 300,000. However, delayed registrations of vehicles sold in 2023, but registered in 2024, inflated the market while truck demand in Europe, especially in Central European markets like Germany was weak throughout the year. We are continuing our pricing discipline and prioritizing profitability over volume, which helps to understand why our market share declined to 16.9%. This strategy is backed by our new Actros L with 3% improved fuel consumption and the new aerodynamic ProCabin which had their start of production in November and where we're now ramping up in the first quarter. Next, our unit sales and order intake. Overall, the 2024 numbers are below prior year. Sales are down by 12%. Orders are down only moderately by 2% after a significant order increase in Q4 by almost 30,000 units or 31% versus Q3. Our book-to-bill ratio increased from 81% in 2023 to 91% in 2024. As in previous quarters, the picture varies across segments. In North America, sales for the full year 2024 are down by 2% or almost 5,000 units. In 2024, the U.S. freight recession significantly impacted the order behavior of large customers in the heavy duty on-highway segments. However, our strength in offering in vocational trucks continues to partly offset lower demand in the on-highway segment. Orders were consistent with 2023 levels although Q4 orders increased from Q3. The current order cycle remains below last year's, predicting lower production for the first half of the year. Demand for our Western Star trucks continues to be strong. At Mercedes-Benz Trucks, and these are now the figures before our segment reorganization as of January 1, unit sales dropped by 20% with a very different development in the two main regions. Sales were down by 35% in the EU30 with sales in Germany, our most important market, being down 36%, while sales were up by 35% in Latin America and even 55% in Brazil. Total incoming orders are almost flat. However, orders are down by 15% in EMEA and significantly up by 47% in Latin America. Order intake in the last weeks is in line with Q4. And if this trend continues, it would support better group sales starting in Q2. At Trucks Asia, unit sales are 22% lower due to ongoing weak key markets like India and Indonesia, orders are down by 10%. At Daimler Buses, after a strong post-COVID recovery, sales and order volumes have stabilized on a very solid level. Now let's look at our progress with zero emission vehicles. In 2024, we sold slightly more than 4,000 battery electric trucks and buses, 17% above prior year. Orders for our ZEVs amounted to 5,600 units, which is an increase by 22%. So the development is unchanged to previous quarters. There is still a significant ZEV growth, but it's more modest than it has been in the last years. Despite that, we keep pushing ahead with the transition to sustainable transportation. And as of today, Daimler Truck already has 11 battery electric trucks and bus models in series production, including long-haul applications. The major challenge on the road to zero emission transmission is not a lack of vehicles. It is a lack of infrastructure. Today, there is not even 1,000 public charging stations for battery electric trucks in Europe and by 2030, 35,000 such charging stations will be needed. This is why we have the following expectations to politics. First, we have to bring forward the revision of the CO2 targets for commercial vehicle manufacturers to 2025. In this revision, we need to link the CO2 targets by law to infrastructure expansion, and we need to also link them to a Europe-wide CO2 toll for trucks. The toll relief for zero emission trucks is key for our customers because they're rational people running their businesses on low margins, so they need to see cost parity with diesel. In other words, if CO2 targets are not linked to infrastructure expansion and a Europe-wide CO2 tolls, manufacturers, like us, will be penalized if we miss the CO2 targets even though we are delivering what we're responsible for. In addition to revising the CO2 targets, it, of course, also remains important that the infrastructure expansion urgently picks up speed. With this, I'd now like to hand over to Eva for a more detailed look at our financials.

Thank you, Karin, and good morning, everyone. Now let me walk you through our financial performance for the full year and the fourth quarter 2024. Let's start with the group. Group revenues declined by 3% in 2024, reaching EUR 54.1 billion. Group EBIT fell by 31% to EUR 3.6 billion while EBIT adjusted declined by 15% to EUR 4.7 billion. Free cash flow of the Industrial Business grew by 12% to EUR 3.2 billion, resulting in a net industrial liquidity of EUR 8.6 billion at the end of 2024. Group EBIT adjusted was negatively impacted by a lower gross profit of the Industrial Business. Main negative driver was a 12% decrease in unit sales with the majority of the negative impact coming from Mercedes-Benz Trucks. Higher variable overhead, mainly driven by production inefficiencies and material cost increases, further burdened gross profit. The significant positive impacts from pricing and lower functional costs could not offset this. Financial Services impacted group EBIT with minus EUR 79 million versus 2023. Total adjusted items for the full year amounted to minus EUR 1.1 billion. Thereof, minus EUR 152 million were related to additional provisions for legacy legal proceedings, minus EUR 867 million classified in the M&A category with minus EUR 376 million attributed to spin-off-related costs mainly IT with minus EUR 328 million. A noncash impact of minus EUR 281 million resulted from the partial impairment of our joint venture, cellcentric, in quarter 4. Due to the delayed development of the infrastructure for green hydrogen in the core regions, Europe and the United States, as well as the current uncertainty regarding the framework conditions in the U.S.A., the carrying amount of the investment in our fuel cell joint venture, cellcentric, was impaired by that amount as of December 31, 2024. We remain convinced that hydrogen-powered vehicles are an essential part of the CO2-neutral transport of the future if the European fleet targets are to be achieved. Minus EUR 189 million related to our Chinese operations primarily driven by a minus EUR 180 million valuation adjustment for receivables are already reported in quarter 3. Of the total adjustment 156 million impacted Mercedes-Benz trucks and EUR 33 million Trucks Asia. The assessment of the future of our China operations is ongoing. We will update you once the decisions have been taken. Minus EUR 55 million are linked to restructuring with half of it driven by our optimization program at our Trucks North America segment and the other half coming from a transformation and restructuring program in our Financial Services segment in North America. Industrial Business revenue decreased by 5% from EUR 53.2 billion in 2023 to EUR 50.7 billion in 2024. EBIT adjusted for the Industrial Business declined by 14% to EUR 4.5 billion, with return on sales adjusted decreasing year-over-year by 100 basis points to 8.9%. Main positive EBIT contributors were Daimler Buses with EUR 220 million and Trucks North America with EUR 173 million compared to 2023. However, these gains could not compensate for the negative effects for Mercedes-Benz Trucks with minus EUR 766 million and Trucks Asia with minus EUR 224 million. 2024 was another successful year for Trucks North America with an EBIT adjusted of EUR 3.1 billion and return on sales adjusted of 12.9%, both up from the prior year level despite the market contraction and lower unit sales. Year-over-year, the North American Class 6 to 8 market declined by 5%, but our unit sales only contracted by 2%. The U.S. freight recession continued to impact the heavy duty on-highway segment. Our continued strength in the vocational and medium-duty segments partly offset the on-highway weakness. A recovery of the market in the second half of this year is dependent on the resolution of the current regulatory uncertainties, including potential tariffs. Order intake for our vocational trucks maintained its momentum. For the full year 2024, positive pricing and a favorable customer mix offset cost increases from variable cost, labor and material. The change in the product mix from on-highway to more vocational and medium-duty trucks resulted in a headwind. After sales and the used truck business had a lower contribution to EBIT due to the weak freight environment in 2024. Our strategy is paying off. We are reducing the dependency on the on-highway cycles with our vocational strategy. Together with stringent cost management, we clearly see increased resilience in North America. The fourth quarter in 2024 was impacted by lower volumes, increased material costs and FX headwinds. This was offset by pricing and customer mix resulting in a relatively stable EBIT adjusted of EUR 737 million and a return on sales adjusted of 12.3%, comparable to quarter 4 in 2023. EBIT adjusted at Mercedes-Benz decreased year-over-year from EUR 2.2 billion to EUR 1.4 billion in 2024, resulting in a return on sales adjusted of 7.5%. Under the new segment composition, EBIT adjusted would have been EUR 1.3 billion and return on sales adjusted 6.4%. While we see an improvement compared to similar low volume market conditions in the past, it is also clear that the total 7.5% return on sales adjusted does not meet our expectations. Our Latin American business is now accretive. It shows that the profitability and resilience of Mercedes-Benz in Europe is not yet at the level we aim for. This is why we are targeting a recurring cost reduction in Europe of more than EUR 1 billion until latest 2030. As Karin mentioned, we will update you in the course of the year on specific measures and progress. Looking at the 2024 full year, EBIT adjusted was negatively impacted mainly by the lower volume, resulting in underutilization and production. Higher variable overhead costs and a normalization of the used truck business also weighed on EBIT. Positive pricing after sales as well as lower R&D expenses could not offset this. Also overall R&D, that means capitalized and expensed, were on a comparable level, a higher capitalization for transformation projects resulted in a positive impact of approximately EUR 100 million. Quarter 4 2024 came in with a return on sales adjusted of 8.1% with an EBIT adjusted of EUR 430 million. Similarly to the full year, major headwinds in our quarter 4 results year-over-year came from the drop in volumes and higher manufacturing and material costs, whereas after sales, FX, pricing and lower R&D costs contributed positively. Trucks Asia reported an EBIT adjusted for 2024 of EUR 106 million with a return on sales adjusted of 1.7%. Under the new segment composition, EBIT adjusted would have been EUR 231 million and ROS adjusted 4.6%. With 125,000 units in 2024, total unit sales at Trucks Asia came in at minus 22% versus prior year. Excluding the impairment of our China joint venture as well as the respective losses recorded as an equity income, the return on sales adjusted would have been almost 300 basis points higher, close to 5%. This highlights the improved resilience within our Trucks Asia segment in a weak market environment across Asia. Both India and Indonesia experienced significant market declines in 2024 compared to 2023, driven by uncertainty around elections and restrained government spending in India. Also, the market in Japan remained weak with only a slight increase of 4%. EBIT in 2024 was supported by strong pricing, growing after sales and lower SG&A expenses driven by strict cost discipline. These effects only partially compensated negative impact from significantly lower volume and FX headwinds. As disclosed already in quarter 2, the EBIT adjusted also includes the full impairment of our China joint venture BFDA, which amounted to minus EUR 120 million. In total, the negative impact from BFDA's at equity results burdened Trucks Asia's EBIT adjusted by minus EUR 165 million. The fourth quarter in 2024 showed positive impact on EBIT from improvements in pricing, especially in Japan and international markets, stronger after sales as well as lower SG&A expenses year-over-year. However, this could not compensate negative effects from lower volume of minus 15%. Daimler Buses delivered strong results in 2024 more than doubling its EBIT compared to 2023 with an EBIT adjusted of EUR 434 million and a return on sales adjusted of 8.3%. Market conditions improved across all segments driven by strong customer demand and a continued recovery of the European coach market. 2024 marked the first year where ZEVs surpassed 50% share in the European city bus market. Daimler Buses maintained its market leadership in its core market, EU30, Brazil, Mexico and Argentina. Unit sales grew by 2% year-over-year, with incoming orders trending on the same level as previous year. The strong EBIT performance in 2024 was fueled by an improved mix, mainly from a higher share of coach sales, improved pricing, increased contribution from the aftersales business, favorable FX developments as well as the positive impact from the remeasurement and sale of noncore shareholdings, which had a positive impact of EUR 25 million. Minor negative effects came from inflation-related cost increases, particularly in manufacturing and personnel expenses. Q4 EBIT was supported by higher sales, stronger mix, better pricing and favorable FX effects, which more than offset inflation-related cost increases. Let's have a look at our Financial Services business. EBIT adjusted decreased year-over-year from EUR 211 million to EUR 133 million and return on equity adjusted decreased from 9.1% to 5%. The result is highly impacted by the ongoing freight recession, additional risk provisions related to 2 specific customers in North America. Positive volume and margin development impacted profit positively partially offsetting the negative credit cycle. In 2024, cash generation at all our industrial segments benefited from a significant improvement in working capital, primarily driven by a decrease in trade receivables and a reduction of inventories of finished and unfinished goods towards the year-end. Reduction of trade payables due to lower production and purchasing volumes had an opposite effect, though to a much lesser extent. Overall, these factors contributed to a positive working capital impact of EUR 897 million. As planned and in line with the ongoing transformation of the trucking industry, net investments in property, plant and equipment, intangible assets and financial investments had a negative cash effect totaling EUR 1.8 billion. The major drivers here were investments for our New Global Parts Center in Germany, the Amplify battery cell manufacturing joint venture in the United States and investments into the ramp-up of new component in vehicles like the eActros 600 at Mercedes-Benz Trucks. This resulted in a cash flow before interest and taxes for the Industrial Business of EUR 4.4 billion, and an increase in the cash conversion rate adjusted from 0.8 one year ago to 1.1 in 2024. Cash taxes came in with minus EUR 1.6 billion, resulting in a free cash flow of the Industrial Business of EUR 3.2 billion. Taking into account the adjustments from M&A transactions, restructuring measures and legal proceedings, adjusted free cash flow of the Industrial Business stood at EUR 3.7 billion. Industrial net liquidity increased by EUR 300 million to EUR 8.6 billion compared to prior year. Main drivers were the free cash flow with the aforementioned positive contribution of EUR 3.2 billion, and cash out of EUR 1.5 billion for the dividend payment in Q2 2024, EUR 850 million on the ongoing share buyback program over the course of the year and EUR 500 million for equity injections into the Financial Services segment. Net profit declined by 23% in 2024 from EUR 4 billion to EUR 3.1 billion. This includes noncash onetime EBIT impact from the impairment as well as valuation adjustments related to our Chinese operations and from the partial impairment of cellcentric of in total EUR 590 million. As a result, earnings per share decreased by 21% to EUR 3.64. Free cash flow of the Industrial Business came in at EUR 3.2 billion. Considering the noncash onetime impact in EPS and the strong free cash flow, we will propose an unchanged dividend of EUR 1.90 per share to the Annual General Meeting on May 27, 2025. This proposal reaffirms our commitment to delivering consistent returns to shareholders, and it aligns fully with our capital allocation strategy with a target payout range of 40% to 60%. We remain dedicated to maintaining a strong balance sheet, prioritizing cash generation and ensuring a value-driven capital allocation. This marks the third dividend payment of Daimler Truck as a stand-alone company. We will continue to maintain a strong balance sheet, focus on cash generation and adhere to a value-creating capital allocation, investing in highest return on capital businesses and returning excess liquidity to shareholders. This remains a core principle of our capital allocation strategy, which is also supported by our ongoing share buyback program. Now let's come to the outlook for 2025. As usual, our outlook is subject to further macroeconomic and geopolitical developments, in particular, potential effects of tariffs or the impact on market demand. Depending on the outcome of the ongoing discussions on our China business with our partner, we expect further financial implications that are currently not included. Since discussions with the Works Council are ongoing, restructuring expenses from the Cost Down Europe program are not included. You will also notice that we harmonized all guidance metrics by shifting to quantitative guidance ranges, moving away from a mix that previously included qualitative guidance statement. The key factors driving the 2025 outlook are: The ongoing low freight rate environment in the U.S. is impacting on-highway truck. Major markets are expected to remain weak throughout 2025. So for the full year 2025, we anticipate unchanged, from last year's guidance, a range of 280,000 to 320,000 units for the heavy-duty truck market in North America. For the European heavy-duty truck market, we expect a range of 270,000 to 310,000 units. Now let's move to the financial guidance for 2025. For our Industrial Business, we anticipate unit sales in a range of 460,000 to 480,000 vehicles and revenues from EUR 52 billion to EUR 54 billion. Return on sales adjusted of the Industrial Business is expected in a range of 8% to 10%, and we anticipate free cash flow to decrease between 10% and 25%. All in all, we expect an operationally stable 2025 compared to 2024. The second half of the year is assumed to be stronger than the first half, both in North America and at Mercedes-Benz Trucks. Moving on to our segments. For Trucks North America, we expect unit sales in the range of 180,000 to 200,000 in line with our heavy-duty market guidance, which is also expected around prior year level. Return on sales adjusted is anticipated to come in between 11% and 13%. Looking at the first quarter, we expect profitability at the upper end of the guidance range. It is reasonable to expect the persisting uncertainty around or implementation of tariffs would have an adverse impact on our volume and profitability projections. The ongoing uncertainty has already impacted order intake in the last few weeks, which might lead to a softer quarter 2. Given the limited visibility for the second half of the year and considering the new segmentation, we guide unit sales in a range of 160,000 to 180,000 units and return on sales adjusted within a corridor of 5% to 7% for Mercedes-Benz Trucks. This now follows our new segment structure and compares to 2024 pro forma unit sales of 160,000 units and 2024 return on sales adjusted of 6.4%. The impact of the new segmentation for the full year 2025 amounts to approximately additional 30,000 units and a negative impact of 50 basis points in return on sales adjusted. Order intake has been improving since quarter 4. However, given the low order intake in Q3 and before, we expect a slow start with regards to volume in quarter 1. Together with the simultaneous ramp-up of the Actros L with the ProCabin and the eActros 600, we expect Q1 return on sales in the lower half of the full year guidance range. For Trucks Asia, we expect unit sales between 95,000 and 115,000 units. This compares to pro forma unit sales in the new segment composition of 103,000 units in 2024. We anticipate a return on sales adjusted of 4% to 6%. For quarter 1, we expect an adjusted return on sales towards the lower end of the full year guidance range. The guided unit sales range for Daimler Buses lies between 25,000 and 30,000 units with European line markets expected to stay on a high level. The European coach market increasing further and also higher market levels in Brazil and Argentina, return on sales adjusted is expected to come in between 8% and 10%. For the first quarter, we expect an adjusted margin at the midpoint of the full year guidance corridor. For Financial Services, adjusted return on equity is anticipated to be in the range of 8% to 10% with an increasing EBIT due to further margin recovery, ramp-up of European markets and easing of the negative credit cycle towards the second half of the year. For Q1 2025, we expect a return on equity adjusted slightly below the guidance corridor. To conclude, I would like to invite you to our Capital Market Day on July 8 in Charlotte, North Carolina, in the United States. Please save the date. We look forward to seeing you there. As Karin mentioned, we will introduce an update of our corporate strategy, which we are currently revisiting in our Board of Management. Our updated strategy will provide the framework for not only making Daimler Truck stronger but for making it the world's best truck and bus companies for our customers, for our shareholders and for our employees. With this, I'd like to thank you very much, and we're now looking forward to your questions.

Thank you very much, Karin and Eva. [Operator Instructions]

[Operator Instructions] The first question comes from the line of Nicolai Kempf from Deutsche Bank.

Nicolai from Deutsche. If I may ask two questions, and I will take them one by one. So in your key regions, North America and Europe, you've guided volumes essentially flat or slightly down, but industrial revenues are expected to increase by EUR 2 billion to EUR 3 billion. Can you just give us a bit more color what's driving this increase in the revenue guidance?

So as Karin mentioned, in Europe, the market last year was impacted by an effect where we also had market share -- we also had in the market units that were reflected in the overall market size, but they had been sold actually in the year before. This year, we do not see this effect to be this significant because we really see that backlogs are normalizing on all levels. We are also starting the year now with a lower backlog compared to last year, but we have seen that the orders since the end of quarter 3 last year have been recovering quite a bit at Mercedes-Benz Trucks, and we believe that this will really help us also to potentially recover some market shares towards quarter 2 and then the second half of the year, which is why we expect the second half of the year to be stronger than the first half. And that's why we believe overall, out of the market that we see for Europe, we will be able to have a higher number of unit sales also for looking at the whole Mercedes-Benz segment, also outside of Europe, we do believe that Latin America will also have a growing market through the course of the year. And in Trucks North America, we have seen strong orders in quarter 4, which you have also seen, I guess, looking at our numbers, which will also lead to a good quarter 1. I also said that we're guiding it at the upper end of the return on sales guidance range for that matter. And then we also see that recovery of the on-highway business hopefully coming stronger and having an effect on our unit sales in the second half of the year. Of course, this includes any potential impact from tariffs, which would have an effect if it happened. But that's taken aside, we do believe that the recovery of the on-highway business would benefit us, and that would be a stronger on-highway business compared to previous year. And then with vocational still remaining strong, and that would make it then overall a higher volume year than last year.

Okay. Got it. And my second one would be on the integration of China trucks in India into Mercedes. So we can follow reasoning, and it probably doesn't make sense from a business perspective. But for us, as external, it is now a bit more tough to follow the progress of Mercedes trucks in Europe. So how can we track that going forward as an outsider and how can we track that you're actually making book in the underlying business in Europe?

I think it's also in our interest to be very transparent on our performance in Europe, so we will keep you informed. And I think Eva did a good bridge also to explain how the new segmentation affects the numbers, so to speak, but for sure, good input, and we'll make sure to be as transparent as possible to show you how we are developing the European business.

And maybe, Nicolai, just to add one thing. I mean, as Karin also mentioned in her speech, and I refer to it as well in my part, we will update you on our Cost Down Europe program during the course of the year, and we have announced at Capital Market Day, so you can expect more transparency how we will bring our European business to a different performance level.

The next question comes Klas Bergelind from Citi.

Klas at Citi. So my first question is on North America and the guide looking at the margin of 11% to 13%. I hear you that you have reduced your dependency on the highway side through the strong growth in vocational, but it's still a big part of your business and fleet demand is particularly weak at the moment as we understand it, where you have a strong market share. I hear you on the second half sort of caveat that you are assuming a second half recovery. And I know that the mix was already negative, as you said, Eva, in 2024, but could still get more negative, right? I'm just trying to understand the mix implication here, given the margin guide of 11% to 13%, which is pretty solid. I assume that you threw in that caveat that we need to see a kind of recovery, including a prebuy, I would assume. I just want to clarify that.

Sure, Klas, and happy to answer that. So what helps us now in quarter 1, which, of course, also leads to the guidance of the upper end of the margin corridor in North America for quarter 1 is that in quarter 1, actually, we expect a fairly good mix towards on-highway heavy-duty business because of these large orders that we have received in quarter 4 last year. And now obviously, the question is, how will that continue? We have seen that positive order momentum move into quarter 1, but then I've also commented that in recent weeks, because of the uncertainty related to tariffs, obviously, order momentum has really decreased. But we believe, generally, if we take tariffs aside, the recovery of the on-highway business is on its way with a positive effect on mix. And as I said in quarter 1, we do expect to see it then. When it comes to the prebuy related to EPA '27, obviously, a lot has been going on in recent days. And we've obviously done also a lot of sensitivity analysis. What I can say is our full year guidance for Trucks North America is not dependent on an EPA '27 prebuy in the second half of the year of '25. It's really the effect of tariffs that we need to exclude from the guidance, that the EPA '27 prebuy is not something we are dependent on in this year because we would believe the recovery of the on-highway business would support us there and also a continuously strong vocational business.

All right. Okay. No, that's very clear. Obviously, the first quarter sales and margin will be a little bit backward looking. I mean, depending on what will happen with the orders again sort of in the months ahead. But okay, then I understand how you think. My second one...

Maybe Klas, just to comment that because quarter 1, you're absolutely right, but I will be just repeating from what I said in the speech regarding quarter 2 because I want to make that clear. This weaker order behavior of customers due to the uncertainty around tariffs in the last couple of weeks, that might impact quarter 2 then from a volume and margin perspective.

Okay. Very good. My second one is on tariffs and thinking about Mexico. Obviously, it's a very fluid situation, to say the least. I don't know if you can say what have we done so far? You're obviously very flexible in your assembly. You can move back capacity to the U.S. How long would it take? I guess, you will run extra shifts in the U.S. to compensate initially, but if you could share some thoughts on the potential sort of transition back into the U.S. in terms of capacity.

Klas, Karin here. Yes, we have assembly factories in the U.S. as well as in Mexico. What's good in the situation we face right now is that we can produce all models in the U.S. or in Mexico. So for sure, we are preparing ourselves for different scenarios, and we can ramp up more in the U.S., if that would be required. We are looking at both from kind of a shorter-term perspective, how we could increase capacity in the U.S. and also in the longer-term perspective, what we could do. But I would say it's a little bit too early to pull the levers, but we are definitely prepared and following what will happen with the tariff situation.

So a quick follow-up on the margin in Trucks North America in the first quarter. Are you planning to sort of overproduce initially to build some inventory ahead of all of this? Or is that not baked into the guide?

Well, I mean, what we're obviously doing is that the orders that we have right now for the quarter 1, we will make sure that we ship all trucks we can until the end of the month from Mexico into the U.S. I mean, I think that's obvious, but that also doesn't mean that we can now prepone a lot of orders because with our order cycle, it's not just possible to do it that quickly. But obviously, wherever we can, we will minimize our risk to deliver what we can in quarter 1.

The next question comes from the line of Michael Aspinall from Jefferies.

Michael from Jefferies here. Just two on orders, one Europe, one North America. Europe orders now look to have been strong across kind of all industry players, which has continued into '25. What would you like to see to become a bit more confident in the European cycle?

I can take that one. I think, as you mentioned, we have seen an improved order situation in Q4 and also moving into Q1. But we are now back to more the normal cycle of ordering, which means we still like a little bit visibility into the second half of the year. But I would say if the order intake continues on the level where we are now, we will be more confident as we move forward. We don't honestly really need an uptick, but we need to stay on the level where we are and let's see how it develops in the next 4 to 8 weeks that will give us more visibility on the second half of the year as well.

Great. And then one on North America orders. When we speak to some industry participants, it sounds like car dealers around EVs and ICE vehicles are holding back orders in kind of the six card states. Do you have a sense of how much orders might be being held back at the moment from that kind of EV/ICE ratio rule?

To be very transparent on the electric truck side, the order intake is very low in the American market as customers are anticipating that the benefits that have been for electric trucks and buses might not be there in the future. But we see generally on the order side is, as Eva meant as well, we are very, very pleased to have the exemption from the tariffs with the USMCA that really helps us bring trucks across the border right now. But of course, for customers ordering now, the order cycle is typically 6 to 8 weeks for on-highway and of course, longer for the vocational because they go to body builders. So that makes them somehow uncertain in the current situation to place new orders because we don't exactly know what it will look like 6 to 8 weeks out. So of course, what customers do is they look what's available in the dealer stock. We also see more movements on the used truck side. And that's what makes the situation a little bit difficult to predict at the moment, especially then regarding Q2.

I mean I think we spoke to some dealers that said they can't put orders in for ICE vehicles because they're covered under that cab roulette where you can only make order for ICE when you sell an EV?

I mean, as I said, I think electric trucks is a very small portion of our overall order book for the U.S. So I don't see any significant effects of that.

The next question comes from Daniela Costa from Goldman Sachs.

I have two as well and its clarifications or things that you spoke about before, so I'll ask them one at a time. So just to go back to the guidance in the U.S. You've mentioned that you have implied in the second half, a strong recovery on the on-highway side. And I just wanted to go back to which indicators do you see that point towards that? And if that doesn't happen because of the situation or tariffs or something else, what is factored in the bottom end of the guidance? Is there sort of still a growth in the second half or flat or down?

Yes, Daniela. Good question. So obviously, we did see in quarter 4 that really the market on the on-highway side was turning. Of course, there's still only a slight recovery in freight rates, but we really did see it on our order improvement. And we do believe it would have continued into quarter 1 had it not been for that uncertainty that we see in the market right now that Karin also alluded to. So now the question is what could happen with tariffs and how could that impact it? I already said that from an EPA '27 perspective, looking at a potential prebuy, that's where -- our guidance does not depend on that. On the tariff side, there's like a huge range of scenarios, for sure, that could happen. So that's very difficult to indicate right now how it would impact our guidance. That's not really something we can predict right now because we do not have the details available to do the calculations also when it comes to potential calculation methodologies for tariffs or retailer tariffs and so on.

Sorry, maybe I didn't express myself clearly. The bottom end of guidance, that has a recovery in the second half.

The bottom end of the guidance, well, I mean, generally better half of the second year. That's what it has in there, but it would be more like continuing the trend that we see in the first quarter because, as I said, we expect the first quarter to be a good one, then potentially a bit weaker second quarter because of the reduced order levels that we've seen over the last couple of weeks and the lower volumes resulting from that. And then the second half more continuing on the course of the quarter 1 how we expect it right now. And that would then overall make a better second half. Is that clear?

Understood. That's very clear. And my second question is just on Mercedes-Benz and how to think about the guidance for '25 and then what's after? Just I think in the appendix, you show that you've done 10% cut of those fixed costs, which I think that target was 15% originally. Should we think about the remaining 5% impacting '25? Or has this been rolled over into the EUR 1 billion? And effectively, we should think about all of these just by 2030?

It's a mix of that. So we have achieved minus 10% of fixed cost reduction versus the 2019 base in '24, which is a good improvement versus '23. But yes, we are not on track to reach the target of minus 15% by 2025, which is why we have started the Cost Down Europe program because with this program, we believe we will bring then Mercedes-Benz to the level where it needs to be, also closing the gap to our best-performing peers. We said now that this more than EUR 1 billion target we expect to achieve by 2030, but that obviously doesn't mean that it will take until 2030 to see any effect. We believe that will be a good improvement over the year. Also hope to see some effect already in '26. In '25, it will probably be limited out of this program because we're currently still in discussions also with the Works Council. But we will update you then at our Capital Market Day most likely with more details also on the ramp-up of these savings and how they will come in and how that will also impact the profitability of Mercedes-Benz before 2030.

The next question comes from Miguel Borrega from BNP Paribas Exane.

Miguel Borrega from BNP Paribas Exane. A few questions for me. First, again, on EPA '27, which has just been said out. Can you give us more color on the potential implications besides the prebuy? You've made some investments to comply. So are you still going to implement these changes and get the price offset for that? Or are you going to abandon these changes entirely?

I think on the investments, I can comment, and then I'll hand it over to Karin on the overall EPA '27 implications. So we've said before that our engine is very -- that our engine compared also to the competitive environment positions us well when it comes to complying with EPA '27. So from an investment perspective, I do not see impacts now on our results. I mean we were also asked before whether there would be potential impairments if EPA '27 shouldn't come. So there is nothing to the likes of that. And we're well positioned, if EPA '27 comes, we have the engine. And if it doesn't, it will also not have an impact on any investments or anything because we do not have anything on the balance sheet for EPA '27-related investments. And with that, I'll give it to Karin.

Yes. I mean there were a lot of announcements coming, I think, 2 days ago regarding EPA and future regulations. So we are, of course, very active to understand exactly how the regulations will be formulated. But maybe to mention two of them. The first one, greenhouse gas Phase 3, where the statement that came on Wednesday night said this will be reconsidered. Let's see, it sounds like that might not come then, which means -- and that rule would stipulate that we sell a certain amount of zero emission trucks. So I think this would not be bad if that was reconsidered as the kind of enabling conditions for zero emission trucks in the U.S. aren't there right now in terms of cost parity and of infrastructure. With regards to the EPA NOx rules, they used a slightly different wording, reevaluate, which means -- it could mean many different things. It could mean -- as Eva said, that the rule is off the table. It could also mean that it will stay without changes. And it could be somewhere in between, which is that you keep the rule, but you adjust, for instance, on the warranty conditions or on the in-use testing procedures or something like that. But I would say we're prepared for all three of those different scenarios. And as Eva said, we do not expect that, that significantly affects our guidance in any way.

And then again on the tariffs, and this is a 2-part question. First, on the Mexican imports. What kind of impacts are you expecting if these are really implemented? I get you on, you can produce trucks from the U.S. and Mexico, any truck model, but does it mean that trucks coming from Mexico will effectively be 25% more expensive? Or are there ways around it? Because this would obviously impact your competitiveness relative to peers, who don't have any Mexican production. And then on steel and aluminum imports, the tariffs on that, how are you preparing for potential wave of raw material cost inflation? Is there room to offset this with additional prices in the U.S.?

Ladies and gentlemen, please hold the line. The conference will continue shortly. Thank you. The line is open. You may now proceed.

Okay. So we're back again. I think I captured it before we dropped out. Just to say a couple of words then on tariffs. As you rightly pointed out, there's not just one tariff. There is a lot of different tariffs that we're looking at. First one, steel, aluminum, copper. This is one where I think everyone in the industry faces and is something we will eventually have in our pricing. We also have -- everyone in the automotive industry, a lot of parts that are manufactured in Mexico that go across the border. Many also have a lot of parts manufactured in Canada or also running assembly in Canada. So this is something I think we face as an industry. And then you had a specific question on trucks built in Mexico. It's still a little bit uncertain how the tariff system would work. For instance, as you know, we are building engines in Detroit that we are then sending across the border to Mexico, putting them into the truck and sending the truck back to the U.S. And as for the moment, it's a little bit unclear if American parts in a Mexican assembled truck would be able to -- if you can then get some drawbacks on that because it's American content or not. So I will just say we are looking at this, of course, following it very closely. But to really quantify exactly how this will pan out is very difficult at the moment. And then let's also see, we also follow what happens with the EU tariffs that could also affect both our cost situation and of course, adjustments that we will need to make in pricing to our customers.

And then if I can squeeze just one more. In terms of order intake for Mercedes-Benz in Q4, which was very strong, up 76% year-on-year. Can you give us some color on the breakdown between Europe and LatAm? In other words, was Europe up year-on-year during Q4 and maybe comment also on Germany, please.

We don't actually disclose that breakdown, but I will say we are pleased to see an improvement in Europe as well as in Germany. Something we also follow is, of course, the mix between on-highway and vocational or rigid trucks, which was also something we were pleased with. So I think it's a pretty good mix, which gives us some confidence going into '25.

The next question comes from the line of Kirunda Shaqeal from Morgan Stanley.

Shaqeal from Morgan Stanley. I just want to go back to the guide. So a stable volume outlook and a lower margin at the midpoint for North America. How are you thinking about pricing across heavy duty on-highway and vocational as well as medium-duty? And then can you tell us about the mix impacts for the year? And how does pricing change if EPA '27 goes away completely?

So overall, pricing for North America, we will have positive pricing effects from '24 to '25. We had already issued our model year '25 price list last year after Labor Day. And our guidance, as I said before, is not dependent on any EPA prebuy effects and also not any price increases related to that. So we see -- generally, we've seen it in quarter 4 better demand on highway side and so the mix in '25 could be more towards on-highway with still strong vocational sales and a bit of a lower medium-duty contribution compared to '24.

And then one more. So a few investors were expecting a new share buyback program today. Could you confirm you're still committed to shareholder returns despite the uncertainty? And then could you remind us how you think about the size of potential future programs, given the strong free cash flow generation this year?

Sure. Happy to do that. I mean, obviously, our current share buyback program the second part of the EUR 2 billion program that we had announced at the last Capital Markets Day in '23, that still runs until August this year. So also there, I think it's not the time right now to announce [ NO1 while the O1 ] is still running. But as I said in my part of the speech, we have a high focus on returning also cash to shareholders. And I think we have been able to deliver a very attractive free cash flow this year, also then leading to a higher net industrial liquidity that was EUR 300 million higher than in the previous years. And of course, we are looking generally into a mix of dividends and share buybacks when it comes to cash returns, and we'll announce at Capital Market Day in July this year. So potentially, that would be a point in time when you could expect an update.

And then the last one, just in terms of CapEx for the year ahead, what's driving the lower free cash flow guide on growing earnings? Are there any one-offs to consider there?

Yes. We do have higher investments in '25 compared to '24. We are obviously in a big transformation of the trucking industry right now. And so '25 is expected to be a year with higher invests and that is weighing on the free cash flow, so that is one factor there for the lower free cash flow guide. Obviously, we've also had a very strong quarter 4, where we were able to also really significantly reduce inventories, and that is also affect why now it balances a bit out in '25.

The next question comes from the line of Hemal Bhundia from UBS.

Hemal Bhundia from UBS. I think Daniela alluded to it earlier, but I just wanted to get a bit more color on the cost savings for Mercedes-Benz Europe. How should we think about the cadence of these savings? Would it be fair to say they're more front load -- front-end loaded? And also, I apologize if I misheard, but I think I heard that part of the cost savings would be R&D. Would this mean that certain technology investments could be scaled back? And I'll follow up my second question after.

So if I understood you correct, you're asking about the more than EUR 1 billion recurring cost reduction that we're targeting for Mercedes-Benz Trucks, whether that would be front or back-end loaded. I mean, we are obviously still in the discussions with the Works Council on the target pictures and the exact measures. And as Karin said, we cannot really give you more details today, but once we have concluded on our discussions, then we would share more details, and that would probably be at the Capital Markets Day. But of course, we target to do it as quickly as possible. I think that's fair to say. And when we talk about cost cutting in R&D, that is not about investing less in technology and innovation and the transformation. It is about streamlining, simplifying processes and becoming more efficient. So that is the portion when we talk about R&D.

Understood. And in terms of the margin guidance and obviously spend, could you give us a bit more color on where you would expect Europe, Brazil and now the recent additions of China, India for individually within the 5% to 7% range, please?

So we commented on the new segmentation that has a negative impact of about 50 basis points this year. So also that's the impact that you can expect on the guidance range of that new segment set up. Brazil, I commented in my part of the speech, has been accretive in the last year. We also do expect it to be accretive this year. And then in Europe, we do expect a stabilization, but it is still from a -- coming from a weak market environment. So overall, a recovery in Europe with really significant higher margins would also really expect a better market environment and then the initiatives from our Cost Down Europe program to come in which would be then more towards '26 and the years to come when we would see that improvement in Europe and return on sales.

The next question comes from the line of José Asumendi from JPMorgan.

A couple of questions, please. Eva, can you comment a little bit on the industrial performance and R&D buckets on the bridge for 2025? Should we expect R&D again to be a tailwind in '25? And how should we think about industrial performance? And then second question, Maybe, Karin, can you just go back a little bit to the rationale of merging China, India into MB Trucks. I was actually hoping, we will get more transparency on the European business and the margin between Europe and LatAm, and now I see them emerging in the other regions. But I'm sure there's a rationale from, I don't know, brand perspective, economies of scale, positioning, et cetera. Can you spend a little bit the rationale of change in the reporting structure?

So very quickly to the first one. So R&D, it will be a headwind in '25. As I said earlier, it will be higher investments. And then Karin for the second part.

Yes. I mean, we definitely do this because we think it's the right thing for the business. And I'm sorry if it causes some frustration on trying to understand our numbers. As I commented before, we will, for sure, try to support you to still understand our business as good as possible. I think it makes a lot of sense from a business perspective to do this shift. First of all, the BharatBenz trucks comes from an Mercedes-Benz Axor platform. So I do see a lot of opportunities to find more commonality across the global Mercedes-Benz Trucks, Brazil, India and Europe. Also it enables us to look more flexibly on our production locations to see might there be things, for instance, that we could produce in India that's produced in other parts of the world today. We also do it because we want to leverage our global talent pool better and to see where we can -- where we basically find the best people also for the future, things like software digitalization. And also, I see a huge potential to increase the export of the BharatBenz portfolio into, let's say, kind of traditional Mercedes-Benz markets as a second brand and to broaden our offering there. So from a business strategy, it makes a lot of sense.

The next question comes from the line of Nick Housden from RBC.

Nick Housden from RBC. Two quick ones, please. Firstly, I was wondering if you could just comment about the level of restructuring costs that you're expecting in 2025. I appreciate that with the European Cost Down program, you can't be too specific right now, but maybe in terms of M&A and IT restructuring costs, whether we should expect any more legal costs, that kind of thing.

So on the Cost Down Europe program, as we said, that we cannot comment on yet because the discussions are ongoing. On the overall M&A related part with like the remainder of the spinoff-related costs. that should go down versus 2024 and '25 because we had major shiftovers of IT systems already in '24 with the HR systems. And now in January, we went live with our S/4HANA ERP migration in Germany. And so then you will see a wind down of costs in '25.

Okay's. Great. And then just on the outlook for free cash flow in the Industrial Business this year, you're calling for a decline of 10% to 25%. Is that just against a tough comparison level in 2024? Or is there anything else that we should be thinking about then?

Yes, as I said before, so it's the very strong quarter 4 that we had with a significant reduction of inventories. And then in '25, we also have a higher level of investment compared to '24. So those are the 2 main aspects driving it.

Next question comes from the line of Jonathan Day from HSBC.

You talked a bit about pricing in North America. I was wondering if you could talk a little bit about pricing trends in other parts of the world, in particular, in Europe, given the potentially recovering market and also in buses as well, please.

Jonathan, Karin here. So for Europe, we expect stable pricing. We have not taken in a lot of increases considered during the market situation. but we believe it will be stable, and we will continue to prioritize pricing over market share. On the bus side, similar.

Yes, on the bus side, I mean, obviously, positive market environment with growth in '25 to be expected and also positive pricing effects out of this.

Great. And then maybe just a quick follow-up. On supply chain, could you just perhaps give us a bit of an update on where you are now with supply chains into Europe and the U.S.? And are there any supply chain issues that we should know about or are they all completely sort of settled down there?

Yes, in terms of supply chain, it's always exciting, but I would actually say for the moment, there is nothing critical as for the time being.

Your next question comes from the line of Frank Biller from LBBW. Mr. Biller your line is open. You may now proceed.

Hello, can you hear me now? Hello?

Yes, we can hear you.

So the question is about the tax rate. So in the fourth quarter, there was a positive tax income here. What was the reason here for the tax income? And what should we expect for the years to come as the tax rate?

Yes. So in '24, we had overall a much lower effective tax rate than '23. We had 25% in '23. We had 19% in '24. And the low tax rate is because of the reversal of the valuation allowance and nondeductible impairment from cellcentric and our Chinese joint venture. So without these effects, the effective tax rate would have been around 26%.

And that's the rate we could expect for the years to come, right?

Yes, around this area, yes.

Ladies and gentlemen, thank you very much for your questions and for being with us today. Thank you, Karin and Eva, for taking the questions and answering. Apologies for the slight technical glitch at the beginning. If you have any other questions or missed something, we, of course, remain as always your disposal. We're looking forward to staying in touch with you. And latest, we'll see you, hopefully, in Charlotte at our Capital Markets Day. The media call will follow right now at 10:45 CET. Have a great day, and stay healthy. Thank you. Goodbye.