Daimler Truck Holding AG ($DTG)

Good morning, everyone, and welcome to the 2025 Annual Results Conference of Daimler Truck. Thank you for joining us. I'm Andy Johnson, Global Head of Communications for Daimler Truck. And before we get started, let me briefly outline what is ahead of you today. First, we will deliver our presentation of the 2025 results as well as the outlook for 2026. After that, we will move into the analyst Q&A session and finally, the media Q&A session. And now I will hand over to Marcus Poppe, who will guide you through the presentation and analyst Q&A. Marcus?

Thank you, Andy, and welcome, everyone. I'm Marcus Poppe, Head of Investor Relations. Today, we will take a closer look at how Daimler Truck performed in 2025 and how we are positioning the business for the year ahead. To start us off, it's my pleasure to welcome Karin Rådström, our President and CEO; and Eva Scherer, our CFO. Karin, looking at 2025, how would you assess our overall financial performance?

Well, thank you, Marcus. Also good morning from my side. Great to be here. Well, 2025 was quite a year. The markets were shaped by geopolitical tensions, changing trade policies and a steady stream of uncertainty. But I'm really proud that through all of this, one thing remained constant, the strength and resilience of Daimler Truck. For the group, we delivered EUR 49.4 billion in revenue, with an adjusted EBIT of EUR 3.8 billion. Our Industrial business achieved 7.8% return on sales even against the backdrop of this ongoing uncertainty and volatility. And with EUR 1.8 billion of free cash flow in our Industrial business, we closed the year with a very strong net industrial liquidity of EUR 7.7 billion. These achievements are not accidental. They show that our strategy is already working and that we are strengthening the fundamentals of this company. We are becoming more agile, more robust and more focused.

Thank you, Karin. So staying with the theme of resilience, what were the main value drivers for our Industrial performance in 2025?

So at the Industrial business level, revenue decreased by 10% year-over-year to EUR 45.9 billion, and adjusted EBIT declined by 21% to EUR 3.6 billion. The primary reason for this was the downturn in Trucks North America, where we had both a weak market and faced tariff headwinds. However, there were also areas of strength. Daimler Buses achieved a double-digit return on sales, and we also continued to manage our overall cost base effectively and reduced SG&A expenses. At the same time, we increased our investments in research and development, which is a strategic step to further improve our product portfolio and strengthen our competitiveness for the long term. Our Service business delivered low single-digit organic growth with a clear overall acceleration for services in the second half of the year. Revenue growth was dampened by currency movements and some structural changes from the reorganization of our rental business, CharterWay and also the Fuso carve-out. Going forward, Service growth is an important part of our growth strategy, and we have many running initiatives that will increase our momentum over the coming years. For example, a new advanced pricing tool for the North American market that utilizes data analytics to assess competitive positioning, volume potential and the life cycle value across the entire parts portfolio. And at Mercedes-Benz, we are ramping up our own retail strategy, which is progressing as planned. Over the last 2 years in MB, we've opened 8 new commercial vehicle centers across Europe, 3 of those in Germany. And in 2025, we invested EUR 25 million also on upgrading existing sites, like, for an example, the expansion of the Würzburg location, and we also continue to work on truck dedication. So I think we're doing a lot. And in addition to these organic initiatives, we're also doing acquisitions. We've signed our first contract, so we will start to step up on the spending on the retail side in 2026. Just to finish the bridge, the positive other effect is mainly attributable to the full impairment of the equity carrying amount of our joint venture in China in 2024, which leads to a favorable comparison year-over-year.

So thank you, Karin. Before we turn into market developments, can you walk us through how unit sales and order intake developed in 2025?

Yes, sure. I can do that. At group level, our book-to-bill ratio reached 101%, which reflects a good balance between incoming orders and deliveries. Unit sales decreased 8%, totaling around 423,000 units for the year. At the same time, incoming orders grew by 2% to approximately 425,000 units. In the fourth quarter, order intake was really strong with 52,000 units for Mercedes-Benz and 52,000 units for Trucks North America. And it's also good to see that this positive trend out of Q4 has continued since the start of the year. If we turn to our zero-emission portfolio in 2025, we sold 6,700 battery electric trucks and buses, up from around 4,000 in 2024.

Thanks a lot for that overview, Karin. So against the backdrop of our overall performance, Eva? How did the key end markets evolve over the course of 2025?

Thank you for the question, Marcus. And first of all, a warm welcome from my side to everyone. So in North America, the Class 8 market came in at 258,000 units in 2025, representing a 16% year-over-year decline that reflects a year shaped by economic uncertainty and a prolonged freight downturn. Despite this environment, our Class 8 market share held firm at 39.6%, underscoring our leadership in the market. In the heavy vocational segment, we maintained a stable market share compared to 2024. However, ongoing congestion at body builders limited our ability to capture additional share. Western Star is growing absolute volume, outperforming the market and building a strong pipeline of unregistered units currently at body builders awaiting upfits. As this backlog moves through the system, registrations will begin to reflect the growth already evident in our production. Looking ahead, we are confident that we can expand our position toward our Capital Market Day target of more than 35% market share by 2030. In Europe, the heavy-duty market declined 6%, totaling 296,000 units. Our momentum saw a meaningful improvement towards year-end with a 15% recovery in the fourth quarter compared to quarter 3 and plus 4% versus the fourth quarter of 2024, backed by our competitive portfolio and strong customer demand for the Actros L, our European heavy-duty market share climbed from 14.2% in the first quarter to 18.8% in the fourth quarter, delivering a 17.1% full year share. We also reaffirmed our European leadership in the medium and heavy-duty segment, with 17.7% market share. Our zero-emission lineup strengthened this position even further, capturing 38% of the heavy-duty electric truck market in 2025 and around 50% in the fourth quarter, making us the clear leader.

Thank you, Eva. Now Karin, maybe shifting gears from markets to execution, which products and platforms define us in 2025?

Yes. Well, happy to talk about that. We're really proud about our trucks and buses. Starting with Europe, we are driving the transition to zero-emission transport, which Eva just talked about, with a portfolio that's really performing great in the market, not the least our long-haul truck, the Mercedes-Benz eActros 600, but also the eActros 400 and our electric city bus, the Mercedes-Benz eCitaro. These vehicles show that the technology is ready, and we see the customers responding. So we have great products, and we are prepared to deliver at the speed of right when the markets are ready. However, the transition is still too slow, mainly due to the lack of infrastructure. We've also upgraded our conventional portfolio. Eva mentioned the launch of the Actros L featuring the ProCabin, where we have optimized the aerodynamic design to reduce fuel consumption by up to 3% versus the previous generation. And as also mentioned, this truck has really helped us gain market share and momentum in the market. At the same time, we started series production of the Fifth Generation Freightliner Cascadia, the newest evolution of the most successful Class 8 truck in North America. And together with our strong Western Star vocational lineup, we are reinforcing our leadership in the world's most important commercial vehicle market. In India, we launched our new BharatBenz heavy-duty trucks for construction and mining. Even though Daimler India Commercial Vehicles has only been in the market since 2012, we are an established brand with big growth opportunities, both in India as well as in the export markets. In Brazil, we introduced our all-new Mercedes-Benz Axor, a heavy-duty truck for up to 68 tonnes. And this truck filled a gap in our portfolio, which helped us increase our market share in Brazil from 22% in 2024 to 26% in 2025. Defense has also become a high-growth strategically critical segment for us, and we are winning important tenders. For instance, our contract with the French Army to supply 7,000 Zetros together with our partner, Arquus for the next 10 years and the order for several hundred Arocs for the German Bundeswehr. Back at our Capital Market Day, we set a target of reaching EUR 1 billion of revenue in the defense business in 2030. And today, I'm proud to say that we expect to reach that target already in 2028. So we are already ahead of our plan by 2 years. So to summarize, our product momentum is really strong across all regions and segments.

Excellent. Thank you, Karin. With that in mind, Eva, let's take a closer look at how this translated into the performance of Trucks North America.

Absolutely. Happy to dive into that, Marcus. So at Trucks North America, revenue fell 21% year-over-year to EUR 19 billion, resulting in an adjusted EBIT of EUR 2 billion. Even in a very tough U.S. environment, however, we achieved a strong adjusted return on sales of 10.7%. The results were pressured by a 26% decline in unit sales, driven by the ongoing freight recession and uncertainty surrounding the introduction of tariffs. Delivering double-digit profitability in such a challenging market is a testament to the remarkable team in North America. In 2025, the overall net tariff impact, including Section 232, was around EUR 250 million. Unfavorable foreign exchange developments added further pressure on earnings. We offset part of this pressure through decisive pricing actions, supported by model year updates and disciplined efficiency measures, including a reduction of around 3,000 positions across the workforce. Without the tariff impact, our return on sales would have been around 12%, which is a clear demonstration of how resilient our business can be even in a sharply down market.

Thanks, Eva. I agree. Very strong performance indeed. So Karin, let's now look at Mercedes-Benz and Daimler Buses. How did these segments perform in 2025?

Yes, sure. Starting with Mercedes-Benz Trucks, which delivered a robust performance. Revenue was EUR 19.7 billion, a 4% decline year-over-year, with an adjusted return on sales of 6.2% and adjusted EBIT of EUR 1.2 billion. In EMEA, profitability benefited from a stronger volume development in Europe and the accelerated implementation of our cost down Europe measures. The 2024 impairment of the Chinese at-equity joint venture carrying amount also contributed positively to year-over-year profitability. At the same time, we had temporary production inefficiencies during the ramp-up of the new products, namely the Actros L with the ProCabin and some selective price decisions that weighed on margins. We also increased our R&D investments to advance our product portfolio. In Latin America, profitability declined slightly year-over-year due to the continued economic uncertainty, a drop in the extra heavy market and negative foreign exchange impacts. In India, volumes increased slightly compared to 2024, while performance remained challenged by mix effects and ongoing pricing pressure. Overall, Mercedes-Benz Trucks continued to perform with discipline, resilience and a clear focus on strengthening the business for the future. Daimler Buses delivered a strong performance in 2025, achieving revenues of EUR 6 billion and an adjusted EBIT of EUR 599 million, resulting in a very strong adjusted return on sales of 10%. This is all-time high for Daimler Buses and a reflection of a lot of really hard work over the last years. The European market saw significant growth, supported by robust demand for both coaches and zero-emission city buses. Brazil performed slightly above 2024, while in Mexico, results remained below the prior year, mainly due to prebuy effects from Euro VI and a broader economic slowdown. Adjusted EBIT increased 39% year-over-year, exceeding net revenue growth. Strong net pricing, favorable sales mix and the exceptional performance of our teams were the key drivers of this very strong result.

Thanks, Karin. So let's round things off by looking at Trucks Asia and Financial Services. Therefore, Eva, how did we perform there?

Yes. Let's do that. In 2025, Trucks Asia delivered revenues of EUR 4.8 billion, with an adjusted EBIT of EUR 212 million and an adjusted return on sales of 4.4%. The Asian market environment continued to face challenges. reflected in persistently soft demand across major markets, particularly in Japan and in Indonesia. Overall profitability declined slightly. Higher volumes, mainly driven by the Middle East as well as market share gains in Indonesia and net positive pricing were more than offset by unfavorable mix and substantial foreign exchange effects. Continued aftersales growth and SG&A cost discipline helped to strengthen resilience. Our Financial Services value over growth strategy is taking shape. Adjusted EBIT significantly improved year-over-year from EUR 133 million to EUR 181 million. Despite 12% lower new business volume and elevated cost of risk stemming from the ongoing volatile macroeconomic environment, this favorable development was driven by increased interest results, supported by higher interest margin. We have been successfully diversifying our portfolio geographically, countering adverse foreign exchange and credit risk headwinds. Our overall result was positively augmented by the realization of transformational and efficiency programs targeting cost savings, especially in headquarters in Germany and North America. As a result, adjusted return on equity increased year-over-year from 5% to 6.1%.

Thanks, Eva. So having covered the business performance, now let's focus on cash flow. So how did we close 2025 from a cash perspective?

Yes. Sure. Let's have a look. I'll start with a big picture. Free cash flow of the Industrial business amounted to around EUR 1.8 billion, which is in the upper half of our guidance range, driven by strong cash generation in the fourth quarter. Compared with 2024, cash was lower, largely reflecting the earnings pressure at Trucks North America and higher inventories during the ramp-up of our Parts Center in Halberstadt, Germany for Mercedes-Benz Trucks. At the same time, our balance sheet stayed very strong. Net industrial liquidity ended the year at EUR 7.7 billion, even after roughly EUR 1.5 billion in dividends and about EUR 600 million in share buybacks. This keeps us comfortably above our EUR 6 billion liquidity threshold and gives us a very solid foundation as we move forward.

Thank you, Eva. So let's change perspectives. At our Capital Market Day last summer, we committed to providing regular updates on cost down Europe. So this feels like a right time to review where we stand. Karin, what's happening at Mercedes-Benz? And how is the program progressing?

Yes. I think with good momentum, we have strong performance in 2025. With cost down Europe, we fundamentally transform our European business, to make it more competitive, more resilient and more fit for the future. And we are fully confident in our own potential to lift profitability to a fundamentally higher level by 2030. And I think the progress we've already made underscores this commitment. In 2025, we delivered more than EUR 100 million in net savings, which actually puts us ahead of our original plan and demonstrates strong momentum behind the initiatives. So how did we achieve these results earlier than expected? Well, first, as we shared at last year's Capital Market Day in Charlotte, we reached a comprehensive agreement with the General Works Council, covering all key elements of the program. With this foundation in place, we were able to roll out cost-saving measures quickly across all the functional areas. Second, we saw some strong contributions from operations, sales and IT that each delivered a bit more than we expected, double-digit million euro savings. Operations delivered improvements through energy saving initiatives and longer company car leases as an example. Sales increased their efficiency with the rollout of the concept of lean truck operating centers. And in IT, we phased out legacy systems and optimized license management. Third, we maintained very strict discipline in staffing. We used natural fluctuations and strict replacement policies to progress faster at workforce adaptations in Germany, and that also supported the savings. So with this positive momentum continuing, we are targeting for 2026 at least EUR 250 million of total net savings for cost down Europe.

Thank you, Karin. So we also reached a major milestone last year with the ARCHION agreement. So Eva, can you please talk us through what that means for Daimler Truck as we head into 2026?

Yes, we definitely reached a major milestone. And Mitsubishi Fuso and Hino Motors will be integrated into ARCHION as of April 1, 2026. This setup gives the new company, ARCHION, the scale and flexibility it needs to unlock additional synergies. What does this mean for us in practical terms? Together with Toyota, we plan to gradually reduce our ownership to 25%, generating a total cash inflow between EUR 1.5 billion to EUR 2 billion. Within the next 12 months, we expect the free float to reach at least 35%, which is an important prerequisite for the prime market listing in Japan. As a result, both our 2026 guidance and our quarter 1 figures will no longer include Trucks Asia as a stand-alone segment. Instead, ARCHION will be reflected as an at-equity investment, keeping our reporting clean and fully comparable.

Thank you both for the overview of 2025. We have covered where we're coming from. Now let's talk where we are headed. So Eva, could you briefly outline what investors should expect regarding our capital allocation in 2026?

Yes, I will do that. With our strong cash generation in the fourth quarter and the expected proceeds from the Fuso-Hino merger, our balance sheet remains very well capitalized. Reflecting this solid financial position, we intend to propose a stable dividend of EUR 1.90 per share, and we'll initiate our previously announced share buyback program in March.

Thank you, Eva. So turning to 2026, what are we aiming to deliver? And how do you see the markets evolving as we turn into the year?

Yes, let's take a quick look at our market assumptions for 2026. In North America, we expect the heavy-duty truck market to come in between 250,000 and 290,000 units. The lower end of the range would imply that the freight recession persists. Reaching the upper end would require a combination of higher freight rates and transport volumes alongside stronger EPA '27 related prebuy activity. In the EU30, we expect the market to land between 290,000 and 330,000 units. The lower end assumes no meaningful improvement in economic activity. The upper end reflects tangible effects from German infrastructure stimulus, with positive impulses for the Eurozone more broadly. At Trucks North America, we see unit sales coming in between 150,000 and 170,000 units, supported by a modest market recovery and higher dealer inventory following destocking in 2025. From a profitability standpoint, the improvement in volumes is largely offset by a significant tariff headwind. For 2026, we currently assume that our application under the preferential tariff treatment program will be approved over the course of this year. Based on this outlook, we forecast an adjusted return on sales of 6% to 8%. The lower end of the range assumes no relief from current tariff levels, while the upper end reflects a reduction in the effective tariff rate, driven by an increase in certified U.S. content in our vehicles. We are actively engaging with policymakers, and we are using every mitigation lever that is available to us. At the end of the day, we're confident in our ability to manage these challenges as the year progresses. As we look at the first quarter's profitability, we are approaching the lower end of our guidance range, reflecting the impact of the 232 truck tariffs as well as sequentially lower volumes. As we move forward through the year, we expect these effects to normalize, supported by our ongoing mitigation actions. At Mercedes-Benz Trucks, we expect unit sales in 2026 to come in between 150,000 and 170,000 units, supported by a recovery in the European market. We also expect profitability to improve, with a targeted adjusted return on sales of 6% to 8%. This improvement is driven by strict cost discipline and contributions of at least EUR 250 million from cost down Europe, helping to offset additional R&D investments. In terms of first quarter profitability, we are approaching the lower end of the guidance range based on lower volumes. For Daimler Buses, we're guiding unit sales in the range of 25,000 to 30,000 units. We expect European long-haul markets to remain at a high level, while the Brazilian market is likely to come in below 2025 due to ongoing political and economic uncertainty. The Mexican market is expected to remain subdued as the broader economic downturn continues. From a profitability standpoint, we expect an adjusted return on sales between 8% and 10%. For the first quarter, profitability is expected to be below that range, mainly due to seasonally lower sales volumes. And for Financial Services, we expect an adjusted return on equity of 6% to 8%, supported by higher interest income and lower cost of risk as well as further efficiency measures. At group level, we're targeting an adjusted EBIT between EUR 3.2 billion to EUR 3.7 billion. Industrial business revenue of EUR 42 billion to EUR 46 billion and an adjusted return on sales of 6% to 8%. For the first quarter, profitability is expected to be below that range. Including the expected cash in from the strategic Fuso-Hino transaction, we expect free cash flow to come in between EUR 2.7 billion to EUR 3.2 billion. As indicated at our Capital Market Day last year, we confirm a total expected cash inflow of EUR 1.5 billion to EUR 2 billion from the Hino-Fuso integration over time. Since the listing price of ARCHION share and timing of our sell-down is yet uncertain, we have included only EUR 1.5 billion in our 2026 guidance.

Excellent. Thank you, Eva. So now a quick legal reminder from me. Our guidance does not factor in potential impacts from supply chain disruptions or adverse macroeconomic developments, particularly those related to the Middle East conflict. It also assumes that the current USMCA and tariff framework remain in place. So before we open the lines for questions, do you have any closing remarks?

Yes. Well, maybe something. I want to say that I believe our outlook really reflects our commitment to structurally improve our profitability levels, run an efficient balance sheet and invest into the future of our business.

Yes. Thanks, Eva. I would say I agree. I think we closed the year in a way that sets us up in a good way going forward in 2026. '26 is all about execution. We know our priorities. We're committed to delivering on them for our employees, for our customers and also, of course, for our shareholders.

Thank you both. So that concludes our presentation for the 2025 results. We'll now move into the Q&A sessions. As usual, we will start with questions from analysts, then move to the media. Both sessions will be recorded and made available on our homepage. Stay tuned. We will get started in just a minute.

Good morning, ladies and gentlemen, and welcome to the Q&A part of today's annual results conference. I would like to remind you that this Q&A session will be recorded on Daimler Truck's request. The replay of the conference call will also be available as an on-demand audio webcast in the Investor Relations section of the Daimler Truck website. A few practical points. [Operator Instructions] We will now begin the question-and-answer session.

So good morning, ladies and gentlemen. The first question comes from Nicolai Kempf from Deutsche Bank.

It's Nicolai from Deutsche Bank. And first of all, well done for a very strong Q4. My question would be on the U.S. market. And we have seen very strong orders over the last month, and we are also halfway into March. Do you see this trend continuing? And are you happy with the pricing of the orders you got over the last months? And if we stay in the U.S., a bit more question for the short to midterm. You've mentioned tariffs. It's going to be a big headwind again this year. Are you looking to increase the U.S. production capacities this year?

Nicolai, thank you. I'm Karin here. I can take the first part of the question and then maybe you, Eva, take some of the second parts. So yes, as mentioned, we have seen an uptick in order intake starting at the end of last year and also continuing into this year. I would say we are cautiously positive because even though it's a big improvement from a couple of months ago, if you look at our historical average, it's still below that average. So let's monitor how it looks in the next couple of weeks, but it looks, for the moment, like a quite good trend. We also see that the -- what we call the -- the freight rates, sorry, blackout. The freight rates have also slightly improved at the beginning of the year. I think they're up 9% year-to-date, but still, if you compare historically on a low level. So cautiously positive.

Yes. Nicolai, I'm going to take your other questions, Eva here. So you asked about pricing. Obviously, we talked about it also already at quarter 4 that with the market being weak, we saw in quarter 4 when the Section 232 truck tariffs were introduced that we could not add additional tariff surcharges because we believe that our customers and the market couldn't digest it at that time. We still haven't done that to date. But obviously, we have some model-year pricing effects that we have, small single digit coming into 2026. And as Karin said, the order momentum has been really positive, and that continued into quarter 1 up until today. So obviously, we're going to monitor that closely and probably the probability of increasing pricing slightly or potentially increasing tariff surcharges over the year has increased due to the positive order momentum. But obviously, for that to happen, the order momentum also has to now continue. And we also see what's happening in the world with Middle East and so on. So we're obviously very wary of that, and we monitor it closely. Also about orders, I want to mention, when we look at our market share within the orders in North America, we're also very happy with that. Now looking at going forward, U.S., Mexico and the production footprint. What we do see there is, obviously, we've always been very flexible with our footprint, and we always adjust it as it makes sense. And as we navigate this new tariff environment, of course, we will always shift around production to get to the best possible outcome also from a cost perspective. So we are very flexible there, and we are managing that as we go through the quarters. There is not full clarity yet also when it comes to certain credits on U.S. assembled trucks, these MSRP credits of 3.75%. It's not exactly clear yet how they will be calculated. That will also probably impact the production footprint to a certain degree, but we believe we're managing it well, and we will navigate it as we go through the year.

Thank you very much. So next question comes from Michael Aspinall from Jefferies. Please.

Michael from Jefferies here. Maybe starting back on North America. Your margin in 4Q was quite strong at 7.2%. I'm just thinking how we can think about that 4Q rate, which would have seemingly included 2 months of the 232 tariffs and quite low volumes in the context of the guide, of 6% to 8% and higher volumes?

Yes. Michael, thanks for your questions. So I think we have to really look at what's included in our guidance. And as I said during the presentation just now, we have quite a big range still of what the tariff impact could be, and we're managing this range within the 6% to 8% profitability guidance. As I said, the 6% assumes that basically we stay in line with the current tariff effect from the 232 truck tariffs and the 8% is that we would get this preferential tariff treatment accepted by the U.S. administration with a higher U.S. content of Mexican assembled trucks being qualified and then a lower effective tariff rate. We're pretty confident that we're going to get this, but it's not confirmed yet, which is why we want to be consciously a bit cautious with our guide. But this is why the 8% is getting that U.S. content increase through and the 6% is more the current rate. But at the same time, of course, volumes also play a role, and we have been saying that the order momentum has been improving quite a bit over the last couple of months. So we believe if it continues, that would also give us some tailwinds, also when it comes to then operating leverage and also tailwinds for our return on sales. When we now look at the volume effect, obviously, we have a positive volume effect as a basis for our full year guidance. But yes, a lot of that is really eaten up by the significantly higher tariff effects that we're having. And then it really depends what exactly will be the increase in tariffs year-over-year, we said it was EUR 250 million net for 2025, with only 2 months of the 232 truck tariffs being included. So if we manage it in a way we think we can with the, as I said, higher U.S. content. And then on the credit side, I also mentioned that when I answered the first question, there's a bit of a range of that as well. That could also help us and then being more at the higher end of the range. And of course, we will not be limited by the upper end of our guidance range. We will always make sure that we get to the best possible result by the end of the year. And just one last sentence, quarter 1, as I said, we will have lower volumes sequentially and then the higher tariffs effect because of 3 months of 232 instead of 2, which will then lead to a bit of a lower margin than what we had in quarter 4, and we're basically approaching the lower end of the guidance range there.

Okay. Great. I mean 4Q and 1Q sounds like good starting points for the year. So that's good. It looks like you mentioned also actually that you took share in the North America order book, which seems logical given kind of pricing and tariff dynamics. Would it be fair to say that, that probably continued in 1Q '26 with you not kind of increasing tariff surcharges at this point?

Yes, we are comfortable with our order share, and that has continued positively into the year. Also when we look at the mix in quarter 4, we had a bit more medium-duty orders. And now in the first month of Q1, we saw more heavy-duty orders. So Freightliner Cascadia orders come in, which is obviously then a good sign also for our production program and for our margin dynamics as the year progresses.

Thank you. And the next question comes from Shaqeal Kirunda from Morgan Stanley. Please.

Shaqeal Kirunda from Morgan Stanley. On the topic of the freight recession, spot rates have clearly moved up, but this has been due to supply side reasons, whilst freight volumes are still quite weak. So are you seeing this in the utilization data? And is there a risk that underlying demand for manufacturing from industries, such as housing and construction is still not strong enough to maintain order momentum?

Yes. I mean we saw it a little bit. We do see that the demand is very much driven by the supply side. As I said, it is a better trend than what we've seen for some time, but looking historically, still not a very strong market. And when we look at what drives the GDP growth at the moment in the U.S., it's mainly private consumption and AI investments. So that's not maybe the factors that mostly drive the need for freight. But yes, it's, yes, cautiously positive, still not an extremely strong outlook for the U.S. market.

And at 270,000, the market outlook for North America Class 8 is for slight growth. But at the midpoint, Trucks North America indicates 13% year-on-year growth in volumes. So can you please help us bridge the gap there? Is it mainly medium duty that's coming back? Or are there market share trends to consider?

Yes, Shaqeal, happy to do that. So when we obviously look at the market forecast, and as you correctly said, it equals at the midpoint to 4.7% growth. And it feels like it contrasts a bit with our DTNA unit sales guidance of 160,000 at the midpoint, equating to 12.7% growth. But as you assumed, we do believe that we will be able to achieve medium-duty market share gains because we lost a little bit there last year. We also discussed it last year during the quarters that the price pressure was there a bit higher, and we were not willing to discount too much. But we do see that the market is in a more healthy state now, and we believe that we can regain share, and there's also dealer restocking going on. And then obviously, also on the revenue side, we have a currency effect in there that you have to consider.

Thank you. So the next question comes from Daniela Costa at Goldman Sachs. Please.

I just wanted to ask on 2 things, but one is actually just following up from this. Can you talk a little bit about production plans, whether you're stepping up production in Europe or in the U.S., maybe as a follow-up to this last point? And then I wanted to ask you just on the confidence to -- now you're saying you're going to restart the buyback. After the results, I guess you kind of paused it. The situation in the U.S. Is it the situation on the U.S.? Or more clarity and confidence on those relief of the tariffs? Or is it just the demand? Or it's just because you now know the date when you're getting the inflow of cash from Trucks Asia? Maybe just giving us a view on how you're going to think about the buyback going forward?

Daniela, Eva here. Thanks for your question. So yes, looking at the production program, given the positive order development of recent months, we are increasing the production program in Europe as well as in the U.S., obviously. On the buyback, we were discussing this last year where we said with the 232 truck tariffs having been newly introduced and then also that happening within a very weak market environment that we need some time to adjust to that new market reality, which is why we hadn't started the buyback last year. And now we don't have full clarity on the tariffs yet. But you can also see with our return on sales guidance for North America for this year, with the 6% to 8%, I mean, we put in kind of a floor with this 6%. And that gives us a better confidence level of our minimum cash generation that we believe we will get this year. And then, of course, there's further upside to that, but we do know that with the contribution from North America, looking at how the business at Mercedes-Benz Truck is faring and then also taking into consideration the onetime cash in from the Fuso-Hino transaction, we believe that even if we would have to continue in the current tariff environment, with the current effective tariff rate, without an increase of U.S. content resulting in a lower rate, we can afford the share buyback comfortably. We're still maintaining a net industrial liquidity above EUR 6 billion. And that led to the decision that we will start now. The first tranche will be EUR 400 million. We do that within the next 4 to 6 months. And then at the same time, we have kept the dividend stable, as I'm sure you've noticed, and that is basically based also even in our worst-case scenario of the full year results that we're expecting for '26, we can cover that.

Would you rule out -- is it now a rule out that you don't need to build a U.S. plant? You can deal with it with your current setup and the flexibility you have?

It's a bit early to talk about this. As I said, we're still working also in discussions with the U.S. administration about how we navigate that environment. We're still awaiting some clarity, as I said, on this credits on MSRP. We're looking at that increased U.S. content, and we will absolutely do what makes sense and what adds value to our customers and our shareholders once we have that full clarity.

The next question comes from Akshat Kacker at JPMorgan. Please.

The first one is on North America. And I just wanted to touch on the demand that you're seeing in the vocational part of the market because that segment has been super strong in the last few years, driven by the CHIPS Act, U.S. IRA and arguably, the prebuy there started earlier. So could you just give us more flavor on the vocational side of the market in the U.S., please? The second one is on MB Trucks. Very strong order intake. Again, can we get some more clarity on what markets are really driving that order intake at MB Trucks? And when we think about the division, obviously, you reported negative net pricing in 2025. Do you expect price cost for Mercedes-Benz Trucks to improve in 2026, please? And the last one, a clarification on the Hino payment. You've talked about a total expectation of EUR 1.5 billion to EUR 2 billion, EUR 1.5 billion factored in your free cash flow guide. Could you help us understand that better? Is that all settlement payment, which is the EUR 1.5 billion, and then you expect proceeds from the IPO to come later? Or how should we think about the 2 different elements within that total payment?

Okay. Thank you, Akshat. Well, quite a few questions. We'll work through it, Karin and I. Let's start with vocational. I mean, last year, vocational was faring a bit better than on-highway, but it was obviously also weaker in a generally weak market environment. And now as we see a bit of a better order momentum, we also do see vocational following there. We don't see a huge spike in orders in vocational, but obviously, we hope that, that would happen as we now go through the quarters, also with hopefully a bit more construction activity in the United States coming in supporting that business growth. And I think MB, Karin, you will take that one?

Yes, sure. So as you said, very strong order intake on MB towards the second half of the year and definitely also start of this year. I think it's a combination of a stronger market demand in general, but also very positive customer feedback on the Actros L with the ProCabin. So we introduced that product at the beginning of 2025. And we actually saw, I think we mentioned it in the speech as well, a market share uplift throughout the year. So starting the year around 14% and ending around 18%. So I think it's a testament to how well that truck is performing and that the customers appreciate it. And we think that's also part of what drives this positive momentum. For 2026, we expect positive net cost price development for Mercedes-Benz Trucks.

Yes. And then I will take the one on the onetime cash in from the Fuso-Hino transaction. So I cannot disclose any details about the deal dynamics because we have agreed that also with Toyota that we would keep that confidential. As I said at the Capital Markets Day and also confirmed today during the presentation, EUR 1.5 billion to EUR 2 billion is what we expect to get to a 25% shareholding, which is the shareholding that we're ultimately targeting. And what I can say is we have included EUR 1.5 billion into our guidance. So you can assume that we are very sure about bringing in this cash because otherwise, we wouldn't have done that because our guidance is definitely more on the conservative side there. So that, I can tell you. And then when we look at the EUR 2 billion, when basically the rest of the EUR 500 million assumed will come in, we expect to achieve a free float of the new ARCHION share of 35% within a year because that's a prerequisite to be in the prime standard of the Tokyo Stock Exchange. So that means there will be also an effect potentially in next year and not everything in this year. But again, EUR 1.5 billion, we have a high certainty and that's why it's included in the guidance.

Next question comes from Hemal Bhundia at UBS, please. Okay. We can't hear you, Hemal. Then we follow up with Alex Jones at Bank of America, please.

Two, if I can. First on the Mercedes-Benz margin. I think you did 6.2% last year. You're guiding volumes up 9%. You have EUR 150 million incremental cost savings, that's about 80 basis points. You just talked about positive price mix. So all of that is pretty positive. Can you talk about the offsetting factors, therefore, that mean the low end of the guidance range is below last year at 6% and that sort of 6% to 8% range. If there's anything else we need to bear in mind? And then the second question on the U.S. content you've talked about. Are you able to give us any more detail on sort of the percentage of U.S. content you're sort of currently assuming and what you'd aim to get in your negotiations with the administration. And when you expect that clarification? I think Traton last week talked about the second half of the year. I'd be interested if that's the same for you?

Alex, thanks for your question. I hope I got it all right. Otherwise, please follow up. So what we have to say is we're guiding for more than 8% unit sales growth at MB. But what we have to adjust is that there is an increase of the units in India, which is about 6,000 units. And so overall, we also assume an expected market share growth at Mercedes-Benz trucks in Europe, which also brings in some units, and that's how we bridge basically the unit sales growth through the market growth. So we expect that unit sales will grow stronger than the EU30 heavy-duty market. So 8% versus 3% at the midpoint, just to explain that. But you were obviously looking at the operating leverage, if I understand you correctly. So we have basically 2 factors that are going against the positive price cost and the efficiency gains from Cost Down Europe. And that is a weaker Latin American result because of macroeconomic factors, inflation and so on. So we do see that it will be a more difficult year. When we look at our global markets, most of them are slightly up, but Brazil will be down as per our projection. And then the other factor that's going again is our investments. We said it already last year at the Capital Markets Day, our investments will be peaking in '26 and '27. And this is really driven by Mercedes-Benz trucks, because the transformation towards 0 emission is going full steam ahead, and that's really the factor that we have to take into account here. And sorry, the second question was the U.S. content. We will not give details on the percentage of the U.S. content, as obviously, as I said, we have applied for this preferential tariff treatment. It's still ongoing. But what we've also discussed before is that we have a powertrain that's being produced in Detroit, Michigan, in the U.S. that is then assembled in our Mexican assembly plants into the truck. So that's something that we can deduct. Also said that a powertrain from a value perspective is roughly half of the truck. And then that's where we currently are. And then we are applying for further U.S. content then also to be accepted as a deduction to this tariff rate of 25%. So that's where we are. And then you asked when we'll get a clarification. Well, this can take a bit. From what we understand, it can take a couple of months until we know the outcome of this preferential tariff agreement. So we will have to see. This is a bit out of our influence.

Okay. Understood. And just to follow up on that Mercedes-Benz margin point, the investments in R&D. Are you able to give us a sort of order of magnitude of the year-on-year increase there?

It's a high double-digit increase -- million -- high double-digit million increase.

All right. Next try with Hemal Bhundia at UBS. I hope you can hear us?

Can you hear me now?

Yes, we can.

Thank you for the color on North America. I just wanted to start with, you mentioned the EUR 250 million tariff impact in the quarter. Could you specifically separate that by Section 232 and the EPA tariff please? And I'll follow up with my next question after.

Hemal, thanks for your question. What I can tell you is that the Section 232 truck tariff impact was a bit higher than the EPA and 232 steel aluminum copper part. That I can tell you.

Understood. And I guess on free cash flow, when I exclude the EUR 1.5 billion Hino transaction impact, it is below FY '25. I appreciate there's a range that you've given, but is this because of lower margins or anything you'd mention on CapEx or working capital?

Yes. So I mean, I was answering Alex's question before about the investments being higher on the R&D side. That is also true for CapEx, obviously having an effect on free cash flow. What we also see there at Mercedes-Benz, we want to also use positive opportunities that we see right now in the market to acquire, for example, own retail location. That's an essential part of our strategy at Mercedes-Benz trucks in Europe to increase our service share. And there, we see that market pricing actually is also pretty good for brownfield opportunities, so we're using that. That has an impact on CapEx and cash flow. And then, of course, being in that environment generally because of the transformation of the industry where our investments are high. That is one impact. Then we have some cash outflows also from our Cost Down Europe program for severance payments where we booked the provision last year and those are the main ones there.

Great. And one final question, if I may. Anything you can mention on whether you've seen a change in order dynamics or conversations with customers since the start of the month given the geopolitical environment?

Not yet. Let's see. We follow it closely. Maybe just to give you some color, the least as such is for us representing with Mercedes-Benz around 1% to 2% of the overall group volumes. So we don't see it outside of the region, and the region is for us, relatively small as a market.

Next question comes from Harry Martin at Bernstein, please.

So I want to start again on the tariffs, apologies for that, but there's a few numbers that I think are still not completely clear to me. So in Q4, are you currently accounting for the 25% Section 232 tariffs on the import value and booking a receivable for the expected U.S. content impact. Is that receivable sort of a proportion of the total expected amount like Traton did? Or is there any difference there? And then just compared to the EUR 250 million impact in 2025, what is the assumption that is in the guidance for 2026?

Harry, thanks for your question. I was kind of expecting that one. I can tell you, no receivable has been booked in quarter 4. The way I see this is, obviously, we need certainty until we can assume a lower effective tariff rate. And we do not have a written confirmation by the administration that we can increase the U.S. content and that our preferential tariff treatment and the application of such is accepted. So we're taking the conservative approach. So what you see in quarter 4 is really the full tariff effect come in, basically, the 25% on a Mexican assembled truck minus the U.S. content, which currently is basically the powertrain, and that's what we paid and that's reflected. And that's then also what's reflected in our quarter 1 soft guidance and then our guidance for the year. Again, the 6% would assume no increase of U.S. content and then the 8% would assume that we get an acceptance to deduct a higher U.S. content proportion, but nothing reported in the balance sheet taking a conservative approach.

Great. And then if I could just ask a follow-up on EPA27. I saw a press release from you yesterday about expanding the partnership with Cummins on the EPA27 engines, including in heavy duty. We've heard some in the market say that the Detroit engine is better from a NOx and EPA point of view. Should we read that expansion of the partnership with Cummins is that there are still a lot of customers who want flexibility. And more broadly, would you expect any gain in your captive engine penetration as a result of the EPA27?

Yes. So as you know, we deliver the Freightliner Cascadia Class 8 truck, both with the Detroit powertrain and with the Cummins powertrain. And on the medium-duty side, we're using Cummins. For the heavy-duty side, we have a 96% penetration on the Detroit engine. We expect that to stay like that or even improve as we move over to the EPA27 regulation.

The next question comes from Frank Biller at Landesbank Baden-Wurttemberg, please. Frank, can you hear us. We can't hear you.

Hello.

Yes, now we can hear you.

Okay. I have a question on the dividend payment. So your strategy is paying out a rate of 40% to 60% payout ratio. The question here is EUR 1.90 is above this target rate. And given the high inflow in 2026 from ARCHION, is there the possibility to a special dividend? That's my first question. The next question is on autonomous driving. Can you give us an update on your latest developments here and the further progress? And one is on electrification BEV vehicles, good performance here in the last quarter. I noticed you stated that the margins of the electric vehicles are at the same level of combustion engines. Can you confirm this? Or has something changed here?

Thanks for the question, Frank. I'll take the first one. So yes, the dividend of EUR 1.90 with this one, we're exceeding the 40% to 60% payout ratio, but we're doing that because we ended the year with a really strong free cash flow and that leaves us with the net industrial liquidity at the end of the year of EUR 7.7 billion. So really comfortable level. And then as you rightfully said, we do expect a significant cash inflow from the Fuso-Hino transaction. We've considered EUR 1.5 billion in the guidance. We're very confident about it. I said that before and that's why we believe EUR 1.90 dividend is appropriate. And also, we have just also announced that we now start with the first tranche of the share buyback. And we believe that's a really good combination. And what I can also say is that you can see that cash returns to shareholders are a priority for us, and we will keep continuing with a good balancing between share buyback and dividends. And then I think I refer to Karin for the autonomous driving question.

Yes. So we're making good progress on autonomous driving. At Torc, we keep hitting the different milestones that we have planned for. You might know we take a little bit different approach than some of our competitors. So we are focusing the team very much on getting ready for scaling and having production intent components and software, but this year, we are also working towards the end of the year to be able to demonstrate driver-out on public roads. So that's the big, big milestone for the team now, and they're making good progress. We are still planning for start of production on a bigger scale beginning of 2028. And I can do the one on electrification of BEV vehicles. So we still see a good margin on that business and it's on the same level as with combustion engines.

Good. So our last question comes from Anthony Dick at ODDO BHF.

The first one is the last one on tariffs. It's regarding the 3.75% MSLP offset. I just wanted to confirm you haven't booked or received anything relating to that as of yet. And if you could just give us a sense of how meaningful that could be for you and when you could actually start receiving some benefits from that. And the second one is on Cost Down Europe. So obviously, some good progress already in 2026. Just wondering in terms of how we should think about the sequence for the EUR 1 billion plus cost reduction targeted in Europe by 2020. Is that going to be linear? Or have you achieved some quick wins in 2026 and then it's going to be a bit more back-end loaded or gradual going beyond.

Thank you, Anthony. So first on the MSRP credits. So as I explained, we do not have full clarity yet because the process and the calculation method hasn't been published by the U.S. administration. But we do believe there will be a 3.75% offset on the MSRP value of U.S. built trucks to really help also mitigate the tariff burden on imported parts and components on U.S.-produced trucks. And because the details haven't been published, we also couldn't apply for this yet. So nothing is recorded in the balance sheet in any way on this, obviously. It's the same as what I also said when it comes to the increased U.S. content, we're taking a conservative approach there. When it comes to the guidance, we have really considered a double-digit million impact there as a credit could be more than that, but that's something that we do not want to include before it's concerned because we believe the eligibility based on what we know now, will be limited to imported parts listed on the 232 MHDVP tariff commodity list. And so that it will not be the full MSRP value of the truck and then you take the 3.75%. And there will be publication of DOC's procedures to administer these import adjustment offset amounts, and then we will understand how the program will be operationalized. But as I said, very conservative assumption on this in our guide. And then I think you had one more question, the Cost Down Europe. So what we have also said today, what Karin said is that we were able to bring in savings earlier than anticipated. So it was a faster implementation of measures, which we're happy about. It was also what we wanted, because in a market environment that was definitely weaker in 2025 there was a clear necessity to bring in as much as possible efficiency measures, and these are really -- these are net efficiency measures, what we also published for last year, the EUR 100 million that will now continue throughout the next couple of years. And then we will be adding to that with at least EUR 250 million in this year, net. That's the important thing. And it will increase. So it's not now a step up and then it will flatten but we do believe it will continue to obviously go up. It will not all come in '29 and '30, and we will continue to try to accelerate the implementation of actions. And we will -- as promised, we will keep you posted. And at least once a year in the annual results conference, you will receive an update from us.

So we actually have one more caller. It's Klas Bergelind from Citi. Klas, go on, please.

I had some phone issues here. Most of my questions have been asked, but I just want to come back to Trucks North America and the margin outlook. Your starting point is 6% in the first quarter. And in the first quarter, you're saying that the order mix is now improving with more Cascadia, which I've have seen is for second quarter builds and the build rates should go up second quarter over the first quarter. I mean I can see you could already do the midpoint of your full year margin in the first half and then volumes can go up even more here in the second half, unless, of course, we have a big setback in macro. It just seems like the T&A guidance is pretty conservative looking at the margin. If you could comment on the mix impact on the Cascadia, it seems like the margin into the second quarter could reach almost high single according to my calculations.

Klas, good to hear from you. Thanks for your question. So about the mix, I just want to mention one thing when I talked about more Cascadias, I was talking about orders and in particular, now in the first months of quarter 1. So when we look at the orders that we received in Q4 last year, it was really more towards medium duty. So that effect you will see then more towards quarter 2 coming in, in quarter 1 it will be a bit of a weaker mix. And I also said we are approaching the 6% in quarter 1. So it could be a bit below the 6% also. And we'll see how it goes. We will do the best we can, obviously, to make it a positive quarter. You're right to assume that our guidance of 6% to 8% for the year is more on the conservative side. That was a conscious decision that we took because we also saw how the market developed a bit different last year than we thought it would. And we could really see that this freight recession took much longer than we initially anticipated. So we want to not get too enthusiastic about the good orders that we've seen in recent months, also full well knowing that it could also be a bit different maybe in the next couple of weeks, and we want to be really sure that it's a sustainable trend, and it will continue into that direction. So we believe the 6% to 8% is the right approach for right now to guide us into the year. And if there is an upside to that, and we can get to a better point, of course, also then based on potential discussions on the tariffs. And we will be more than happy to update it. But for now, we see the 6% to 8% as a conservative realistic scenario.

Yes. Just to follow up, though. I mean you're saying the same thing as me that the first quarter orders with a better mix will be more built in the second quarter. So the mix should improve quarter-on-quarter, second over first, right, all else equal?

Yes, it should be better in the second quarter. I understood you in a way that you already thought that in the first, but now it will improve more towards the second.

Yes, that was my point.

Very good. I think that concludes our analyst Q&A. Thank you very much for all the good questions. And now I would like to hand over to Andy Johnson for the second part, the media Q&A. Andy, please?

Thank you, Marcus, and welcome, everyone, to the media portion of our Q&A session today. Before we get started, a few housekeeping remarks. As you know by now, this call is being conducted in English. So we kindly ask that you submit or ask your questions in English as well. Our operator will now walk you through our question procedure.

[Operator Instructions].

Okay. Questions are starting to come in. Thank you very much. Our operator will address each of you by name when it's your turn to ask your question. We ask that you briefly reintroduce yourself though, stating your full name, your media outlet before you proceed. Take your time. Please ask your questions slowly and clearly. And with that, operator, let's get it started.

The first question comes from the line of Benjamin Wagner from Frankfurter Allgemeine Zeitung.

My name is Benjamin Wagner from Frankfurter Allgemeine Zeitung. Once again, about the U.S.A. Can you explain once again the connection between the U.S. tariffs and your customers' uncertainty? Are customers holding off on purchasing, on buying your trucks because they are unsure how imports into the U.S. will develop? And I hope that I understood it right. You said that the order intake in the U.S. has stabilized. Why then do you expect declining return on sales in the U.S. And second, 2 questions about Cost Down Europe. Within the Cost Down Europe program, you want to cut 5,000 jobs in Germany, how many jobs have you already cut in the year 2025. How many employees are currently on the so-called orientation platform. And are you planning to relocate production from Germany plants to Eastern Europe especially from Worth am Rhein?

Thank you for your question. Benjamin. So looking at the U.S., to explain the connection between U.S. tariffs and the customers' uncertainty. That was really an effect that we faced a lot last year because it was kind of our customers took the wait-and-see approach and the market was just very weak. I mean it was the -- we were going through the longer trade recession in recent U.S. history. And so obviously, if you have an environment that's anywhere weak with low freight volume, low freight rates and then you have tariffs on top of that, that significantly impacts order behavior. It has now gotten better in recent months as we've just also discussed during the analyst call in our presentation because now there's not full certainty on tariffs, but there's more certainty, and then we also see the freight rates recovering. And that overall helps to convince our customers to order more trucks and that we see in the positive order momentum in quarter 4, and that has also continued now at the start of quarter 1. And then you asked why, despite this positive order momentum, we expect a decline in sales in the U.S.? Well, overall, we don't expect a decline in sales in the U.S. in '26, we do expect an increase as per our guidance. So this is in line with the order development, obviously, and also our return on sales. This is highly impacted by tariffs. As we've discussed during the analyst call and the presentation, we have a significant higher tariff impact in 2026 because of the so-called 232 truck tariffs that were introduced in November 2025. So we only had 2 months effect of this last year, and we have 12 months effect of this, this year. And as we assemble our trucks in the U.S. and in Mexico, that obviously impacts us. So we have a positive effect from a higher volume in the U.S. in '26, but the counter effect is then the tariffs and this is significant, so that leads overall to a lower profitability.

Yes. Benjamin, Karin here. On the Cost Down Europe topic, please understand that we do not comment how many people have left the company or exactly how many people we have on the so-called orientation platform. What I can tell you is that we are -- as we said also in the speech earlier, we did reach our targets in 2025. I think what's most important is to look on the bottom line here in terms of the impact for the company. And we have also now disclosed the target of EUR 250 million for 2026. In terms of the head count topic, I think the big reductions we will see when we move in forward some years where we're doing some of the bigger outsourcing topics, but as I said, I think more important is to focus on the bottom line. In terms of where we will put our production in the future, I think it's also a little bit premature to comment. Worth is our by far biggest global production site for Mercedes-Benz trucks, will remain so in the future. With that being said, of course, in all our plants across Germany, but also globally, we always look at what's the optimal way to run the system. And we are conducting make or buy analysis also to what do we do in-house and what might be better that we do -- that the suppliers do for us that we buy sort of more parts from the suppliers.

The next question comes from the line of [ Tina Fuchs from SWR Sudwestrundfunk ].

This is [ Tina Fuchs from Sudwestrundfunk ]. I would like to ask a question concerning defense. Could you give us a little bit of an insight of the new geopolitical situation results in new products that you think of also new cooperations and new customers? Do you have more incoming demand from Army's in Europe? And allow me also on remark being a journalist covering television, I find it rather sad and discriminatory that you do not allow us to make an interview with you and that you don't show your faces during the Q&A on a video while we are asking questions here. I don't think that is the equal opportunity for press media as well as electronic media. I'm really sad about that. Thank you.

Tina, Karin here. We take that feedback, obviously, with us. I just want to clarify that we have done these annual conferences completely without video historically. This time, we decided to try something different to have the presentation with video, but for analysts, investors as well as media, we have stayed with this method, and I think mainly honestly, because of technical reasons and it's a little bit simpler, but definitely we'll follow up with you to see if there is a better way to do it going forward. Now moving to the defense question. I would say we started already some years ago to invest into our defense portfolio. I guess, looking back, you can say it was really good timing because it was before sort of the big defense spending started to take off. We work together with many different partners. To give you one example, we work with Rheinmetall to do the armorization of our cabs on certain models. Over the last years, we've also significantly expanded our product configurations based on customer demand, so introducing more versions of the Zetros as an example, which is one of our pure defense vehicles. We have also increased and started working much more with different partners. Maybe to give you one very recent example because we announced it yesterday, partnership with Quantum Systems. And what we want to do together with Quantum is, first of all, explore with their software, how we can run our trucks more on platooning as a first step, but as a second step also autonomously. This obviously for safety reasons to not have drivers in every truck, but also because of the needing less people in the armies if you can do more traveling autonomous. So I think that's one example. Another example is the recent win with the French military, where we work with Arquus where we are selling chassis and they are up fitting to the needs of the French Defense Ministry. And then across the world in different tenders, we work with different partners. As an example, the Canada tender, which was, I would say, are maybe a breakthrough into the defense business. We work with General Dynamics there. So yes, and we are definitely looking to increase the number of partnerships.

We now have a question from the line of Ilona Wissenbach from Thomson Reuters.

Ilona Wissenbach from Reuters. I have 3 questions. You were talking about better operative performance. But I wonder in what measure do you talk about because you expect no pickup in the margin versus last year with a guidance of 6% to 8%. Then the question on cost on Europe. Have you taken provisions for staff card for compensation programs and so on last year and how much this year? And the third question is about the Iran war. What effect do you expect? And what is the biggest risk?

Thank you, Ilona. I'll take the first one. So talking about our operational performance, what we mean there is we expect stronger volumes, and we will convert that into return on sales, obviously. And what you have to really take into account is significantly higher tariffs. I mean this is something that we can't impact. We only can impact what we can control. And there, we are improving our results through efficiency gains. For example, through Cost Down Europe, but also in North America, we are continuing to increase our efficiency and productivity and then the tariffs unfortunately go against that. So that's the explanation for that one. On Cost Down Europe, we have taken a provision already in quarter 3 last year, EUR 321 million. And so no, we don't expect an impact of a provision there this year.

Yes. And I can comment on the Middle East conflict. As mentioned earlier, it's too early to really estimate the financial effect. So we have not taken it in our guidance or outlook for the year. But maybe to give you a little bit more color. And we have, of course, some people in the region, mainly in Dubai. There, we are working with crisis management to keep everyone up to date and, of course, also continuously assess the safety and security situation. Then on the supply chain side, we have obviously worked through that very carefully. We don't see any short-term supply chain disruptions based on the situation. As I already mentioned, in terms of our sales, it's a rather small region for us relative to other ones. So also there, expect limited effect. So I think the biggest risk from a company perspective, financially is more what happens with the overall global economy. Where does the oil price go? Where does gas price go? How do interest rates develop and what does that do for, let's say, the global economy. But as I said, I think it's a little bit too early to have a clear idea about that, which is why we have also not taken it into our guidance.

Can I ask about the tariff effect, again. Eva, did I get that right that you're not able to quantify it yet in numbers because it's so uncertain how all this apply -- applying for some reductions will work?

Yes, exactly. So I mean we disclosed it for last year. It was a EUR 250 million net impact. And for this year, we have this guidance range of 6% to 8%. And that assumes certain tariff scenarios in that range. And of course, internally, we do have a range there that we're working with. But as it's so volatile, it doesn't make any sense to discuss it now. But with that 6% to 8% range, you get a feeling for where we are trending.

The next question comes from the line of Alexander Jungert from Mannheimer Morgen.

This is Alexander Jungert from Mannheimer Morgen. I have 2 questions. The first one is again on the Cost Down Europe program. You said earlier that you are implementing the efficiency measures faster than planned. Can you explain what that means specifically for the Mannheim side? And second question, how would you describe the current mood among the workforce in light of the cost-cutting program? Next week is also the Works Council election.

Alexander, Karin here. So on your questions on Cost Down Europe, I mean, I did mention some examples of where we saw quite good development during 2025. And in operations, specifically, we talked about, for instance, energy savings. So I think that's one that carries also for Mannheim. Otherwise, it's a little bit difficult for me to give you the exact measures that we have done in Mannheim. In terms of the mood amongst the workforce, I think this election period, obviously very important, and we follow it very closely. I think we see a little bit the same tendencies that we see in society overall. So a little bit more extremists on all sides of the spectrum, but of course, we follow it very closely, and we are -- yes, we will work with who gets elected, of course.

All right. Ladies and gentlemen, that looks like the last question in our queue. We do have time for one last question if anybody wants to submit it. All right. It looks like there's no more questions. So thank you, everyone. Ladies and gentlemen, thank you for being with us today, and thank you, Karin and Eva, for answering all the questions. Now as always, our Investor Relations and Communications team remain at your disposal to answer any further questions you might have. A recording of the session will be available later today on our Daimler Truck website, and we are looking forward to staying in contact with you. With that, have a great day. Stay healthy. Thank you, and goodbye.