PACCAR Inc (PCAR) Earnings Call Transcript & Summary

Okay. Good morning. My name is Ken Hastings, PACCAR's Director of Investor Relations. We would like to welcome those here today and those on the webcast to PACCAR's 2024 Investor Conference. The webcast playback and slides will be available at paccar.com shortly after the meeting through June 30. On the screen now is our usual disclaimer about forward-looking statements. For the most recent information about PACCAR, please see our SEC filings on the Investor Relations page of paccar.com. Our first speaker will be Preston Feight, PACCAR CEO, but first, a short video that provides a nice overview of PACCAR. [Presentation]

I love that video. I love that video so much because it really kind of gets to the heart of what we are. We'll spend a lot of time on numbers today and the numbers matter, of course. But PACCAR really is about the people, the focus on excellence, the culture of excellence and our ability to perform for just not today but also the longer term, and I think that just emotionally comes through, and it does matter. So with that, thank you for being here. Thanks for coming in this morning. Great to be with everybody who are live with us, also for the people that are attending virtually. Good to have you with us as well. As I mentioned, we'll share information today on our strong financial performance, our industry-leading product portfolio, our technology plan, our strong growth in our parts business, our Financial Services businesses, and our robust strategy for an outstanding future. So with that, we'll kick into this. PACCAR has an excellent management team. Every day, we wake up thinking about trucks and transportation solutions and how we can make our customers' businesses more successful. Shown here in order of presentation of the 7 members of the PACCAR exec team who are sharing information today. Kevin Baney, our Senior Vice President, responsible for Kenworth information technology and our Dynacraft division; Mike Dozier, our Executive Vice President, responsible for managing international operations and global manufacturing. John Rich is our Senior Vice President and Chief Technology Officer; Laura Bloch is PACCAR Vice President, and she's responsible for PACCAR parts around the world; Todd Hubbard, PACCAR Vice President and President of our Financial Services Division; and Harrie Schippers, PACCAR's President and Chief Financial Officer; who has operational responsibility for DAF as well as PACCAR Financial. So together, this group of people has over 200 years of industry experience. I think it's kind of an experienced management team would be another way to say that. And I think you're going to get to enjoy hearing from each of them. To boil it down, the way we think about it, PACCAR is developing trucks and transportation solutions that move the world to a better future. In order to do this most effectively, we focus on understanding our customers' needs and helping them deliver the essential items that support the communities in which we all live and work. That's the underlying premise of why we do business and how we do business. And as I mentioned, PACCAR is an exceptional company. I hope you come away today understanding that PACCAR has built a structurally stronger business, best positioned for future growth. I also hope that you'll recognize the uniqueness of PACCAR's differentiated asset-light, high return on invested capital business. We enjoy telling the PACCAR story. So let's jump in with that. So our last Analyst Day was 2 years ago and here's a few financial metrics from the then and the now. In 2021, PACCAR reported revenues of $23.5 billion and net income of $1.9 billion. That resulted in a return on revenues of 7.9% and a return on invested capital of 17.1%. These results were before the introduction of the newest product portfolio in the industry. In 2023, PACCAR reported revenues of $35.1 billion and net income of $4.6 billion. Return on revenue was 13.1% and return on invested capital was 37.8%. And I think those are impressive changes. All 3 principal business segments have increased profitability since 2021. During that time, PACCAR Financial has grown from $438 million to $540 million. PACCAR Parts has grown profitability from $1 billion to $1.7 billion, and trucks has grown from $800 million to $3.8 billion in pretax profit. The presentation today will explore the structural nature of those changes and how they position PACCAR for future growth. So PACCAR has a unique culture of excellence. Video showed it. I'm humbled to get to work with PACCAR's great global team of people. When you go to our factories and you see these people, they're simply outstanding, a cut above. Their focus is on creating premium trucks, effective transportation solutions and expanding in markets that drive profitable growth for our customers as well as for PACCAR and our shareholders. The foundational elements of the culture of the pursuit of quality, the implementation of commercially applicable technologies and a drive for continuous innovation. Over the past 5 years, PACCAR has invested $4.7 billion in facilities and products. This money has been used to increase capacity at our truck and engine factories, build new parts distribution centers, invest in clean combustion engines, build new connected vehicle solutions, design and autonomous vehicle platform and develop zero-emissions vehicles. These investments have resulted in PACCAR having the world's most modern and most efficient lineup of trucks and powertrains as well as world-class parts and financial services businesses. Our independent network of DAF, Kenworth and Peterbilt dealers is one of our most valuable assets. Yet they don't appear on our balance sheet. They're an important element of PACCAR's strength and support our customers throughout the life of the truck. Over the past 5 years, Kenworth, Peterbilt and DAF dealers around the world have invested $2.6 billion in state-of-the-art facilities and capabilities to support our customers. And PACCAR Parts is a high profitability, high growth business. In 2023, PACCAR Parts achieved record profits of $1.7 billion on revenues of $6.4 billion. Over the past 10 years, profits have grown at an average rate of 15% per year. This growth is a result of our investments in technology-driven transportation solutions and state-of-the-art distribution centers that provide our customers with the right part at the at the right place, at the right time. PACCAR Financial has demonstrated a 10-year compound annual growth rate of 5%, and in 2023, PACCAR Financial achieved excellent profits of $540 million. This performance is a result of our investments in used truck centers, excellent portfolio quality and prudent financial management. PACCAR is an environmental leader. On the top left, PACCAR is committed to CO2 emissions reduction targets. In the top right, PACCAR is ranked in the top 16% of peer companies on ESG practices by S&P Global. In the bottom left, PACCAR received an A- rating from CDP or Climate Disclosure Project, which places PACCAR in the top tier, top 6% of the more than 21,000 companies who are recognized in that analysis. In the bottom right, the DAF XF won the 2023 Green Truck award in Europe for being the most fuel-efficient truck. As an environmental leader, PACCAR will continue to make the right decisions for our customers, for our shareholders and for our communities. I'm proud to share that in 2023, many PACCAR divisions were recognized as top companies for women to work for by the Women in Trucking Association. And I'm also pleased to share that PACCAR has been named as one of America's greatest workplaces by Newsweek. So now looking at the global truck markets. The 2024 U.S. and Canadian market is expected to be in the range of 250,000 to 290,000 trucks, and then expand in 2025 and 2026 ahead of emissions prebuy. In Europe, the market is expected to be in the range of 260,000 to 300,000 trucks with modest growth in the coming years in advance of the European emissions changes, which will be implemented in 2029. In South America, the market is projected to be in the range of 105,000 to 115,000 trucks with generally strong economic and truck market conditions expected for the coming years. Truck markets like these will be very good for PACCAR. PACCAR is continuing to invest in new technologies and trucks for the future. Our teams are developing new and innovative products in the areas of clean diesel and zero-emission powertrains to meet regulations as well as customers' needs. Advanced new vehicle designs to drive aerodynamics and freight efficiency, global Connected Services that enhances our customers' operations, and will provide incremental profit opportunities for PACCAR as well, and we are the OEM of choice for autonomous vehicle development. So since 2014, PACCAR's net income per truck produced has more than doubled. New models are driving higher pricing and per unit profitability. The Parts business will continue to expand based on investments in convenience, technology-enabled transportation solutions and additional proprietary content. Our rest of the world operations will drive meaningful increases in sales and profitability, and PACCAR Financial Services will continue to profitably support truck sales and grow profits as a result of investments in new businesses such as used truck retail centers as well as trucks as a service. PACCAR's high margins, asset-light business model and discipline in capital allocation produced a high return on invested capital. In 2023, PACCAR's ROIC was a record 37.8%. When compared to other companies in our peer group, PACCAR's performance is best-in-class. PACCAR is structurally stronger. We're delivering higher margins and profits, expanding geographically and have implemented efficient and effective advanced manufacturing capabilities. And we're poised for growth. We're making investments in excellent new products and technologies as well as continuing to grow our financial services as well as parts businesses. These are exciting times. We're really excited for today. We're even more excited for the future and what it's going to bring. So thank you. I'd like to introduce Kevin Baney to present PACCAR's industry-leading truck programs and dealer network. Kevin, over to you.

Thank you, Preston. Good morning. I'm Kevin Baney, PACCAR's Senior Vice President. PACCAR is a global technology company that provides premium transportation solutions with industry-leading trucks, powertrains and support services that deliver outstanding performance and value to our customers. In the following slides, I will show you the new products that have launched since we were last together as well as the comprehensive truck product lines for the truck brands, Peterbilt, Kenworth and DAF. Kenworth celebrated their 100-year anniversary last year. In honor of the Centennial, they released 2 special edition trucks, a W900L shown on the left and the T680 shown on the right. Customers purchased these 2 special edition trucks throughout the year, representing Kenworth's premium brand and 100-year heritage. The truck lineup on this slide shows Kenworth's complete product line with a heavy-duty truck shown along the bottom, medium-duty trucks shown in the middle and zero-emission trucks shown on the top. Kenworth has the newest complete product line in the industry and every truck model on this slide has been released since the beginning of 2021. In addition, Kenworth is the vocational segment market share leader. Last year, Peterbilt released the new 589, which is based on the newest cab platform, leveraging the latest in driver comfort and technology. The 589 represents Peterbilt's premium brand and the extreme customer loyalty in the traditional heavy-duty segment. The truck lineup on this slide shows Peterbilt's complete product line with heavy-duty truck shown along the bottom, medium-duty shown in the middle and zero-emission truck shown on the top. Similar to Kenworth, Peterbilt has the newest complete product line in the industry and every truck model on this slide has been released since the beginning of 2021. And Peterbilt is also the vocational segment market share leader. So how can Kenworth and Peterbilt both be the vocational market share leader. Well both Kenworth and Peterbilt have the newest and most complete vocational product lines in the industry. We both have 20% market share for a combined 40%. It's like the old Doublemint gum commercial, the only thing better than 1 market share leader is 2 market share leaders. Last year, DAF released the medium duty XB, that shares the same styling theme as the rest of the DAF product line and includes the latest in driver comfort and technology. The XB has been well received across Europe and is the latest in a series of new product launches for DAF. The truck lineup on this slide shows DAF's complete product line with the medium and heavy duty on-highway trucks shown along the bottom in the vocational and zero-emission trucks shown on the top. DAF has the newest complete product line in Europe. DAF was the market share leader in 5 European countries and won the 2023 International Truck of the Year for the XD after winning the same award for the 2022 International Truck of the Year for the XD Series, very impressive. These charts show the fuel economy improvement in Europe and the U.S. and Canada since 2010. Shown on the left, fuel economy in the U.S. and Canada has improved by 40% and with a forecast to improve by around 50% by the end of the decade. Shown on the right, fuel economy in Europe has improved just over 30% with a forecast to also improve by 50% by the end of the decade. These significant improvements are the result of PACCAR's investment in new truck models and powertrains since 2010. There are 2 major benefits from these fuel economy improvements. First, every percent improvement in fuel economy is a percent reduction in CO2. 50% reduction in CO2 is a major accomplishment. Second, better fuel economy creates value for customers and PACCAR can participate in that value creation. John will talk more about regulations, their impact on CO2 and the value creation for our customers and PACCAR. In addition to investing in the newest product lines around the world, PACCAR has invested in production capacity. Shown on the top row, we've upgraded and increased the capacity in our major truck factories in the U.S. and Canada. On the bottom row, PACCAR has invested in capacity for zero-emission trucks in Europe. We also continue to invest in new clean diesel engine capacity at our factory in Mississippi as well as adding engine remanufacturing on the same campus. As Preston said earlier, PACCAR has invested over $4 billion in new technology, new products and production capacity. As a result of these investments, PACCAR has and will continue to grow profitable market share. This slide shows PACCAR's heavy-duty market share in Europe on the left and the U.S. and Canada on the right. We're showing market share as 4 year average at the beginning of each of the last 3 decades to show the trend and smooth out the volatility from individual years. PACCAR share in Europe increased from an average of 11% in 2000 to an average of 15.5% in 2010 and 16.3% for the last 4 years. The goal for the midterm is to grow share up to 20%. PACCAR's combined share in the U.S. and Canada increased from an average of 21.8% in 2000 to an average of 26.8% in 2010, and 29.7% for the last 4 years, and the goal for the midterm is to grow share up to 35%. PACCAR's approach to market share is to pursue profitable growth. We achieved this by providing our customers the best trucks, outstanding after-sale support, and industry-leading financial services, all supported by the best dealer network in the industry. Let's take a look at the segments of the truck market in the U.S. and Canada. The on-highway market is made up of the truckload and less than truckload markets. The truckload market makes up about 50% of the overall annual truck sales and is soft this year but is expected to strengthen either later this year or early next year. The less than truckload market is about 25% of annual sales and is healthy, and our customers continue to order trucks. The vocational market is a remaining 25% of annual sales and is quite strong, is, in fact, still limited by supplier components. The medium-duty market in the lighter color is still very healthy with a strong backlog, truck sales and margins. All in all, we're expecting another excellent year. Looking at the PACCAR product portfolio from a segmentation standpoint. The on-highway segment includes both the truckload and less-than-truckload, and is represented by the trucks on this slide. These Peterbilt, Kenworth and DAF trucks further strengthened PACCAR's position in the market through performance-based technologies, including the latest ADAS and safety and vehicle connectivity systems. The result is class-leading safety, efficiency and driver comfort that deliver excellent resale value and the lowest total cost of ownership or TCO. Fleets track TCO and the main components include initial cost of asset, drivers, fuel, insurance and residual value. We measure our TCO performance by the growing PACCAR share in this segment. In the vocational segment, the respective Peterbilt, Kenworth and DAF trucks are shown along the top. PACCAR is the market share leader in the U.S. and Canada because these trucks deliver outstanding reliability and durability. Every vocational truck is ordered in a customer-specific custom configuration. As a result, PACCAR vocational trucks provide an extensive range of application coverage. DAF is growing share in this segment same reasons. PACCAR's vocational trucks deliver segment-leading performance. PACCAR's medium-duty product portfolio includes a full range of Class 5 through 7 trucks, as shown for Peterbilt, Kenworth and DAF along the top. These trucks provide class-leading driver comfort and performance, extensive application coverage and integration with body builders, making it easy for customers to order medium-duty trucks to fit their needs. PACCAR is a leader in developing zero-emission trucks. We're selling 8 different battery electric truck models in the heavy and medium-duty markets. On the bottom right is the rendering of PACCAR's joint venture commercial truck battery factory that will begin construction this month. These products reinforce PACCAR's environmental leadership and investment in the future. When we look at PACCAR's flagship trucks for Kenworth, DAF and Peterbilt, first thing that comes to mind is world-class styling. You might also say great aerodynamics, visibility and excellent fit and finish but there's another key element that isn't quite as visible. That's electronics. Earlier this year, we formed PACCAR electronics to address the growing importance of electronics within PACCAR's product development. With every new truck program, there's been an increasing list of electronic system implementations ranging from new vehicle architecture, safety systems, vehicle controls and switches, and connectivity. Several of these systems are highlighted in the interior picture on the right. And another good example is the controller for the engine shown on the left. Today, our trucks typically have up to 100 control systems with up to 100 million lines of code. The point of showing this is to highlight that connected trucks are sophisticated and run by software requiring ongoing investments to remain best-in-class. This is not an easy thing to replicate and creates a strong PACCAR advantage. Also increases proprietary content and service within the dealer network. Connected Services is a key strategy for PACCAR. Our proprietary integrated hardware and new digital display will make PACCAR an integral part of the Connected ecosystem. Through an industry partnership, we are launching an operating system that will make integrating OEM and third-party apps effective and profitable. That will enable PACCAR to sell proprietary apps used truck data to perform diagnostics and prognostics. The PACCAR Global Connect system makes integrating aftermarket systems such as cameras, tire pressure monitoring, trailer connections and other safety systems easier than ever. And we'll be a data service provider to the suppliers, dealers and customers, which will secure and increase our value in the connected space. Now I'm going to show one of the many uses of connected truck data across PACCAR. Every Kenworth and Peterbilt trucks are connected for 5 years. This map shows the traffic pattern for Kenworth and Peterbilt trucks in the U.S. and Canada during daily peak operation. So how is this data being used? If we overlay all Kenworth and Peterbilt dealership locations on the connected traffic data, we quickly confirm dealership locations strongly correlate to traffic patterns. This information is used by our dealers to make informed investment decisions on new locations, adding service base, mobile service trucks, technicians and hours of service. As a result, total dealership locations has grown to 910 with 11,000 service space. This is a great example using connected truck data. Now showing the DAF dealership locations in Europe, the same connected truck data shown in red is also used in Europe by dealer shown by the orange dots to make similar investment decisions. As a result, total dealership locations have grown to 850 with 8,700 service base. PACCAR's dealer network is an extension of PACCAR in the strongest network in the world. Over the last 5 years, Kenworth, Peterbilt and DAF dealers in the U.S., Canada and Europe invested $2.3 billion in expanding existing facilities or adding new locations. The dealership shown on this slide represent 8 of the newest locations within PACCAR's dealer network, adding additional service base to take care of customers and provide them the highest level of service. Also thought it'd be worth showing the key elements of a typical dealership to highlight the level of investment dealers make to provide excellent customer service. Starting in the upper left, going clockwise, the typical PACCAR dealer has visible brand signage on the exterior of the dealership, space for customer truck parking, inviting lobby and driver seating, plenty of parts retail space, and parts storage and service base to take care of customers and provide them the highest level of service. All end on reinforcing our position at PACCAR is structurally strong. Whether it's the diesel powertrain truck shown along the top or the complete line of zero-emission trucks along the bottom, PACCAR has the most comprehensive portfolio of industry-leading trucks. We have made investments in production capacity and have the strongest dealer network to continue growing profitable market share. Thank you. Now I'll turn it over to Mike Dozier.

Thank you, Kevin, and good morning. I'm Mike Dozier, PACCAR Executive Vice President, and it's a pleasure to be with you this morning to provide an overview of PACCAR's rest of world operations outside of the U.S., Canada and Europe. Highlight in green on this map are the more than 35 countries where PACCAR sells DAF and Kenworth trucks, aftermarket parts and in selected countries, Financial Services. The countries highlighted in light green, are where we sell trucks and parts with those noted in bright green, where we have manufacturing operations and/or parts distribution centers. The table illustrates PACCAR's approach to geographic expansion, with most of PACCAR's investment focused on the markets were just over 85% of global profits in the greater than 16-tonne truck market are generated, that is North America, Europe, South America and Australia. We continuously assess potential new market opportunities with a focus on factors such as the competitive landscape, government influence on the market and long-term profit potential. Looking at the 5-year growth in PACCAR's rest of world truck volumes, the chart on the left summarizes the growth from 20,000 trucks in 2018 to 32,000 trucks last year, a 65% increase. Rest of world 5-year revenue growth is shown on the right, with revenues increasing 95% from $2.64 billion in 2018 to $5.16 billion last year. Those excellent growth highlights the quality, performance and total cost of ownership benefits that PACCAR products provide our customers in all our global markets. PACCAR's rest of world product strategy leverages our core market DAF and Kenworth vehicle platforms. A key element of this strategy is the localized design and development engineering that tailors the final product configurations to the unique customer and durability requirements of each market. Taking a closer look at our primary rest of world operations, PACCAR Mexico, which is located in Mexicali has been market leader for 20 years. This leadership continued in 2023 with PACCAR Mexico achieving 36% market share, supported by the production of 18,600 trucks. In support of ongoing growth in the market, the DAF brand was officially launched in Mexico in October of last year, complementing the industry-leading Kenworth product portfolio. In 2023, DAF Brazil celebrated its tenth anniversary and achieved 10.2% market share for the full year. This outstanding result was supported by the delivery of a record 8,600 trucks and growth of the dealer network to 61 locations. Beyond the domestic market, DAF Brazil recently began exporting trucks to Colombia, Peru and Chile. Now here's a short video that highlights DAF Brazil's tenth anniversary celebration last year in Sao Paulo. [Presentation]

A fantastic celebration for an even more fantastic accomplishment. Moving a little bit further west. PACCAR Australia has maintained market share leadership for 22 consecutive years, achieving combined Kenworth and DAF share of 25.5% last year. Located in the Melbourne suburb of Bayswater, PACCAR Australia delivered a record 5,300 trucks in Australia, New Zealand and other Asia Pacific markets last year. A critical element of our success to date and the continued growth of our rest of the world business is the ongoing investments in products, manufacturing operations and parts distribution centers throughout the global business cycles. Starting in the upper left, PACCAR continues to invest in new product configurations for all global markets. As exemplified by the Mexicali, Mexico plant in the upper right, we continue to invest in increased capacity and efficiency throughout our truck assembly operations. In the lower right, advanced manufacturing technology investments, deliver increased safety, quality and efficiency, shown here is the robotic cab build cell in Australia. And as noted in the lower left, the continued growth of our parts distribution network is highlighted by the distribution center in Ponta Grossa, Brazil. We continue to assess what is needed to deliver the next level of growth and performance and invest accordingly. Shown here in blue are the DAF XF and CF trucks that represent the foundation of the DAF product portfolio in many of our rest of world markets. Both products have developed an outstanding reputation for quality, durability and total cost of ownership. The transition to the new DAF product range comprised of the DAF XD, HF, HG and HG+ trucks shown in yellow is now underway, and plan for completion in all our global markets over the next few years. The superior aerodynamics, fuel efficiency and driver comfort of the new DAF products that it delivers will further enhance the benefits we provide our customers outside of Europe. And as with all markets in which we operate, the PACCAR dealer network plays a strategically important role in our success and continued growth. Looking more closely at the rest of world markets, the orange and blue dots shown here represent the 450 dealer locations that provide outstanding localized support for our customers. The yellow dots highlight 6 of PACCAR's 19 distribution centers strategically located in Mexico, Panama, Colombia, Brazil and Australia. And these PDCs provide direct support for our larger rest of world markets. Additional customer support in these markets is also provided as needed out of our U.S., Canadian and European distribution centers. And this slide highlights a few examples of the outstanding investments PACCAR's independent dealers continue to make from Mexico to Australia, Colombia to Taiwan. Over the last 5 years, PACCAR dealers in our rest of world markets have invested more than $280 million in world-class facilities like these that set the benchmark for quality, and continue to raise the bar on the level of support we provide our customers. The quality of PACCAR's worldwide dealer network is an important competitive advantage for PACCAR. In closing, PACCAR's rest of world operations continue to refine operating strategies and investments that will drive further enhancements to safety, quality and efficiency of our operations as well as the level of product performance and aftermarket support we provide our customers. As a result, PACCAR is well positioned to continue our historic level of growth in our rest of world markets. Thank you. And now I'd like to introduce John Rich.

Thanks, Mike, and good morning. I'm John Rich, PACCAR's Senior Vice President and Chief Technology Officer. We're going to talk about regulations and technology strategy and our choices here will impact our capital allocation decisions as well as our return on investments. So let's get started. This slide provides a summary of global emissions and fuel economy requirements in our primary markets. Across the top half of the time line is Europe. Over the next decade, we see a 43% reduction in greenhouse gas, which is a proxy for fuel economy. This regulation has steps in 2025 and 2030, and our engines must meet Euro 7 NOx emissions in 2029. North America was covered in the lower section. With EPA greenhouse gas Phase III, now finalized, we see a nationwide 39% reduction in greenhouse gas taken in 4 steps. And the EPS put forward an aggressive national NOx limit 2027, a very aggressive national NOx limit. Both regions have finalized legislation this year and are now remarkably similar in both standards and approaches. And in both cases, greenhouse gas limitations start to dominate the discussion requiring an increasing mix of electrification and other 0 emissions solutions. However, new regulations present challenges to our markets. The biggest hurdle is infrastructure by far, things like chargers and power generation capacity, which are simply not adequate today. But operational trade-offs like range and payload capacity and total cost of ownership are also important considerations. PACCAR's strategy is to develop a technology road map and portfolio of products designed to help our customers with these challenges. Diving a little deeper into the powertrain strategy. Our first principle is that it starts and ends with the customer's job to be done. We will offer a superior powertrain portfolio to let the customer choose the solution that best fits their application. That starts at the top of the circle by offering the cleanest and most efficient diesel trucks in the market. We'll bring a portfolio of battery electric trucks that are optimized for short- and medium-range applications. And our new diesel engines are designed to be adapted to carbon-free fuels such as hydrogen. And we will offer a hydrogen fuel cell on heavy-duty applications. We will also bring a range of hybrid solutions as a significantly lower greenhouse gas without operational trade-offs. This is our global view of how we expect zero emissions adoption to play out across our markets over the next decade. We believe this transition will be shaped by regulations, infrastructure and cost of ownership. Adoption rates will differ by region and uncertainly -- uncertainty increases over time. But as we approach 2030, we start to see 0 emissions vehicle take a meaningful share of business. And over the next decade, we could see as much as half of our production be zero emissions. Even then there will still be strong demand for the traditional diesel engine. So let's dive a little deeper into the different components of our strategy, starting with clean diesel. As you know, diesel moves the world today and we believe it will continue to have an important place in the heavy-duty market. Engines are a PACCAR core competency, and while future emissions regulations are very challenging, we do know how to meet them. This slide shows our 2 proprietary engine platforms. The MX -- on the left, the MX-11 and on the right, the MX-13. We are very proud of the new MX-13 for 2024 California. When we launch it later this year, it will be the only diesel engine in the market to fully meet California's new ultralow NOx standard without the use of credits. We're investing in proprietary state-of-the-art large diesel engines that are ever cleaner and more efficient. These engines are foundational to our business, especially in heavy -- heavier and longer distance applications but the internal combustion engine story does not end with diesel. In addition to improving base engine efficiency and reducing emissions, we will make further efficiency gains with hybridization. Hybridization is not dependent upon infrastructure and allows our customers to make the best use of their existing assets and training. And where zero CO2 becomes an imperative, hydrogen combustion becomes a great alternative in our next generation of engines. All of these solutions maintain the freight efficiency of today's transportation ecosystem while driving increased PACCAR content and revenue. Going a little deeper on hydrogen and hydrogen propulsion. Our customers who want hydrogen will have a couple of great choices. On the left, we have hydrogen combustion, which is considered a zero CO2 technology. As discussed, this is an in-house adaptation of our proprietary diesel engine, and is made in the same factories. The driveline is the same as a conventional truck, which our customers greatly appreciate. On the right is a hydrogen fuel cell electric truck that we are developing in a deep partnership with Toyota. Here, the fuel cell generates electricity, which powers an electric drivetrain. Now this is considered a 0 emissions vehicle. Shifting to pure battery electric trucks. We are now 3 years into production and customer delivery of battery electric vehicles. We are delivering 8 different models globally across Classes 6 through 8. With the trucks, we offer 11 different integrated charging solutions. These are tailored to the development needs of our customer and they are delivered turnkey. Batteries. Batteries are an especially important consideration in commercial EVs. They are the most expensive part of the electric truck, sometimes approaching half the cost of the vehicle. And they are key to strong performance over the truck's lifetime. We are investing to build PACCAR proprietary packs as shown on the top from proprietary cells, as shown on the bottom. Our PACC strategy has 3 very simple goals: Cost leadership, supply security, and very importantly, differentiated systems that are engineered for commercial vehicle applications. Nothing here is shared with the car world. To achieve these goals, we have pursued a very unique partnership for battery cell production. You may have seen yesterday's announcement on the incorporation of Amplify Cell Technologies. Together with Daimler, accelerated by Cummins and EVE power, we are building a highly scaled battery plant that is focused only on commercial vehicle, lithium iron phosphate batteries. LFP chemistries possess a unique combination of durability, low cost and safety that make the right choice for heavy truck applications. And when it comes online in 2027, this will be the largest LFP plant in the United States. Beyond pure battery electric vehicles, our affordable commercial grade batteries will be used in a range of solutions, including fuel cells, hybrid applications and in stationary storage. Batteries play an important role in almost any future portfolio, and we have the right solution. PACCAR's business model has been tested over multiple technology transitions. We have succeeded by letting the needs of our customers to drive our technology direction, maintaining flexibility and knowing when to build, buy or partner for solutions. Our customers will always determine our path forward. PACCAR's development model is unique in the industry and very well suited for an uncertain operating environment. We build or commit more resources once there is high volume, technology stability and a compelling proprietary business opportunity. We partner selectively in new technologies with uncertain volumes and high development costs. And we buy where it makes sense to leverage supplier volumes, R&D scale or there is a high degree of regulatory uncertainty. The result is a focus on premium products with deep customer integration while maintaining low expense ratios and very high capital efficiency. With this approach, technology shifts like the one we see today, generally serve the strength of the quality of our business. Moving to the aftermarket aspects of our different powertrain options. Today's truck is a million-mile machine where the internal combustion powertrain represents about 45% of the value of the truck. Our business goes well beyond the initial transaction, supporting the vehicle throughout its entire life, generating ongoing aftermarket revenue on engine, after treatment, transmission and axle parts. With a battery electric powertrain, we replace a diesel engine with a large variety of other systems. These include electric motors and gearing, power electronics, a variety of pumps, compressors and heaters, and a lot of battery. Large batteries need fast chargers and charge management services. Unlike a passenger car, these systems will stay on the road for 1 million miles, generating $5,000 to $10,000 of incremental parts revenue versus a traditional diesel truck. So just like today's vehicle, the relationship only begins with the vehicle transaction. And we see substantial content growth with any path to regulatory compliance. All right. Changing gears on. Shifting from propulsion to talk about autonomy in the PACCAR autonomous vehicle platform. PACCAR has a very clear Level 4 strategy -- autonomous strategy. We engineer and build a digitally controlled truck, including advanced powertrain controls to optimize efficiency, proprietary and cyber secure embedded software to actuate all vehicle functions, redundant steering and braking, and high reliability power supply systems. We deliver our proprietary and scaled autonomous vehicle platform. In this model, we are very clearly not the AI driver or the driver service, rather we work with autonomous vehicle developers to integrate their AI driver with our platform. In the process, we significantly increased the value of the PACCAR truck. Our approach to autonomy aligns with how we add value across the transportation system today. We engineer and manufacture the digitally controlled truck, we repair and service a vehicle in the field, we provide all the parts support, and we continuously monitor the connected truck and service. The autonomous vehicle business model leverages our traditional strengths and could provide significant new recurring revenue and profit opportunities for PACCAR. So PACCAR is investing in new technologies and trucks for the future. These include clean diesel and zero-emission powertrains to meet regulations and customer needs, advanced new vehicle designs to drive aerodynamics and freight efficiency, Global Connected Services that enhance our customers' operations, And we Are the OEM of choice for autonomous truck development. So all in by reminding that all of these initiatives represent incremental profit opportunities for PACCAR. Thank you. And we'll transition to a short break, 20 minutes. Starting again at 10:15. [Break]

Good morning. PACCAR Parts provides convenient aftermarket transportation solutions for heavy-duty and medium-duty trucks, trailers, buses and engines. 2023 included many noteworthy accomplishments. Revenue of $6.4 billion was up 11%. Profit of $1.7 billion was an increase of 18%. Key programs that engage with current and new customers helped deliver our record results. Fleet services, e-commerce and TRP stores all grew significantly and helped fuel our growth. We expect another excellent year in 2024. Over the last 10 years, PACCAR Parts revenue has increased by over $3 billion, reflecting 9% annual growth. Since 2014, PACCAR Parts profit has grown 15% annually. PACCAR Parts has a successful strategy that we'll continue to deliver results. It starts with ease of doing business, conveniently ensuring parts are available when and where they are needed. By offering a full range of proprietary and all makes products, we provide complete part coverage to support customers. Expanding our markets and moving into new locations, we find new customers and grow share. A hallmark of PACCAR Parts success is our global network. We support over 2,300 dealer locations around the world, shown by the green dots. This profitable independent dealer network is recognized as a leader in the commercial vehicle industry, delivering superior customer service. The red circles on this map designate PACCAR Parts 19 global distribution centers strategically located to provide expeditious delivery to those dealer locations. We consistently invest in our distribution network. These are 4 of our recent expansions. The new Louisville PDC opened in 2022, adding 260,000 square feet. We recently began shipping from our new location in Bogota, Colombia. This fall, we'll open a new location in Mosbach, Germany. And by the end of the year, we will complete an expansion of our Bayswater PDC in Australia. These investments support the convenience of doing business with PACCAR. PACCAR Parts has a robust product segmentation strategy with the right part for the right market. This broad portfolio drives volume, increasing customer loyalty and margin as purchases move up through the tiers. Vendor brands are widely available and known in the market and available from us. PACCAR's TRP brand of all-makes products enables a retail touch point for customers that are new to PACCAR. TRP has a strong value proposition, high-quality parts for all makes and for owners of older PACCAR vehicles. PACCAR proprietary parts provide customers the assurance that their parts are identical to those used in production. They allow customers to maintain industry-leading performance and equipment resale value, electric vehicle parts will drive further sales in this segment. PACCAR MX engines launched in North America in 2010. Since launch, a cumulative 370,000 engines have entered service. By 2023, PACCAR MX engines part sales had reached nearly $1 billion worldwide, with an incremental $500 million to North America revenue. Growing PACCAR MX engine installations provides excellent part sales opportunities today and into the future. To date, in North America, there are 370,000 PACCAR MX engines. As shown on the chart, engines go through different parts consumption phases based on age and mileage. There are 135,000 engines in maintenance phase. Parts consumptions for maintenance parts such as oil and filters occurs in years 1 through 4. In years 5 through 8, engines enter the service phase and consume more wear parts, as shown in green. In years 9 through 12, engines come candidates for overhaul kits and consume the most parts, the darkest green sections. Finally, older engines enter a second life phase with second life parts consumption. By 2033, 800,000 PACCAR engines will have been produced. We'll take advantage of engines across all stages of the product life cycle. In particular, the number of trucks in the largest parts consumption categories, overhaul and second life, will have grown substantially to 145,000 and 280,000 trucks. Serving all of these vehicles across the product life cycle will generate significant revenue for many years to come. As electric vehicles enter the marketplace, PACCAR Parts will gain incremental share and revenue. PACCAR EV infrastructure represents a new revenue stream. The chargers are designed to work with all makes of vehicles, providing excellent options for customers. Furthermore, with uncertainty about the power grid capacity, battery energy storage solutions are a new sales opportunity. EV vehicle parts, such as electric axles, and electric accessories, batteries and charge management systems are significant to electric vehicle aftermarket revenue. As John mentioned, the transition to new energy will change component costs. The PACCAR powertrain will become a more substantial portion of the vehicle's overall cost. Increasing content will drive customers to PACCAR dealerships and enhance margins. Overall, the incremental benefit of an electric truck over an internal combustion engine vehicle will rate -- range between $5,000 and $10,000 per truck. Connected technology enables all PACCAR trucks to be connected, creating new aftersales opportunities. Connected trucks increased the speed to help customers optimize their fleet by enabling proactive service alerts based on prognostics. With Connected Services, we increased customer satisfaction by providing drivers with updates, leading to timely service and optimal parts delivery. This creates a seamless service experience and drive strong customer loyalty. PACCAR Parts drives retail sales with easy-to-use programs to facilitate customer purchases, creating loyalty. PACCAR Parts Fleet Services provides centralized fleet billing with national parts pricing and one consolidated monthly invoice. Our modern e-commerce platform gives customers an easy 24/7 place to shop for all of their parts needs. Repair and maintenance contracts give customers peace of mind with a single monthly cost. And as mentioned on the previous slide, Connected Services will prompt sales to connected customers. This year, we celebrate 30 years of TRP. The TRP brand is growing with our network of TRP stores. TRP stores enable us to reach a wider customer base, 50% of whom are new to PACCAR. The first TRP store was opened in 2013, and we finished 2023 with 300 stores in 45 countries and retail sales growth of 28%. Mature stores bought an average of $1 million in wholesale purchases from us last year. We intend to double our store count rapidly over the next several years. PACCAR Parts is passionate about having the right part in the right place at the right time. We have a broad understanding of the market and use AI to optimize inventory in our warehouses. This ensures that we have the right parts with over 98% order fill. Our dealers trust us to manage their inventory. Our algorithms proactively suggest parts our dealers should order and their systems automatically accept these suggestions. Combined with greater than 99.9% accuracy out of our distribution centers, the parts are in the right place. Dedicated delivery from the PDCs to dealerships ensures that parts arrive at the right time. We delivered 70% of all shipments within 24 hours. This ensures uptime for our customers and creates loyalty. PACCAR Parts is well positioned for strong growth in the years to come, fueled by innovative aftermarket transportation solutions. Thank you. I'd like to introduce Todd Hubbard, Vice President of PACCAR Financial Services.

Good morning, everyone. I'm Todd Hubbard, PACCAR Vice President, responsibility for Global Financial Services. PACCAR Financial Services is an industry-leading financial services provider that includes the worldwide operations of PACCAR Financial and PacLease. Our mission is to profitably support the sale of Kenworth, Peterbilt and DAF trucks. We operate 26 countries on 4 continents and as shown in green on this slide. We have 1,000 employees working out of 24 locations. The primary ones are shown on the map. Experience has shown us that having captive financing available improves PACCAR truck market share by providing customers tailored financing solutions and being there for those customers that require a one-stop truck and fight -- truck purchase and financing package. We support the growth of our dealer network by providing inventory financing and business expansion loans. PacLease gives our dealers access to the important full-service leasing segment of the truck market. Ongoing contact with customers throughout the term of their contract gives us advanced knowledge of repurchase timing and supports high customer retention for PACCAR. Providing financing in full-service leasing allows us to bundle financing parts and service with the truck sales, thus enhancing the total PACCAR value. PACCAR Financial Services consists of a finance company, PACCAR financial, in a leasing company PacLease because each company offers financing solutions for different segments of the truck market. Finance company customers are generally over-the-road transport companies or common carriers. Their business is trucking. They generate revenue by using their trucks to move freight for other companies. They often maintain their own service shops and provide the maintenance for their trucks. These customers generally don't want to own their trucks at the end of the finance period. Full-service leasing represents roughly 20% of the U.S. truck market. This is where PacLease primarily operates. Leasing company customers are private fleets. These are companies whose primary business is not trucks but they need trucks to move their own products around. Trucks represent an expensive doing business for them, and they use full-service leasing so they can essentially fix their cost of transport. The customer provides the driver and pays for the fuel. All other costs associated with the trucks are covered by the lease payment. Maintenance is provided through the PacLease dealer franchise network, and at the end of the lease term, the customer returns the truck to the leasing company. PACCAR Financial Services financed 24% of PACCAR trucks sold worldwide in 2023, generating a record $7.2 billion in new business volume as shown in the top left graph. The strong new business volume resulted in total financial services assets of $20.9 billion last year. As shown on the lower left, Financial Services delivered very good pretax profits of $540 million in 2023, the second best in company history. And over the last 3 years, PACCAR Financial Services has reached a new level of profitability, up 70% from 2018, reflecting solid portfolio performance, expansion into the Brazilian market and continued portfolio growth in other core markets. Moving to lower right, strict adherence to our underwriting standards and the use of data analytics to enhance our credit scorecards has enabled the worldwide portfolio to perform very well, and past dues have remained at low levels over the past decade. PACCAR Financial Services consistently delivers superior return on assets when compared to peer companies. Over the past 5 years, PACCAR Financial shown in green, has outperformed the peer group every year with an average return on assets of 2.6%. Last year, our return on assets was 2.8%, reflecting lower gain on the sale of used trucks. In 2023, PACCAR's return on assets was 75% higher than the peer group average. Our advantage over the peer group represented an additional $215 million to PACCAR's pretax profit last year. PACCAR Financial Services offers a full range of finance products that meet the needs of our customers. Banks generally do not offer operating or full-service leases. We have excellent access to customers through close relationships with the truck divisions and dealers. Banks rely more on a direct lending approach that depends on existing banking relationships and cross-selling. Our online services platform is considered best-in-class, and our industry-leading e-contract and e-signature functionality differentiates PACCAR Financial from the competition and has further improved the ease of doing business with us. PACCAR's excellent credit rating and strong balance sheet allows us to offer competitive interest rates to customers. However, the rates offered by banks are typically lower due to their access to very inexpensive sources of funding. Our network of used truck retail centers in the U.S. and Europe enables us to maximize resale values. Banks outsource their used truck sales to auctions, and as a result, receive lower prices for their equipment. In addition to offering great financial products, we also provide industry-leading technology that streamlines the entire truck purchase and financing experience for our customers. We've upgraded our operating system platforms in all major markets to support future growth initiatives. Our online services platform allows customers and dealers to make payments payoffs and see real-time account information 24/7 on any mobile device. Today, in the U.S., 100% of contracts are funded utilizing e-contract and e-signature and we're expanding this functionality worldwide. PacLease has recently launched its first-ever franchise portal, featuring valuable fleet management reporting tools including AI-driven prognostics data that alerts customers to proactively schedule service, which delivers increased customer uptime and lower overall cost of ownership. PACCAR Financial Services is leveraging data from PACCAR Connect, along with the PACCAR Cloud and advanced analytical tools to grow revenue by using algorithms to identify predictive sales leads to generate incremental volume and dynamic pricing for each customer transaction using real-time data to enhance loan and lease spread and used truck resale values to enhance decision-making by maintaining market-specific credit scorecards to accurately assess customer creditworthiness at loan inception and utilizing artificial intelligence to identify customers who qualify for automated credit approvals to capture incremental high-quality business, and to mitigate risk by leveraging an early warning system that will alert us to a decrease in miles driven, so we can proactively implement collection strategies. In leveraging connected truck data reports showing real-time performance by chassis, including idle time and average fuel consumption. PACCAR Financial is one of the leading sellers of premium used trucks in the world. Last year, we sold 12,500 preowned PACCAR built trucks worldwide by leveraging our extensive remarketing network of 12 used truck centers, shown by the red dots in the map. These centers provide us the opportunity to sell used trucks at retail prices, which delivers a significant premium compared to wholesale pricing. We increased our mix of retail sales worldwide to 40% last year as shown in the lower left graph. We recently enhanced our used truck website in the U.S. and Canada to include search engine optimization, side-by-side truck comparisons and buy now automated online bidding capability. Coupled with our high quality and lowest overall cost of ownership, Kenworth, Peterbilt and DAF vehicles command the highest resale value in the industry. PacLease is a leading full-service lease and rental provider our 39,400 truck fleet generates valuable contributions to PACCAR through truck purchases and parts consumption. Over the last 5 years, PacLease has purchased an average of 8,950 new Kenworth, Peterbilt and DAF trucks, making PacLease the largest fleet customer for PACCAR. PacLease accounts for 4% of PACCAR's worldwide sales. PacLease 3,700 full-service lease customers being serviced through a worldwide network of 632 locations, and this wide coverage ensures efficient and effective services for our customers. We previously covered the current services and offerings PacLease provides as shown on the left. To expand these services, we have recently launched our customized fleet services program, an unbundled service for companies who do not lease but are looking for a comprehensive maintenance solution. PacLease coordinates and manages all the customers' maintenance needs utilizing fleet reporting and analytics generated from the PACCAR Connect system. PacLease is also supporting PACCAR's EV rollout with full service lease and rental offerings, including both the truck and the battery charger. The combination of these current and expanded services uniquely position PacLease to evolve our product offerings into a truck as a service model, which allows a customer to access trucks on demand paying only for what they use either by mile or a kilowatt hour. Customers payment is inclusive of vehicle cost, battery charging, dedicated parking and maintenance, all in one combined monthly payment. In summary, PACCAR Financial Services worldwide operations profitably support the sale of Kenworth, Peterbilt, DAF trucks utilizing an industry-leading technology platform with excellent used truck remarketing capabilities and a leading full service and rental provider in PacLease, positioning us to successfully deliver innovative transportation solutions to drive future growth. Thank you. And I'd now like to introduce Harrie Schippers, PACCAR President and Chief Financial Officer.

Thank you, Todd. Good morning. PACCAR's consistent profitability reflects its industry-leading product quality, financial discipline, and continuous innovation. In its 119-year history, PACCAR has achieved 85 consecutive years of net profit and 83 consecutive years paying a dividend. Our strong financial performance continued in the first quarter with revenues of $8.7 billion, net income of $1.2 billion, and 48,000 truck deliveries. PACCAR has increased its regular quarterly dividend by 7% per year on average over the last 10 years. PACCAR's balance sheet matches the premium quality of our trucks. The company has no manufacturing debt and a healthy cash balance that supports our excellent A1, A+ credit ratings, Financial Services assets of $21 billion or approximately 52% of the balance sheet total. Summarized here are PACCAR's second quarter and full year 2024 outlook. Quarter 2 deliveries are expected to be around 48,000 trucks with gross margins in the 18% to 18.5% range. Our guidance for the second quarter and for the full year has not changed since the first quarter earnings call. These charts summarize PACCAR's truck, parts and other profit and margins. Profits are the green bars and margin percentages are the yellow lines. Growth in operating profit and margin performance have increased over the period shown. Gross margins were an excellent 19% in the first quarter and operating margins were 15.9%. PACCAR's profitability is benefiting from investments in new truck models, good global performance, especially in Brazil and PACCAR Parts continued growth. PACCAR has more than doubled the annual investments in capital projects, innovative products and new technologies in the last 10 years. For 2024, total R&D and capital investments are projected to be $1.2 billion, reflecting investments in next-generation clean diesel and electric powertrains and increased manufacturing capacity to support higher markets and higher market shares. These investments will support future growth. PACCAR generates excellent cash flow from operations. Operating cash flow has grown at an annual average of 9% over the last 20 years to $4.2 billion in 2023. PACCAR's net profit as a percent of revenues shown in green, has been best in class during the 10-year period shown. This is driven by the premium value of our products and our exceptional operating efficiency. PACCAR achieved an industry-leading after-tax return on revenues of 13.7% in the first quarter of this year. This reflects the strong performance of PACCAR Parts and margin improvements from the new truck models launched in recent years. PACCAR's SG&A as a percent of revenues has ranged from 1.8% to 2.8% over the last decade and is significantly lower than our peers. This is a testament to PACCAR's lean and efficient organization, strong financial discipline, and fully independent dealer network. Due to PACCAR's premium price position and high profitability, effective capital allocation, commitment to lean operations and a fully independent dealer network, PACCAR led the peer group with a 37.8% return on invested capital in 2023 and a 5-year average of 24%. And I know Preston already showed some of this slide but I think it's worthwhile showing it twice. PACCAR has a very effective capital allocation strategy. We made capital investments in the business to drive future growth, following a disciplined process requiring a minimum ROI of 30%. The PACCAR Board of Directors has a preference to return capital as dividends rather than share repurchases. The company pays a regular quarterly dividend and an annual dividend with a goal to return about 50% of net income each year in total dividends. PACCAR continuously evaluate strategic mergers and acquisition opportunities, and is highly disciplined in its approach to screening and valuing potential targets. And finally, the company has a fully funded pension plan. PACCAR's regular quarterly dividend shown in green have been increased steadily over the last 10 years to a record $1.04 per share in 2023. The quarterly dividend was increased again in April to $0.30 per share. PACCAR has also paid an annual dividend in each of the past 10 years. Total dividends declared were $4.24 per share or $2.2 billion last year. Over the past 10 years, on average, PACCAR has increased its total dividend 14% per year. PACCAR has delivered market beating returns to shareholders. As of year-end 2023, PACCAR's total return to shareholders beat the S&P 500 over the 1, 3, 5, 10 and 20-year periods. PACCAR is not the same business as it was 5 years ago. It is structurally stronger now, operating at a new level and positioned for future growth. PACCAR's new heavy and medium-duty truck models introduced a few years ago are game changers for customers' performance and for PACCAR's profitability. We see a bright future for PACCAR Parts due to its winning strategy centered on convenience for customers and proprietary components and parts. PACCAR has very strong opportunities outside of North America and Europe. Brazil, in particular, is rapidly growing its profitability and market share with plenty of room to grow further. And finally, technology like zero emissions, autonomy and connectivity will provide excellent future revenue and profit opportunities for PACCAR. We'll now take a short break, return at 11:00, and we'll take questions from all the people in this room. Thank you. [Break]

Okay. We'll now begin the question-and-answer session. We'll do up to roughly 45 minutes of questions. Uli and I will be with microphones on the side. We'll get to everybody. So just raise your hand, and we'll get you microphone.

Jerry Revich of Goldman Sachs. I want to ask really constructive outlook on incremental demand in a zero emissions world. And I'm wondering if you could just expand on the source of that incremental content rider just put out a white paper saying maintenance costs are 20% lower based on their field studies. And so it sounds like you have a broader opportunity than just the truck but maybe you can expand on the source of the incremental opportunity for you folks?

Yes. Look, I think there's been a lot of reports across the industry that give varied results from fleets that run Tesla cars that really had a very bad experience. The rider report suggesting certain elements have lower maintenance costs. You have to look over the totality of the life of the truck. Again, we keep -- we keep our trucks on the road a million miles. Our batteries are designed to go that distance that can keep them on the road. The trucks have a lot of other systems that traditional vehicles don't have -- traditional electric vehicles don't have, compressors and pumps and other things that frankly, over that life need service, need support needs to be kept on. So it is a very different model. And again, I think I'd encourage you to look over the whole life of the truck as we service the whole life of that vehicle.

Maybe to add there, Jerry. I think during the first 3 or 4 years, first couple of years, you'll see lower maintenance on an electric truck because there's no oil changes, no filter replacement, but like John was saying, over the life of the truck, we think there's a significant opportunity for more part sales.

Think about Laura's chart that she showed or the utilization of parts over the time span of 20 years and that's where what Harry's talking about shows up. And so maybe in the maintenance interval in that first part, no, but in the mid span, yes. And then that's still -- that's the powertrain component of the truck. Still trucks are being operated in a busy environment, fenders and bumpers, all the traditional stuff still is existing, which is different than consumer, different than a car. So I think that also should factor into the way you think about it.

One other thing to think about is the complexity means they're going to go it. They're going to drive that business into the dealerships at a higher rate and for longer, which also means while that we'll capture it more.

And another parts question, you folks have been able to compound margin expansion and top line growth. And I'm wondering, based on the proprietary SKU counts in the new trucks that you've introduced since 2021, is there a runway for continued level of growth similar to the CAGR that you laid out for both top line and profits? How much visibility do you have on that level of growth to continue?

As far as growth is concerned, we -- my leadership team, we talk about there's really nothing but upper side. We're nowhere near saturation in terms of market share. We think there's tons of opportunity out there for us to gain, and we'll get leverage out of the assets we have out of our dealer network.

The other thing you could add into that, and I think both John and Kevin talked a little bit about it is connectivity and what that brings to what Laura was talking about in upside. And that's one of the elements that has all the trucks are connected, Kevin showed the slide on that. and you look at a connected platform and what that means for relationship to the customer, it's just stronger. So the opportunity to provide value to them grows significantly in that case. So we're going to be able to provide a greater value through our dealerships, through Laura's business, through Todd's business, and that's going to just help PACCAR think as we move forward. And then I think the other line is if you look at TRP and its 30-year anniversary and the store growth that we're seeing, it's parts but it's a different element of the business that has great growth opportunity.

David?

Just a question on gross margins. The framework you laid out through '26 implies industry volumes growth from 2024. Just curious, you obviously described a lot of features of parts and so forth that could help the margins expand. But we all know pricing historically in this industry is a little debatable when volumes are a little bit softer. But again, you're implying volumes up the next 2 years. So can you give us any sense of how you view your gross margins over the next couple of in that industry backdrop you laid out? And of course, any color you want to give us on the rest of the year gross margins, I think we would appreciate as well.

David, how long you've been following PACCAR?

2 weeks.

I think what we see is exactly what we outlined in all of our presentations that we feel that we have a structurally stronger business with great growth. That doesn't infer just the top line. We think that infers well to the bottom line and through all our metrics. That's how we're building the business. So I think that, that was our message today. I think you kind of heard that story line that we think that we've done a good job. The team has done a good job. We're providing extra value to our customers and that's going to help us in terms of our overall performance of margin for the coming years. So you're right, we showed you that we think that the markets look pretty healthy and healthy markets are good for us as well.

Just a quick follow-up. I know it was a graph with a nice arrow but at least it implies 26 deliveries for you if you're in line with the industry, let's say, I know you're thinking of taking share, that your volumes would be higher in '26 than '23. In '23, your gross margins were, I think, 19.3%, if I remember correctly. Are you implying higher volumes in '26 begets higher margins in '26 than '23?

I think knowing you as well as I do, you know how sophisticated the world is, it's more than 2 variables deep. So I would suggest that it's a pretty deep variable analysis in terms of what margins will be in 2026, which is why we don't forecast them.

All right. I'll try to ask the question slightly differently. If you look at the cycle, your incremental margins have been above average, right? You've produced above-average incremental margins relative to history you've had like high teens to 20% incremental margin. Some of that was price, some of that was value, but like do you still think the next 2 years, assuming that your forecast is right for 2025 and 2026 growth? Does PACCAR still have the ability to produce above-average incremental margins? And then my second question, Todd, I think it's for you. You talk about AI and getting better data from your customers, et cetera. I think there's a lot of people trying to understand the TL market, right? It's weak capacity really hasn't come out of the market as much as people would have expected. I guess I'm just interested if you're seeing any color based on the data that you have that you could sort of help us understand what's going on there, more capacity is going to come out, when it's going to come out, what you're seeing in terms of reduced mileage or delinquencies? Like any color there, specifically on the TL market.

Okay, starting with the margin question again. So for the next few years, I think we'll benefit from the new products that we just launched. So it's new DAF, new medium-duty trucks, Brazil get us to strictly higher margin levels will benefit from that in the future as well. And in content for trucks, in general, is a good thing especially if it improves fuel economy. I think Kevin nicely showed that with all the greenhouse gas legislation that's coming up, we'll improve fuel efficiency for our trucks. So that's something that customers really like and allows us to participate in that value creation. And any time there's content added to truck, it also means more parts opportunity, whether it's electric or emissions or autonomous, all those things will provide future profit opportunities. The AI question, Todd?

Yes, in regards to the AI piece. We look at that data for customers that are showing some signs of falling past due on their payments. And then we check to see if the trucks are running. We checked to see how many miles they're running to see if it is off the normal course and inhibiting their ability to make their payments on time. So we don't use it right now as a predictive on where the truckload segment is going but clearly, as we all know, the truckload segment is off a little bit as we speak. And we just keep a close eye on particular customers who show decline in mileage and usage. And then we proactively set collection strategies to get out in front of that to reduce delinquency to find a solution to maybe get them some payment relief if it's just a short-term thing so we can save a loss. So that's what we're using it for right now. But I see that expanding quite a bit as we go on as more and more trucks become connected and it's going to be a very powerful tool for us.

Yes, I think Todd hit it on the head. I mean it's perfect. The way this data capability coming off the trucks is just super helpful. One, from a prediction standpoint kind of where you're going is? Can you see the future a little bit? I think the answer is, well, we can certainly do a better job of modeling the future. So that gives us an ability to react sooner or react in time, I would say. But it's also this idea of data is so helpful in terms of value creation for the customer. Let's start with them because that's what matters. The data has value to the customers, huge data, huge value, and that feeds into us, right? So that's why Kevin and John talked about the stream of growth for us. We spent a lot of time on parts. I think that there's this other element coming towards us now that maybe has been visioned out for a decade or so that is really hitting stride and the opportunity of finding ways to do things for the customers that are good for PACCAR is coming to us now.

Rob Wertheimer, Melius Research. I have, I guess, 2 questions. One is on engine strategy and internal engine penetration. You guys had a ton of success in sort of launching the North America, and we're going back a decade now, engine. And I know, Laura, the parts opportunity from that and the service opportunity that is still kind of rising for some time. There's a bit of a plateau there. I'm wondering there used to be a debate on the 15 versus the 13 liter, et cetera, et cetera. I'm wondering how much that plateau was intentional on capacity and rational investment. I'm wondering what your goals are on internal engine penetration in North America? Just is there more growth that will kind of add a second wave in parts in the future?

Yes, I can take that. So for the engine penetration, I go back to John's message about we provide solutions to meet customers' needs. And if we think about, you mentioned the word plateau, is we view it as we provide a great 13-liter engine. We've got a great partnership with Cummins. We're in a period where the market is really vocational. So it favors the 15 liter. And so I think we look at each market, each cycle, see the opportunity. We've got great engine platform. And so we really leverage the right solutions for the customers. We definitely see opportunity for continued growth as we add new powertrain solutions and the decision of the make-buy partnership as move forward with that, whether it's proprietary or through partnerships. I think as long as we keep the end customer in mind, provide them the right solutions, we've got great growth opportunities.

Were you capacity constrained on engines and going back to '19 or whatever?

Yes. So in Europe, when one of the benefits that we've had over the last few years is all markets for PACCAR have been strong. And so as we evaluated the capacity with Europe and North America, there were some opportunities last year. And so that's, again, leveraging the great partnership with Cummins is we have those options.

The only thing I'd add is also, we obviously feel bullish about. In the future because we're continuing to invest in that capacity in terms of the Mississippi plant we announced a year ago from our [indiscernible] investment. We're building also a [indiscernible] center, so we pick up a different portion of the business. So we still see strong growth in terms of that. Again, as Kevin said, John said made by partner, active part of our powertrain solution [indiscernible] makes sense.

May I ask another one? So this is for Laura. You mentioned your team and you sort of see a lot of opportunity for growth ahead. You haven't saturated the market and probably store count or otherwise. Can you just talk a little bit about some of the drivers of those new customers coming in the TRP, the new customers that you're getting? Are you taking share from very small kind of fragmented other solutions from large truck partners. Just what is the market that's still coming to you? And I'll stop there.

Let's see how to answer that. So TRP is definitely one of the avenues. And those as we measure, we see about 50% of the customers who come into a TRP store are new to us, which means they're either all makes. So coming from a different OE and have a different OEs truck coming in and now buying parts from our TRP store or their owners of older vehicles that maybe wouldn't come in, haven't come into the dealer, second or third owners but now come into this TRP location that gives them a new way to buy parts from us. So that's a very great opportunity for us to keep growing. And of course, there's also the piece that is market share and truck market share and making -- as that grows, so does our opportunity with first owner, truck owners.

I'll just add, Preston made the comment about leveraging the connected truck data. As Laura has mentioned, is when those trucks in the past had gone to the second owner and tend to go other sources and dealers is now we give the dealers and ourselves the ability to reach out to those customers and pull them in, and whether it's through the dealers or through TRP. That's what Laura said earlier, it's tremendous growth just knowing the trucks are.

Steve Fisher, UBS. So you cited the number of structural -- the drivers of structural improvement in your margins that are going to drive the margins over the next couple of years. As we think about a few years from now, wherever we have the next one of these investor meetings. What's the message around structural change going to be and improvement, going to be that time? Is it going to be, we're just built more on these existing structural drivers that we've had in the last few years? Are there more structural changes? Are they different drivers of structural change to come?

Well, I really -- I'm glad you got the theme for the day. I don't think the theme changes probably in a couple of years in terms of growing. I think the focus area is a little change. Kevin just mentioned connectivity again. Mike did a great job, I think, of outlined the geographic opportunities that we have in front of us. Laura has talked about the Parts. Those aren't things that I expect in 2 years. We'll have put in a rearview mirror and don't have as part of our discussion. I think that 1 of the things about PACCAR is we have a consistent, steady growth model, which tries to improve structurally not just for a moment so that we're not constantly whipsawing the story around. And I think that, that's what you would expect to see. Continued strong performance in terms of all of the segments, a continued focus on lean operation, bringing advanced technology to the market when it's ready in a profitable way versus posturing technology that might be costly for us or for our customers. And I think a continued focus on delivering high ROIC to -- as a business. So I think that's where it sits.

The other thing that I would like to emphasize is the nice alignment we have for the, let's say, coming decade between emission legislation and what our customers want. I think both John and Kevin showed greenhouse gas reduction scheduled for 2024, '27, '30, '32, 20%, % 30%, 40%. Now some of that will come out of the traditional engines. And to the extent that fuel economy improves by 10%, 20%, that will provide a lot more value for our customers and will give us a strong margin opportunity.

And just a follow-up. You had in your last Investor Day deck, the historical progression of dealer locations over time, and it's a nice steady upward trend, how should we think about that going forward? Do you have a particular influence on that number, a particular strategy and any particular targets? Is it going to kind of continue to be up and to the right because clearly, those would have some influence on market share and parts sales as well?

Yes, I'll start with North America and Europe, as traditionally, we talked about that because dealers would use registration data to make decisions on investments. And now with having the connected truck data not only do we talk about locations but I added things like mobile service, right, is just as important. So we've in addition to locations. And yes, they still have a trajectory. You could still -- if you spend time looking at those maps, still some opportunities for dealer location growth but it's more about adding capacity in terms of more bays, mobile service, hours of service, train technicians. And that's, I think, the beauty of having the power of that data is when we do those business reviews with them, is to really get at the heart of what's the smartest investments versus just locations. So yes, there is -- and that's why I added the bay count on there as well is it's really about providing the right level of capacity in whatever form permanent locations or mobile in across all of our regions.

Yes. And I'll add the -- when we think about evolution versus a larger opportunity. I think South America is where we'll see the larger opportunity. I've noted we're 61 dealer locations, a lot of opportunity there to continue to grow it. While we directionally lay out, call it, a number of low [ key. ] It's more going back to the customer, where do we need coverage, in what kind, whether it's a TRP store with service, whether it's a full dealer location? And then beyond Brazil, in South America, I think having a growing manufacturing base, not to oversimplify an entire continent, but I think the opportunity it brings in the Andean region for is similar. And I think it puts it kind of at the top of the list on opportunities for larger scale growth.

So -- and just to clarify, Steve, that slide with dealer locations in North America, that's still in our investor presentation, if you go online.

It's Scott Group from Wolfe here in the back. So you had the slide about market growth in '25. I'm wondering, is that a view of the underlying market? Or is there some pre-buy assumption within there? And then I just when you think that pre-buy actually starts and sort of the types of customers it starts with. So that's the first question. And then secondly, when the price cost disclosure that you guys gave, it's just been such a remarkable tailwind for you guys got a little bit worse in Q1. Just any thoughts on how to think about price cost in the next few quarters?

So the market growth, I would say is, again, we focus in on truckload because it's the biggest sector. But in looking at '25, you'd say, well, A lot of people got into the market with spot rates at a peak. Those people are probably trimming out. So you're going to have some normalization at some point. I'm not able to tell any more than any other expert about when that time is going be. But let's just say it's within quarters, right? It's probably fair enough way to articulate it. You still have a strong locational market, you still have a strong LTL market, you still have a strong healthy medium-duty market. So with those things all flowing, they kind of points to the arrows we provided. That's how kind of we look at things going up in direction that way. In terms of what's going to happen, price cost balances, right, we're in that spot where we said it could be quarters before things improve. So I think there's always going to be price cost consideration there. But I think what we're showing right now is the delivery of good margin realization in a more challenged environment than it was a year ago, right? We lived in a constrained supply based market a year or 2 ago. I think if my memory serves me right, there was a lot of questions around like, well, what's going to happen when it's not constrained. Well, it's not constrained now. And you can see what we delivered and kind of see where we're sitting.

Helpful. And then actually, just last one. Any color or thoughts on the used market and how that should flow through to Financial Services?

Used market. Obviously, we've come off the peak that we are at over the last 2 years back to a more normalized used truck pricing market. I think what you'll see is going into the back half of '25 and in '26. When new truck capacity gets a little tighter due to high demand on a pre-buy, you're going to see the used truck market do extremely well once again. It's customers when they need a truck, they need a truck, and to haul freight. So we're expecting -- we're back down to a normal used truck market now, and I see that rebounding over the next couple of years.

Tami Zakaria from JPMorgan. Could you help us understand the time line for the 35% market share target for U.S., Canada? I think last time back in 2022, it was 32%. So what would drive this? Is it tech leadership, cost leadership? Is it more capacity or something else that I'm missing? And also, will it be driven by certain truck types like vocational? Or do you expect that across types?

I could almost just say, yes, Tami, to all of those. I think it's all of those things. I mean, one, as we said, we invested a lot of money in the past 5 years. So that has given us confidence that we have the best products that are out there. That's a starting point. We think of our best transportation solutions business with Laura and Todd, providing value that helps us to grow share. I think that we're focused on cost control also, which is opportunistic. And then we have invested a lot of money in capacity, both powertrain capacity and truck capacity in our factories through advanced manufacturing capabilities will allow us to see our share grow. So obviously, we have to provide the value. We have to live in a competitive world but we feel optimistic for the future.

And when you say medium term, is it 5 years, 3 years?

It's medium term.

Okay. Fair enough. My second question is, I think I saw a press release this morning, you launched MX-13 that's CARB-compliant. So just curious to know what the incremental pricing would look like as we think about potential prebuys ahead? So any color on the incremental hardware versus warranty costs that you expect in this MX-13.

Look, stepping into the MX-13 CARB solution, which is a 0.05 ultra-low-NOx fully compliant solution. I think we'll see pricing in the, call it, $10,000 to $15,000 range as we introduce later this year. Obviously, that is a precursor for ultra-low-NOx levels that we'll see in 2027 across the board in 50 states. I probably won't go beyond that in protecting pricing but that's where we'll be this year.

Hand it to Jeff.

I have a short-term nonstrategic question that won't end in what is your margin forecast for the next 2, 3 years. I'd love to know what you're seeing so far with your customers that are more carb sensitive, the read we're getting is people are kind of holding back, whether they're waiting on the waiver, they're waiting for something in the market. But I kind of think if you're running a marathon and you're a little slow to start, eventually, you got to make that up. So I'm just kind of curious since CARB is a first shot across the bow. What your dealers are seeing, what they're positioning for what your customers are talking to you about as those will eventually be enforced more stringently?

[indiscernible] has a slow start. I think [indiscernible] California right now to see that. And I think there's a lot of uncommon whether it's that change or regulatory change that people want to see what's happening. So I think the fact that happened earlier articulated the card declined -- fully card declined not using credit $10,000 to $15,000 on cost to it. Well, yes, that's going to give people a pause. And I think that the curiosity of what California is going to do, what other states are going to do is giving [indiscernible] that moment right now. So eventually, I think they'll have to get over the moment, but then that's where we're right now.

I'll add to that. It's -- CARB is complicated by an interplay between Omnibus NOx and ACT coming in simultaneously. And the ACF is a very -- it's a very confusing moment in ACF formula as well.

[indiscernible].

Yes. Sorry, advanced clean truck that tells us that we have to have a set of offerings that are -- that incrementally increase over time and the advanced clean fleet, which says the fleet operators have to buy a certain amount of these over -- again, increasing over time. And then Omnibus NOx is the 0.05 Ultra Low NOx and a series of credit of qualification and credit requirements that allow you to sell legacy engines and ultralow NOx engines in combinations that it's proven to be very -- just describing it here, it sounds confusing. It's proven to be very confusing for customers. And I think you just watched the market still. And again, the legacy engines, which are qualified with credits are also very expensive. So that -- it's a moment for California, I think.

But at the end of the day, the news titans in California and you got anywhere between 7 and 20 states depending on ACF or ACT, they are going to be adopting this in the next few years. Are you getting any feedback from your dealers on how do you help me solve this issue from customers.

I'll go back to California. I think both well said is that whether a dealer or a customer is they're in a mode of kind of holding because we know what the regulations are as published. But when they make that buy cycle, it is for that cycle. And so I think it's part of it is not only know the reg, but do they anticipate any changes. And so that's why I think they're in this holding pattern. So every other state, I think, is also looking to see what's going on in California, whether it be state or customers and dealers. And so I think the fast path forward is we just spend a lot of time talking with our dealers and customers. We have dealer councils. And so we triangulate with customers, triangulate with our dealers. And so I think it goes back to John's presentation is we continue to develop a multitude of solutions, that's the nice thing about EPA in the greenhouse gas Phase III as it's a CO2 reduction. So it allows us to develop a suite of technologies. So it's good for the customer and provides us a solution as wherever the regulations go, we'll be ready for it.

I think the thing that makes it -- that makes California the unique cases, when it's EPA, and when it's 49 states or 50 states, then understand how customers are going to react to it, but there's not -- this movement around the trucks and how people think you're buying [indiscernible] operators. Right now, California makes it confusing by being on the [indiscernible], might feel like it'd be much better for the industry to have 50 state regs as Kevin said will be coming in '27, getting that would be helpful. I mean that will be helpful to everybody. And that's why this is a moment of uncertainty for people because you have this significant difference out there.

Brian Sponheimer with Gabelli Funds. The slide decks were incredible in that not only did you show where you're going, but how you're going to get there, particularly as it relates to engines and parts and in the next 5 years, but you're going to throw off an extraordinary amount of cash. The last time anything inorganic was done in it meaningful way it was 1996 with DAF. When you think about who you are 5 years from now, are there any pieces that you feel that with this cash you're going to generate, you're going to be able to opportunistically come in and what's the wish list there, if any?

Well, I wish to provide [indiscernible] shareholders. [indiscernible] I think one these we have been to demonstrate [indiscernible] 5, 10, 20 years timeframe. So the strategy that we've employed has been good for our shareholders. And so we'll continue to wish for that and aim for that to [indiscernible] performed to that. And yes, I agree that we have a significant amount of cash in every factor feature. But I think we're always evaluating where the opportunities are and are very open whatever the right opportunities if you recognize it, not everything that literally just go. And so we'd like to make sure we comply [indiscernible] discipline to places where we would be into a merger acquisition or build out approach. We demonstrated successfully organic growth of money, let's say, in Brazil, instead of buying somebody which would have been an option that might have bid models of [indiscernible] acquisition. We didn't do it that way. We used to let's take our [indiscernible] employer to build the factories, to build a lot of deal that work with patients wasn't great from a cash flow standpoint in the first years. And now [indiscernible]. So I think that's a different use of cash. It doesn't quite show up in the same way, but it really is. A second example would be this current joint venture where we use cash in the joint venture from a battery sold standpoint. Obviously, it's not going to build themselves in 2027. We talked about reached an adoption over a decade. So it's a patient approach that allows us to hit right? We can make strategically good decisions to deploy the resources early on to be ready when the growth happens and it doesn't have to have a big thing of the acquisition. Still open to those, but want to make sure they're good for everyone.

And then at the same time, we still pay a very nice dividend to shareholders, as you know.

It's Chad Dillard from Bernstein. So my question is about the Phase II greenhouse gas emissions. Just trying to get a sense for how you guys think about the change in powertrain diversity when that eventually happens and what your customers are saying about that. I would like to understand how you're thinking about investing ahead of that? And then finally, is this a candidate for another pre-buy.

I'll start. Thanks for the question, Chad. I love anybody who ask questions about greenhouse gas base III. The greenhouse gas Phase III obviously finalized in the last few months. EPA put a lot of careful thought and consideration into how that was formulated basically trying to get more of a 50-state solution rather than a California federal. it did change our mix and our approach a little bit, not radically, but it opened the door to more hybridization. And that's the major difference you see from the last presentation we gave 2 years ago to this is that we're seeing in heavy and long distance space, really an opportunity for deployment of hybridization that we talked about in the presentation.

Yes. And I'll just refer back to John's slide where we showed the different technologies and the benefit of the greenhouse gas is. I'll go back to the statement I made earlier, it's the CO2 reduction versus the ACT that John referred to, where it was 0 emissions. And so a CO2 reduction allows us to -- whether it's clean diesel. You get a focus on what's the best solution and technology for the customer in terms of is it still clean diesel? Is it hydrogen ice, is it hybridization, is it fuel cell, battery electric, is -- we're going to develop those in the slide of the make versus buy partnership is then it allows us to decide what we're going to have proprietary versus the right partnerships and buy. So I view it as the EPA greenhouse gas really opens us up to develop multiple technologies for the customer.

I'll actually add a little to that. And the reason I like talking about greenhouse gas Phase III is a change as a dialogue from quotas on types of vehicles to finding the best solution for the customer, moving CO2 down. And it's very, very similar to the European approach, and it's something that we can manage.

Okay. Great. My second question, I guess, is not at the end of the decade, a little bit more near term. So it sounds like the private fleets have been more resilient over this cycle. And just thinking about your views on 2025, I just love to get a sense for at least like what your dealers are saying, as I talk to the customers about whether that's going to be a resilient part of the market next year?

If I understood your question, right? It goes back to -- we monitor truckload because that's the 50%. And 1 of the things is the fleets tend to have a consistent -- maintain a consistent buy. So as we look at the soft market this year is -- and coming out of an allocated market is work with them to maintain that consistency as much as possible. And so that's why we think going into next year. And as Preston said, we monitor it by quarters, is we think that going into next year, if they stay on that consistent buy cycle is it will start next year, pick up in truckload, while we're maintaining a strong lesson truckload, vocational and medium-duty market. And so that's what drives our forecast.

You referenced it a little bit saying that the dealer's customers advantage point of it, right? And you speak to them as well as we do. You speak a lot to them, right? They can read the regulation. They have the concern over what the regulation could mean. And so they are thinking, as Kevin just said, how do I make sure I tie my buy, so I don't find myself stacked up in 2026. For sure, that's on their equation. In the truckload sector, just because that gets a lot of weight, they're also trying to figure out like, it's a tough environment right now. So if it's tough for them right now, how long can I wait to deploy capital on purchasing trucks trying to be in the right phase of the market, have the right age of trucks as we get to '27, what are my used truck values. It's going to be all the normal stuff that obviously they're a lot better thinking through than we are. But that's the way the conversation is working in their mind, if that's helpful.

Brendan Shea from Morgan Stanley. So you've mentioned several times here making significant investments in capacity. Could you just help frame out sort of related to truck manufacturing capacity? How much you've added in the past 5 years versus sort of what's currently under construction to be added in the near future? And then sort of just your general thoughts on industry capacity and industry discipline given that several other OEMs have announced their own plans to increase capacity.

I can start.

Go for it.

Yes. So without giving specifics on numbers, the market share slide that I showed I think there was a question earlier of up to 35%, up to 20% Europe and the time frame is when we look back over the, let's say, last 5, 7 years, as we were bringing capacity online. One of it is to handle bigger market sizes and incremental share, but also is to handle it within cycles, right? If you look at quarter-over-quarter, there's peaks and valleys in each year. And so we wanted to make sure that as we target the future and our market share growth is not only can we handle it on an annual basis, but we can handle it when the opportunity is there for the peak cycles. And so I think that was -- that slide was fairly telling. 2 years ago, we showed it up to 32% in North America. We've increased that, and that's reflective of what we feel confident that we can get market share gains in our -- in those markets. So we feel like we can handle those cycles.

Yes. So I mean, if you just use that, you say 15% or 20% kind of capacity, kind of plus or minus. Obviously, we can add shifts. So it tends not to be a truck capacity limitation to the world, but some of the capacity increases are the build-outs we experienced in Brazil. In Mexico, we're adding capacity. We did that with a new product when we introduced it in Europe. So we've kind of -- it's been fairly everywhere. And it's not just like capacity, it's also the application of efficient capacity and technology so that you can get a reduction in truck hours to produce things, higher quality capabilities. So capacity, efficiency and technology all fit into that camp.

This could be a quick yes or no. The idea of bundling orders for fleets as they think through their needs in the next 3 years. It can be a way to sustain pricing, right? People are concerned what pricing may do. Is that what's occurring with these conversations that, hey, we can get you on the order books for the next 3 years for your needs, but that's a way of sustaining current market pricing with some sense of, I won't say guarantee, but a range of pricing you'll provide for 26. It's just a way to sustain pricing now with teasing we'll promise you volume over the next 3 years for pre-buy needs.

I know I was going to say it's just killing me to not answer yes or no when you give me that opportunity, David. But I would say that we do have that conversation exactly as you outlined it with the customers of like how do you want to think about it. Now I would say it's got to be symbiotically good, right? So it can't just be a PACCAR benefit. It's got to be good for them too. And so they're thinking about that stabilization of purchases. We're thinking about the stabilization also of build. And I think that is a conversation we try to have in a way that's mutually beneficial, right? It's not one sided.

Rob Wertheimer, Melius Research again. I have 2 actually. One is on carbon reduction 2030 or whatever. You guys have a pretty cool super truck. I think you showed a slide of it at the latest iteration. I don't know how far that gets you there. And the question is really around the risk of achieving that target. I think you said it was achievable. I don't know if you sort of see all the engineering pathways and know you can get there and risk versus a reward on that is my first question.

Yes. Look, what EPA put out for Greenhouse Gas Phase III is very detailed, and there's a lot in there, and there are several paths through it. But we do view it as achievable if the market can support it. And when I say that, I mean infrastructure. And I think that will be the variable on it. But what is what is put forward there is achievable technically. Again, the challenge is the ability for the market to support it with infrastructure and fleets to get converted over to it.

The thing that's interesting about it, Rob, is trying to think through, yes, as John said, we can do the technology is society willing to incur the cost of that. And that's a bigger conversation than us on the stage or this audience really, but I think we all have to decide the impact of goods are going to be for the benefit we're getting in terms of the reduction. So we had great CO2 reduction. That's good. Obviously, it's a good thing, right? We get lower NOx, that's a good thing, but at the cost of society, where does that balance come in? And how do we make sure that as the regulatory agencies with us, with the customers and just general society tolerate that? And is it really the best answer. I think that well-to-wheel equation, total societal equation is starting to pick up, and it picks up more and more because as we look at energy transitions to electrification, then you have to have it. You can't draw the boundary diagram around the truck. You have to draw the boundary diagram around society and creating infrastructure for power if we're going to use electricity or hydrogen and you use hydrogen. So I think that is going to play heavily into adoption curves and what it looks like for the cost of technology.

If I may. The second was you had advanced manufacturing investment on the slides in there somewhere. And I'm actually just purely curious what is the nature of that? I assume as your 30% ROIC hurdle crosses that bar. Can you just talk about some of the investments you've made, when you made them, how it positions you versus competition?

A couple of key areas outside of the traditional just continuing to drive efficiency gains, is kind of day-to-day activity. But if we think about under the tagline of industry -- a lot of connectivity. That drives back into primarily efficiency, primarily uptime of all our facilities, more prognostic versus diagnostic after the problem. And that's in every facility we have. So that's one area. What will come into that outside of just collecting the data, understanding the triggers that say we have an -- is then really the AI element that's early in the adoption or early in the development, but that will continue to go up. Automation is another area, automated guided vehicles as an example versus monuments we put in the floor, giving ourselves the flexibility. So when we think about traditional powertrains versus zero-emission powertrains, the ability to reconfigure quickly, nimble, because that technology in itself has seen rapid advances. It's very cost effective now and just gives you a level of flexibility in essentially any type of manufacturing operation you have. So that would be 2 examples.

Just to Rob's question, I think Mike said it exactly right. And I think it's underweighted in terms of what this means for the future is the ability to have manufacturing plants that are not linear, like chain-driven not the 100-year-old philosophy. The ability to build products that are customized like something we've done for a long time, but we also see the investments that he and his team and the team all over PACCAR are making a flexible manufacturing, so you can use the same factory to build many different configurations and with AGVs, automated guided vehicles that you mentioned, the ability to be running it down a line and say, you know what, there are 6 different operations I want to perform, so I got to do them. The truck can move laterally, right? Have those operations perform come back into a sequence flow where you have monuments like pain still sitting in there. It's really -- it's really fun to watch in the factories and you can see the efficiency gain you get out of it and where it leads us to and flexibility without being too overly capitally committed to it.

Jerry Revich, Goldman Sachs. I'm wondering if you could just expand on the PACCAR operating system and how you folks are philosophically thinking about it. You're going to have a really big connected field population. So should we think about PCR is going to have a premium feature of $15 a month per truck that customers are going to have. Is this going to be profit stream? Or is this a retention stream? And what's the business model for third-party developers? Or is PCR going to keep 1/3 of the revenue as is the standard. Can we just talk about philosophically, how you're thinking about that?

Yes, I can start and others can add. So when I showed the connected slide earlier in the alliance that we're forming is the way we think about it is really leveraging the connected data that's coming off the truck, but really about how does that create value for the customer? How do they traditionally pay for that service today through the third-party telematic providers. And so part of that alliance is really partnering with them to leverage the value they already provide to the customers. Our value add is to be able to take that data enrich it, and that's where -- when we talked about improving the diagnostics and towards prognostics is how do we create that uptime for the -- improve the uptime for the customer really around the pronostic and doing preventative maintenance. We think that adds value. So we think bundling that through that alliance gives us that opportunity to, again, what's that value creation for the customer and then what's the piece for us and then and also in the partnership with the current providers that are out there today. Anybody wants to...

And can I ask separately on the path towards autonomous vehicles, what sort of interest are you seeing in Level 2, Level 3? What do you expect take rates to look like? And since you've made the investment in the platform, is it fair to think as we get some level of adoption of those more advanced technologies is going to be ASP and margin accretive for you folks as you get leverage on that investment.

I want to separate Level 4 autonomy in the autonomous platform, which is really a dedicated piece and Level 2 plus autonomy. Level 2 plus autonomy, if they are demonstrably -- demonstrable improvements for safety really have a high demand in the market, and we have great customer willingness to pay. Going beyond safety-enhancing features that actually operate the truck. It's a space that we're not terribly anxious to be in. The -- now moving into Level 4, again, we are developing a very separate platform with higher levels of redundancy -- high levels of redundancy and other safety features and cybersecurity features that are unique to that space.

Any other questions?

The thing I'd add on that ABP or the autonomy is Level 2. John covers is good value. Level 4 eventually, no time line to it. But eventually, that's going to be very good for us, right? That is a disruptive state kind of a technology that will be good for PACCAR because there's going to be a sharing of benefit from the person that provides the driver, if you will, the automated driver. The customer should benefit from that also, right? They have to get some win in that. And then PACCAR gets winning that because we're providing a sophisticated system that's got a bunch of software on it and runs through the dealer network and parts network and then really tied into the PACCAR proprietary content then. So with that eventual state, what are we talking about years out, that will be one of them. Anyone else? All right. Well, that's awesome. Thank you all so much. So much more fun to do this in person then through the earnings calls only, but it's really great to spend the time with you. And now we'd go out to eat some lunch, and then we'll go look at some vehicles after lunch, right? And Ken will give us the detail.

Yes. You missed the webcast portion of it. We'll have a bite here next door and then there are trucks in Times Square, and we'll go down there and have a look at them around 12:40.

Thank you all very much.