Cleveland, North Carolina. Freightliner is

a division of Daimler Trucks, the largest semi

truck manufacturer in America and one of the

largest truck makers in the world.

There's something amazing about building a really

large vehicle that's used every day by

corporations to deliver value to the average

American, as well as to other companies.

Anywhere from about 95000 to 284000 new semi trucks

are sold in America each year.

As of late 2022, sales were on track to end up

on the high end of that.

On average, a semi with a sleeper cabin can cost

about $150,000.

A fully loaded one can run above $200,000.

These are the companies that dominate the U.S.

market for them.

Every item that arrives at your doorstep has been

moved by a truck.

It's really the lifeblood that keeps

American consumers happy.

Now the business is going through a period of

tremendous change.

Truck makers are spending billions to

replace fuel burning diesel engines with

battery and hydrogen powered electric systems.

There is also a race to build trucks that can

remove the driver entirely, which could

reduce costs and truck downtime.

But a lot of this change is being forced from

outside the ranks of the companies that have

served this market for decades.

You can credit Elon Musk with making trucking cool

. As polarizing as he can be, but they've had to

respond because Tesla keeps pushing the

envelope and Elon Musk keeps making big, bold

promises that potentially could

transform an entire industry. Foul play has

also plagued the industry recently.

The founder of the once-hyped hydrogen fuel

truck maker Nikola Motors has been convicted

of fraud. And the prominent self-driving

truck startup TuSimple fired its CEO over

improper dealings with a Chinese firm.

Legacy truck makers, such as the

more-than-century-old Daimler are balancing

keeping their particular and often extremely

cost-sensitive customers happy in the present

while investing in technologies for which

there is no clear business case yet.

This is one of my favorite stations in the

plant because this is where it actually starts

to begin to look like a truck.

Heather Callahan is the director of logistics for

Freightliner. Freightliner's North

Carolina factory runs about 1.5 million square

feet. It has made about 800,000 trucks since it

opened in 1989.

You can see we are lowering the cab onto the

chassis. Almost every 10 minutes, a cab lowers

from the monorail and we marry it to the chassis.

And every truck is spec to that customer's needs.

Freightliner was founded in 1942 and was acquired

by Daimler Trucks in 1981.

The company holds about 40% of the U.S.

Class 8 truck market, mostly through

Freightliner. Daimler Trucks North America also

owns the Western Star truck brand.

Truck makers sell their products through a

dealership network, similarly to cars.

However, in the U.S., cars are usually bought

off dealer lots from a stocked inventory of

vehicles and driven home that day.

Semi trucks are usually ordered ahead and every

detail is customized to the customer's wants and

needs. And our customers are very particular about

that because many of them are extremely

experienced in the segment in which they

operate. They know what they like.

They know what works well for them.

Freightliner trucks have tens of thousands of

options. The length of the wheelbase where the

fuel tanks are located, how big the fuel tanks

are, all kinds of engine options, countless

options for the sleeping cab if there is one.

Freightliner's paint catalog has more than

3000 varieties of the color white.

This area of our factory is the cab line, and this

is really where the interior of the truck

starts to come alive.

We start with just the shell of the cab and from

there we start to install the electrical

components, the floor covers.

We put in upholstery, specified again to that

customer. And as the cab tracks along on this

line, we also install the windshields and the

seats and the dash.

The truck is an extension of both a driver and a

company's brand, so they put their name on this

vehicle and they do that very proudly.

And the truck that they're running says

something about their company and it says

something to the driver that they've hired to

drive it.

Freightliner's parent, Daimler Trucks, pulled in

sales of about $42 billion globally in 2021,

a 10% jump from 2020.

The North American segment pulled in $16.2

billion, a 14% jump over the previous year.

Daimler doesn't break out how many units

Freightliner sells, nor the number of Class 8

trucks. However, its North American unit sold

162,000 trucks of Classes 5 through 8 in

2021. Class 5, 6, 7 and 8 trucks are medium to

heavy duty trucks that weigh 16,001 pounds or

more. From 2020 through 2022, the conditions

brought on by the Covid-19 pandemic caused

freight demand to explode while

simultaneously severely limiting trucks, supply

chains and manufacturing capacity.

Since new truck inventories were so

heavily limited, used truck prices skyrocketed

to record highs.

In 2019, a typical used truck about four years

old, would retail for about $50,000.

At the peak of the Covid bubble, prices soared

above $110,000.

Demand for trucks is, I would say, unprecedented.

We've seen an incredible demand going through

Covid and continuing well into next year.

That demand actually exceeds our capacity and

it exceeds the capacity of the entire industry.

Industry reports in November noted that sales

were declining from the record sales seen in

September of around 55,000 units.

The commercial vehicle industry is highly

cyclical. Demand ramps up and then it tanks.

The cycles are not necessarily predictable.

Customers for trucks new and used are trucking

companies, and they come in two basic types.

There are fleets which are buying several

trucks, sometimes even 100 or 1000 at a time.

As of June 2022, there were just over 1 million

trucking companies in the United States.

More than 95% of those companies run no more

than ten trucks.

There are also owner-operators,

independent truck drivers who often own

their own company and their own truck.

These customers can spend as much as $200,000

or more on a truck, spec'ing it out and

personalizing it to their tastes with plush

interiors, flat screen TVs and wood trim in the

sleeping cabins.

Unfortunately, that's a small and probably

shrinking portion of the industry, but it's the

backbone.

That's the soul of the industry. Is the

owner-operator with a long and tall, chromed

out truck who spends a couple of weeks on the

road, doesn't get home very often.

Sometimes he lives in the truck.

That is his home.

Large fleets make up the vast majority of truck

purchases in any given year.

About 90% or more of the trucks sold are often

called aerodynamic trucks because they are

built to maximize aerodynamic efficiency on

the highway. These are different from some of

the more highly stylized trucks, often sold by

brands like Peterbilt that feature a lot of

chrome and more classic designs.

The four major truck brands compete directly

with each other. Each has proprietary

technology, such as in engines, that it can use

to differentiate itself from competitors.

Some brands do appeal more to owner-operators

such as PACCAR's Peterbilt brand.

Navistar is owned by Volkswagen's trading

division. Volvo Trucks sells trucks under its

own name, and it owns the Mack Truck brand as

well.

Freightliner is extremely focused on investing in

the future. We are the number one leader in the

industry today, but that means we have to be

prepared for the changing dynamic of the

business environment with propulsion

technologies for the future.

In 2022, Freightliner began delivering a

production version of a full battery electric

truck to its customers.

The truck is called the eCascadia, a play on

Freightliner's, top-selling Cascadia

truck.

We understand that diesel propulsion will be around

for quite some time, potentially towards the

end of the next decade.

But regulations and different types of

statutory requirements are pushing, rightfully,

zero-emission vehicles, and we want to be fully

prepared to be able to offer that technology in

the marketplace.

While there are uses for fully-electric trucks, as

in last mile delivery, some industry analysts

are skeptical fully electric trucks can work

in long haul trucking.

By law, the maximum a semi truck can weigh is

80,000 pounds.

Batteries for electric trucks can weigh up to

16,000 pounds, almost one quarter of the total

allowable weight.

And that is weight that cuts into the amount of

weight a truck is able to haul.

So it creates significant challenges economically

for trucking companies and they're not willing

to sort of give up their ability to haul cargo and

the amount of cargo they can have just for the

sake of being carbon neutral or having

electric vehicles.

Aside from weight, charging infrastructure

remains an ongoing challenge.

Semi trucks have far greater charging needs

than an EV that might be used by the typical

household. A car might spend most of the day and

night in the garage to be used only a couple of

hours a day for errands or commutes.

A semi truck, on the other hand, might be in

operation for nearly 11 hours per day.

Ranges on most of the medium and heavy duty

trucks available as of late 2022 are less than

300 miles.

Freightliner's eCascadia has a maximum advertised

range of 230 miles on a single charge.

It takes about 90 minutes to charge the

truck about 80%.

A bit of an outlier, Tesla has said its semi

can travel 500 miles on a single charge.

It began delivering its semi trucks to first

client PepsiCo on December 1st.

NATSO, a trade group for truck stops and

Chargepoint, a charging station company, have a

partnership to build charging stations at more

than 4000 truck stops around the U.S.

by 2030. That partnership is using $1 billion in

public and private funding. Daimler has a

$650 million partnership with BlackRock and

NextEra to build zero-emission charging

and hydrogen fueling facilities. The plan

calls for a network of charging facilities on

freight routes running along the East Coast and

West Coast and in Texas by 2026.

Even if we invest in significant super

charging facilities, which are quite

expensive, as much as $4 million, it means that if

I leave an area that doesn't have a

supercharger and I need to get topped up and

recharged, it really limits the range of how

far I can go.

That can't be solved alone by companies like

Daimler. It has to be managed through the

utility companies.