PACCAR INC — Call Transcript 2025

Good morning and welcome to PACCAR's Second Quarter 2025 Earnings Conference Call. All lines will be in a listen-only mode until the question and answer session. Today's call is being recorded, and if anyone has an objection, they should disconnect at this time. I would now like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead. Good morning. We'd like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations. Joining me this morning are Preston Feight, Chief Executive Officer; Kevin Baney, Executive Vice President; and Brice Poplawski, Senior Vice President and Chief Financial Officer. As with prior conference calls, we ask that any members of the media on the line participate in a listen-only mode. Certain information presented today will be forward-looking and involve risks and uncertainties that may affect expected results. For additional information, please see our SEC filings at the Investor Relations page at PACCAR.com. I would now like to introduce Preston Feight. Hey, thanks, Ken. Morning, everyone. Kevin, Brice, Ken, and I will update you on our second quarter financial results and business highlights. In these dynamic times, our PACCAR employees have done a great job providing our customers with the highest quality trucks and transportation solutions in the industry. PACCAR achieved good revenues and net income in the second quarter, including record revenues at PACCAR Parts, good performance by the truck divisions, and strong financial services results. PACCAR achieved revenues of $7.5 billion and adjusted net income of $724 million. PACCAR Parts achieved record quarterly revenues of $1.72 billion and excellent quarterly pre-tax income of $417 million. The team did a great job increasing revenues in an overall flat parts market. PACCAR Financial had a very good quarter, increasing pre-tax income to $123 million. We estimate this year's U.S. and Canadian Class 8 market to be in a range of 230,000-260,000 trucks. The North American truck market size is a result of general economic conditions, a soft truckload market, and tariff and EPA 2027 policy uncertainty. Customer demand in the less-than-truckload and vocational segments is good. In Europe, DAF's innovative aerodynamic trucks provide customers with best-in-class fuel efficiency and driver comfort. We were recently in Europe and met with some of those customers who shared their appreciation of the performance of these great DAF trucks. We project the 2025 European above-16-ton market to be in a range of 270,000-300,000. This year's South American above-16-ton truck market is expected to be in the range of 90,000-100,000 vehicles. PACCAR delivered 39,300 trucks during the second quarter and anticipates delivering around 32,000-33,000 in the third quarter. Third-quarter production reflects the normal summer shutdown in Europe and build rates in North America that are matched to the market. PACCAR's truck, parts, and other gross margins were 13.9% in the second quarter. Given the uncertain tariff structure, it's difficult to forecast third-quarter margins. Assuming the current tariff structure and market conditions, third-quarter margins could be around 13%. I'm proud to share that over 90% of PACCAR's U.S.-delivered trucks are produced in our American factories. Clarification of the ongoing IEPA and Section 232 trade policies could enhance market clarity as well as benefit PACCAR and our customers. We anticipate the North American market will strengthen as tariff policies become certain, the truckload market gains momentum, and customers begin to anticipate the 2027 NOx emission standards. Kevin Baney will now provide an update on PACCAR Parts, PACCAR Financial Services, and other business highlights. Kevin. Thank you, Preston. PACCAR Parts achieved record revenues in the second quarter with excellent gross margins of 30%. We estimate that PACCAR's year-over-year parts sales to grow by 4%-6% in the third quarter. PACCAR Parts continues to grow through ongoing investments in capacity and services. PACCAR Parts is focused on delivering the right part to the right place at the right time to provide industry-leading support for our customers. PACCAR Financial Services' pre-tax income was a robust $123 million, up from $111 million a year earlier. This reflects strong credit quality and improving used truck results. PACCAR Financial operates 13 used truck centers around the world to support the sale of premium Kenworth, Peterbilt, and DAF used trucks. PACCAR is building another used truck center in Warsaw, Poland, which will open this year. PACCAR used trucks sell at a premium compared to competitors' used trucks. Similar to PACCAR Parts, PACCAR Financial provides steady, foundational profitability during all phases of the business cycle. This year, PACCAR is planning capital investments in the range of $750 million-$800 million and R&D in the range of $450 million-$480 million as we invest in key technology and innovation projects. These include next-generation clean diesel and alternative powertrains, advanced driver assistance systems, and integrated connected vehicle services. PACCAR is also investing in its truck and engine factories to support long-term growth as well as our customers' and dealers' success. PACCAR's industry-leading trucks, expanding parts business, best-in-class financial services, and advanced technology strategy position the company for an excellent future. We are pleased to answer your questions. Thank you. We will now begin the question and answer session. If you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star followed by two to withdraw yourself from the queue. Our first question today comes from the line of Jerry Revich with Goldman Sachs. Jerry, please go ahead. Yes, hi. Good morning and good afternoon, everyone. I'm wondering if you could just comment on the really strong sequential price improvement performance you saw in the quarter, how much of that was mix versus getting the price increases in for the higher tariff content. As you think about pricing based on what's in backlog for 3Q, what's that cadence in pricing look like 3Q versus 2Q compared to the roughly 3% sequential increase we just saw this quarter? Sure, Jerry. It's an interesting time in the market. As we look at the effect of tariffs on Q2, they were certainly well-present for us. We think that the amount of tariff impact will, in the current structure, increase in Q3. We will have an increased weight of impact on price versus cost for us in Q3. That is obviously a North American-centric comment. There is some variability sitting in there because it depends on how the tariff structures continue, whether that is 232 or court rulings on IEPA. It could also be affected by the current August 1st statements around what new tariffs might be affected and what rates they will be at. Okay. Thank you, Preston. In terms of your discussions on Section 232 with the government, can you touch on that? We've heard that they might be committing to a 60-day review cycle versus the quoted maximum of 270. Are you hearing that in your conversations as well? I think the way we think about it is PACCAR builds, as I said, over 90% of our trucks for the U.S. market in the United States. That's really, I think, good for the country. If we use a little bit of reference of 232 for the auto and light truck industry, you could say that that was a review where it was felt it was strategically important that cars and light trucks be made in America. That's kind of how the government indicated. That's what their stated policies have been. The current ongoing investigation into 232 for medium and heavy trucks, they had their open comment period. They completed that. They're now in the investigation phase. As you noted, Jerry, they do not have to take the full 270 days. We speculate you know what they're actually going to do, but it would not be utterly surprising if it was less than that and that a conclusion was made. Super. Lastly, in terms of the tariff impact on a per-unit basis in the third quarter, can you just comment directionally? Is that in the $4,000 per unit range the way it looks like from the bill of materials? Or can you just help us understand that so we know the variables if we do see a favorable Section 232 outcome? Yeah. As we look at it, obviously, I mentioned already, there's some variability within that tariff structure of whether copper is included, whether there's an August 1st change to things. I'm giving you a plus or minus number. In general, what we would say is maybe the quarterly effect isn't like $75 million. Thank you. Nice performance given the variability. Appreciate the comment, Jerry. Thanks for the questions. Thank you. Our next question comes from Jeff Kauffman with Vertical Research Partners. Please go ahead. Thank you very much and congratulations in an uncertain environment. I was just wondering, with the passage of the One Big Beautiful Bill Act and the R&D and CapEx. Depreciation acceleration that a lot of companies will be getting, have customers re-engaged you about the 2026 order season? Yep. I appreciate the comments on the quarter and also a really insightful question. The answer is, yeah, they actually are starting to engage us on that as that legislation is passed and it does have benefits to their cash. Their ability to deploy that cash for capital asset purchases like trucks is starting to be part of the conversation and is part of our optimism for the latter part of the year. Yeah. I would just add, this is Brice, it'll be very positive for us as a company as well because that R&D expensing as well as the immediate R&D expensing on the fixed assets, we think will provide cash tax benefits in the $300 million-$400 million range. It's good news for us, good news for our customers. All right, Brice, you beat me to the second half of the question, so that's all I have. Thanks so much. Is that good? Thank you. Our next question comes from Angel Castillo with Morgan Stanley. Please go ahead. Hi, good morning. Thanks for taking my question. Just wanted to maybe follow up on that just in terms of the, I think the second half delivery is implied by kind of the industry outlook and assuming your market share remains intact is a little bit more kind of stable in terms of U.S. and Canada for the second half versus first half. To your point, or the comments around seeing good kind of conversations with customers around potential benefits from the One Big Beautiful Bill that maybe drives some incentive to ordering. Curious, could you just provide a little bit more color? I guess we've had three months now of pretty weak orders. Do you expect then the next month we'll start to see that essentially rebound and that's what gives you confidence in the second half? As we think about order dynamics here that we're seeing, why won't that have a bigger kind of impact on underlying deliveries that you're kind of expecting in the second half? Yeah. Really fun question, Angel. Thanks for asking. There's a few factors going into the sequencing of orders. One of the things that's in the truckload sector, which is a pretty significant part of the overall market in the U.S. and Canada, is that there was some overcapacity. I think that overcapacity is coming out gradually. As that gets in balance, it'll help with rates, which will help with profitability for the carriers, which will help with truck orders. That's one factor in there. Another key factor that gives us confidence that we'll see improvement is the fact that the Big Beautiful Bill that you referenced has an upside potential for us as the year gets through. Another one is regulatory emissions standards. As we all know, there's a greenhouse gas component and a NOx component. The greenhouse gas component for 2027 is likely not to change. That's what a lot of people can understand now, which means there'll be no further GHG requirements. However, the law is in 2027 that the standard of NOx will move from 200 mg down to 35 mg. If it moves from 200 mg-35 mg, that'll bring on costs to the product, which will encourage customers to be buying trucks probably beginning later in this year. There's the factor around tariffs. I think that with uncertainty, customers kind of pause, and with clarity comes confidence. If we get confidence and certainty around tariff structures in the third quarter, then I think customers' reactions to that will be positive. We think that that should be favorable for PACCAR. There's quite a few reasons to weigh in there for our confidence as the year goes along here. Super helpful. Thank you. Maybe just another one that I thought was really powerful, I guess, the guidance for parts in the third quarter. I thought if I heard you correctly, I think you guided to 4%-6% top line growth. Can you just help us understand maybe what's kind of driving that re-acceleration in the parts business, what you're seeing in kind of demand trends? If you could also maybe just comment on what gross margin is assumed for 3Q within your guidance for parts. Yeah. I'll start with reiterating that we had record revenue in Q2 and 3.4% sales growth. That was done during a flat parts market. Anytime we can get revenue growth and sales growth in a flat market is a good thing. The forecast for 4%-6% for the third quarter is just a testament to the parts team doing a really nice job providing parts and programs to deliver excellent customer service. We see that performance starting to normalize back to stronger sales growth. I think the parts outlook is strong. In the second quarter, we have a few more bank holidays and other holidays in Europe. We see a higher number of ship days in the third quarter in Europe, and that is our very strong market for parts sales. That will help us as well. Very helpful. Thank you. You bet. Have a good day. Thank you. Our next question comes from Chad Dillard with Bernstein. Please go ahead. Hey, good afternoon, guys. To what extent is the possibility of a pre-buy changing your down cycle playbook? Do you feel the need to hold on to labor longer just in case the pre-buy happens? Just curious on how this influences your view on what sort of fixed cost absorption is acceptable. Yeah, sure, Chad. As you know, PACCAR focuses on lean, efficient production. Always has, always will. We continue to do that. What we see is that we've done a great job of controlling costs, both in our fixed operations, if you want to call them that, and also in our factories. We are very proud of our wonderful employees. As we see upside to the market, we obviously are looking for them to keep building great trucks. As we see the market's likelihood of improving as the year continues, we will see that it will be good for everybody. Good for employees, good for the company. We are trying to keep that in the right balance. That's helpful. Just secondly, can you just comment on just the sort of pricing that you're seeing in the back half of the year? Are the price increases sticking? Just comment on just what your clients are telling you. I think it goes into the earlier discussion we had around the market in general. I think that as their profitability improves and their need for trucks continues to increase, then that's good for the market dynamics. Right now, I think as that capacity has come out, but still coming out, there's this balance that's being achieved. Once we get through that balance point, we'll start to see increasing demand. I think going back to remember that we're really kind of talking about a replacement market, which should be in the 260s-270s. We're not really chewing into that at all, and trucks are running and freight ton miles are not low. This is all creating some level of pent-up demand for the future. Thanks, guys. You bet. Thank you. Our next question comes from Michael Feniger with Bank of America. Please go ahead. Yes. Hi everyone. Thanks for taking my question. Just on the parts with the 4%-6% top line, I realize you guys are growing parts in a flat market. With the top line potentially up 4%-6%. In the third quarter, do you think you can grow profit at that same rate? I know it's a little challenging in a flat market. Just kind of curious, what's the right environment where we could kind of see the parts revenue growing and seeing that pre-tax profit and that margin also maybe growing along with that? Yeah, Michael, great question. We are proud of the team for being able to deliver the parts growth in a flat market. We definitely see upside when we look at the overall truck park. It's still at elevated levels. Those customers still need the truck serviced, and that comes with parts. Our dealers continue to add capacity, whether it's in updated locations or new locations. PACCAR continues to add distribution centers. I think all of that points to, as we see the ongoing sales growth, we see upside in the profit as well. Yep. Great. Just my last one is just on the inventory side. I know there's your inventory, then we obviously have the industry. How do you feel your own inventory set up given some of the moving pieces that you're seeing with tariffs, but also potential of a pre-buy at some point maybe next year? Do you carry a little bit more? Do you have to kind of work some of that down as you move through the year? Just kind of curious how you think your inventory is positioned and how you think your competitors in the industry overall is set up as we're dealing with these dynamics as we move into 2026. Thank you. Sure. You bet. Nice question, Michael. If you look at the industry Class 8 inventory, it's at 4.2 months of retail sales. You look at Kenworth and Peterbilt's inventory, it is really 2.9 months of retail sales. We feel very good about our inventory position. One of the things that also factors into that is roughly half of our trucks are at bodybuilders. Out of that inventory is at bodybuilders. That is an overrepresented part because PACCAR is the leader in the vocational segment. Our inventory feels well positioned. As you know, we build to order. We feel like we have maintained our disciplines and are in a very good position from an inventory standpoint. Thank you. Our next question comes from Jamie Cook with Truist Securities. Please go ahead. Hi. Good morning, the next quarter. I guess first. The deliveries, Preston, and the deliveries exceeded the high end of your expectations. Margins were at the high end. Was there anything unusual in the margins and why were the deliveries better? Was it just sort of a pre-buy ahead of tariffs? I guess my second question, just given what you're seeing about the back half of the year, to what degree do you have confidence that the 13% in the third quarter could mark sort of the bottom for margins if things start to normalize? To what degree do you think, while you're not guiding for 2026, ACT, I think, is assuming production's about flat next year. Any color around how you're thinking about 2026? It sounds like you're more optimistic, but I don't want to put words in your mouth. Thank you. Jamie, that's a series of questions right there. First, thanks for the comments on the quarter. Feels like a good position that we're in. When I think about deliveries for the third quarter, it kind of has the European normal shutdown period. That's part of it. I think adjustment to the market is part of it as we look at it. We feel like it depends on getting some of the stability that we've talked about in terms of other positions, like are we going to have tariff clarity? Will we have regulatory clarity around NOx emissions? As we think about deliveries and the 13% for the quarter, it feels like we could be, as your words, thinking about talking about the bottom of a cycle. I would kind of, we've been kind of internally thinking and sharing with you that we feel like we are structurally stronger. We went back and looked at the last time we had roughly 38,000 deliveries, 36,000 deliveries, and we had like $4.9 billion in revenue and made $386 million in profit. Comparatively, I think this is just demonstrating that cycle-over-cycle strength that our team has delivered. That's the parts team, that's the financial services team, that's the truck divisions. I mean, that's the new trucks that are in the marketplace. It's the great dealers. It's the relationships with suppliers. A lot of good things that are going the right direction. That is delivering for our shareholders, our customers, and our employees. Any color on how you're thinking about 2026? Better than what the flat? I feel pretty good about 2026. 2026? Yeah, I feel pretty good about 2026. I think that. There's going to be clarity in these regulatory standards because they're implementing in 2027 one way or another. There will be clarity around tariffs one way or another. And as we said, the trucks are getting used. So 2026 should see improvement. Thank you. You bet. Have a good day, Jamie. Thank you. Our next question comes from Tami Zakaria with J.P. Morgan. Please go ahead, Tammy. Hi. Good morning. Thank you. Good afternoon. Thank you so much. I want to ask you about the engine remanufacturing plant. When do you expect that to be fully operational? When at run rate, how many engines do you expect that facility to be able to remanufacture annually? Okay. Good question, Tami. It will be operational in the first quarter of next year. When it gets up to full run rate, we anticipate about 5,000 reman engines a year going through that facility. Got it. Thank you. My second question is on the outlook for South America. I'm guessing the reduced outlook is the function of what's happening in Brazil. Just any color you can provide on what drove that revision in the outlook versus the beginning of the year, what change that's driving this outlook revision? Yeah, Tami, thanks for the second question. For sure, you're right. It's mostly driven through Brazil. The biggest impact there is interest rates. They have a 400 basis point interest rate increase in the past since the beginning of the year. That is certainly affecting consumer confidence and willingness to invest in trucks right now. I think those are the two biggest factors. Okay. Thank you. You bet. Thank you. Our next question comes from Stephen Volkmann with Jefferies. Please go ahead, Stephen. Great. Hello, everybody. Thanks for taking the question. Just a couple of quick follow-ups here. We do not have nearly as much visibility into the European market. I am just curious if you can comment on sort of directionally, is that market, do you think, a growth market going forward? We have talked about some investments, I guess some government investments over there. I am curious if you are seeing anything in that regard. Yeah, Stephen, I'd say given the overall economic conditions, or have some uncertainty in Europe, a 270,000-300,000 truck market is relatively strong given the economics. For PACCAR and DAF specifically, we've had a strong market share in the last month. Year-to-date share is up compared to this time last year. DAF share is traditionally strong in Eastern Europe. As Preston said in his comments, we were with some customers recently and see some upside. If you look at that size market, that's a little above replacement value. I'd say that that's a strong market given the conditions. That's likely the short-term ongoing forecast. Yeah, and I would add that the thing that's helping us there is we introduced our new product, and it's still the only truck that was designed to meet the masses and dimensions regulations over there. It's providing industry-leading fuel economy. It's the best truck for the driver. It's the coolest truck, to be honest with you. There are a lot of things to really like about how things are going. In 2025, we introduce some advanced technologies onto the platform, which also further enhances performance and fuel efficiency. Feeling very good about the DAF team and what they're doing. Super. Thank you for that. Then on the vocational side, we hear some channel checks that sort of suggest that there were a lot of orders. Obviously a lot of backlog in the industry. Now we're starting to kind of work through all that. The orders on vocational have also been a little bit weaker recently. I guess I'm wondering, as you deliver this 50%, Preston, of your inventory that's at bodybuilders, is there a risk that vocational is sort of the next end market to kind of go down before it goes up? I think that's kind of a—I would never have used the word weaker to describe the vocational market. I would have said that it was frothy for a while, and now it's just good. I might say that we're operating in a good vocational market. I think there's a lot of infrastructure spending that's going into the country under the administration's objectives. Infrastructure spending is good for the vocational market. I think that that bodes well for a steady, strong vocational sector for a while. Okay. Great to hear. I'll pass it on. Thanks. All right. Thanks. Have a good day, Steve. Thank you. Our next question comes from Steven Fisher with UBS. Please go ahead. Thanks. Good morning. Just on the pricing topic, just curious how far out you are able to provide firm pricing to your customers. Or do all the units basically come with a caveat that pricing can change as the tariff situation evolves? How does that affect the order patterns? Yeah. We do have a tariff surcharge listed onto our trucks for the U.S. and Canada right now. We are pricing that in, which allows us to price out into the future. These are customers, their business partners, and their friends that we're talking about. Each of these discussions and business relationships has that discussion around if tariffs change, then there's a change potentially in what the pricing is. That is a very active and live dialogue, and it allows us with these great relationships to price out into the future. Okay. And then just looking beyond the cyclical dynamics here, really just thinking about the growth opportunities ahead, it seems like maybe EV and autonomy are perhaps a bit slower to develop. Do you think there's any structural growth opportunities in trucks, or is it all really in parts and FINCO? And if so, should we expect you to really increase your focus on parts and FINCO even more relative to what you talked about at the investor meeting last year? Sure. I would suggest that in general, trucks move most of the freight in the country. I do not think that is going to decrease. I think if anything, that is going to increase. You referenced autonomy. I do not think that is tomorrow. When autonomy happens, then you will see that increase the number of trucks required in the country because they will become even more efficient at delivering freight. That will be good for PACCAR's business. You mentioned EV. EV adoption curves, we have been wise and prudent through our investment cycles on EV investments over time. We continue to believe that there is a role for them to play as we look forward into the future. A market-based role is probably what more likely happens for the next several years. That is great for us. We are well positioned for that. We think that EV vehicles tend to be more expensive. That is obviously good for PACCAR's overall business model. Regulations are going to happen. Regulations drive complexity. Complexity ends up being more components on a truck, which is more proprietary parts share. I think all those things are foundationally good. PACCAR continues to deliver the trucks that our customers want, that the drivers desire in all sectors of the market. That is good for our business growth. I would say from a parts and FINCO standpoint, our parts business is just part of our overall strategy of delivering connected and vehicle performance for our customers. The more we are able to deliver uptime for our customers, the better it is for them and the better it is for PACCAR. It is a win-win situation. Parts, FINCO, and connected services for us are great growth opportunities for the future. Thanks for the insight. Thank you. Our next question comes from Kyle Menges with Citigroup. Please go ahead. Thanks for taking my question. I was hoping if you could just comment a little bit on the medium-duty truck market. Just how are inventories? You mentioned you feel good about 2026. I would assume that was more of a Class 8 comment. I mean, does that apply to medium-duty as well? Just how do you think about changes to emission standards in 2027 being a catalyst for some pre-buy in medium-duty next year? Yeah. Great question, Kyle. Thanks a lot. If you look at industry inventory for medium-duty, it's around six months. For Kenworth and Peterbilt, it's more like four and a half months. You have that same ratio of bodybuilders and that high percentage of vocational mix for Peterbilt and Kenworth. We are in a very good position from a medium-duty inventory standpoint. I think that there are the same factors that are playing into the medium-duty market for 2027, which could create stimulation for a medium-duty market improvement in 2026. A good question. Got it. That's all from me. Thank you. Thank you. Have a good day. Thank you. Our next question comes from Scott Group with Wolfe Research. Please go ahead. Hey, thanks for the time. That $75 million of estimated tariff cost in 3Q, just any, can you just maybe try and quantify what the impact was in Q2? If things stay stable, where do you think that net $75 million impact falls to in Q4? Help me a little bit, Scott, with your question around stable. What does stable mean in your vernacular? Sorry. Maybe I didn't ask right. Meaning there's no incremental change in tariff. So you just have an opportunity to sort of catch up on price. Yeah. I think they were less in the second quarter, for sure, because there's a timing effect of when they came in. There was the effect of what material was in country. It is a gradual increase through the second quarter into the third quarter. It was something significantly less than the $75 million. Now, as we get to the fourth quarter, to your question, I think the most important factor is 232 clarification and whether or not there's a change as a result of 232 and how that could affect the fourth quarter tariff structures we have. Without that even, our teams are doing a great job of working with suppliers and looking for how you think about USMCA content of parts coming into the country and ensuring that the maximum number of parts are USMCA certified under the current rules, which then reduces tariff risk to us over time. That is how I generally think about the 2Q, 3Q, and 4Q tariff picture. Okay. That's helpful. Just in terms of the order book and activity, maybe just where are we on the order book for 2025? When do you think you open up 2026? Within that recent uptick in maybe some conversations, any notable difference in is that more vocational, private fleet, for hire, just sort of where you're seeing that? Thank you. Sure. I mean, the market's filling or the order book is filling into the third quarter. North America is roughly 50%. Europe's mostly full. I think that what we see is still, as we said, vocational markets remain good, and the LTL market maybe especially remains good. We mentioned already in the discussion that the termed big, beautiful bill is probably helpful to our customers' cash position and could create some incentive for orders further out in the year. I do not think it is just one area. I think it is just getting certainty because as we get clarity, that will create confidence for our customers. As they have confidence, then that will increase their ability to order trucks. Okay. Thank you. Appreciate the time, guys. You bet. Thank you. Our next question comes from Nick Housden with RBC Capital Markets. Please go ahead. Yes. Hi. Thank you for taking my questions. I've just got two. In terms of the Q3 deliveries, I think you said 32,000-33,000. Can you provide any comments around the regional breakdown of that, please? I would think of it in terms of plus or minus normal splits is kind of where I would go with it. I would not really shift around very much in it. You are going to have Q3 has the impact of the three-week time off in Europe, which is very, very normal. That is going to sit in there. I would think that there is probably the drops in North America to match to the market. That ratio stays maybe more affected in the third quarter than might normally be. I would say Mexico continues to be experiencing the same kind of tariff discussions. That is a space in the market that is a bit softer. Got it. Your comment about 90% of trucks for the U.S. are currently being built in the U.S. Can you provide any comments just around what the breakdown for the supply chain is and how those percentages might move around? The supply chain's varied, obviously, right? We would have to spend a lot more time than we probably have to think about how supply chain works because there's tier one, two, and three, and they all factor in from different places. Suffice it to say that there are components that come from Mexico or from Canada or from the ASEAN region or South America or Europe that go into the trucks. PACCAR, as we said, has the production facilities in North America, which is critically important. I think that's what the administration feels as well. We think that as we look forward from a tariff standpoint, they'll encourage the truck production, hope they'll encourage the truck production in America, and that components that are critical for manufacturing in America will also be included in that, which we'll be able to support, and our suppliers will support. Great. Thank you very much. Thank you. Our next question comes from Walter Piecyk with LightShed. Please go ahead. Thanks. Hey, Preston. Your partner, Aurora, is very well respected, obviously, within the technology industry. You used your truck to go driver out this past quarter. I guess you guys had some interest in having them put a driver back in the driver's seat there. Just curious kind of what your thoughts are there. What was the reasoning for that? How does that differ from other PACCAR trucks that are also using autonomous technology with your truck? Why, in Aurora's case, do they have to have a driver back in? Maybe when do you anticipate being okay with them taking that driver out and then seeing that market start to expand a bit more? Because obviously, that certainly could be a demand opportunity for you. Thanks. Yeah. Good question. Thanks for asking. We think there's great progress being made in the field of autonomy. PACCAR continues the development of its autonomous vehicle platform. That is encouraging for us. We think that Aurora is making good progress as well in the development of the autonomous driver that could go into that, as are others like Kodiak and others like Stack. We see others making progress as well. We always operate at PACCAR with safety being our most fundamental foundational principle. For us, we want that to remain as the true north for us. It will remain as a true north for us. Having the driver in seems like the smartest idea. That is how we're operating the trucks. Is there a certain milestone you're hoping that they achieve? Because obviously, that company won't exist in the future if they always have a driver in. The whole point of it is to have a driver out. What do you think you need to see to permit at least your trucks to have driver out? We do not ever discuss when we are going to go to production with things. What we do is things should be fully production. When things are fully production, validated, completed production, then that is when we have that conversation. Great. Thank you very much. You bet. Thanks for the question. Thank you. There are no further questions in the queue at this time. Are there any additional remarks from the company? We'd like to thank everyone for joining the call. Thank you, operator. Ladies and gentlemen, this concludes PACCAR's earnings call. Thank you for participating. You may now disconnect.

Speaker 12: Good morning and welcome to PACCAR's Second Quarter 2025 Earnings Conference Call. All lines will be in a listen-only mode until the question and answer session. Today's call is being recorded, and if anyone has an objection, they should disconnect at this time. I would now like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead. Good morning and welcome to PACCAR's Second Quarter 2025 Earnings Conference Call. good morning and welcome to paccar's second quarter 2025 earnings conference call All lines will be in a listen-only mode until the question and answer session. all lines will be in a listen-only mode until the question and answer session Today's call is being recorded, and if anyone has an objection, they should disconnect at this time. today's call is being recorded and if anyone has an objection they should disconnect at this time I would now like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. i would now like to introduce mr ken hastings paccar's director of investor relations Mr. Hastings, please go ahead. mr hastings please go ahead

Speaker 2: Good morning. We'd like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations. Joining me this morning are Preston Feight, Chief Executive Officer; Kevin Baney, Executive Vice President; and Brice Poplawski, Senior Vice President and Chief Financial Officer. As with prior conference calls, we ask that any members of the media on the line participate in a listen-only mode. Certain information presented today will be forward-looking and involve risks and uncertainties that may affect expected results. For additional information, please see our SEC filings at the Investor Relations page at PACCAR.com. I would now like to introduce Preston Feight. Good morning. good morning We'd like to welcome those listening by phone and those on the webcast. we'd like to welcome those listening by phone and those on the webcast My name is Ken Hastings, PACCAR's Director of Investor Relations. my name is ken hastings paccar's director of investor relations Joining me this morning are Preston Feight, Chief Executive Officer; Kevin Baney, Executive Vice President; and Brice Poplawski, Senior Vice President and Chief Financial Officer. joining me this morning are preston feight chief executive officer kevin baney executive vice president and brice poplawski senior vice president and chief financial officer As with prior conference calls, we ask that any members of the media on the line participate in a listen-only mode. as with prior conference calls we ask that any members of the media on the line participate in a listen-only mode Certain information presented today will be forward-looking and involve risks and uncertainties that may affect expected results. certain information presented today will be forward-looking and involve risks and uncertainties that may affect expected results For additional information, please see our SEC filings at the Investor Relations page at PACCAR.com. for additional information please see our sec filings at the investor relations page at paccar.com I would now like to introduce Preston Feight. i would now like to introduce preston feight

Speaker 18: Hey, thanks, Ken. Morning, everyone. Kevin, Brice, Ken, and I will update you on our second quarter financial results and business highlights. In these dynamic times, our PACCAR employees have done a great job providing our customers with the highest quality trucks and transportation solutions in the industry. PACCAR achieved good revenues and net income in the second quarter, including record revenues at PACCAR Parts, good performance by the truck divisions, and strong financial services results. PACCAR achieved revenues of $7.5 billion and adjusted net income of $724 million. PACCAR Parts achieved record quarterly revenues of $1.72 billion and excellent quarterly pre-tax income of $417 million. The team did a great job increasing revenues in an overall flat parts market. PACCAR Financial had a very good quarter, increasing pre-tax income to $123 million. We estimate this year's U.S. Hey, thanks, Ken. hey thanks ken Morning, everyone. morning everyone Kevin, Brice, Ken, and I will update you on our second quarter financial results and business highlights. kevin brice ken and i will update you on our second quarter financial results and business highlights In these dynamic times, our PACCAR employees have done a great job providing our customers with the highest quality trucks and transportation solutions in the industry. in these dynamic times our paccar employees have done a great job providing our customers with the highest quality trucks and transportation solutions in the industry PACCAR achieved good revenues and net income in the second quarter, including record revenues at PACCAR Parts, good performance by the truck divisions, and strong financial services results. paccar achieved good revenues and net income in the second quarter including record revenues at paccar parts good performance by the truck divisions and strong financial services results PACCAR achieved revenues of $7.5 billion and adjusted net income of $724 million. paccar achieved revenues of $7.5 billion and adjusted net income of $724 million PACCAR Parts achieved record quarterly revenues of $1.72 billion and excellent quarterly pre-tax income of $417 million. paccar parts achieved record quarterly revenues of $1.72 billion and excellent quarterly pre-tax income of $417 million The team did a great job increasing revenues in an overall flat parts market. the team did a great job increasing revenues in an overall flat parts market PACCAR Financial had a very good quarter, increasing pre-tax income to $123 million. paccar financial had a very good quarter increasing pre-tax income to $123 million We estimate this year's U.S. we estimate this year's u.s and Canadian Class 8 market to be in a range of 230,000-260,000 trucks. The North American truck market size is a result of general economic conditions, a soft truckload market, and tariff and EPA 2027 policy uncertainty. Customer demand in the less-than-truckload and vocational segments is good. In Europe, DAF's innovative aerodynamic trucks provide customers with best-in-class fuel efficiency and driver comfort. We were recently in Europe and met with some of those customers who shared their appreciation of the performance of these great DAF trucks. We project the 2025 European above-16-ton market to be in a range of 270,000-300,000. This year's South American above-16-ton truck market is expected to be in the range of 90,000-100,000 vehicles. PACCAR delivered 39,300 trucks during the second quarter and anticipates delivering around 32,000-33,000 in the third quarter. and Canadian Class 8 market to be in a range of 230,000-260,000 trucks. and canadian class 8 market to be in a range of 230,000-260,000 trucks The North American truck market size is a result of general economic conditions, a soft truckload market, and tariff and EPA 2027 policy uncertainty. the north american truck market size is a result of general economic conditions a soft truckload market and tariff and epa 2027 policy uncertainty Customer demand in the less-than-truckload and vocational segments is good. customer demand in the less-than-truckload and vocational segments is good In Europe, DAF's innovative aerodynamic trucks provide customers with best-in-class fuel efficiency and driver comfort. in europe daf's innovative aerodynamic trucks provide customers with best-in-class fuel efficiency and driver comfort We were recently in Europe and met with some of those customers who shared their appreciation of the performance of these great DAF trucks. we were recently in europe and met with some of those customers who shared their appreciation of the performance of these great daf trucks We project the 2025 European above-16-ton market to be in a range of 270,000-300,000. we project the 2025 european above-16-ton market to be in a range of 270,000-300,000 This year's South American above-16-ton truck market is expected to be in the range of 90,000-100,000 vehicles. this year's south american above-16-ton truck market is expected to be in the range of 90,000-100,000 vehicles PACCAR delivered 39,300 trucks during the second quarter and anticipates delivering around 32,000-33,000 in the third quarter. paccar delivered 39,300 trucks during the second quarter and anticipates delivering around 32,000-33,000 in the third quarter Third-quarter production reflects the normal summer shutdown in Europe and build rates in North America that are matched to the market. PACCAR's truck, parts, and other gross margins were 13.9% in the second quarter. Given the uncertain tariff structure, it's difficult to forecast third-quarter margins. Assuming the current tariff structure and market conditions, third-quarter margins could be around 13%. I'm proud to share that over 90% of PACCAR's U.S.-delivered trucks are produced in our American factories. Clarification of the ongoing IEPA and Section 232 trade policies could enhance market clarity as well as benefit PACCAR and our customers. We anticipate the North American market will strengthen as tariff policies become certain, the truckload market gains momentum, and customers begin to anticipate the 2027 NOx emission standards. Kevin Baney will now provide an update on PACCAR Parts, PACCAR Financial Services, and other business highlights. Kevin. Third-quarter production reflects the normal summer shutdown in Europe and build rates in North America that are matched to the market. third-quarter production reflects the normal summer shutdown in europe and build rates in north america that are matched to the market PACCAR's truck, parts, and other gross margins were 13.9% in the second quarter. paccar's truck parts and other gross margins were 13.9% in the second quarter Given the uncertain tariff structure, it's difficult to forecast third-quarter margins. given the uncertain tariff structure it's difficult to forecast third-quarter margins Assuming the current tariff structure and market conditions, third-quarter margins could be around 13%. assuming the current tariff structure and market conditions third-quarter margins could be around 13% I'm proud to share that over 90% of PACCAR's U.S.-delivered trucks are produced in our American factories. i'm proud to share that over 90% of paccar's u.s.-delivered trucks are produced in our american factories Clarification of the ongoing IEPA and Section 232 trade policies could enhance market clarity as well as benefit PACCAR and our customers. clarification of the ongoing iepa and section 232 trade policies could enhance market clarity as well as benefit paccar and our customers We anticipate the North American market will strengthen as tariff policies become certain, the truckload market gains momentum, and customers begin to anticipate the 2027 NOx emission standards. we anticipate the north american market will strengthen as tariff policies become certain the truckload market gains momentum and customers begin to anticipate the 2027 nox emission standards Kevin Baney will now provide an update on PACCAR Parts, PACCAR Financial Services, and other business highlights. kevin baney will now provide an update on paccar parts paccar financial services and other business highlights Kevin. kevin

Speaker 9: Thank you, Preston. PACCAR Parts achieved record revenues in the second quarter with excellent gross margins of 30%. We estimate that PACCAR's year-over-year parts sales to grow by 4%-6% in the third quarter. PACCAR Parts continues to grow through ongoing investments in capacity and services. PACCAR Parts is focused on delivering the right part to the right place at the right time to provide industry-leading support for our customers. PACCAR Financial Services' pre-tax income was a robust $123 million, up from $111 million a year earlier. This reflects strong credit quality and improving used truck results. PACCAR Financial operates 13 used truck centers around the world to support the sale of premium Kenworth, Peterbilt, and DAF used trucks. PACCAR is building another used truck center in Warsaw, Poland, which will open this year. PACCAR used trucks sell at a premium compared to competitors' used trucks. Thank you, Preston. thank you preston PACCAR Parts achieved record revenues in the second quarter with excellent gross margins of 30%. paccar parts achieved record revenues in the second quarter with excellent gross margins of 30% We estimate that PACCAR's year-over-year parts sales to grow by 4%-6% in the third quarter. we estimate that paccar's year-over-year parts sales to grow by 4%-6% in the third quarter PACCAR Parts continues to grow through ongoing investments in capacity and services. paccar parts continues to grow through ongoing investments in capacity and services PACCAR Parts is focused on delivering the right part to the right place at the right time to provide industry-leading support for our customers. paccar parts is focused on delivering the right part to the right place at the right time to provide industry-leading support for our customers PACCAR Financial Services' pre-tax income was a robust $123 million, up from $111 million a year earlier. paccar financial services' pre-tax income was a robust $123 million up from $111 million a year earlier This reflects strong credit quality and improving used truck results. this reflects strong credit quality and improving used truck results PACCAR Financial operates 13 used truck centers around the world to support the sale of premium Kenworth, Peterbilt, and DAF used trucks. paccar financial operates 13 used truck centers around the world to support the sale of premium kenworth peterbilt and daf used trucks PACCAR is building another used truck center in Warsaw, Poland, which will open this year. paccar is building another used truck center in warsaw poland which will open this year PACCAR used trucks sell at a premium compared to competitors' used trucks. paccar used trucks sell at a premium compared to competitors' used trucks Similar to PACCAR Parts, PACCAR Financial provides steady, foundational profitability during all phases of the business cycle. This year, PACCAR is planning capital investments in the range of $750 million-$800 million and R&D in the range of $450 million-$480 million as we invest in key technology and innovation projects. These include next-generation clean diesel and alternative powertrains, advanced driver assistance systems, and integrated connected vehicle services. PACCAR is also investing in its truck and engine factories to support long-term growth as well as our customers' and dealers' success. PACCAR's industry-leading trucks, expanding parts business, best-in-class financial services, and advanced technology strategy position the company for an excellent future. We are pleased to answer your questions. Similar to PACCAR Parts, PACCAR Financial provides steady, foundational profitability during all phases of the business cycle. similar to paccar parts paccar financial provides steady foundational profitability during all phases of the business cycle This year, PACCAR is planning capital investments in the range of $750 million-$800 million and R&D in the range of $450 million-$480 million as we invest in key technology and innovation projects. this year paccar is planning capital investments in the range of $750 million-$800 million and r&d in the range of $450 million-$480 million as we invest in key technology and innovation projects These include next-generation clean diesel and alternative powertrains, advanced driver assistance systems, and integrated connected vehicle services. these include next-generation clean diesel and alternative powertrains advanced driver assistance systems and integrated connected vehicle services PACCAR is also investing in its truck and engine factories to support long-term growth as well as our customers' and dealers' success. paccar is also investing in its truck and engine factories to support long-term growth as well as our customers' and dealers' success PACCAR's industry-leading trucks, expanding parts business, best-in-class financial services, and advanced technology strategy position the company for an excellent future. paccar's industry-leading trucks expanding parts business best-in-class financial services and advanced technology strategy position the company for an excellent future We are pleased to answer your questions. we are pleased to answer your questions

Speaker 12: Thank you. We will now begin the question and answer session. If you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star followed by two to withdraw yourself from the queue. Our first question today comes from the line of Jerry Revich with Goldman Sachs. Jerry, please go ahead. Thank you. thank you We will now begin the question and answer session. we will now begin the question and answer session If you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. if you would like to ask a question today please do so now by pressing star followed by the number one on your telephone keypad If you change your mind or you feel like your question has already been answered, you can press star followed by two to withdraw yourself from the queue. if you change your mind or you feel like your question has already been answered you can press star followed by two to withdraw yourself from the queue Our first question today comes from the line of Jerry Revich with Goldman Sachs. our first question today comes from the line of jerry revich with goldman sachs Jerry, please go ahead. jerry please go ahead

Speaker 17: Yes, hi. Good morning and good afternoon, everyone. I'm wondering if you could just comment on the really strong sequential price improvement performance you saw in the quarter, how much of that was mix versus getting the price increases in for the higher tariff content. As you think about pricing based on what's in backlog for 3Q, what's that cadence in pricing look like 3Q versus 2Q compared to the roughly 3% sequential increase we just saw this quarter? Yes, hi. yes hi Good morning and good afternoon, everyone. good morning and good afternoon everyone I'm wondering if you could just comment on the really strong sequential price improvement performance you saw in the quarter, how much of that was mix versus getting the price increases in for the higher tariff content. i'm wondering if you could just comment on the really strong sequential price improvement performance you saw in the quarter how much of that was mix versus getting the price increases in for the higher tariff content As you think about pricing based on what's in backlog for 3Q, what's that cadence in pricing look like 3Q versus 2Q compared to the roughly 3% sequential increase we just saw this quarter? as you think about pricing based on what's in backlog for 3q what's that cadence in pricing look like 3q versus 2q compared to the roughly 3% sequential increase we just saw this quarter

Speaker 18: Sure, Jerry. It's an interesting time in the market. As we look at the effect of tariffs on Q2, they were certainly well-present for us. We think that the amount of tariff impact will, in the current structure, increase in Q3. We will have an increased weight of impact on price versus cost for us in Q3. That is obviously a North American-centric comment. There is some variability sitting in there because it depends on how the tariff structures continue, whether that is 232 or court rulings on IEPA. It could also be affected by the current August 1st statements around what new tariffs might be affected and what rates they will be at. Sure, Jerry. sure jerry It's an interesting time in the market. it's an interesting time in the market As we look at the effect of tariffs on Q2, they were certainly well-present for us. as we look at the effect of tariffs on q2 they were certainly well-present for us We think that the amount of tariff impact will, in the current structure, increase in Q3. we think that the amount of tariff impact will in the current structure increase in q3 We will have an increased weight of impact on price versus cost for us in Q3. we will have an increased weight of impact on price versus cost for us in q3 That is obviously a North American-centric comment. There is some variability sitting in there because it depends on how the tariff structures continue, whether that is 232 or court rulings on IEPA. that is obviously a north american-centric comment. there is some variability sitting in there because it depends on how the tariff structures continue, whether that is 232 or court rulings on iepa It could also be affected by the current August 1st statements around what new tariffs might be affected and what rates they will be at. it could also be affected by the current august 1st statements around what new tariffs might be affected and what rates they will be at

Speaker 17: Okay. Thank you, Preston. In terms of your discussions on Section 232 with the government, can you touch on that? We've heard that they might be committing to a 60-day review cycle versus the quoted maximum of 270. Are you hearing that in your conversations as well? Okay. okay Thank you, Preston. thank you preston In terms of your discussions on Section 232 with the government, can you touch on that? in terms of your discussions on section 232 with the government can you touch on that We've heard that they might be committing to a 60-day review cycle versus the quoted maximum of 270. we've heard that they might be committing to a 60-day review cycle versus the quoted maximum of 270 Are you hearing that in your conversations as well? are you hearing that in your conversations as well

Speaker 18: I think the way we think about it is PACCAR builds, as I said, over 90% of our trucks for the U.S. market in the United States. That's really, I think, good for the country. If we use a little bit of reference of 232 for the auto and light truck industry, you could say that that was a review where it was felt it was strategically important that cars and light trucks be made in America. That's kind of how the government indicated. That's what their stated policies have been. The current ongoing investigation into 232 for medium and heavy trucks, they had their open comment period. They completed that. They're now in the investigation phase. As you noted, Jerry, they do not have to take the full 270 days. I think the way we think about it is PACCAR builds, as I said, over 90% of our trucks for the U.S. market in the United States. i think the way we think about it is paccar builds as i said over 90% of our trucks for the u.s market in the united states That's really, I think, good for the country. that's really i think good for the country If we use a little bit of reference of 232 for the auto and light truck industry, you could say that that was a review where it was felt it was strategically important that cars and light trucks be made in America. if we use a little bit of reference of 232 for the auto and light truck industry you could say that that was a review where it was felt it was strategically important that cars and light trucks be made in america That's kind of how the government indicated. that's kind of how the government indicated That's what their stated policies have been. that's what their stated policies have been The current ongoing investigation into 232 for medium and heavy trucks, they had their open comment period. the current ongoing investigation into 232 for medium and heavy trucks they had their open comment period They completed that. they completed that They're now in the investigation phase. they're now in the investigation phase As you noted, Jerry, they do not have to take the full 270 days. as you noted jerry they do not have to take the full 270 days We speculate you know what they're actually going to do, but it would not be utterly surprising if it was less than that and that a conclusion was made. We speculate you know what they're actually going to do, but it would not be utterly surprising if it was less than that and that a conclusion was made. we speculate you know what they're actually going to do but it would not be utterly surprising if it was less than that and that a conclusion was made

Speaker 17: Super. Lastly, in terms of the tariff impact on a per-unit basis in the third quarter, can you just comment directionally? Is that in the $4,000 per unit range the way it looks like from the bill of materials? Or can you just help us understand that so we know the variables if we do see a favorable Section 232 outcome? Super. super Lastly, in terms of the tariff impact on a per-unit basis in the third quarter, can you just comment directionally? lastly in terms of the tariff impact on a per-unit basis in the third quarter can you just comment directionally Is that in the $4,000 per unit range the way it looks like from the bill of materials? is that in the $4,000 per unit range the way it looks like from the bill of materials Or can you just help us understand that so we know the variables if we do see a favorable Section 232 outcome? or can you just help us understand that so we know the variables if we do see a favorable section 232 outcome

Speaker 18: Yeah. As we look at it, obviously, I mentioned already, there's some variability within that tariff structure of whether copper is included, whether there's an August 1st change to things. I'm giving you a plus or minus number. In general, what we would say is maybe the quarterly effect isn't like $75 million. Yeah. yeah As we look at it, obviously, I mentioned already, there's some variability within that tariff structure of whether copper is included, whether there's an August 1st change to things. as we look at it obviously i mentioned already there's some variability within that tariff structure of whether copper is included whether there's an august 1st change to things I'm giving you a plus or minus number. i'm giving you a plus or minus number In general, what we would say is maybe the quarterly effect isn't like $75 million. in general what we would say is maybe the quarterly effect isn't like $75 million

Speaker 17: Thank you. Nice performance given the variability. Thank you. thank you Nice performance given the variability. nice performance given the variability

Speaker 18: Appreciate the comment, Jerry. Thanks for the questions. Appreciate the comment, Jerry. appreciate the comment jerry Thanks for the questions. thanks for the questions

Speaker 12: Thank you. Our next question comes from Jeff Kauffman with Vertical Research Partners. Please go ahead. Thank you. thank you Our next question comes from Jeff Kauffman with Vertical Research Partners. our next question comes from jeff kauffman with vertical research partners Please go ahead. please go ahead

Speaker 6: Thank you very much and congratulations in an uncertain environment. I was just wondering, with the passage of the One Big Beautiful Bill Act and the R&D and CapEx. Depreciation acceleration that a lot of companies will be getting, have customers re-engaged you about the 2026 order season? Thank you very much and congratulations in an uncertain environment. thank you very much and congratulations in an uncertain environment I was just wondering, with the passage of the One Big Beautiful Bill Act and the R&D and CapEx. i was just wondering with the passage of the one big beautiful bill act and the r&d and capex Depreciation acceleration that a lot of companies will be getting, have customers re-engaged you about the 2026 order season? depreciation acceleration that a lot of companies will be getting have customers re-engaged you about the 2026 order season

Speaker 18: Yep. I appreciate the comments on the quarter and also a really insightful question. The answer is, yeah, they actually are starting to engage us on that as that legislation is passed and it does have benefits to their cash. Their ability to deploy that cash for capital asset purchases like trucks is starting to be part of the conversation and is part of our optimism for the latter part of the year. Yep. yep I appreciate the comments on the quarter and also a really insightful question. i appreciate the comments on the quarter and also a really insightful question The answer is, yeah, they actually are starting to engage us on that as that legislation is passed and it does have benefits to their cash. the answer is yeah they actually are starting to engage us on that as that legislation is passed and it does have benefits to their cash Their ability to deploy that cash for capital asset purchases like trucks is starting to be part of the conversation and is part of our optimism for the latter part of the year. their ability to deploy that cash for capital asset purchases like trucks is starting to be part of the conversation and is part of our optimism for the latter part of the year

Speaker 8: Yeah. I would just add, this is Brice, it'll be very positive for us as a company as well because that R&D expensing as well as the immediate R&D expensing on the fixed assets, we think will provide cash tax benefits in the $300 million-$400 million range. It's good news for us, good news for our customers. Yeah. yeah I would just add, this is Brice, it'll be very positive for us as a company as well because that R&D expensing as well as the immediate R&D expensing on the fixed assets, we think will provide cash tax benefits in the $300 million-$400 million range. i would just add this is brice it'll be very positive for us as a company as well because that r&d expensing as well as the immediate r&d expensing on the fixed assets we think will provide cash tax benefits in the $300 million-$400 million range It's good news for us, good news for our customers. it's good news for us good news for our customers

Speaker 18: All right, Brice, you beat me to the second half of the question, so that's all I have. Thanks so much. All right, Brice, you beat me to the second half of the question, so that's all I have. all right brice you beat me to the second half of the question so that's all i have Thanks so much. thanks so much

Speaker 8: Is that good? Is that good? is that good

Speaker 12: Thank you. Our next question comes from Angel Castillo with Morgan Stanley. Please go ahead. Thank you. thank you Our next question comes from Angel Castillo with Morgan Stanley. our next question comes from angel castillo with morgan stanley Please go ahead. please go ahead

Speaker 11: Hi, good morning. Thanks for taking my question. Just wanted to maybe follow up on that just in terms of the, I think the second half delivery is implied by kind of the industry outlook and assuming your market share remains intact is a little bit more kind of stable in terms of U.S. and Canada for the second half versus first half. To your point, or the comments around seeing good kind of conversations with customers around potential benefits from the One Big Beautiful Bill that maybe drives some incentive to ordering. Curious, could you just provide a little bit more color? I guess we've had three months now of pretty weak orders. Do you expect then the next month we'll start to see that essentially rebound and that's what gives you confidence in the second half? Hi, good morning. hi good morning Thanks for taking my question. thanks for taking my question Just wanted to maybe follow up on that just in terms of the, I think the second half delivery is implied by kind of the industry outlook and assuming your market share remains intact is a little bit more kind of stable in terms of U.S. and Canada for the second half versus first half. just wanted to maybe follow up on that just in terms of the i think the second half delivery is implied by kind of the industry outlook and assuming your market share remains intact is a little bit more kind of stable in terms of u.s and canada for the second half versus first half To your point, or the comments around seeing good kind of conversations with customers around potential benefits from the One Big Beautiful Bill that maybe drives some incentive to ordering. to your point or the comments around seeing good kind of conversations with customers around potential benefits from the one big beautiful bill that maybe drives some incentive to ordering Curious, could you just provide a little bit more color? curious could you just provide a little bit more color I guess we've had three months now of pretty weak orders. i guess we've had three months now of pretty weak orders Do you expect then the next month we'll start to see that essentially rebound and that's what gives you confidence in the second half? do you expect then the next month we'll start to see that essentially rebound and that's what gives you confidence in the second half As we think about order dynamics here that we're seeing, why won't that have a bigger kind of impact on underlying deliveries that you're kind of expecting in the second half? As we think about order dynamics here that we're seeing, why won't that have a bigger kind of impact on underlying deliveries that you're kind of expecting in the second half? as we think about order dynamics here that we're seeing why won't that have a bigger kind of impact on underlying deliveries that you're kind of expecting in the second half

Speaker 18: Yeah. Really fun question, Angel. Thanks for asking. There's a few factors going into the sequencing of orders. One of the things that's in the truckload sector, which is a pretty significant part of the overall market in the U.S. and Canada, is that there was some overcapacity. I think that overcapacity is coming out gradually. As that gets in balance, it'll help with rates, which will help with profitability for the carriers, which will help with truck orders. That's one factor in there. Another key factor that gives us confidence that we'll see improvement is the fact that the Big Beautiful Bill that you referenced has an upside potential for us as the year gets through. Another one is regulatory emissions standards. As we all know, there's a greenhouse gas component and a NOx component. The greenhouse gas component for 2027 is likely not to change. Yeah. yeah Really fun question, Angel. really fun question angel Thanks for asking. thanks for asking There's a few factors going into the sequencing of orders. there's a few factors going into the sequencing of orders One of the things that's in the truckload sector, which is a pretty significant part of the overall market in the U.S. and Canada, is that there was some overcapacity. one of the things that's in the truckload sector which is a pretty significant part of the overall market in the u.s and canada is that there was some overcapacity I think that overcapacity is coming out gradually. i think that overcapacity is coming out gradually As that gets in balance, it'll help with rates, which will help with profitability for the carriers, which will help with truck orders. as that gets in balance it'll help with rates which will help with profitability for the carriers which will help with truck orders That's one factor in there. that's one factor in there Another key factor that gives us confidence that we'll see improvement is the fact that the Big Beautiful Bill that you referenced has an upside potential for us as the year gets through. another key factor that gives us confidence that we'll see improvement is the fact that the big beautiful bill that you referenced has an upside potential for us as the year gets through Another one is regulatory emissions standards. another one is regulatory emissions standards As we all know, there's a greenhouse gas component and a NOx component. as we all know there's a greenhouse gas component and a nox component The greenhouse gas component for 2027 is likely not to change. the greenhouse gas component for 2027 is likely not to change That's what a lot of people can understand now, which means there'll be no further GHG requirements. However, the law is in 2027 that the standard of NOx will move from 200 mg down to 35 mg. If it moves from 200 mg-35 mg, that'll bring on costs to the product, which will encourage customers to be buying trucks probably beginning later in this year. There's the factor around tariffs. I think that with uncertainty, customers kind of pause, and with clarity comes confidence. If we get confidence and certainty around tariff structures in the third quarter, then I think customers' reactions to that will be positive. We think that that should be favorable for PACCAR. There's quite a few reasons to weigh in there for our confidence as the year goes along here. That's what a lot of people can understand now, which means there'll be no further GHG requirements. that's what a lot of people can understand now which means there'll be no further ghg requirements However, the law is in 2027 that the standard of NOx will move from 200 mg down to 35 mg. however the law is in 2027 that the standard of nox will move from 200 mg down to 35 mg If it moves from 200 mg- 35 mg, that'll bring on costs to the product, which will encourage customers to be buying trucks probably beginning later in this year. if it moves from 200 mg- 35 mg that'll bring on costs to the product which will encourage customers to be buying trucks probably beginning later in this year There's the factor around tariffs. there's the factor around tariffs I think that with uncertainty, customers kind of pause, and with clarity comes confidence. i think that with uncertainty customers kind of pause and with clarity comes confidence If we get confidence and certainty around tariff structures in the third quarter, then I think customers' reactions to that will be positive. if we get confidence and certainty around tariff structures in the third quarter then i think customers' reactions to that will be positive We think that that should be favorable for PACCAR. we think that that should be favorable for paccar There's quite a few reasons to weigh in there for our confidence as the year goes along here. there's quite a few reasons to weigh in there for our confidence as the year goes along here

Speaker 11: Super helpful. Thank you. Maybe just another one that I thought was really powerful, I guess, the guidance for parts in the third quarter. I thought if I heard you correctly, I think you guided to 4%-6% top line growth. Can you just help us understand maybe what's kind of driving that re-acceleration in the parts business, what you're seeing in kind of demand trends? If you could also maybe just comment on what gross margin is assumed for 3Q within your guidance for parts. Super helpful. super helpful Thank you. thank you Maybe just another one that I thought was really powerful, I guess, the guidance for parts in the third quarter. maybe just another one that i thought was really powerful i guess the guidance for parts in the third quarter I thought if I heard you correctly, I think you guided to 4%-6% top line growth. i thought if i heard you correctly i think you guided to 4%-6% top line growth Can you just help us understand maybe what's kind of driving that re-acceleration in the parts business, what you're seeing in kind of demand trends? can you just help us understand maybe what's kind of driving that re-acceleration in the parts business what you're seeing in kind of demand trends If you could also maybe just comment on what gross margin is assumed for 3Q within your guidance for parts. if you could also maybe just comment on what gross margin is assumed for 3q within your guidance for parts

Speaker 9: Yeah. I'll start with reiterating that we had record revenue in Q2 and 3.4% sales growth. That was done during a flat parts market. Anytime we can get revenue growth and sales growth in a flat market is a good thing. The forecast for 4%-6% for the third quarter is just a testament to the parts team doing a really nice job providing parts and programs to deliver excellent customer service. We see that performance starting to normalize back to stronger sales growth. I think the parts outlook is strong. In the second quarter, we have a few more bank holidays and other holidays in Europe. We see a higher number of ship days in the third quarter in Europe, and that is our very strong market for parts sales. That will help us as well. Yeah. yeah I'll start with reiterating that we had record revenue in Q2 and 3.4% sales growth. i'll start with reiterating that we had record revenue in q2 and 3.4% sales growth That was done during a flat parts market. that was done during a flat parts market Anytime we can get revenue growth and sales growth in a flat market is a good thing. anytime we can get revenue growth and sales growth in a flat market is a good thing The forecast for 4%-6% for the third quarter is just a testament to the parts team doing a really nice job providing parts and programs to deliver excellent customer service. the forecast for 4%-6% for the third quarter is just a testament to the parts team doing a really nice job providing parts and programs to deliver excellent customer service We see that performance starting to normalize back to stronger sales growth. we see that performance starting to normalize back to stronger sales growth I think the parts outlook is strong. i think the parts outlook is strong In the second quarter, we have a few more bank holidays and other holidays in Europe. in the second quarter we have a few more bank holidays and other holidays in europe We see a higher number of ship days in the third quarter in Europe, and that is our very strong market for parts sales. we see a higher number of ship days in the third quarter in europe and that is our very strong market for parts sales That will help us as well. that will help us as well

Speaker 11: Very helpful. Thank you. Very helpful. very helpful Thank you. thank you

Speaker 18: You bet. Have a good day. You bet. you bet Have a good day. have a good day

Speaker 12: Thank you. Our next question comes from Chad Dillard with Bernstein. Please go ahead. Thank you. thank you Our next question comes from Chad Dillard with Bernstein. our next question comes from chad dillard with bernstein Please go ahead. please go ahead

Speaker 16: Hey, good afternoon, guys. To what extent is the possibility of a pre-buy changing your down cycle playbook? Do you feel the need to hold on to labor longer just in case the pre-buy happens? Just curious on how this influences your view on what sort of fixed cost absorption is acceptable. Hey, good afternoon, guys. hey good afternoon guys To what extent is the possibility of a pre-buy changing your down cycle playbook? to what extent is the possibility of a pre-buy changing your down cycle playbook Do you feel the need to hold on to labor longer just in case the pre-buy happens? do you feel the need to hold on to labor longer just in case the pre-buy happens Just curious on how this influences your view on what sort of fixed cost absorption is acceptable. just curious on how this influences your view on what sort of fixed cost absorption is acceptable

Speaker 18: Yeah, sure, Chad. As you know, PACCAR focuses on lean, efficient production. Always has, always will. We continue to do that. What we see is that we've done a great job of controlling costs, both in our fixed operations, if you want to call them that, and also in our factories. We are very proud of our wonderful employees. As we see upside to the market, we obviously are looking for them to keep building great trucks. As we see the market's likelihood of improving as the year continues, we will see that it will be good for everybody. Good for employees, good for the company. We are trying to keep that in the right balance. Yeah, sure, Chad. yeah sure chad As you know, PACCAR focuses on lean, efficient production. as you know paccar focuses on lean efficient production Always has, always will. always has always will We continue to do that. we continue to do that What we see is that we've done a great job of controlling costs, both in our fixed operations, if you want to call them that, and also in our factories. what we see is that we've done a great job of controlling costs both in our fixed operations if you want to call them that and also in our factories We are very proud of our wonderful employees. we are very proud of our wonderful employees As we see upside to the market, we obviously are looking for them to keep building great trucks. as we see upside to the market we obviously are looking for them to keep building great trucks As we see the market's likelihood of improving as the year continues, we will see that it will be good for everybody. as we see the market's likelihood of improving as the year continues we will see that it will be good for everybody Good for employees, good for the company. good for employees good for the company We are trying to keep that in the right balance. we are trying to keep that in the right balance

Speaker 16: That's helpful. Just secondly, can you just comment on just the sort of pricing that you're seeing in the back half of the year? Are the price increases sticking? Just comment on just what your clients are telling you. That's helpful. that's helpful Just secondly, can you just comment on just the sort of pricing that you're seeing in the back half of the year? just secondly can you just comment on just the sort of pricing that you're seeing in the back half of the year Are the price increases sticking? are the price increases sticking Just comment on just what your clients are telling you. just comment on just what your clients are telling you

Speaker 18: I think it goes into the earlier discussion we had around the market in general. I think that as their profitability improves and their need for trucks continues to increase, then that's good for the market dynamics. Right now, I think as that capacity has come out, but still coming out, there's this balance that's being achieved. Once we get through that balance point, we'll start to see increasing demand. I think going back to remember that we're really kind of talking about a replacement market, which should be in the 260s-270s. We're not really chewing into that at all, and trucks are running and freight ton miles are not low. This is all creating some level of pent-up demand for the future. I think it goes into the earlier discussion we had around the market in general. i think it goes into the earlier discussion we had around the market in general I think that as their profitability improves and their need for trucks continues to increase, then that's good for the market dynamics. i think that as their profitability improves and their need for trucks continues to increase then that's good for the market dynamics Right now, I think as that capacity has come out, but still coming out, there's this balance that's being achieved. right now i think as that capacity has come out but still coming out there's this balance that's being achieved Once we get through that balance point, we'll start to see increasing demand. once we get through that balance point we'll start to see increasing demand I think going back to remember that we're really kind of talking about a replacement market, which should be in the 260s-270s. i think going back to remember that we're really kind of talking about a replacement market which should be in the 260s-270s We're not really chewing into that at all, and trucks are running and freight ton miles are not low. we're not really chewing into that at all and trucks are running and freight ton miles are not low This is all creating some level of pent-up demand for the future. this is all creating some level of pent-up demand for the future

Speaker 16: Thanks, guys. Thanks, guys. thanks guys

Speaker 18: You bet. You bet. you bet

Speaker 12: Thank you. Our next question comes from Michael Feniger with Bank of America. Please go ahead. Thank you. thank you Our next question comes from Michael Feniger with Bank of America. our next question comes from michael feniger with bank of america Please go ahead. please go ahead

Speaker 5: Yes. Hi everyone. Thanks for taking my question. Just on the parts with the 4%-6% top line, I realize you guys are growing parts in a flat market. With the top line potentially up 4%-6%. In the third quarter, do you think you can grow profit at that same rate? I know it's a little challenging in a flat market. Just kind of curious, what's the right environment where we could kind of see the parts revenue growing and seeing that pre-tax profit and that margin also maybe growing along with that? Yes. yes Hi everyone. hi everyone Thanks for taking my question. thanks for taking my question Just on the parts with the 4%-6% top line, I realize you guys are growing parts in a flat market. just on the parts with the 4%-6% top line i realize you guys are growing parts in a flat market With the top line potentially up 4%-6%. with the top line potentially up 4%-6% In the third quarter, do you think you can grow profit at that same rate? in the third quarter do you think you can grow profit at that same rate I know it's a little challenging in a flat market. i know it's a little challenging in a flat market Just kind of curious, what's the right environment where we could kind of see the parts revenue growing and seeing that pre-tax profit and that margin also maybe growing along with that? just kind of curious what's the right environment where we could kind of see the parts revenue growing and seeing that pre-tax profit and that margin also maybe growing along with that

Speaker 8: Yeah, Michael, great question. We are proud of the team for being able to deliver the parts growth in a flat market. We definitely see upside when we look at the overall truck park. It's still at elevated levels. Those customers still need the truck serviced, and that comes with parts. Our dealers continue to add capacity, whether it's in updated locations or new locations. PACCAR continues to add distribution centers. I think all of that points to, as we see the ongoing sales growth, we see upside in the profit as well. Yeah, Michael, great question. yeah michael great question We are proud of the team for being able to deliver the parts growth in a flat market. we are proud of the team for being able to deliver the parts growth in a flat market We definitely see upside when we look at the overall truck park. we definitely see upside when we look at the overall truck park It's still at elevated levels. it's still at elevated levels Those customers still need the truck serviced, and that comes with parts. those customers still need the truck serviced and that comes with parts Our dealers continue to add capacity, whether it's in updated locations or new locations. our dealers continue to add capacity whether it's in updated locations or new locations PACCAR continues to add distribution centers. paccar continues to add distribution centers I think all of that points to, as we see the ongoing sales growth, we see upside in the profit as well. i think all of that points to as we see the ongoing sales growth we see upside in the profit as well

Speaker 5: Yep. Great. Just my last one is just on the inventory side. I know there's your inventory, then we obviously have the industry. How do you feel your own inventory set up given some of the moving pieces that you're seeing with tariffs, but also potential of a pre-buy at some point maybe next year? Do you carry a little bit more? Do you have to kind of work some of that down as you move through the year? Just kind of curious how you think your inventory is positioned and how you think your competitors in the industry overall is set up as we're dealing with these dynamics as we move into 2026. Thank you. Yep. yep Great. great Just my last one is just on the inventory side. just my last one is just on the inventory side I know there's your inventory, then we obviously have the industry. i know there's your inventory then we obviously have the industry How do you feel your own inventory set up given some of the moving pieces that you're seeing with tariffs, but also potential of a pre-buy at some point maybe next year? how do you feel your own inventory set up given some of the moving pieces that you're seeing with tariffs but also potential of a pre-buy at some point maybe next year Do you carry a little bit more? do you carry a little bit more Do you have to kind of work some of that down as you move through the year? do you have to kind of work some of that down as you move through the year Just kind of curious how you think your inventory is positioned and how you think your competitors in the industry overall is set up as we're dealing with these dynamics as we move into 2026. just kind of curious how you think your inventory is positioned and how you think your competitors in the industry overall is set up as we're dealing with these dynamics as we move into 2026 Thank you. thank you

Speaker 18: Sure. You bet. Nice question, Michael. If you look at the industry Class 8 inventory, it's at 4.2 months of retail sales. You look at Kenworth and Peterbilt's inventory, it is really 2.9 months of retail sales. We feel very good about our inventory position. One of the things that also factors into that is roughly half of our trucks are at bodybuilders. Out of that inventory is at bodybuilders. That is an overrepresented part because PACCAR is the leader in the vocational segment. Our inventory feels well positioned. As you know, we build to order. We feel like we have maintained our disciplines and are in a very good position from an inventory standpoint. Sure. sure You bet. you bet Nice question, Michael. nice question michael If you look at the industry Class 8 inventory, it's at 4.2 months of retail sales. if you look at the industry class 8 inventory it's at 4.2 months of retail sales You look at Kenworth and Peterbilt's inventory, it is really 2.9 months of retail sales. you look at kenworth and peterbilt's inventory it is really 2.9 months of retail sales We feel very good about our inventory position. we feel very good about our inventory position One of the things that also factors into that is roughly half of our trucks are at bodybuilders. one of the things that also factors into that is roughly half of our trucks are at bodybuilders Out of that inventory is at bodybuilders. out of that inventory is at bodybuilders That is an overrepresented part because PACCAR is the leader in the vocational segment. that is an overrepresented part because paccar is the leader in the vocational segment Our inventory feels well positioned. our inventory feels well positioned As you know, we build to order. as you know we build to order We feel like we have maintained our disciplines and are in a very good position from an inventory standpoint. we feel like we have maintained our disciplines and are in a very good position from an inventory standpoint

Speaker 12: Thank you. Our next question comes from Jamie Cook with Truist Securities. Please go ahead. Thank you. thank you Our next question comes from Jamie Cook with Truist Securities. our next question comes from jamie cook with truist securities Please go ahead. please go ahead

Speaker 3: Hi. Good morning, the next quarter. I guess first. The deliveries, Preston, and the deliveries exceeded the high end of your expectations. Margins were at the high end. Was there anything unusual in the margins and why were the deliveries better? Was it just sort of a pre-buy ahead of tariffs? I guess my second question, just given what you're seeing about the back half of the year, to what degree do you have confidence that the 13% in the third quarter could mark sort of the bottom for margins if things start to normalize? To what degree do you think, while you're not guiding for 2026, ACT, I think, is assuming production's about flat next year. Any color around how you're thinking about 2026? It sounds like you're more optimistic, but I don't want to put words in your mouth. Thank you. Hi. hi Good morning, the next quarter. good morning the next quarter I guess first. i guess first The deliveries, Preston, and the deliveries exceeded the high end of your expectations. the deliveries preston and the deliveries exceeded the high end of your expectations Margins were at the high end. margins were at the high end Was there anything unusual in the margins and why were the deliveries better? was there anything unusual in the margins and why were the deliveries better Was it just sort of a pre-buy ahead of tariffs? was it just sort of a pre-buy ahead of tariffs I guess my second question, just given what you're seeing about the back half of the year, to what degree do you have confidence that the 13% in the third quarter could mark sort of the bottom for margins if things start to normalize? i guess my second question just given what you're seeing about the back half of the year to what degree do you have confidence that the 13% in the third quarter could mark sort of the bottom for margins if things start to normalize To what degree do you think, while you're not guiding for 2026, ACT, I think, is assuming production's about flat next year. to what degree do you think while you're not guiding for 2026 act i think is assuming production's about flat next year Any color around how you're thinking about 2026? any color around how you're thinking about 2026 It sounds like you're more optimistic, but I don't want to put words in your mouth. it sounds like you're more optimistic but i don't want to put words in your mouth Thank you. thank you

Speaker 18: Jamie, that's a series of questions right there. First, thanks for the comments on the quarter. Feels like a good position that we're in. When I think about deliveries for the third quarter, it kind of has the European normal shutdown period. That's part of it. I think adjustment to the market is part of it as we look at it. We feel like it depends on getting some of the stability that we've talked about in terms of other positions, like are we going to have tariff clarity? Will we have regulatory clarity around NOx emissions? As we think about deliveries and the 13% for the quarter, it feels like we could be, as your words, thinking about talking about the bottom of a cycle. I would kind of, we've been kind of internally thinking and sharing with you that we feel like we are structurally stronger. Jamie, that's a series of questions right there. jamie that's a series of questions right there First, thanks for the comments on the quarter. first thanks for the comments on the quarter Feels like a good position that we're in. feels like a good position that we're in When I think about deliveries for the third quarter, it kind of has the European normal shutdown period. when i think about deliveries for the third quarter it kind of has the european normal shutdown period That's part of it. that's part of it I think adjustment to the market is part of it as we look at it. i think adjustment to the market is part of it as we look at it We feel like it depends on getting some of the stability that we've talked about in terms of other positions, like are we going to have tariff clarity? we feel like it depends on getting some of the stability that we've talked about in terms of other positions like are we going to have tariff clarity Will we have regulatory clarity around NOx emissions? will we have regulatory clarity around nox emissions As we think about deliveries and the 13% for the quarter, it feels like we could be, as your words, thinking about talking about the bottom of a cycle. as we think about deliveries and the 13% for the quarter it feels like we could be as your words thinking about talking about the bottom of a cycle I would kind of, we've been kind of internally thinking and sharing with you that we feel like we are structurally stronger. i would kind of we've been kind of internally thinking and sharing with you that we feel like we are structurally stronger We went back and looked at the last time we had roughly 38,000 deliveries, 36,000 deliveries, and we had like $4.9 billion in revenue and made $386 million in profit. Comparatively, I think this is just demonstrating that cycle-over-cycle strength that our team has delivered. That's the parts team, that's the financial services team, that's the truck divisions. I mean, that's the new trucks that are in the marketplace. It's the great dealers. It's the relationships with suppliers. A lot of good things that are going the right direction. That is delivering for our shareholders, our customers, and our employees. We went back and looked at the last time we had roughly 38,000 deliveries, 36,000 deliveries, and we had like $4.9 billion in revenue and made $386 million in profit. we went back and looked at the last time we had roughly 38,000 deliveries 36,000 deliveries and we had like $4.9 billion in revenue and made $386 million in profit Comparatively, I think this is just demonstrating that cycle-over-cycle strength that our team has delivered. comparatively i think this is just demonstrating that cycle-over-cycle strength that our team has delivered That's the parts team, that's the financial services team, that's the truck divisions. that's the parts team that's the financial services team that's the truck divisions I mean, that's the new trucks that are in the marketplace. i mean that's the new trucks that are in the marketplace It's the great dealers. it's the great dealers It's the relationships with suppliers. it's the relationships with suppliers A lot of good things that are going the right direction. a lot of good things that are going the right direction That is delivering for our shareholders, our customers, and our employees. that is delivering for our shareholders our customers and our employees

Speaker 3: Any color on how you're thinking about 2026? Better than what the flat? Any color on how you're thinking about 2026? any color on how you're thinking about 2026 Better than what the flat? better than what the flat

Speaker 18: I feel pretty good about 2026. I feel pretty good about 2026. i feel pretty good about 2026

Speaker 3: 2026? 2026? 2026

Speaker 18: Yeah, I feel pretty good about 2026. I think that. There's going to be clarity in these regulatory standards because they're implementing in 2027 one way or another. There will be clarity around tariffs one way or another. And as we said, the trucks are getting used. So 2026 should see improvement. Yeah, I feel pretty good about 2026. yeah i feel pretty good about 2026 I think that. i think that There's going to be clarity in these regulatory standards because they're implementing in 2027 one way or another. there's going to be clarity in these regulatory standards because they're implementing in 2027 one way or another There will be clarity around tariffs one way or another. there will be clarity around tariffs one way or another And as we said, the trucks are getting used. and as we said the trucks are getting used So 2026 should see improvement. so 2026 should see improvement

Speaker 3: Thank you. Thank you. thank you

Speaker 18: You bet. Have a good day, Jamie. You bet. you bet Have a good day, Jamie. have a good day jamie

Speaker 12: Thank you. Our next question comes from Tami Zakaria with J.P. Morgan. Please go ahead, Tammy. Thank you. thank you Our next question comes from Tami Zakaria with J.P. Morgan. our next question comes from tami zakaria with j.p. morgan Please go ahead, Tammy. please go ahead tammy

Speaker 14: Hi. Good morning. Thank you. Good afternoon. Thank you so much. I want to ask you about the engine remanufacturing plant. When do you expect that to be fully operational? When at run rate, how many engines do you expect that facility to be able to remanufacture annually? Hi. hi Good morning. good morning Thank you. thank you Good afternoon. good afternoon Thank you so much. thank you so much I want to ask you about the engine remanufacturing plant. i want to ask you about the engine remanufacturing plant When do you expect that to be fully operational? when do you expect that to be fully operational When at run rate, how many engines do you expect that facility to be able to remanufacture annually? when at run rate how many engines do you expect that facility to be able to remanufacture annually

Speaker 8: Okay. Good question, Tami. It will be operational in the first quarter of next year. When it gets up to full run rate, we anticipate about 5,000 reman engines a year going through that facility. Okay. okay Good question, Tami. good question tami It will be operational in the first quarter of next year. it will be operational in the first quarter of next year When it gets up to full run rate, we anticipate about 5,000 reman engines a year going through that facility. when it gets up to full run rate we anticipate about 5,000 reman engines a year going through that facility

Speaker 14: Got it. Thank you. My second question is on the outlook for South America. I'm guessing the reduced outlook is the function of what's happening in Brazil. Just any color you can provide on what drove that revision in the outlook versus the beginning of the year, what change that's driving this outlook revision? Got it. got it Thank you. thank you My second question is on the outlook for South America. my second question is on the outlook for south america I'm guessing the reduced outlook is the function of what's happening in Brazil. i'm guessing the reduced outlook is the function of what's happening in brazil Just any color you can provide on what drove that revision in the outlook versus the beginning of the year, what change that's driving this outlook revision? just any color you can provide on what drove that revision in the outlook versus the beginning of the year what change that's driving this outlook revision

Speaker 18: Yeah, Tami, thanks for the second question. For sure, you're right. It's mostly driven through Brazil. The biggest impact there is interest rates. They have a 400 basis point interest rate increase in the past since the beginning of the year. That is certainly affecting consumer confidence and willingness to invest in trucks right now. I think those are the two biggest factors. Yeah, Tami, thanks for the second question. yeah tami thanks for the second question For sure, you're right. for sure you're right It's mostly driven through Brazil. it's mostly driven through brazil The biggest impact there is interest rates. the biggest impact there is interest rates They have a 400 basis point interest rate increase in the past since the beginning of the year. they have a 400 basis point interest rate increase in the past since the beginning of the year That is certainly affecting consumer confidence and willingness to invest in trucks right now. that is certainly affecting consumer confidence and willingness to invest in trucks right now I think those are the two biggest factors. i think those are the two biggest factors

Speaker 14: Okay. Thank you. Okay. okay Thank you. thank you

Speaker 18: You bet. You bet. you bet

Speaker 12: Thank you. Our next question comes from Stephen Volkmann with Jefferies. Please go ahead, Stephen. Thank you. thank you Our next question comes from Stephen Volkmann with Jefferies. our next question comes from stephen volkmann with jefferies Please go ahead, Stephen. please go ahead stephen

Speaker 7: Great. Hello, everybody. Thanks for taking the question. Just a couple of quick follow-ups here. We do not have nearly as much visibility into the European market. I am just curious if you can comment on sort of directionally, is that market, do you think, a growth market going forward? We have talked about some investments, I guess some government investments over there. I am curious if you are seeing anything in that regard. Great. great Hello, everybody. hello everybody Thanks for taking the question. thanks for taking the question Just a couple of quick follow-ups here. just a couple of quick follow-ups here We do not have nearly as much visibility into the European market. I am just curious if you can comment on sort of directionally, is that market, do you think, a growth market going forward? We have talked about some investments, I guess some government investments over there. we do not have nearly as much visibility into the european market. i am just curious if you can comment on sort of directionally is that market do you think a growth market going forward? we have talked about some investments i guess some government investments over there I am curious if you are seeing anything in that regard. i am curious if you are seeing anything in that regard

Speaker 8: Yeah, Stephen, I'd say given the overall economic conditions, or have some uncertainty in Europe, a 270,000-300,000 truck market is relatively strong given the economics. For PACCAR and DAF specifically, we've had a strong market share in the last month. Year-to-date share is up compared to this time last year. DAF share is traditionally strong in Eastern Europe. As Preston said in his comments, we were with some customers recently and see some upside. If you look at that size market, that's a little above replacement value. I'd say that that's a strong market given the conditions. That's likely the short-term ongoing forecast. Yeah, Stephen, I'd say given the overall economic conditions, or have some uncertainty in Europe, a 270,000-300,000 truck market is relatively strong given the economics. yeah stephen i'd say given the overall economic conditions or have some uncertainty in europe a 270,000-300,000 truck market is relatively strong given the economics For PACCAR and DAF specifically, we've had a strong market share in the last month. for paccar and daf specifically we've had a strong market share in the last month Year-to-date share is up compared to this time last year. year-to-date share is up compared to this time last year DAF share is traditionally strong in Eastern Europe. daf share is traditionally strong in eastern europe As Preston said in his comments, we were with some customers recently and see some upside. as preston said in his comments we were with some customers recently and see some upside If you look at that size market, that's a little above replacement value. if you look at that size market that's a little above replacement value I'd say that that's a strong market given the conditions. i'd say that that's a strong market given the conditions That's likely the short-term ongoing forecast. that's likely the short-term ongoing forecast

Speaker 18: Yeah, and I would add that the thing that's helping us there is we introduced our new product, and it's still the only truck that was designed to meet the masses and dimensions regulations over there. It's providing industry-leading fuel economy. It's the best truck for the driver. It's the coolest truck, to be honest with you. There are a lot of things to really like about how things are going. In 2025, we introduce some advanced technologies onto the platform, which also further enhances performance and fuel efficiency. Feeling very good about the DAF team and what they're doing. Yeah, and I would add that the thing that's helping us there is we introduced our new product, and it's still the only truck that was designed to meet the masses and dimensions regulations over there. yeah and i would add that the thing that's helping us there is we introduced our new product and it's still the only truck that was designed to meet the masses and dimensions regulations over there It's providing industry-leading fuel economy. it's providing industry-leading fuel economy It's the best truck for the driver. it's the best truck for the driver It's the coolest truck, to be honest with you. it's the coolest truck to be honest with you There are a lot of things to really like about how things are going. there are a lot of things to really like about how things are going In 2025, we introduce some advanced technologies onto the platform, which also further enhances performance and fuel efficiency. in 2025 we introduce some advanced technologies onto the platform which also further enhances performance and fuel efficiency Feeling very good about the DAF team and what they're doing. feeling very good about the daf team and what they're doing

Speaker 7: Super. Thank you for that. Then on the vocational side, we hear some channel checks that sort of suggest that there were a lot of orders. Obviously a lot of backlog in the industry. Now we're starting to kind of work through all that. The orders on vocational have also been a little bit weaker recently. I guess I'm wondering, as you deliver this 50%, Preston, of your inventory that's at bodybuilders, is there a risk that vocational is sort of the next end market to kind of go down before it goes up? Super. super Thank you for that. thank you for that Then on the vocational side, we hear some channel checks that sort of suggest that there were a lot of orders. then on the vocational side we hear some channel checks that sort of suggest that there were a lot of orders Obviously a lot of backlog in the industry. obviously a lot of backlog in the industry Now we're starting to kind of work through all that. now we're starting to kind of work through all that The orders on vocational have also been a little bit weaker recently. the orders on vocational have also been a little bit weaker recently I guess I'm wondering, as you deliver this 50%, Preston, of your inventory that's at bodybuilders, is there a risk that vocational is sort of the next end market to kind of go down before it goes up? i guess i'm wondering as you deliver this 50% preston of your inventory that's at bodybuilders is there a risk that vocational is sort of the next end market to kind of go down before it goes up

Speaker 18: I think that's kind of a—I would never have used the word weaker to describe the vocational market. I would have said that it was frothy for a while, and now it's just good. I might say that we're operating in a good vocational market. I think there's a lot of infrastructure spending that's going into the country under the administration's objectives. Infrastructure spending is good for the vocational market. I think that that bodes well for a steady, strong vocational sector for a while. I think that's kind of a—I would never have used the word weaker to describe the vocational market. i think that's kind of a—i would never have used the word weaker to describe the vocational market I would have said that it was frothy for a while, and now it's just good. i would have said that it was frothy for a while and now it's just good I might say that we're operating in a good vocational market. i might say that we're operating in a good vocational market I think there's a lot of infrastructure spending that's going into the country under the administration's objectives. i think there's a lot of infrastructure spending that's going into the country under the administration's objectives Infrastructure spending is good for the vocational market. infrastructure spending is good for the vocational market I think that that bodes well for a steady, strong vocational sector for a while. i think that that bodes well for a steady strong vocational sector for a while

Speaker 7: Okay. Great to hear. I'll pass it on. Thanks. Okay. okay Great to hear. great to hear I'll pass it on. i'll pass it on Thanks. thanks

Speaker 18: All right. Thanks. Have a good day, Steve. All right. all right Thanks. thanks Have a good day, Steve. have a good day steve

Speaker 12: Thank you. Our next question comes from Steven Fisher with UBS. Please go ahead. Thank you. thank you Our next question comes from Steven Fisher with UBS. our next question comes from steven fisher with ubs Please go ahead. please go ahead

Speaker 15: Thanks. Good morning. Just on the pricing topic, just curious how far out you are able to provide firm pricing to your customers. Or do all the units basically come with a caveat that pricing can change as the tariff situation evolves? How does that affect the order patterns? Thanks. thanks Good morning. good morning Just on the pricing topic, just curious how far out you are able to provide firm pricing to your customers. just on the pricing topic just curious how far out you are able to provide firm pricing to your customers Or do all the units basically come with a caveat that pricing can change as the tariff situation evolves? or do all the units basically come with a caveat that pricing can change as the tariff situation evolves How does that affect the order patterns? how does that affect the order patterns

Speaker 18: Yeah. We do have a tariff surcharge listed onto our trucks for the U.S. and Canada right now. We are pricing that in, which allows us to price out into the future. These are customers, their business partners, and their friends that we're talking about. Each of these discussions and business relationships has that discussion around if tariffs change, then there's a change potentially in what the pricing is. That is a very active and live dialogue, and it allows us with these great relationships to price out into the future. Yeah. yeah We do have a tariff surcharge listed onto our trucks for the U.S. and Canada right now. we do have a tariff surcharge listed onto our trucks for the u.s and canada right now We are pricing that in, which allows us to price out into the future. we are pricing that in which allows us to price out into the future These are customers, their business partners, and their friends that we're talking about. these are customers their business partners and their friends that we're talking about Each of these discussions and business relationships has that discussion around if tariffs change, then there's a change potentially in what the pricing is. each of these discussions and business relationships has that discussion around if tariffs change then there's a change potentially in what the pricing is That is a very active and live dialogue, and it allows us with these great relationships to price out into the future. that is a very active and live dialogue and it allows us with these great relationships to price out into the future

Speaker 15: Okay. And then just looking beyond the cyclical dynamics here, really just thinking about the growth opportunities ahead, it seems like maybe EV and autonomy are perhaps a bit slower to develop. Do you think there's any structural growth opportunities in trucks, or is it all really in parts and FINCO? And if so, should we expect you to really increase your focus on parts and FINCO even more relative to what you talked about at the investor meeting last year? Okay. okay And then just looking beyond the cyclical dynamics here, really just thinking about the growth opportunities ahead, it seems like maybe EV and autonomy are perhaps a bit slower to develop. and then just looking beyond the cyclical dynamics here really just thinking about the growth opportunities ahead it seems like maybe ev and autonomy are perhaps a bit slower to develop Do you think there's any structural growth opportunities in trucks, or is it all really in parts and FINCO? do you think there's any structural growth opportunities in trucks or is it all really in parts and finco And if so, should we expect you to really increase your focus on parts and FINCO even more relative to what you talked about at the investor meeting last year? and if so should we expect you to really increase your focus on parts and finco even more relative to what you talked about at the investor meeting last year

Speaker 18: Sure. I would suggest that in general, trucks move most of the freight in the country. I do not think that is going to decrease. I think if anything, that is going to increase. You referenced autonomy. I do not think that is tomorrow. When autonomy happens, then you will see that increase the number of trucks required in the country because they will become even more efficient at delivering freight. That will be good for PACCAR's business. You mentioned EV. EV adoption curves, we have been wise and prudent through our investment cycles on EV investments over time. We continue to believe that there is a role for them to play as we look forward into the future. A market-based role is probably what more likely happens for the next several years. That is great for us. We are well positioned for that. Sure. sure I would suggest that in general, trucks move most of the freight in the country. i would suggest that in general trucks move most of the freight in the country I do not think that is going to decrease. i do not think that is going to decrease I think if anything, that is going to increase. i think if anything, that is going to increase You referenced autonomy. you referenced autonomy I do not think that is tomorrow. i do not think that is tomorrow When autonomy happens, then you will see that increase the number of trucks required in the country because they will become even more efficient at delivering freight. when autonomy happens then you will see that increase the number of trucks required in the country because they will become even more efficient at delivering freight That will be good for PACCAR's business. that will be good for paccar's business You mentioned EV. you mentioned ev EV adoption curves, we have been wise and prudent through our investment cycles on EV investments over time. ev adoption curves we have been wise and prudent through our investment cycles on ev investments over time We continue to believe that there is a role for them to play as we look forward into the future. we continue to believe that there is a role for them to play as we look forward into the future A market-based role is probably what more likely happens for the next several years. a market-based role is probably what more likely happens for the next several years That is great for us. We are well positioned for that. that is great for us. we are well positioned for that We think that EV vehicles tend to be more expensive. That is obviously good for PACCAR's overall business model. Regulations are going to happen. Regulations drive complexity. Complexity ends up being more components on a truck, which is more proprietary parts share. I think all those things are foundationally good. PACCAR continues to deliver the trucks that our customers want, that the drivers desire in all sectors of the market. That is good for our business growth. I would say from a parts and FINCO standpoint, our parts business is just part of our overall strategy of delivering connected and vehicle performance for our customers. The more we are able to deliver uptime for our customers, the better it is for them and the better it is for PACCAR. It is a win-win situation. Parts, FINCO, and connected services for us are great growth opportunities for the future. We think that EV vehicles tend to be more expensive. we think that ev vehicles tend to be more expensive That is obviously good for PACCAR's overall business model. that is obviously good for paccar's overall business model Regulations are going to happen. regulations are going to happen Regulations drive complexity. regulations drive complexity Complexity ends up being more components on a truck, which is more proprietary parts share. complexity ends up being more components on a truck which is more proprietary parts share I think all those things are foundationally good. i think all those things are foundationally good PACCAR continues to deliver the trucks that our customers want, that the drivers desire in all sectors of the market. paccar continues to deliver the trucks that our customers want that the drivers desire in all sectors of the market That is good for our business growth. that is good for our business growth I would say from a parts and FINCO standpoint, our parts business is just part of our overall strategy of delivering connected and vehicle performance for our customers. i would say from a parts and finco standpoint our parts business is just part of our overall strategy of delivering connected and vehicle performance for our customers The more we are able to deliver uptime for our customers, the better it is for them and the better it is for PACCAR. the more we are able to deliver uptime for our customers the better it is for them and the better it is for paccar It is a win-win situation. it is a win-win situation Parts, FINCO, and connected services for us are great growth opportunities for the future. parts finco and connected services for us are great growth opportunities for the future

Speaker 15: Thanks for the insight. Thanks for the insight. thanks for the insight

Speaker 12: Thank you. Our next question comes from Kyle Menges with Citigroup. Please go ahead. Thank you. thank you Our next question comes from Kyle Menges with Citigroup. our next question comes from kyle menges with citigroup Please go ahead. please go ahead

Speaker 4: Thanks for taking my question. I was hoping if you could just comment a little bit on the medium-duty truck market. Just how are inventories? You mentioned you feel good about 2026. I would assume that was more of a Class 8 comment. I mean, does that apply to medium-duty as well? Just how do you think about changes to emission standards in 2027 being a catalyst for some pre-buy in medium-duty next year? Thanks for taking my question. thanks for taking my question I was hoping if you could just comment a little bit on the medium-duty truck market. i was hoping if you could just comment a little bit on the medium-duty truck market Just how are inventories? just how are inventories You mentioned you feel good about 2026. you mentioned you feel good about 2026 I would assume that was more of a Class 8 comment. i would assume that was more of a class 8 comment I mean, does that apply to medium-duty as well? i mean does that apply to medium-duty as well Just how do you think about changes to emission standards in 2027 being a catalyst for some pre-buy in medium-duty next year? just how do you think about changes to emission standards in 2027 being a catalyst for some pre-buy in medium-duty next year

Speaker 18: Yeah. Great question, Kyle. Thanks a lot. If you look at industry inventory for medium-duty, it's around six months. For Kenworth and Peterbilt, it's more like four and a half months. You have that same ratio of bodybuilders and that high percentage of vocational mix for Peterbilt and Kenworth. We are in a very good position from a medium-duty inventory standpoint. I think that there are the same factors that are playing into the medium-duty market for 2027, which could create stimulation for a medium-duty market improvement in 2026. A good question. Yeah. yeah Great question, Kyle. great question kyle Thanks a lot. thanks a lot If you look at industry inventory for medium-duty, it's around six months. if you look at industry inventory for medium-duty it's around six months For Kenworth and Peterbilt, it's more like four and a half months. for kenworth and peterbilt it's more like four and a half months You have that same ratio of bodybuilders and that high percentage of vocational mix for Peterbilt and Kenworth. you have that same ratio of bodybuilders and that high percentage of vocational mix for peterbilt and kenworth We are in a very good position from a medium-duty inventory standpoint. we are in a very good position from a medium-duty inventory standpoint I think that there are the same factors that are playing into the medium-duty market for 2027, which could create stimulation for a medium-duty market improvement in 2026. i think that there are the same factors that are playing into the medium-duty market for 2027 which could create stimulation for a medium-duty market improvement in 2026 A good question. a good question

Speaker 4: Got it. That's all from me. Thank you. Thank you. Got it. got it That's all from me. that's all from me Thank you. thank you Thank you. thank you

Speaker 18: Have a good day. Have a good day. have a good day

Speaker 12: Thank you. Our next question comes from Scott Group with Wolfe Research. Please go ahead. Thank you. thank you Our next question comes from Scott Group with Wolfe Research. our next question comes from scott group with wolfe research Please go ahead. please go ahead

Speaker 10: Hey, thanks for the time. That $75 million of estimated tariff cost in 3Q, just any, can you just maybe try and quantify what the impact was in Q2? If things stay stable, where do you think that net $75 million impact falls to in Q4? Hey, thanks for the time. hey thanks for the time That $75 million of estimated tariff cost in 3Q, just any, can you just maybe try and quantify what the impact was in Q2? that $75 million of estimated tariff cost in 3q just any can you just maybe try and quantify what the impact was in q2 If things stay stable, where do you think that net $75 million impact falls to in Q4? if things stay stable where do you think that net $75 million impact falls to in q4

Speaker 18: Help me a little bit, Scott, with your question around stable. What does stable mean in your vernacular? Help me a little bit, Scott, with your question around stable. help me a little bit scott with your question around stable What does stable mean in your vernacular? what does stable mean in your vernacular

Speaker 8: Sorry. Maybe I didn't ask right. Meaning there's no incremental change in tariff. So you just have an opportunity to sort of catch up on price. Sorry. sorry Maybe I didn't ask right. maybe i didn't ask right Meaning there's no incremental change in tariff. meaning there's no incremental change in tariff So you just have an opportunity to sort of catch up on price. so you just have an opportunity to sort of catch up on price

Speaker 18: Yeah. I think they were less in the second quarter, for sure, because there's a timing effect of when they came in. There was the effect of what material was in country. It is a gradual increase through the second quarter into the third quarter. It was something significantly less than the $75 million. Now, as we get to the fourth quarter, to your question, I think the most important factor is 232 clarification and whether or not there's a change as a result of 232 and how that could affect the fourth quarter tariff structures we have. Yeah. yeah I think they were less in the second quarter, for sure, because there's a timing effect of when they came in. i think they were less in the second quarter for sure because there's a timing effect of when they came in There was the effect of what material was in country. there was the effect of what material was in country It is a gradual increase through the second quarter into the third quarter. it is a gradual increase through the second quarter into the third quarter It was something significantly less than the $75 million. it was something significantly less than the $75 million Now, as we get to the fourth quarter, to your question, I think the most important factor is 232 clarification and whether or not there's a change as a result of 232 and how that could affect the fourth quarter tariff structures we have. now as we get to the fourth quarter to your question i think the most important factor is 232 clarification and whether or not there's a change as a result of 232 and how that could affect the fourth quarter tariff structures we have Without that even, our teams are doing a great job of working with suppliers and looking for how you think about USMCA content of parts coming into the country and ensuring that the maximum number of parts are USMCA certified under the current rules, which then reduces tariff risk to us over time. That is how I generally think about the 2Q, 3Q, and 4Q tariff picture. Without that even, our teams are doing a great job of working with suppliers and looking for how you think about USMCA content of parts coming into the country and ensuring that the maximum number of parts are USMCA certified under the current rules, which then reduces tariff risk to us over time. without that even our teams are doing a great job of working with suppliers and looking for how you think about usmca content of parts coming into the country and ensuring that the maximum number of parts are usmca certified under the current rules which then reduces tariff risk to us over time That is how I generally think about the 2Q, 3Q, and 4Q tariff picture. that is how i generally think about the 2q 3q and 4q tariff picture

Speaker 10: Okay. That's helpful. Just in terms of the order book and activity, maybe just where are we on the order book for 2025? When do you think you open up 2026? Within that recent uptick in maybe some conversations, any notable difference in is that more vocational, private fleet, for hire, just sort of where you're seeing that? Thank you. Okay. okay That's helpful. that's helpful Just in terms of the order book and activity, maybe just where are we on the order book for 2025? just in terms of the order book and activity maybe just where are we on the order book for 2025 When do you think you open up 2026? when do you think you open up 2026 Within that recent uptick in maybe some conversations, any notable difference in is that more vocational, private fleet, for hire, just sort of where you're seeing that? within that recent uptick in maybe some conversations any notable difference in is that more vocational private fleet for hire just sort of where you're seeing that Thank you. thank you

Speaker 18: Sure. I mean, the market's filling or the order book is filling into the third quarter. North America is roughly 50%. Europe's mostly full. I think that what we see is still, as we said, vocational markets remain good, and the LTL market maybe especially remains good. We mentioned already in the discussion that the termed big, beautiful bill is probably helpful to our customers' cash position and could create some incentive for orders further out in the year. I do not think it is just one area. I think it is just getting certainty because as we get clarity, that will create confidence for our customers. As they have confidence, then that will increase their ability to order trucks. Sure. sure I mean, the market's filling or the order book is filling into the third quarter. i mean the market's filling or the order book is filling into the third quarter North America is roughly 50%. north america is roughly 50% Europe's mostly full. europe's mostly full I think that what we see is still, as we said, vocational markets remain good, and the LTL market maybe especially remains good. i think that what we see is still as we said vocational markets remain good and the ltl market maybe especially remains good We mentioned already in the discussion that the termed big, beautiful bill is probably helpful to our customers' cash position and could create some incentive for orders further out in the year. we mentioned already in the discussion that the termed big beautiful bill is probably helpful to our customers' cash position and could create some incentive for orders further out in the year I do not think it is just one area. i do not think it is just one area I think it is just getting certainty because as we get clarity, that will create confidence for our customers. i think it is just getting certainty because as we get clarity, that will create confidence for our customers As they have confidence, then that will increase their ability to order trucks. as they have confidence then that will increase their ability to order trucks

Speaker 10: Okay. Thank you. Appreciate the time, guys. Okay. okay Thank you. thank you Appreciate the time, guys. appreciate the time guys

Speaker 18: You bet. You bet. you bet

Speaker 12: Thank you. Our next question comes from Nick Housden with RBC Capital Markets. Please go ahead. Thank you. thank you Our next question comes from Nick Housden with RBC Capital Markets. our next question comes from nick housden with rbc capital markets Please go ahead. please go ahead

Speaker 1: Yes. Hi. Thank you for taking my questions. I've just got two. In terms of the Q3 deliveries, I think you said 32,000-33,000. Can you provide any comments around the regional breakdown of that, please? Yes. yes Hi. hi Thank you for taking my questions. thank you for taking my questions I've just got two. i've just got two In terms of the Q3 deliveries, I think you said 32,000- 33,000. in terms of the q3 deliveries i think you said 32,000- 33,000 Can you provide any comments around the regional breakdown of that, please? can you provide any comments around the regional breakdown of that please

Speaker 18: I would think of it in terms of plus or minus normal splits is kind of where I would go with it. I would not really shift around very much in it. You are going to have Q3 has the impact of the three-week time off in Europe, which is very, very normal. That is going to sit in there. I would think that there is probably the drops in North America to match to the market. That ratio stays maybe more affected in the third quarter than might normally be. I would say Mexico continues to be experiencing the same kind of tariff discussions. That is a space in the market that is a bit softer. I would think of it in terms of plus or minus normal splits is kind of where I would go with it. i would think of it in terms of plus or minus normal splits is kind of where i would go with it I would not really shift around very much in it. i would not really shift around very much in it You are going to have Q3 has the impact of the three-week time off in Europe, which is very, very normal. you are going to have q3 has the impact of the three-week time off in europe which is very very normal That is going to sit in there. that is going to sit in there I would think that there is probably the drops in North America to match to the market. i would think that there is probably the drops in north america to match to the market That ratio stays maybe more affected in the third quarter than might normally be. that ratio stays maybe more affected in the third quarter than might normally be I would say Mexico continues to be experiencing the same kind of tariff discussions. i would say mexico continues to be experiencing the same kind of tariff discussions That is a space in the market that is a bit softer. that is a space in the market that is a bit softer

Speaker 1: Got it. Your comment about 90% of trucks for the U.S. are currently being built in the U.S. Can you provide any comments just around what the breakdown for the supply chain is and how those percentages might move around? Got it. got it Your comment about 90% of trucks for the U.S. are currently being built in the U.S. your comment about 90% of trucks for the u.s are currently being built in the u.s Can you provide any comments just around what the breakdown for the supply chain is and how those percentages might move around? can you provide any comments just around what the breakdown for the supply chain is and how those percentages might move around

Speaker 18: The supply chain's varied, obviously, right? We would have to spend a lot more time than we probably have to think about how supply chain works because there's tier one, two, and three, and they all factor in from different places. Suffice it to say that there are components that come from Mexico or from Canada or from the ASEAN region or South America or Europe that go into the trucks. PACCAR, as we said, has the production facilities in North America, which is critically important. I think that's what the administration feels as well. We think that as we look forward from a tariff standpoint, they'll encourage the truck production, hope they'll encourage the truck production in America, and that components that are critical for manufacturing in America will also be included in that, which we'll be able to support, and our suppliers will support. The supply chain's varied, obviously, right? the supply chain's varied obviously right We would have to spend a lot more time than we probably have to think about how supply chain works because there's tier one, two, and three, and they all factor in from different places. we would have to spend a lot more time than we probably have to think about how supply chain works because there's tier one two and three and they all factor in from different places Suffice it to say that there are components that come from Mexico or from Canada or from the ASEAN region or South America or Europe that go into the trucks. suffice it to say that there are components that come from mexico or from canada or from the asean region or south america or europe that go into the trucks PACCAR, as we said, has the production facilities in North America, which is critically important. paccar as we said has the production facilities in north america which is critically important I think that's what the administration feels as well. i think that's what the administration feels as well We think that as we look forward from a tariff standpoint, they'll encourage the truck production, hope they'll encourage the truck production in America, and that components that are critical for manufacturing in America will also be included in that, which we'll be able to support, and our suppliers will support. we think that as we look forward from a tariff standpoint they'll encourage the truck production hope they'll encourage the truck production in america and that components that are critical for manufacturing in america will also be included in that which we'll be able to support and our suppliers will support

Speaker 1: Great. Thank you very much. Great. great Thank you very much. thank you very much

Speaker 12: Thank you. Our next question comes from Walter Piecyk with LightShed. Please go ahead. Thank you. thank you Our next question comes from Walter Piecyk with LightShed. our next question comes from walter piecyk with lightshed Please go ahead. please go ahead

Speaker 13: Thanks. Hey, Preston. Your partner, Aurora, is very well respected, obviously, within the technology industry. You used your truck to go driver out this past quarter. I guess you guys had some interest in having them put a driver back in the driver's seat there. Just curious kind of what your thoughts are there. What was the reasoning for that? How does that differ from other PACCAR trucks that are also using autonomous technology with your truck? Why, in Aurora's case, do they have to have a driver back in? Maybe when do you anticipate being okay with them taking that driver out and then seeing that market start to expand a bit more? Because obviously, that certainly could be a demand opportunity for you. Thanks. Thanks. thanks Hey, Preston. hey preston Your partner, Aurora, is very well respected, obviously, within the technology industry. your partner aurora is very well respected obviously within the technology industry You used your truck to go driver out this past quarter. you used your truck to go driver out this past quarter I guess you guys had some interest in having them put a driver back in the driver's seat there. i guess you guys had some interest in having them put a driver back in the driver's seat there Just curious kind of what your thoughts are there. just curious kind of what your thoughts are there What was the reasoning for that? what was the reasoning for that How does that differ from other PACCAR trucks that are also using autonomous technology with your truck? how does that differ from other paccar trucks that are also using autonomous technology with your truck Why, in Aurora's case, do they have to have a driver back in? why in aurora's case do they have to have a driver back in Maybe when do you anticipate being okay with them taking that driver out and then seeing that market start to expand a bit more? maybe when do you anticipate being okay with them taking that driver out and then seeing that market start to expand a bit more Because obviously, that certainly could be a demand opportunity for you. because obviously that certainly could be a demand opportunity for you Thanks. thanks

Speaker 18: Yeah. Good question. Thanks for asking. We think there's great progress being made in the field of autonomy. PACCAR continues the development of its autonomous vehicle platform. That is encouraging for us. We think that Aurora is making good progress as well in the development of the autonomous driver that could go into that, as are others like Kodiak and others like Stack. We see others making progress as well. We always operate at PACCAR with safety being our most fundamental foundational principle. For us, we want that to remain as the true north for us. It will remain as a true north for us. Having the driver in seems like the smartest idea. That is how we're operating the trucks. Yeah. yeah Good question. good question Thanks for asking. thanks for asking We think there's great progress being made in the field of autonomy. we think there's great progress being made in the field of autonomy PACCAR continues the development of its autonomous vehicle platform. paccar continues the development of its autonomous vehicle platform That is encouraging for us. that is encouraging for us We think that Aurora is making good progress as well in the development of the autonomous driver that could go into that, as are others like Kodiak and others like Stack. we think that aurora is making good progress as well in the development of the autonomous driver that could go into that as are others like kodiak and others like stack We see others making progress as well. we see others making progress as well We always operate at PACCAR with safety being our most fundamental foundational principle. we always operate at paccar with safety being our most fundamental foundational principle For us, we want that to remain as the true north for us. for us we want that to remain as the true north for us It will remain as a true north for us. it will remain as a true north for us Having the driver in seems like the smartest idea. having the driver in seems like the smartest idea That is how we're operating the trucks. that is how we're operating the trucks

Speaker 13: Is there a certain milestone you're hoping that they achieve? Because obviously, that company won't exist in the future if they always have a driver in. The whole point of it is to have a driver out. What do you think you need to see to permit at least your trucks to have driver out? Is there a certain milestone you're hoping that they achieve? is there a certain milestone you're hoping that they achieve Because obviously, that company won't exist in the future if they always have a driver in. because obviously that company won't exist in the future if they always have a driver in The whole point of it is to have a driver out. the whole point of it is to have a driver out What do you think you need to see to permit at least your trucks to have driver out? what do you think you need to see to permit at least your trucks to have driver out

Speaker 18: We do not ever discuss when we are going to go to production with things. What we do is things should be fully production. When things are fully production, validated, completed production, then that is when we have that conversation. We do not ever discuss when we are going to go to production with things. we do not ever discuss when we are going to go to production with things What we do is things should be fully production. what we do is things should be fully production When things are fully production, validated, completed production, then that is when we have that conversation. when things are fully production validated completed production then that is when we have that conversation

Speaker 13: Great. Thank you very much. Great. great Thank you very much. thank you very much

Speaker 18: You bet. Thanks for the question. You bet. you bet Thanks for the question. thanks for the question

Speaker 12: Thank you. There are no further questions in the queue at this time. Are there any additional remarks from the company? Thank you. thank you There are no further questions in the queue at this time. there are no further questions in the queue at this time Are there any additional remarks from the company? are there any additional remarks from the company

Speaker 18: We'd like to thank everyone for joining the call. Thank you, operator. We'd like to thank everyone for joining the call. we'd like to thank everyone for joining the call Thank you, operator. thank you operator

Speaker 12: Ladies and gentlemen, this concludes PACCAR's earnings call. Thank you for participating. You may now disconnect. Ladies and gentlemen, this concludes PACCAR's earnings call. ladies and gentlemen this concludes paccar's earnings call Thank you for participating. thank you for participating You may now disconnect. you may now disconnect