Traton SE

XETRA:8TRA

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, welcome to the TRATON SE Conference Call. This conference will be recorded. [Operator Instructions] With that, I would now like to give the floor to Ms. Julia Kroeber-Riel, Head of Group Communications, Governmental Relations and Sustainability at TRATON, who will kick off the conference today.

[Julia Kroeber-Riel]

Good morning, and welcome to the presentation of our key financial figures for the first 3 months of 2021. On April 19, we already reported key data on the basis of preliminary figures and also raised our forecast. Therefore, today, we will not only look at the first quarter, but split our call into 2 parts. As usual, our CEO, Matthias Grundler; and our CFO, Christian Schulz, will lead us through the first part. In the second part of our presentation, our colleagues, Atif Askar and Andreas Kammel, will give you an in-depth information on that topic of alternative drives. At the end, we will have a Q&A, and that's why we've also scheduled 30 minutes more than usual today. I'm sure this is time well spent. So the interim announcement, the press release and the presentation, including the slides on alternative drives, can be found on our website since 8:00 a.m. this morning. With this, we'll start in the first part. And I hand over to you, Matthias.

[Matthias Grundler, CEO & Chairman of Executive Board]

Thank you very much, Julia, for the introduction. Also, welcome from my side to the presentation of our financial figures for the first quarter of 2021. I'm very pleased about your interest. And today, we can give you further insights into our strategy for alternative drives and into the underlying conditions. Let's now take a look at how business has developed in the first 3 months of 2021. The COVID-19 pandemic is not yet over, but since the second half of 2020, we have already felt a clear upturn. We still need to be vigilant and continue to keep our costs under control. However, the business recovery also continued in the first quarter. So this is most clearly visible by order intake, which grew by 51%. 81,742 trucks and buses were ordered from our brands. In this respect, this has been a record quarter for TRATON. One reason for this is the great customer success of our new truck generations. Unit sales increased by 31% to 60,350 vehicles. In the Industrial Business, we generated a net cash flow of EUR 397 million. The adjusted operating return on sales increased by 5 percentage points to 7.9%. We were able to triple adjusted operating profit to EUR 516 million. As you can see, the first quarter was a really strong start into the year for the TRATON GROUP. Let's take a look at the political and economic environment in which the TRATON GROUP operates. The global economy continues to recover from the COVID shock, but it is still under pressure. In addition, the rapid recovery from the slump remains a major challenge for supply chains. In addition, the upturn is not yet evident in all our sectors. While the market for trucks continues to recover, the market for buses is still under pressure. Coaches are, in particular, not in demand. This is a consequence of the pandemic. We have not yet put the pandemic behind us and must remain very vigilant. This applies to the health protection of our employees and it applies to our cost management. No one yet knows how the further course of the corona infections will play out worldwide. In the political environment, we are focusing our attention primarily on the European Green Deal. For the global economy, the forecast of the International Monetary Fund for gross domestic product indicate a significant upturn following the corona slump. The most recent forecast was for growth of 5.5%. However, the speed and strength of this recovery will probably vary from region to region. China has already returned to growth at an early stage. The Eurozone, which is very important to us, is recovering way more slowly. The IMF has also revised its expectations significantly downward. In June 2020, a growth of 6% was forecast for the Eurozone in January. However, only 4.2% growth was expected. It will, therefore, not yet be possible to make up for the corona decline in Europe in 2021. If we look at the registration of trucks, over 16 tonnes in Europe, this overall trend is confirmed. Things picked up very quickly after the corona slump. After the upswing had temporarily lost some momentum then, there was another significant upturn in March. Most recently, the European heavy truck market has returned to levels it had during the best part of a strong 2019. A look at the political environment. The EU Council and Parliament have agreed on an EU climate law. The law commits the EU to achieving climate neutrality by 2050 and as an interim target to reducing CO2 emissions in the EU by at least 55% compared to 1990. The previous target of 40% CO2 reduction is thus significantly taken. The EU's climate targets for 2030 and 2050 are now enshrined in law. This is likely to further increase the pressure for additional measures in road freight transport. A tightening of the CO2 limits for heavy trucks becomes very likely. However, there is still a lack of EU-wide infrastructure. From us perspective, this applies especially to charging infrastructure for battery electric trucks. In our view, priorities immediately need to be set here in order to drive forward the expansion and a focus in rapid manner. Policy measures for road freight transport that promote the ramp-up of alternative drive systems are also necessary. Therefore, we advocate the rapid EU-wide establishment of a demand-oriented charging infrastructure. Support programs for the acquisition of trucks with alternative drives, that means purchase premiums, a CO2-related graduation of the truck toll and an ambitious CO2 price for fossil fuels. The ambitious goals of the EU of 55% reduction in CO2 by 2030 and being climate neutral by 2050 are a major challenge for TRATON. To achieve those targets, it is essential to put commercial vehicles with lower CO2 emissions on the road. Battery electric vehicles will be ready for the market first. They are already technologically mature and are already on the road in cities. Battery electric trucks have the highest efficiency among alternative drives. Customers benefit from lower energy costs compared with hydrogen as they are also cheaper to manufacture. And also later to repair and maintain, they can close the economic gap with diesel more quickly. In the near future, electric range and gross payload will be steadily increased. This will make battery trucks as flexible as conventional trucks in long-distance traffic, and they will be more economical in the long term. The only prerequisite for this is, and I am repeating myself here, is the right charging infrastructure. That's why battery electric drives are a clear priority at TRATON. This is particularly true for long-distance traffic. We will explain again in detail why we see that way in part 2. Let's move to our direct business environment. Overall, the trend clearly remains positive. Order intake in particular was exceptionally strong in the first 3 months with 81,742 vehicles. Sales are also at a very high level. It is roughly at the level of the first quarter of 2019. And back then, we benefited from a pull-forward effect due to the introduction of the digital tachograph. So Christian Schulz will now give you an insight into the performance of our group as a whole and of our brands.

[Christian Schulz, CFO & Member of the Executive Board]

Thank you, Matthias. You've already pointed out, the first quarter of 2021 was very successful for TRATON as our key figures show. And here is especially -- here, this is especially the order intake, which increased by 51% to 81,742 trucks and buses. So the TRATON GROUP has achieved thus its highest order intake within a single quarter to date. Sales which follow order intake with the time lag of the last 6 months were 31% higher than the same quarter last year, reached 60,315 vehicles. This increase came from the truck business in all regions. Here, the increase was about 36% or 57,222 trucks. The bus business, on the other hand, felt the full impact of the pandemic, especially in the coach sector. Bus sales shrank by 23% to 3,093. In the same quarter of the previous year, the spread of the COVID-19 pandemic from March 2020 onwards led to considerable uncertainties that affected TRATON GROUP sales. The book-to-bill ratio improved by 0.18 percentage points to 1.36% in that first quarter in 2020. The group's turnover increased by 15% in the first quarter to EUR 6.544 billion. Selling expenses were slightly reduced despite the significant growth in sales. In the prior year quarter, costs were incurred for the introduction of the new generation of trucks at MAN Truck & Bus. Administrative costs were further reduced compared to the previous year with a strict cost management, and the trading group's adjusted operating profit tripled to EUR 516 million. The adjusted operating return on sales grew by 5 percentage points to 7.9%. The 16% increase in sales in the Industrial Business to EUR 6.438 billion resulted from the truck business. The serious decline in sales in the bus business could be offset here significantly. The aftersales business increased slightly. Other revenue is noticeably above the previous year's level. This was mainly due to the sharp rise in sales of used vehicles and a very strong growth in the engines business. Negative exchange rate effects were counteracting this development. Adjusted operating profit in the Industrial Business almost tripled to EUR 465 million. The adjusted operating return on sales increased by 4.8 percentage points to 7.2%. In the first quarter, capital expenditure on property, plant and equipment in the Industrial Business was EUR 160 million, 27% below the level of the same quarter last year. Primary research and development cost increased slightly to EUR 294 million. The net cash flow in the Industrial Business was at EUR 397 million. This compares to a minus of EUR 167 million in the last -- in the same period last year. Net liquidity reached EUR 397 million compared to EUR 27 million in the previous year only. In the Financial Services segment, revenue declined by 5%. The operating result, on the other hand, doubled to EUR 51 million. This very strong increase is essentially due to lower write-offs and value adjustments on receivables. The higher average net portfolio and higher margins also had a positive effect. Let's look at the brands. Order intake of Scania Vehicles & Services in the first quarter 2021 was 7% above the previous year, thus reaching an exceptionally high level. The very strong increase resulted from the truck business, which was evident in all regions. In the region, EU27+3, which is Scania's most important market truck, order intake more than doubled. Scania sales increased overall by 27% to 23,033 vehicles, while truck sales increased by 33% to 22,023 trucks. Bus sales declined by 36% to 1,010 buses. Scania Vehicles & Services increased its sales by 15% to EUR 3.42 billion. Scania had no adjustments to operating profit in the first quarter. It reached EUR 409 million compared to EUR 256 million in the first quarter of the previous year. The operating return on sales increased accordingly by 3.4 percentage points to a very good 12%. In addition to the volume-driven increase in turnover on sales, the operating result was helped by favorable product mix, both effects are mainly attributable to the truck business. Both exchange rate effects and higher depreciation on tangible investments and higher development costs had a negative impact on the result. The operating result of the previous year's quarter was affected by the plant closures related to the COVID-19 pandemic plant shutdowns more or less from the second half of March 2020 on. MAN increased its order intake by 1/3 in the first quarter to 32,070 vehicles, and improved its sales by 29% to 23,063 vehicles. Here, too, the picture is divided. While truck sales improved by 32% to 22,590, bus sales fell by 30% to only 773. Sales at MAN Truck & Bus increased by 17% to EUR 2.645 billion. The adjusted operating income grew significantly to EUR 71 million in the past compared to a minus of EUR 78 million in the same quarter last year. The adjusted operating return climbed 6.1 percentage points to 2.7%. The operating result was boosted on the one hand by the volume and related increase in sales, but also by the introduction of the new truck generation and strict cost management at MAN. There was a negative impact on the operating result in the first quarter by restructuring expenses of EUR 362 million. MAN's operating profit in the comparative quarter was also impacted by the planned shutdowns from the second half of March 2020. The order intake for the Volkswagen Caminhões e Ônibus brand increased by 34% in the first quarter to 12,750 vehicles. Sales grew by 42% to 13,989 vehicles. Of these, 12,679 were trucks. That's an increase of 49%. At Volkswagen Caminhões e Ônibus, demand for buses did not slump, but remained stable at the level of coverage quarter with the sales of 1,310 buses. Volkswagen Caminhões e Ônibus was able to increase its revenue by 22% to EUR 466 million. The operating result increased by EUR 21 million to EUR 33 million. The operating income grew due to the very strong increase in sales volumes and the improved product positioning in Brazil. The operating results, on the other hand, was hit by inflationary cost increases, for example, in material costs. The devaluation of the Brazilian real also weakened the result. There were no earnings adjustment at Volkswagen CO. The operating return on sales grew by 3.8 percentage points to 7%. The outlook of market of service suggests an upswing for 2021. However, this will be inconsistent in the markets that are important for us. For the European market, a plus of 10% to 25% is expected for South America, a plus of 10% to 40% seen. Market of service have raised their expectations for the North American market. So growth of 10% to 30% is now expected. Previously, the range was, in our view, 5% to 20%. As you can see from our press release dated 19th of April, we have in part has raised our outlook for the current financial year. For turnover sales, we continue to expect significant increase. We now expect the operating return to be between 5% and 7%. Previously, we've seen the upper edge of this spend at 6%. The cash conversion rate in the current financial year loses significance due to the planned restructuring of MAN. So therefore, we now expect net cash flow in the Industrial Business in a range of EUR 500 million to EUR 700 million for the current year. Our forecast for 2021 does not include any expenses or disbursements from the MAN Truck & Bus restructuring program nor does it include effects from the planned acquisition of Navistar. So the range has expressed still high uncertainty about the further cause of the COVID-19 pandemic and the associated countermeasures of the respective countries as well as possible effect on our production and our supply chain. And with that, I hand over to Matthias for a brief outlook on the rest of the year.

[Matthias Grundler, CEO & Chairman of Executive Board]

Thank you very much, Christian. I will also keep it short because after the Q&A, we will still want to have time for the very exciting deep dive on alternative drives with Atif and Andreas. Let's look at the key points that lie ahead for the TRATON GROUP. Christian just said it. After a good start into the year, we are now a bit more optimistic for 2021. Therefore, we see the operating return now between 5.0% and 7.0%. At the same time, we expect the Industrial Business to generate a net cash flow of between EUR 500 million and EUR 700 million. We continue to expect the Navistar acquisition to be closed by midyear. So the squeezeout, we are resuming the squeezeout of the MAN SE stockholders. It will make us faster and more agile if MAN SE becomes a full part of TRATON SE. The second part of the year will also see an important technological step. We are starting to introduce the group-wide 30-liter engine, the so-called common base engine. It is to be installed in about 1 in 2 of our heavy trucks from 2025 onwards. This will allow us to demonstrate what is still technically feasible with diesel. Scania will be the first brand to install the CBE. However, the future of transport is clearly focused on battery electric drive systems. That is why the lion's share of our future investment goes into research and development in that field. So this is exactly the -- why this is the exactly right step. Atif, Askar and his team will explain after Q&A. And with that, I'll hand over to you, Julia.

[Julia Kroeber-Riel]

Thank you very much, Matthias and Christian. As I said, we are now starting into a first Q&A round, the first for the first quarter of 2021. So I'll hand over to the operator for the first question.

[Julia Kroeber-Riel]

Thank you for waiting. So when we presented our annual figures, we already explained that we are significantly expanding the budget for alternative powertrains. We attached a clear statement here for the TRATON GROUP the most ecological, and for our customers, the most economical drive system of the future is the battery electric vehicle -- drive. What brings us to this clear decision and what are the facts behind it are now explained to you by 2 of my various team colleagues, Dr. Atif Askar, our Head of Business Development, Strategy and M&A. And Andreas Kammel, who is responsible for the strategy on alternative drive at TRATON. So I give the floor to the two.

[Atif Askar, Head of Business Development, Strategy and M&A]

So thank you very much, Julia, that we can be here today when it comes to the topic of electrification and TRATON's view on that. The topic of electrification has, for cars and for trucks, shown lots of presence also in the media. That's why we would like to use the opportunity to talk about that and maybe clarify a couple of misunderstandings and to share our views. So if we go on to the first slide. Let me begin explaining why trucks are so different compared to cars. There are, of course, a couple of differences that are very clear. The truck has 40 tons and not 2 or 3 or 4. A car drives -- well, if you have a golf with 1 million kilometers, then this is actually something very extraordinary. And for a truck, these kind of distances are normal. So the cycles are much longer. A truck can be run for 20 years before a new motor platform is developed. That will then be exchanged. So the most important difference between truck and car is not visible at all. So the most important difference is that trucks are industrial goods. A truck looks like a car, it has 4 or 8 wheels, but then it has way more -- it is way more closer to a turbine when it comes to production. And this changes a lot. This changes a lot, especially when it comes to the topic of buying decisions. So if we imagine someone who buys a truck, he does not want to buy a truck. He needs to be a truck. He has a business, transport business, and he or she needs a transport machine and that is the truck. And the very important criterion here for the person buying a truck is the TCO or the total cost of ownership. And if you want to go a little more in detail, you call it TOI (sic) [ TOE ], total operating economy. And here, It is differentiated what kind of differences you have with different charging manners. And here, the TCO is decisive because with a different machine -- transport machine, different trucks, you could propose your services at lower costs. Then they will dominate the market later on because you know with which truck a good is transported does not matter at all to the person buying the transport machine. It needs to be reliable. What kind of brand is on the truck, that does not matter at all. So the topic of TCO or costs is very important when it comes to a decision, also when it comes to a decision between diesel and battery electric vehicles. So this, we see in the mid of this slide. So where do these costs arise from what kind of costs do logistic companies have? So if you take a typical long-haul trucks, then you have 35% to 40% of the costs that are energy costs. So it's either diesel or it is electricity if you have a BEV or it might be hydrogen. So this shows that the biggest block, which is hard to make up for, is the question of how expensive is the energy source. And compared to that, in light blue, you see the vehicle as such and the vehicle as such does play a rather small role. That means you can buy a more expensive vehicle if you can save money on the energy side. And this is something that you will see throughout the entire presentation because this is also what battery electric trucks are all about. Today, we are spending lots of money in order to improve the efficiency of diesel engines. And this is for the freighters who have a small margin. This is, of course, very important and Andreas Kammel will continue dealing with that topic. We talked about TCO. And now for a freight forwarder, if they buy a truck, the topic of CO2 footprint, this plays a big role. So why the view in the last years have changed significantly? Why just now battery electric trucks have become way more interesting will be shown by Andreas right now.

[Andreas Kammel, Head of Strategy & Business Opportunities]

Thank you, Atif. So one more definition at the beginning. We will see BEV and FCEV a lot, and BEV is battery electrical vehicle and FCEV is a fuel cell electric vehicle. So let's take a look back.So a couple of years ago, it was deemed impossible that you could use batteries for the long haul. And this is what you see at the left side, a truck capable of going 1,000 kilometers should need -- would carry around a battery that weighs 25 tons and -- but we don't see it that way and we do not see it that way anymore. Trucks, the way that we expect them on the market, also on the long haulage, they have batteries of around about 4 tons, not 25 tons, and we do not calculate with 12 hours of charging time. And that means that the post times are reduced significantly. On the battery side, you see that on the right hand of the slide. So you see the battery pack costs over time. And here, you see forecasts of how the prices would develop and those forecasts were always [ wrong ] by the factor of 2.5. So that means the battery cost development has gone down much quicker, which leads to the fact that BEVs are feasible for the long-haul market, too. So this development was -- went significantly faster. Then we have the question, is this only valid for BEVs Or might the future be the FCEV? And with the challenges that we see on -- where we see the challenges of the FCEV here. So on top, you see the battery electric vehicle. And on the lower part of the slide, you see the fuel cell vehicle. And you see that we have a couple of steps of how energy is taken from the sun, for example, and gets to the truck. So we have production, fueling and then operation. But these -- the losses that you see here are not that big. And in the end, you have just around about 75% of the energy that was generated in the beginning that remains. And for the fuel cell vehicle, this is different because we lose more energy with the individual steps. So when changing energy into hydrogen, we lose 30%. So this is just chemistry and this can't be changed massively. So a couple of percentage point might be in there, but this can't really be improved a lot. Then we have transport and compression, et cetera. So the hydrogen needs to be liquefied or saved under high pressure. And this, of course, causes further losses. And in the end, from a chemical state, the transfer into electricity, again, we lose around about half of it if we take everything into account. So the fuel cell can reach up to 60% efficiency, but only in an optimal regime. And if there are auxiliary aggregates, you lose more. And so we use the same drive for that. And in the end, you have only 25% of energy remaining compared to 75%, and that means that you need a different infrastructure and you will need 3x the generation facilities and have lots of more of CO2 produced. And what is very important is that you can import the hydrogen from other countries, but this will not make up for the losses even if we would have the argument that we say we have got technological advancements because we come back to the point where we've got some maximum efficiencies of the individual steps in the overall situation. So come to the next page here, where we see some changes due to import of further development, but that's not fundamental enough to get to a better result. And that means, and as you can see on the next slide, how we see the world on a cost basis. So this is what we heard from Askar before. Here, we talk about diesel, BEV and fuel cell vehicles in 2023, 2030 and 2040. You can see here in the amount at all that we expect that electrical vehicles as well as FCEVs in the course of time will be similar to a diesel or even better than a diesel in the long run. To get more into detail into the colors here, going from bottom to top, we see first maintenance costs, the vehicle costs then the special components that are important for such a vehicle like the battery or the fuel cell pack, that's in yellow. The energy cost in orange, you see the charging cost. And in the beginning also, the loss of payload and then the effects of CO2 and so on, that's more the regulatory environment. And what you can see here, when you look at dark blue, first of all, is that in the cost time, the batteries and the fuel cell cost will be at a time where they don't decide. They're not decisive anymore. And that comes back to the point that in the TCO, the energy cost is what is most dominant. And that's particular in heavy-duty long haul. So the battery costs will go down. The fuel cell cost of the individual components will also go down. What's decisive is the differences, that's in the yellow area, that's the energy cost. And here, we see a significant benefit in battery electric drives because of the higher energy efficiency, which cannot be compensated later on, on the cost level. So that means that when you have regular long-haul applications, the battery electric drive has most benefits. Regular long haul, we usually see that. Here, we see a very big dominance of the energy costs. And this is why this case is very difficult to -- here, it's very difficult to find cost parity between battery electric vehicles and fuel cell. And when you compare it to a car, a car has much more high energy. And the battery electric part, very often it's household power that you get even in case -- even the fast-charging in trucks is much cheaper than in vehicles because it's much more homogenous. So you don't have these peaks that you have to pay for, too, but it's more possible to plan this apart from Sundays or lower use at night. But basically, we have a standard here. And then there is the other point, as mentioned, it's battery electric as well as FCEVs ultimately will get better than the diesel from cost point of view. So both will be here eligible. But the difference between them is very significant. So BEV, particularly in the long run and long haul, will have a significant benefit because of the higher energy efficiency. And for this reason, the hydrogen price would have to go significantly below EUR 4 in order to see a different picture here. That would be less than EUR 4 at the construction -- at the filling station throughout Europe. But here, we still see the production costs, but the distribution costs and the costs for the filling station are here important. And this is why we cannot achieve the same efficiency here. So we are much different here from other studies, at least from some other studies. The major effects are not as much the hydrogen truck. We see here similar [ 2030 ] as the parity point, but we expect that on the battery electric side, we see here some more benefits. Some of these studies come more from the passenger car area, so they don't take into account the 45 minutes compulsory break that we have every few hours. And they actually calculate with usual household electricity and not commercial electricity. And also with regarding to the data, we sometimes have other assumptions and since we see where our battery prices will be and what the mileage. And the life cycle will be, other studies have other assumptions here. So we base it on our current data, real data. And also based on the knowledge, what kind of electricity we are charging, how to recharge and when to recharge those, the picture we have is totally different. And we see here not just a slight advantage of BEV -- they see a slight -- better situation of FCEVs. We see a clear advantage for BEVs. Now on the next slide, you see the picture in Europe. We expect that the parity between battery electric vehicle and diesel vehicle will be different. We have some markets where it works quite well like in the Nordics, but also in Switzerland. Here, still we'll work very well there where the energy costs are very good for the battery electric vehicle. For instance, they might be -- there might be cheap green power and diesel would be expensive. That's a good expensive, but also when there are regulatory effects coming into play like, for instance, toll exemption but also CO2 fee exemptions and that's the Nordic markets and in Switzerland that are green markets, Central and Western Europe following and then comes Southern and Eastern Europe. And when you look at that picture for the market ramp-up, then it wouldn't be totally different actually. What do you see on the next slide is a somewhat different view on things, where is the best fuel cell applications. On the left side, you see a graph that is between the typical daily distance and the variability of the daily typical distance. There's a difference between them. And the higher the typical range, you see that on the bottom side. And if you go to the right, you see the variability. And we don't see in the graphic picture that higher ranges would per se have in FCEV. The more dark the blue gets, the more we see battery electric vehicles here. And the more it goes to yellowish, it's the more we see FCEVs. And we think FCEVs are better for high -- or for long haul and long ranges, but with high variability. If you've got more or less homogenous use in long distances, the battery electric vehicle is still a better choice. But on the contrary, if you've got long haul, the longer the range is, the bigger the range is, the better it is to use BEV. Now in the middle, you see this red kind of quadrangular situation. And that is where we see vehicles that are driven regularly, not 100% regularly, some variabilities will always be there, but basically it's a long-haul application with a relatively moderate variability. And that means that this is a very good case for BEVs because the energy cost here have a high share in the overall energy cost because the battery can be amortized quite quickly when it's used regularly and there are very low losses of payload, and that is a big benefit on the road. Now -- but we can also see here and I can go -- come back into more details, some applications where there are benefits for FCEVs. We just say it's not the classic view that we take, that the long haul is the big problem. Now if we go to the next slide, you will see here a picture of the possible market shares in different scenarios, about 1 decade away from us in the future between BEVs, FCEVs and other. Battery electric is dark blue. Hydrogen is in turquoise and in gray you see the other drive forms. And the second axis you see here is stating the cost for hydrogen, so the price you would have to pay at the filling station. The higher it is, the less application of hydrogen we will see. That's what you see on the left side of the graph. There's a low share of the turquoise area. On the right side. When hydrogen is getting very inexpensive, then of course, the FCEV truck will be more dominating in that field. And most studies around the big oil groups that are now going towards hydrogen, they will be more or less in the middle here. So within this area, which is more conservative, the share of hydrogen that we expect is rather low for trucks. And when the studies are rather the positive end -- or will become true rather in the positive end, then we could expect a higher share of hydrogen, but it's still not the majority on the market because, for the majority, the FCEVs is maybe cheaper, but including all -- that can be reached only with hydrogen prices that cannot be seen in the market like that. So it's about the price at the filling station, not production costs. That could be lower. But this is just side. On the right side, you see the same picture again with all the synergies. So if hydrogen becomes available in big amounts, very cheap and power can be produced from that, then that will have implications on the power price. And if this is European hydrogen, then the costs of production are comparable to those of BEVs. And in case of import of hydrogen, this is still valid because if hydrogen costs are cheap, then the hydrogen could be used for power production and will thus also reduce the costs for the FCEV. And of course, cheap hydrogen will lead to the fact that we see more FCEVs on the street. But cheap hydrogen will also lead to an improvement for battery electric vehicles. So the cheapest hydrogen prices that we can expect from the industry would even lead to a positive impact on the battery electric vehicle, and they make it even harder to have a point of parity where both technologies have the same costs and will reach the same market share. And then we have the challenge that we have a merit order. That means a sort of limit price topic where those 2 technologies compete with each other. If we have a steel plant that can be connected to a pipeline and if there is a high demand for volumes, then the supply would be cheaper. But then, again, the steel plant has less alternatives and this has to use the hydrogen and can afford hydrogen, which is a little more expensive. So this is just some example for which hydrogen can be used in stationary applications. That means hydrogen in trucks is in competition with other applications. And as there is a limited supply, we will -- the question is whether we will see the required amounts. Nevertheless, that means that, in 2022, we expect that hydrogen will become more competitive. We see a cost degression in the future with the components. We expect high subsidies, not high enough in order to make up for the high prices, but we expect, nevertheless, a hydrogen economy. But we will see in what areas. That is not enough to push the bar into the direction of the FCEV. We have seen that a couple of trends that point us into the direction of the BEV. Batteries are getting cheaper, they can store more energy, they're getting -- so we have lots of potential here. And in theory, that means that in the long run, ranges of 1,000 kilometers are possible. And that might also mean that we have charging times that are within the range of current diesel drives. And then we have the effect of autonomous driving. This is a decisive point of time. Here, we could say that autonomous driving would rather favor the FCEV just because the vehicle can be used 24/7.But what we see is that the cost of standing still of autonomous cars are around 0, because there is no driver that has been paid. The depreciation is also done during the operation time. This is more effect of capital usage. So if we calculate that in detail, we have to add that the effects of autonomous driving are minimal at standstill of the vehicle. And that means at the same time that a BEV is more flexible as these standstills do not have significant impact on the business case. And that means autonomous driving, cheap battery electric vehicles, that is what we will see for the future. And when it comes to the storage infrastructure. So the advantage of hydrogen towards battery are being reduced. And again, this pushes the balance towards the battery electric vehicle. Again, we talked about that we see application for fuel cell-driven trucks and buses. And these are, of course, the cases where BEVs have their most weaknesses. We talked about that. This is the second item here, the inhomogenous usage. So if we have a truck that is used just once in a while for long hauls, then battery -- the battery could be depreciated in a good manner and that means that we are in situation where a hydrogen truck would make more sense. Same thing on the left-hand side, if we have situations where we have 2 drivers, where there is no charging break possible in places where there is no charging infrastructure. And then if we have payloads -- so we expect 4 tons for batteries. But then again, we take out 2.5 tons of diesel components. That means we will reach our goal of zero emission vehicles earlier. And a good example is the Fairline bus, who is -- who takes 2 drivers and who can pause only for 15 minutes. That would need to carry around large batteries, and that would mean that the passenger capacity would be reduced. So this is a use case in which hydrogen is the better choice. And then when hydrogen becomes competitive in terms of costs, this might be interesting. So that might be the case in Switzerland, where there is -- where there are no street fees in this case and this could also be the case if there is an import of cheap hydrogen. But on a broader scale, it is hard to reach low cost here and that leads to our synthesis. I give the floor back to Atif.

[Atif Askar, Head of Business Development, Strategy and M&A]

Thank you very much, Andreas. So I'll try to sum up the most important items here. So what are the 6 things that we wanted to give you home today. So BEVs will be come competitive with diesel or will even take over diesel, and it does not really matter the scenario. This is not a question of if, but it is a question of when. And if we take the correct assumptions, we're just round about in the same field here. The second thing is that electrification will happen earlier and faster than we had expected. We saw that on an earlier slide. If you would have asked us 5 years ago, we would have said this is -- there's still a long way to go. But this is happening way faster and we are now in ranges where we can foresee this. And then just fulfilling the emission regulations is not sufficient for OEMs. Probably, these will even be tightened. But minimum -- the ecologic minimum requirements are not enough. The economic requirements will even surpass those. And fourth item is that infrastructure is critical. And we need to create structures with -- where a public charging structure needs -- is incentivized. For trucks, of course, this is on a larger scale than for cars and that means that this is more capital intensive. The fifth item is that for fuel cell trucks, there are applications where we need those. That's why we keep researching on fuel cells for applications within trucks. The use cases of trucks are very heterogenous. A 50-ton truck that goes different ranges is a very different application as a regular truck and that means that there will be fields of applications for FCEVs. And it is very important that the BEV will, in the end, be the more advantageous technology, and that's why in the mainstream, we will also see electrical trucks in the long haul even before we see FCEVs there. And with that, I'll pass the floor back to Julia.

[Julia Kroeber-Riel]

Thank you, Andreas and Atif. And of course, we're very happy that you've stayed with us, at least some of you. And I'm quite sure there will be a few questions with regard to these very detailed presentations about the strategy of alternative drives at TRATON. So I would ask the operator now to another questions. Thank you.

[Operator]

[Operator Instructions] The first question comes from [ Christoph Roves ].

[Unknown Attendee]

I have 2 questions. The first one relates to the situation in Austria where there's obviously a new offer by Mr. [ Wolf ] to take over the site in Steyr. So what do you think is the success of this improved offer? And maybe you could give us a short update on the situation as such? Because the employees were very active here. The politics are involved. Maybe you could give us information about how the situation is there and how high the chances that improved offer will be accepted.The second question relates to Brazil. Mr. Schulz, you just said that there was a range between 10% and 40% when it comes to market growth. So the economy is hit strongly by the pandemic. So how do you think this high insecurity will impact the strategy of MAN concerning organic growth and maybe whether there are plans for other vehicles to get a stronger grip on the market there?

[Matthias Grundler, CEO & Chairman of Executive Board]

So when it comes to Steyr, the Board of MAN is closing the Steyr deal. So we will listen to the offer of Mr. [ Wolf ]. We are going into negotiations. I do not want to say more concerning this. The second question, it is the way that you -- as you see, the development is very dynamic. What we saw is due to the new heavy-duty truck, and we have been able to cover more ground here and to gain more ground in the market. And we have -- we were able to achieve good margins here. So Caminhões e Ônibus, we are thinking about applying products from our portfolio there on a worldwide scale, but we have no other plans going beyond the existing plans, but the market is hit very strong by pandemic. But nevertheless, we remain very confident when it comes to the South American market.

[Operator]

The next question comes from [ Gabriel Wirtz ] of [indiscernible].

[Unknown Attendee]

So I would like to ask, you said that you're looking on cost discipline. And I wanted to ask you, you reduced the Board. You said you didn't need a staff board and now there is a person coming in. What does Mr. Osterloh do in your company?

[Unknown Executive]

As you said already, Mr. Osterloh is Head of HR, so that he will deal with HR topics. And he began last week. And so he will take his time, those first days, and see what is on his table and work through the -- through his tasks.

[Operator]

Next question is by Markus Klausen, Dow Jones.

[Markus Klausen]

So I've got a question concerning Navistar. So what is the process here when it comes to collaboration with the U.S. company? So what are the common projects, midyear comp projects, when it comes to motors or what other things do you have planned? Long-term synergies, do you see those with Navistar?

[Unknown Executive]

Mr. Klausen, just very briefly considering your questions, when it comes to Navistar, we think that in the early third quarter, we will reach a closing. And current projects that we have running from an alliance, these are being discussed. And right now, we are planning in full to give more -- to provide more information about that. So with the closing, we will reach synergies, but as soon as the closing has been done, we will inform everybody about our planned steps. So the collaboration works great. It is really fun working with the team over there. And everybody on the Board are really happy about the collaboration. So we really are looking forward to the closing and the colleagues in America do too.

[Operator]

Next question is by Thomas Fromm, Süddeutsche Zeitung.

[Thomas Fromm]

Thomas Fromm. So I've got 2 questions concerning the squeezeout. So what will change for MAN concretely in the next time? So independently, from annual meetings, et cetera. But will [indiscernible] maybe take a stronger grip than they already do right now? This is the first question. The second question is about electrical drives and electrification. We've talked about this a lot. This will, of course, be more expensive than common diesel drives. So without premiums, this will probably not work. So what do you think? Will politics play along? Will this be -- will there be premiums over a longer period for subsidies?

[Unknown Executive]

So when it comes to the topic of MAN, we have had the decision from the Board on Saturday and we will now work towards the annual meeting where the squeeze will be decided upon. If the MAN SE will then merge into the TRATON SE, the BEV -- so this will go over to the TRATON. And then we have a direct management. This has nothing to do with Volkswagen. And so Volkswagen will not have any more grip. So this will renew our organization more efficient. As you already said, we've had a Board meeting, and there will be the annual meeting. And this will -- like this, it doesn't provide any added value. So yes, the battery electric vehicles will be more expensive. And we think that at the point of sale, so -- and we will need to think about how we sell the entire package to the customer. We will need to talk about that with our customers and politics will, of course, understand more and more how important the topic of charging infrastructure is and supporting the vendors, and I'm actually very confident that this will work out well.

[Operator]

The next question is from [ Kristen Hensler ] from [ Fortum ].

[Unknown Attendee]

I've got a few questions myself regarding the raw material prices, commodity prices. Do you see here some rising price pressure for all kinds of commodity speed, plastics or steel? Maybe you can elaborate on that a bit. And the second thing is, your strategy in North America with the acquisition of Navistar, you seem to have resolved that. How about China? You plan to build a new factory there, and you will start with the production of Scania there and with some interest. So what is it you would like to achieve in the midterm, in particular, in Asia and China or in India, too? And my last question is Turkey. To what extent is that a relevant market? In particular, when you look at the economic development there.

[Unknown Executive]

Actually, you hit the point, yes, commodities. We have to -- we'll concert with that. It's not just deal. It's rubber, it's plastic parts. All this leads to increased commodity prices. And of course, in the supply chain, that is something we're concerned with and we will be concerned with for a long time. It's not just semiconductors. It's across the whole supply chain. You know our Global Champion Strategy. We've made an important step here in order to get a good situation in North America, and we are quite satisfied with that. And you also hit the point regarding Asia. We still have an outstanding answer here. And we have to focus on China very much, and on the next Capital Market Day, you will hear much more about that. Turkey is a good market for us. We've got a good market share there, and we see some potential there to grow in the future, but we're not dependent on Turkey.

[Unknown Attendee]

Just a follow-up question regarding the commodities. What kind of effects do you expect for this year compared to the previous year? And you mentioned the semiconductors already. We all know that, of course, this had an effect on the automotive industry. So did it lead to a downtime in production in your case as well?

[Unknown Executive]

No, we haven't seen any clear downtimes in production. So supply chain didn't -- wasn't disrupted. We didn't have the shutdown in our production, but we had to reduce capacities in particular in the second quarter. Regarding commodities, I can't give you exact figures of the values because that varies from each region. In Brazil, it's totally different than, for instance, in Europe or in North America. So the average wouldn't help you here.

[Operator]

The next question is from [ Johann Hamburg ] from Börsen-Zeitung.

[Unknown Attendee]

I've got 2 questions. One is the strong order intake. Can you tell us something about that or maybe at least give us an estimate of how high the number is of the postponed orders from last year? Because of the pandemic, customers actually didn't really order for a while. And how much of this order intake is real new orders? And second question is, Scania's come up with a new structure in recent days with 3 areas: industrial, operations and mobility solutions. How does that fit into the structure of TRATON? In particular, how about the synergies that you would like to leverage with MAN?

[Unknown Executive]

Quite simple answer. These are not postponed or delayed orders, it's all new orders, which customers had because of the mileage. So it's nothing to do with the pandemic. And the second thing is, yes, the organization was restructured, in particular, in the industry, which is the manufacturing of the trucks. There was a restructuring in order to make processes more smooth. And the interface with MAN or the future Navistar haven't changed at all. It's rather about the processes within the Scania production or between development and purchasing. That needed to be optimized, but it doesn't have any negative impact on our cooperation. It could rather increase and accelerate it.

[Unknown Attendee]

Follow-up for the first part. Your customers, in the past year already, had quite some mileage with their fleet then, but they had to postpone the order. But that affected more the second half of 2020, but we're now talking about first quarter of 2021 and order intake. So if at all, it was a shift from the first to the second half 2020, yes. We did that in the last year already and now we've got new orders.

[Operator]

The next question is from [ Rudicka Kuhn ], Frankfurter Allgemeine Zeitung.

[Unknown Attendee]

Just as a continuation of this, can you -- the speed of growth, it's just 3 months now, but will you be able to maintain that speed? Or will there be a kind of lessening effect in the second half, yes, as you just described it? And would that mean that at the end of the year, regarding order intake, you would be on the level before the crisis again? And if I understood it correctly, there is a kind of 6-month delay when it comes to its effect in sales. So will the effect be quite significant in this year? So is your forecast rather conservative? And other question, do you see some bottlenecks in supply already? Because you said a bit vaguely that, of course, it requires some management. But do you de facto have some bottlenecks in supply or in deliveries? And then what was asked before, what is the task of an HR Board member? And I think it's not enough just to answer that. Mr. Osterloh has come to you only last week and now is just working on this task, but what are the tasks? Because the real operating tasks will be taken over by the Board at MAN Truck and Scania. So what is Mr. Osterloh's task in your house?

[Unknown Executive]

Okay. Thank you very much. About your question about the forecast. As I said at the beginning, we expanded the band from 5% to 7%, and we did that because on the one hand, we see the very good order intake, which will go on for the first half year. We see it because we see the books. But what you just mentioned, it's not just the semiconductors, but there might be other bottlenecks in supply, which are being worked on now with great pressure in supply chain. We didn't have any big downtimes in our production. So we have to see -- at least in the past year, so we have to see what happens in the second half year, whether we will be between 5% and 7%. But we still assume that just from the point of view of the market, we will see that at least in the first half and maybe also in the second half, this is why we expanded our forecast up to 7%. But you see, of course, these forecasts, also in other manufacturers. They are conditioned by the supply chain, so we can't make any concrete statements here. Regarding Mr. Osterloh, we can say Mr. Osterloh has just now started. He is the officer for HR at TRATON and he will take the next few weeks to define his task. Can he define his task himself? Normally before you start somewhere, there is a clear definition of the task you would have to carry out. So Mr. Osterloh is defining his own task. I think each and every one of the Board members is focusing -- or is defining the focus as every member does that. It would be very bad not doing that.

[Operator]

So currently, there are no more questions.

[Matthias Grundler, CEO & Chairman of Executive Board]

Thank you very much for the questions. Now as announced, we are starting the deep dive into the strategy for alternative drives, which belongs to the battery electric truck. We would be happy if you stay with us. I promise that this is going to be interesting. Let's just give us 1 minute, we're going to exchange the people in the room. We'll be with you in 1 minute. [Break]

[Operator]

[Operator Instructions] And the first question is from [indiscernible].

[Unknown Analyst]

First of all, about fuel cells. Can you give us a kind of idea what chemical components or aspects can be observed here? In the passenger car system, we talk about lithium-ion and others at least in the initial segment, in your segment, I assume you need absolute best -- the absolute best technology in order to achieve the range with the energy density you need for long haul. Anyway, I'm always talking about long-haul trucks. Just distribution traffic or short range, I'm with you there. That's right. And then I would like to know, well, you talked about the cost degression in the past regarding research and batteries. Why don't you think that this could also happen for fuel cells?

[Atif Askar, Head of Business Development, Strategy and M&A]

Let me start with the second question, and I will pass on to Andreas for the chemical part. Regarding cost degression, on one of the first slides, you can see this, that for fuel cells, we assume there will be a clear cost reduction. It will go down 40% to 80%. And we think we come to limits when we talk about the chemical process to produce hydrogen and then convert into energy in a fuel cell. Because here, like in a diesel engine, there are some chemical and physical limits where it can't get more efficient than a certain level. And this is why we don't believe that from the 25% of energy, which you are left with when you feed in 100%, that you can do much about that. So we do believe, and that's a basic prerequisite, that the fuel cells will get much, much more inexpensive. But we think not much can be changed in the fact that you need at least [ 2x 5 ] as much energy than you need in a normal BEV truck. That's the first -- your second question. Your first question about the chemistry in the cell, that's to be answered by Andreas.

[Andreas Kammel, Head of Strategy & Business Opportunities]

Yes, of course. We've got a NMC-based chemistry, which is nickel, manganese and cobalt. That's the basis for us. And in most trucks, as you said, with regard to the high requirements, we will see that. But there might be some LFP use cases. The energy density here is better, but it's also much more stable. So the share of the overall battery percentage can be used much better. So I couldn't exclude that. But the standard in the industry will be NMC with the hope that maybe within a decade, we'll have better batteries. But that depends on the development of the market. Now one comment about the second question with the cost degression, yes, I can only really highlight that, once again, even if the fuel cell components would go down to EUR 0 in trucks, the picture that we have shown you wouldn't change because the energy costs are so exorbitant. Maybe just briefly on the chemistry. You said in a decade, it could be that you would use a solid body -- battery cells. I think that's much later than for the passenger car segment. I would have thought that solid body could be used in trucks even earlier because there is a business model for the freight forwarders to use a higher cost if you think that you can drive with that much longer. As soon as the production capacities are given and the business case would be given, that would be the case. And a decade is more or less conservative, of course. But we are aware of the fact that since we look at battery electric, more or less, we are very conservative with everything else. Regarding the cost development on the battery side, there's a potential that it could be faster like in the past as well, but we don't want to rely on that. Yes, to make that clear again, the figures that you see for 2030 and 2040, for these figures, we are still assuming the current technology. There is no leap towards solid component chemistry and batteries. It's just a continuation of the development that we've seen in the past years, and we are more conservative than what we've seen. So we didn't see 20% cost reduction per year, but rather about 7%. And when you have this, you will end up with these figures. Does that answer your question?

[Unknown Analyst]

Yes.

[Operator]

The next question is from [indiscernible]

[Unknown Analyst]

I've got 2 questions. First of all, fuel cell. Two your competitors are cooperating with Daimler and Volvo in this field? Are you open for cooperation as well, in particular, when it comes to your connection towards Hino? Could it be that there would be a potential -- to have a cooperation and then generate even more synergies? And the second question, also about synergies. On the battery side, are there any benefits you could generate here by your -- by the fact that you belong to the Volkswagen Group regarding purchasing or maybe even production of batteries? Or is this more or less a different package of chemistry than in the passenger car?

[Atif Askar, Head of Business Development, Strategy and M&A]

Thanks for your questions. Regarding your first question and our competitors, we can't give you a concrete statement here. But I can tell you that we personally are working together with Toyota regarding the fuel cell-driven truck. Toyota has here one of the longest histories of research in fuel cells. And if you like, each FCEV or FCEV truck is also a BEV truck. So you need the electric engines, you need the electronics, you need the battery management system and many more things. What's added is the fuel cell itself and the tanks. And you have to put that into a BEV car just in a smart way, and then you've done it. And our strategy is to have a partner, which among others, is Toyota to get access to a very good solution which we could then use in our own trucks. Regarding your second question with regard to synergies. Of course, like in every other topic, we, of course, like to use synergies. And Volkswagen is also working together with Northvolt and they are a Scania partner, too. Now Scania was one of the first companies working with Northvolt together. In some areas, when you look at batteries from a truck perspective, you have to adjust the batteries and that's also a chemical adjustment. For instance, longevity. The number of cycles plays a larger party if you look at the mileage from the beginning on. Because if a truck after 6 to 8 years has reached a range of 1 million kilometers, then you have to charge and discharge in a different way than you would do with a passenger car, which maybe goes no longer than 500,000 kilometers. Here, you want to have quicker access to energy. That's a different thing. So some of the synergy benefits you can make use of and if -- where it makes sense, you have to adjust it properly.

[Operator]

And the next question is by [ Stefan Hansen ].

[Unknown Analyst]

So what is your strategy? Will you produce it yourself or will you buy them? And so if VW has a [indiscernible] in the past and said 6 new gigafactories in Europe, are you included in that? Or is that just forecast what VW announced there?

[Atif Askar, Head of Business Development, Strategy and M&A]

So this is only for cars. And right now, we are thinking about who we are working with. We have 2 strong partners. We have VW and we have Northvolt. And we are diversifying ourselves with a respective portfolio. So we have ordered high volumes of batteries already and we still monitor closely how much volumes we will need in the future, and we will adapt our strategy to that.

[Unknown Analyst]

But from a tendency, is that more a purchase strategy because you will not need as much for 10 -- thousands of vehicles compared to millions of cars?

[Atif Askar, Head of Business Development, Strategy and M&A]

Again, here, we need to differentiate where we talk about batteries, battery paging packaging or the cells itself. So Scania just announced that they create a battery plant for cell. They will not do packaging themselves, but there's some -- there's lots of intelligence in there. So the topic of battery management can still make a big difference compared also to the cell. And when it comes to the cell, as Andreas said before, the 2 partners that Volkswagen has, ours, too, and we are pretty satisfied with that. So we do not want to enter the field of cell chemistry. This is not our competency. We have less trucks, that's true. But on the other hand, the battery packs are way bigger. That means -- what we -- the size that we order are significant, too. So a truck that should be able to go 500 or 600 kilometers or even more, you can imagine that there is a couple of tons of battery in there. And so that means they are on our purchase list.

[Julia Kroeber-Riel]

So that means that we are through with the questions. And thank you very much that you have stayed with us for that long. So the presentations, you will find them -- if you want to read a couple of the information later on, you'll find them at traton.com to download. And I wish you a nice week. Stay healthy and see you next time. Goodbye.

[Operator]

Ladies and gentlemen, thank you very much for participating. The conference is closed. Please hang up now.[Statements in English on this transcript were spoken by an interpreter present on the live call.]