Q2 2021 Paccar Inc Earnings Call

Good morning, and welcome to pack cards second quarter 2021 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 Patkars director of Investor.

Relations Mr. Hastings. Please go ahead.

Good morning, we would like to welcome those listening by phone and those on the webcast. My name is Ken Hastings <unk> director of Investor Relations and joining me. This morning are President and Chief Executive Officer, Harry Skippers, President and Chief.

Investor Retro officer, and Michael Barkley Senior Vice President controller.

As with prior conference calls, we ask that any members of the media on the line and participate in a listen only mode.

Certain information presented today will be forward looking and involve risks and uncertainties, including general economic and competitive.

<unk> for that may affect expected results.

For additional information please see our SEC filings and the Investor Relations page at <unk> Dot com.

I would now like to introduce price and fight.

Hello, everyone.

Good to be on the call with all of you.

Harry Skippers, Michael Barkley and I will update you on our second quarter result.

And some business highlights.

First and foremost I appreciate the outstanding employees around the world, who are providing excellent trucks and transportation solutions to our customers.

And I'd also like to thank Packers fantastic dealers and suppliers for their support.

<unk> achieved very good quarterly revenues and net income and the second quarter of 2020.

The 1 that cars results reflect quarterly sales and profit records at back of our parts and pack of our financial services.

The economies and freight markets continue to be robust in all of the <unk> geographic markets.

Demand for <unk> premium trucks is strong.

<unk>, our second quarter sales and financial services revenues were.

$5.8 billion.

And second quarter net income was $493 million.

Pack of our parts achieved record quarterly revenues of $1.2 billion.

And record pretax profits of $266 million.

<unk> of our financial achieved record pre tax income of $107 million and.

And I would just like to take a moment to recognize these wonderful achievements by our great team.

So looking at product too.

<unk> 2021 is the biggest year of new truck introductions and Patkars history.

The most recent truck introduction was in June when <unk> launched the ex of Xg and ex Jeep.

Yes.

These doc trucks are game changing.

The office of the first manufacturer to utilize the new European regulations, allowing for a longer cab.

And the regulations enabled das engineers to design and aerodynamically optimized truck that provides up to 10% greater fuel efficiency and and equal reduction.

And greenhouse gas emissions.

Technology enhancements include a new powertrain, new digital mirror's digital dash displays and a full suite of advanced driver assistance systems.

The new models provide drivers of new level of luxury and comfort.

And there is great customer.

<unk> payment for the new trucks and this is being reflected in strong orders.

Production start is in October.

The next generation Peterbilt, 579, and Kenworth <unk> hundred 80 began production in May the.

These new trucks feature enhanced aerodynamics, and powertrains that deliver up to 7% higher.

<unk> efficiency.

Industry, leading led headlights advanced driver assistant assistance systems, and the state of the art interior with a configurable digital display.

So in addition to launching the new class 8 trucks. This month Kenworth and Peterbilt began production of their new medium duty truck lineup.

These vehicles have and 8 inch wider cab best in class visibility for enhanced safety and of premium interior with Configurable dash displays.

The new medium duty trucks feature of the <unk> 8 speed automatic transmission and.

And we're seeing excellent customer demand for these new peterbilt and kenworth vehicles.

The <unk> industry, leading zero emissions battery electric trucks are now and production with 60 vehicles and customer operations and Europe and North America.

And we've received orders for over 450 battery electric trucks and are working closely with our customers and our dealers as we move forward with these exciting zero emissions product offerings.

During the second quarter type of our enhanced its autonomous truck development partnership with Aurora by becoming a minority investor and their planned public offering.

The <unk> partnership continues to make progress and developing a level 4 autonomous solution.

And looking at the truck markets U S and Canada class 8.

The industry retail sales are estimated to be and a range of 260 to 280000 vehicles.

Kenworth and Peterbilt and market share was 29, 4% and the first half.

And Europe truck industry registrations, and the above 16 tonne market are estimated to be and a range of 270 to 290000 vehicles and <unk>.

Year to date market share was 15, 7%.

The South American above 16 tonne market is projected to be in the range of 100 to 110000 and trucks and the off Brazil's above 16 tonne market share through June was 5.7%.

As has been discussed in recent months industry truck production has been tempered.

<unk> by the under supply of semiconductor chips.

Kenworth Peterbilt and <unk> had a good quarter and delivered 4100 trucks with an additional 6500 of waiting key components.

It's very dynamic we currently anticipate supplier constraints improving towards the end of this year.

Paccar continues to advance its industry, leading environmental focus with our products and and our factories.

<unk> is committed to achieving science based carbon reduction targets and pack of our continues to receive high rankings for its environmental leadership.

These are really exciting times for <unk> as we create our future.

And Harry.

We will now provide an update on pack of our parts Packer financial services and other business highlights.

Thank you Perry.

Thanks Preston.

But the parts had another outstanding quarter.

The achieving record revenues of $1.2 billion.

Compared to $823 million for the second quarter.

Skipper of last year.

Parts of pretax profits were a record of $266 million.

Compared to a $152 million and the same period last year.

Parts gross margins grew a robust 28, 2%.

<unk> benefited from strong freight demand.

And of lot of truck utilization investments and E Commerce technology and distribution capacity.

Strategically located pdc's.

The reduced delivery times and increased customer uptime.

E Commerce parts sales increased 56% and the second quarter compared to the same quarter.

<unk> last year.

Becker is continuing its investments and world class distribution by.

And by opening a new distribution center in Louisville, Kentucky next year.

We expect third quarter part sales to be similar to the strong second quarter.

Becker financials.

Quarter was earned record pretax income of $107 million.

Reflecting strong portfolio performance and road.

<unk> used truck demand.

We expect third quarter Becker financial results to be in line with the excellent second quarter.

<unk> financial is increasing.

Service and retail used trucks center capacity worldwide, which enhances margins.

A new Becker of financial used truck facility is under construction imagery of Spain.

Kenworth and Peterbilt truck resale values come out of 10% to 20% premium over competitors' trucks.

<unk> invested $7.3 billion and new vehicle programs and Hans facilities and new technologies during the past decade.

This includes the investment of $1 billion.

For the new dock truck range and expanded the factories.

Capital expenditures for the year.

Are projected to be $550 million to $600 million and.

And research and development of expenses are estimated to be 300 of $40 million to $360 million.

Becker is investing and the zero emissions and ultra clean diesel powertrains.

Advanced driver assistance and autonomous driving.

Since <unk>.

Connected vehicle services.

And enhanced production and distribution facilities.

Second quarter truck parts and all of the gross margins were 13, 5%.

Customer the amount of strong and Dove, Kenworth and Peterbilt are sold out for the year.

The <unk>, depending on the supply of materials third quarter global truck production and gross margins could be similar to the second quarter.

The recently introduced the Kenworth and Peterbilt truck models provide pac out of the newest and most exciting product lineup and company history.

These new.

New trucks will support our customers dealers and our success in the coming years.

Thank you we'd be pleased to answer your questions.

Okay.

Operator.

Operator.

At this time of <unk> would like to ask a question. Please press star followed by the number 1 on your telephone keypad to withdraw your question press the pound key.

Your first question will come from Jerry Revich with Goldman Sachs. Please proceed.

Yes, hi, good morning, everyone.

I'm wondering if you could just talk about.

The new product lineup that you have rolled out globally.

Do you have a higher proportion of common platforms and core components.

And the platform today compared to what we would've been looking at under prior generation products and if you could.

And just talk about the implications of product development.

Going forward.

And the timing of overlap of the product Rollouts globally.

This year thanks.

Hey, Gerry that of the 1 question.

We can talk a long time about it but I'll keep it brief for you. Yes, we have we have been able to globally make sure that were leveraged.

And our core competencies and software development and and some of the electronics capabilities for the vehicles around the world. So between the off Kenworth and Peterbilt, we take the best approaches and apply them and that shows up in the weighted sum of the vehicle functionality is and which is just I got to tell you is really fun and I was able to drive the new doff of few weeks ago I was over in Europe and.

And the truck is amazing.

And I think obviously I'm subjectively bias, but we had a bunch of our dealers and in it and they've got to see it and everybody is just thrilled with it. So we're seeing just a beautiful new trucks there in Europe and the same and can be said for the trucks in North America.

Or there's more commonality between the kenworth and peterbilt in terms of the chassis design. There. So we use best practices to.

But the best ride and capabilities and those trucks are equally just just fantastic to be and so yes, we're using our best practices and getting global leverage as we do our designs.

Okay terrific and then you're off the strong bookings for your of electric vehicles and I am wondering if you could just talk about.

And what timeframe do you plan to produce the electric vehicles that you you spoke about and in backlog and.

Can you just quantify to what extent you've been successful and layering on of charging stations and other expanded services is there a revenue number and so.

Oh chatted with the unit number that you might be willing to share it with us.

But from what I would say that the orders are coming in I mean, so the 450 is just a moment in time, we're getting new orders every day, we had a good order from Amazon yesterday, a couple of days ago and Europe.

For a battery electric vehicles that we've used and the U K. So we're getting us around the world and there'll be built as the orders come in some of the origin of multiyear they can take a few years because theres high quantities.

But we anticipate the market just continuing to evolve.

The grow over the years, so it starts and the hundreds as we've shared before and we see it moving to the thousands as that happens and our team at Packer parts is doing a great job of rolling out charging stations and.

And being supportive to our customers and our dealers with the infrastructure needs that they have so we've taken.

He's the stick approach there and see these as good opportunities for per pack or to grow the business beyond just the provision of product there.

Okay.

And here you spoke about expectations from similar production and.

Gross margins in the in the third quarter can you talk about how you expect the supply chain to look into the fourth quarter.

And of whole what are you hearing from from the supply the supply base.

Of that far out do you think our inventory of uncompleted trucks.

The declines as we go through the year.

And like we said the area Theres a lot of uncertainty around the supply base.

And the deliveries and the third quarter and beyond.

And a lot of that will depend on the ability of the supply base to delivered especially in the end of semiconductor the area.

Okay.

Appreciate the discussion thanks.

You bet and have a good day.

Your next question will come from and Eigen with J P. Morgan.

And thank you.

If you could expand on.

The last comment a little bit I think we depreciate it and to put the.

And takes out and the gross margin going into Q3.

Seasonally Q3 will be weaker than Q2 and just.

And I'm kind of shutdowns et cetera in Europe.

However, you've got all of this inventory and belt.

And should you be able to and we've seen.

Components and.

Perhaps deliveries are higher though we don't get the absorption because theyre already built so I'm trying to really understand the puts and takes because you've been kind of hesitant when you said that gross.

And as and performance might be similar in Q3 to Q2.

Please expand on that and any way shape or form net you can't.

Sure and happy to happy to take a swing of that for you do you understand the market really well and we have excellent demand as we said we're sold out through the year and all our markets. So with this great.

Great demand great market need for trucks around the of the around the world really.

Customers are looking for trucks as quick as they can get them and we're building and as quick as we can get them and so we had a good second quarter and our deliveries at 40000, and obviously you can do the math. There's you know there's several thousand sitting there that are waiting of component and as we get the components.

March unclear and the semiconductor front, we complete the trucks and get them to our customers. So wish I could give you more clarity on how that semiconductor.

Supply is going to proceed through the third and fourth quarter, but we just don't have any more of than that right now.

And just for clarification when you ship those trucks the after you get the.

Which isn't that correct.

Already gotten the absorption of building those products take of setting at the end of the line waiting for semiconductors and the.

And that is correct and so the.

Of course, the absorption is already taken and when.

And we deliver and ship the trucks, that's when we record the gross margin on the trucks.

Right.

Right exactly.

And then on the parts and the same code.

And you had given us.

The total year guidance for parts.

And the expected to be up about 15% to 18%.

And im assuming with the revision today and Youre, calling for more like 18 to 20.

The semiconductor for the full year.

And thank all of the you said the performance will be similar in Q3 Q2 is there any reason to believe that the henkel couldn't continue to perform at this level of into year and also.

So the parts and we're expecting the full year to be an increase of about 20%.

Percentage of 2%.

Okay and.

The finance company, the $107 million into the second quarter was the record outstanding result.

And if we look at the current market dynamics with strong used truck markets and.

Excellent payment behaviors by all of our customers strong portfolio.

The 'twenty you expect the business to run at that level for the next quarter and that's a pretty good run rate now.

And it doesn't and run rate I'm, just trying to figure out of the model and get real and finally, a real quick just and dealer inventories right now versus where they ought to be.

Well the dealer inventories are limited, which will extend the market also we have about the.

1.6 months of inventory of the dealers and.

And I think the industry is the 1.9 or 2 so it's less and we'd like at the B of course, but that's that does bode well for a strong extended demand cycle.

Okay. Thank you I'll get back in line appreciate.

You bet.

Your next question will come from Stephen Volkmann with Jefferies. Please proceed.

Hi, good afternoon here and good morning, there guys.

Hello, Steve.

Alright.

So couple of quick ones Preston your industry commentary does that factor.

And the supply chain issues and Thats kind of your best guess or is that more of a number that would be kind of the higher side and then.

Supplier issues might cause it to be lower than that.

I would say that we tried to factor in everything into those numbers. So that $2.60 to $2.80, and North America. The reason the shifts down a little bit is.

And the supply side provision.

With the demand and we have it's really what the throttle as on the on the business right now.

Okay Super and then.

With respect to all of these new truck launches that you that you kind of went through I guess the bottom line question is what do you expect these products.

Because it would be kind of higher margin and the products that they're replacing.

Well, we think that we set out to design products that are great for our customers and.

And with the kind of fuel efficiency the driver comforts the feature capabilities that they all provide to the customers. We think the want to buy them and.

And that should that should be good for <unk> R and good for the customers.

Alex to Alright, [laughter], maybe the final quick 1 just any commentary on pricing I mean, I know things are sort of sold out when do you start taking orders for 'twenty 2 and is there any reason not to assume that the pricing wouldn't be more robust as you start to do that.

And we are taking pricing for 2022 and.

We had the if you just look at our our order intake has been very strong and.

So we're seeing how that's progressing through the market and working on raw materials pricing into those models and just moving forward thoughtfully into 2022 as we take those orders and we do expect the new trucks to be a bigger percentage of our build and the second half of next.

And that'll be that'll be good for everyone.

Got it thank you.

Yes.

Your next question will come from David Raso with Evercore.

Hi, Thank you.

The other thing for the rest of the year. When you mentioned you're sold out for the rest of the year does that speak.

And then pricing is pretty well set on your deliveries for the rest of the year or is there and ability to adjust pricing.

For any further shipments this year.

So it's it's.

It's largely set but I would tell you. The these have been unusual times and so we've adjusted pricing as necessary to match into raw materials pricing and that's kind of the way we've.

We've approached the market.

And so there's still some flexibility.

The backlog is sort of spoken for for the rest of the year.

Alright, well limiting with the limited versus historical you want it usually adjust the backlog historically, yes, what I would say is we're working really closely with the customers to get them the trucks they need as quickly as we can and and they think they understand we.

Understand that that's taking extra efforts right now and so we're applying those efforts.

And when it comes to the 6500 red tagged trucks waiting for a component.

Of those do you expect those to ship the large majority of those would ship and the third quarter or because that's the greatest pinch point.

And we think about say potentially flat deliveries 2 Q3 Q.

They might not include a lot of those 6500 and I think we're all just trying to get a feel for some of the overhead absorption issues with shipping already built trucks or not and the near term.

Yeah, I would tell you that there's a constant dynamic there you know we've had some trucks.

When we built minus component and we received a batch of components for those and of ship those out.

Defined ourselves and different circumstances with like Malaysia.

The Malaysia, Covid outbreak, which then causes of the constraint of of different component. So it's pretty dynamic and hard to really talk about which trucks shipped win.

By corridor.

Thank you very much I appreciate it sure you bet that of a good day.

Your next question will come from Nicole the plays with Deutsche Bank.

Yeah, Thanks, Hi, guys.

Hey, Nicole.

Maybe just a clarification on the third quarter production guidance. So have you guys or do you plan on taking your usual plant.

Alright sounds the seasonally and Europe.

And I'm, just trying to think through like Q on Q production by region.

So we do plan to take our our European shutdown and factor in the midst of it now. It started started this week and I don't think of anything else you want to add the thinking about regionally.

I think other than I don't think there's any other regional.

And out of guarantees of I'd add into it.

So Europe down Q on Q that and maybe the other 2 regions up a little bit Q on Q to compensate for that to get you to flat overall.

I would say, it's really more about which components, we get win and that's really what's driving those deliveries by region.

Okay, Okay understood and then.

Maybe just to elaborate a little bit from David's point. So if you think about the pricing that you guys realized and the corner of which I know, we'll all see when the 10-Q is filed but did you have a pinch at the margin line from price cost and what is the expectation for how that progresses and tier 3 Q.

So when you when you see the 10.

And because you'll see the pricing was up 2 to 3 per cent compared to last year.

And then of course.

That's the.

Resulted in margin improvement compared to last year.

But if you look at it more of on a sequential basis and I would say that we've been able to increase prices.

And 2.

And Qdoba.

The cost increases and.

I think that's.

That's what gives us the margins as we know them and.

And the second quarter.

And let's assume over the assumption if we didn't get the third quarter.

Got it okay, and Thats really helpful. And then I'll just squeeze 1 more and could you just comment a little bit on what you.

With respect to used truck pricing like the magnitude of the growth.

And it's grown quite of bit obviously, and the year over year and North America has grown and the 40 somethings per cent and Europe has grown double digits also and so we've had great growth and our used truck pricing. There's a limited supply of used trucks I mean, obviously, the packer products command a premium.

We're seeing with that space, and it's and even more precious premium right now.

So we think that as long as supply is limited and there'll be a there'll be a good opportunity for our team selling used trucks.

Getting customers the ability of the freight.

Got it thanks I'll pass it along.

Your next question will come from Joel tests with the.

Premium and of please proceed.

Hey, guys How's it going really.

Good Joel how are you doing and hanging in there.

And is this is this automated cab factory and Europe is that of new template for for what you can do around the world or is that more of just builds.

Building on what you already have in place in terms of the.

BMO.

Well Joel it really is a new approach its an evolutionary approach, but it's a new approach. The factory is amazing and we hope to get you over there soon to be able to see it we were just there a few weeks ago and.

All I can say is wow [laughter] when.

And when you look at the level of robotics that we've applied to bring the highest degrees of quality and capability and putting those trucks.

Foot print of its really fantastic state of the art factory and it.

And it brings a new level of I'd say competence into our manufacturing operations.

And I think what everyone's asking and I'm wondering too can you give us some of the pieces to to raise your kind of structural incremental margins they've been kind of stuck.

Other as well if the 14% range for a while and and I. Just wondered you know everyone keeps asking maybe elect maybe its electric maybe it's the automation maybe its pricing can you give us a little sense of maybe just some of the things youre thinking about internally that could structurally push those margins higher and the next 5 years.

Yes.

And the 2 happy to you know you look at the parts business and again that team is just doing a fantastic job and and the focus there is to continue growing and they're able to do that because they really think about what the customers' needs are and what the dealers needs are so theyre putting systems in place that enable a.

It really world class delivery of parts and same day and more and more frequently and so that's.

And Im sure you of growth opportunity as we look at it the finance companies of great foundational growth opportunity for us as well the new trucks.

We'd be really remiss to not talk about how the new trucks or can help to grow the business over time, you mentioned other things like alternative powertrains zero emissions vehicles Thats, a great opportunity for pack of our we're already.

Putting yourselves in a leadership.

And Eric position in terms of order intake and so that that not just the sale of the trucks with the support of the trucks and the field battery electric charging stations battery Energy management Fleet management help those are skills that we can provide we see embedded software and connected trucks being an opportunity for growth and the future obviously.

<unk> do we have this relationship with the autonomous vehicle producers and namely Aurora, that's an opportunity as we go forward and increasing.

Utilization of the safety systems like that so there is a there's a whole plethora of great opportunities per pack or to grow as we move forward and the future.

And that's excellent thank.

Thank you so much yeah you bet.

Your next question will come from Rob Wertheimer with Melius research.

Oh, Hey, good morning, everyone Hey.

Hey, Rob.

My question I guess I have 2 on electric and 1 of you. Obviously noted your 3 competitors announced the and alignment on the.

Obviously, the in Europe, and I don't know, whether the specifically comment.

And your thoughts on doing that without a line, but maybe more broadly 1 of the role for the OEM and trying to prep if any the prep infrastructure for some of these changes are coming and the infrastructure isn't necessarily there.

And I'll stop there.

Okay well that's.

Charge of thinking there.

They did make that announcement, we are rolling out our infrastructure system and so basically what everybody is trying to do and the in the all the Oems car and truck or trying to create and infrastructure that's usable by each other and thats, what there would be.

So of usable by all of our products at the same time, we're also rolling out of our capabilities in.

Good luck of the dealers and with the customers, obviously with each of electric vehicle and.

And the early phases before range is unlimited theyre going to be largely use and a return to base kind of and operating style, which means when you buy of trucks, you're probably looking at a charging station also and the integration of the truck and the charging station how those how of that system works together is a core.

And and see that we bring to our customers and we'll share with our customers. So we see that as kind of an and avenue forward. So there's some symbiotic relationship with all of the Oems, but there's also this unique capability of the pack or has and bringing up the.

The right battery energy management, and the right kind of system to a customer.

That's a very helpful of until she's not you're.

We're compensating, possibly by of letting others do this you're involved and yourselves and the different way, where do you think it's more of a line okay.

Exactly yeah, that's on the on your outlook.

The electric truck orders of those most of the medium duty or is there of having them and you're saying.

Anything about the you mentioned return to return the base anything about the roots of the base or the duty cycles of the.

We're not kind of figuration that is currently attracting attention and I will stop there. Thank you.

Yeah sure the the.

The orders have been spread out there've been medium duty orders been heavy duty orders and the and the.

The kind of the pickup and delivery space and Theres also been refuse kinds of trucks that we've taken good orders from so again anywhere where urban applications, where you are.

The vehicle 100 miles and Youre coming back at night, and so we have time to recharge. Those are those are the right spots for the battery electric systems today, and we're doing that and Europe and in North America.

Thank you.

You bet and have a good day you're.

Your next question will come from Jamie Cook with Credit Suisse. Please proceed hi.

Hi, good.

Good afternoon, and good morning to you I guess of couple of questions, 1 I've been and yeah, well the Chuck.

Chuck margins are coming in a little lower because of the supply chain inefficiencies. The parts margins have continued to progress and it seemed like this year will be at a record new level. So I'm wondering if gross margin structurally and parts can be higher and and.

And and that's what we're missing and how much runway you have to go there and then my second question is you know.

I understand and you probably don't want to talk about next year, but as you think about the order book and then some of the inefficiencies that we're seeing and 2021 do you think theres a set up for next year for incremental margins.

And if the industry forecasts are right to potentially be better in 2022 versus in 2021.

Gmail and Mike will talk about the first part of it and then kind of come into the second of the.

The margins.

Benefiting from higher volume, we get to spread that over.

The the fixed cost base.

If you will so we get volume leverage out of the.

Oh, much higher volume that we're enjoying right now and plus there has been decent pricing because there's been strong demand that's been able to at least keep pace with the cost increases that we're seeing on the.

And are on material side.

And then as we look at 2022, we.

And just as this operation can flow steadily and put it that way than.

And that should be of great opportunity for us as well right of the production efficiencies return at higher levels. We expect the market will be strong next year and that should be good for <unk>.

Okay, and then sorry, 1 last follow up question. It sounds like from your prepared remarks, you guys.

See the link.

The good success with the automatic with the.

The transmission with that at some of your new partnership there. So can you just give a little more color there and what you're seeing on and adoption range of it does that of.

Transmission and how you think penetration of how to think about penetration I guess over the next 12 months and over the longer.

Longer term with that product line. Thank you.

I don't know the exact number of percentage take rate so on and I know, it's been pretty high and growing as people get the experience with it. So I can't give you a numeric answer I can just tell you the and being in the vehicle lot and driving it and talking to customers about it it's working really really well and we expect that to continue to.

And to increase.

Okay. Thank you.

Your next from kind of a day from Chad Dillard with Bernstein.

Hi, good morning, guys.

Got it so just morning afternoon.

So I just wanted to go back to.

And to supply chain challenges.

Can you just give a little bit more.

Our color.

Beyond the <unk> can you talk about what are the components are in short supply.

Has the breadth of the component shortage grown and if you can just talk about the pick the month over month the cadence.

<unk> did things get better or worse as we progressed through the second quarter.

She had a love to be able to give you more of it.

And we've given you just about everything we can and explaining where we're at with the supply base and that you know there's a degree of uncertainty that you can see and every manufacturers report write ups and.

And we have that same kind of uncertainty working through our system and if I could tell you more and do more of I would we're going to continue to operate this business.

Business and a world class fashion and as we get the parts, we put them and the trucks and get them to the customers as quickly as we can.

Got it and.

And maybe you can just given the sense for how much less you need to spend on promotional discounting and just given the really strong environment.

Are you at 50% of typical spend levels and 20% and I'm just trying to think through.

And so if you know from.

If.

And the environment the demand environment remains strong can you actually and pull up a little bit more of that marketing expense.

Well you know.

And we don't really have a marketing expenses associated with promotional discounting and and the way we build the order and I think that our products do a great job of selling themselves and.

And I don't know if you'd add anything else because our sales expenses of part of our SG&A and <unk>.

As you've been able to see our SG&A has been pretty stable going from the first of the second quarter.

And that's the kind of level, we expect the nice DNA to stay and you've got the tide.

The cost controls.

The good budget discipline.

And we will continue to do so.

Okay. Thanks, I'll pass it on.

Alright.

Your next question will come from Ross Gilardi with Bank of America.

And there thanks for taking my questions.

Have you guys disclosed how big your stake is if its been out and articles and your <unk>.

Filings I missed it I apologize but.

Do you have any of it there.

The Ross, we Havent disclosed that this is Ken.

And the Aurora has and either I don't think of any of the pipe investors of disclose the amounts.

Our thinking of our thinking around it was to make sure that we just had a strong partnership with them and.

And the real focus is our developing of the pack car specific autonomous vehicle platform that will work with Aurora, but can also work with others.

And that's where our focus has been and they've turned into a great partner and we've been riding around and the autonomous trucks with them and there's great progress being made on the on the development of and elsewhere system.

And then sorry for another price cost question, but I'm just trying to think of this as more of that of at a high level I mean cost.

Cost push aside recognizing that you are raising prices to offset cost inflation and overtime.

Probably be successful doing that.

Why isn't there seem to be.

More and if.

And any structural pricing power and the commercial vehicle industry. When you have all of these new products you have all of this new technology creates enormous cost and productivity benefits for the fleets you have of tight used equipment market you're sold out.

Why can't the industry.

And you probably don't want to speak for the industry, Let's just say why can't the car just steadily raised prices, 2% to 3% whatever the number is every year, regardless of what is happening with cost given the amount of value that debt your new products are bringing.

Yeah.

You know what I guess I got you right.

We wouldn't want to talk for the industry and they tell you. The that we are constantly working on providing industry, leading margins and we do that and I think our results show that and we're going to keep doing that and a good way and as we bring all of these new products. We do expect that they will provide again benefits to the customer and Packer and that's that's kind of the model we work with the stay as the best company.

Company there is.

But I mean, the deal of David I mean is are you just pushing more to just.

The.

Take market share grow the installed base and therefore, you see improve margins via the parts business, because you're selling more.

Our content and the aftermarket or Theres got to be some type of strategy there and it just seems like the the focus is much more on driving volumes and share them on pricing itself. Realizing I get that you have the best margins and the industry, but it would just seem that maybe this is more of a comment and a question.

And welcome your further thoughts just why you raised prices.

Yeah, I think I think you said I think you said it right you said, we of the best margins and the industry and we do and we continue to work on that and we continue to grow our business around the world geographically, we continue to make these great investments, which are good for our customers.

<unk> you continue to see the growth that comes along with it through the parts business The finance company.

And the Packers really doing a great job and we're and we're going to keep doing that.

Alright price and then the last part of it just just pricing for your Evs.

And the broad spectrum of you got all of these new entrants.

Instruments and the market you get a lot of new vehicles that are coming out.

You're 1 of the first if not the first but where are you on pricing relative to everyone. Allison and can you comment at all what do you think happens to the pricing for some of your core vehicles over the next the 3 to 5 years.

And as penetration of it always starts to grow.

Our margins our margins for the Evs are kind of comparable to 2 diesel powertrain margins. So those are those are looking really good the markets obviously the market that's emerging.

Mature so theres a lot of dynamics around battery costs continuing to come down there is government.

Government grants and subsidies that come along with some of these projects would be the battery electric or hydrogen fuel cell. So it's a pretty dynamic world and we're focuses on achieving high quality margins and high quality of trucks of our customers and the zero emissions space.

Okay. Thanks very much.

You bet and have a good day.

Your next question will come from Vivek <unk> with Raymond James.

Hey, good morning, everybody.

Good day, how you doing.

Good Hey, I was hoping to touch on the new product launches from just a quick second correct me, if I'm wrong, but I think you mentioned about 10% and fuel efficiency improvement in Europe, and should start production and a couple.

Of months, and then and I.

And I heard of 7% on the Peterbilt and Kenworth can you help us understand how good that is from the upgrade perspective.

And maybe versus prior fuel efficiency increases and sort of.

Historical model changes.

Sure.

The good way to think of it and the first thing.

Well digit changes and Europe, where speeds are more like 100 kilometers an hour a day excuse me 80 kilometers an hour for trucks is Wow, I mean getting that kind of improvement is just amazing and the.

<unk> team.

And it's such a fantastic job and 1 of the reasons the Airbus do such a good job as they work closely with the government there all of the.

And is still finding with the shape of the vehicle can be and so the government allowed a different shape of the vehicle and the office of the first OEM and the only 1 that's announced to do so so far of being able to bring out of cab that meets the new shape, which is more aerodynamic and.

So just fantastic effort by the team at door and bringing that truck out.

And it doesn't just create aerodynamic benefit, but the interior and the visibility of those trucks are just amazing.

And I would also say the you know from being a user of the trucks to get and the truck and you're driving it just the way. It feels it's really really quiet like I would say quieter than of 5 series BMW when you're running down the highway it's just fantastic.

And then if you use of the sleeper compartment of it it's got all kinds of creature comforts and luxury for the.

The drivers and so it just a beautiful product that delivers the double digit fuel economy, and and characterizing it against other programs you might think 5 percentage a lot. That's how we would look at is the 5% change of fuel kinds of big change and fuel economy.

And so for them to get 10, just amazing and same thing for the Kenworth and Peterbilt teams getting 7% on these next generation, 579% and <unk> data set of great job of bringing everything he could of the table and Thats. Obviously, you had a big impact on lowering operating costs for our customers. So these trucks are going to set the.

For the industry.

Yeah, and and I appreciate that and that's kind of where I was trying to go with it.

From an opex perspective, and a 10% improvement year over year, it feels like a very big deal.

And if you could if you could indulge me maybe characterize how you think that's what impact multiyear of truck demand.

And if indeed upgrade features of our maybe higher and and.

And then and that same vein, I guess, where I'm coming from I understand the near term focus on margins given all of the temporary noise of the numbers.

And if demand does stay elevated for longer.

Is there anything structural in the model why margins should not move sort of in tandem.

With that prolonged demand.

And any color kind of what the appreciate it.

I think your I think your second comment is right.

They should move in tandem with it.

And I would and I would say that youre right and the new products coming out that make the operating costs lower for a customer is cycle independent they want to lower their operating costs as what they used.

To be competitive so buying new Doffs peterbilt and kenworth is how they win that game.

And how they keep their drivers most happy and so yeah. That's good for the business.

And that will extend the cycle for them and the biggest Gulf of 2 operated trucks is the driver.

The fuel is a good second and.

And if you can cut the fuel bill by 7% and 10%.

And that's huge I think the central sent us the highest reduction the Duff has seen and its entire history.

And reducing the like I said of the fuel bill by 10% mix any of our customers will look more competitive. So they are looking forward to getting those new trucks.

I appreciate the help I'll leave it there.

Right.

Your next question will come from Matt Alcott with Cowen. Please proceed.

Hello, and thank you for taking my question.

My first question just a quick 1 you guys are now the only U S. Based class 8 truck manufacturer do you think this could and anyway help you competitively.

And that U S class of hit the market longer term.

I don't know we were proud of who we are and we're proud to be of Great company.

Lover, Kenworth and Peterbilt operations here in Mexico are Dov and Europe, our dolphin and Brazil, So we feel like we.

<unk> represent the markets, where we where we operate.

Really well.

Relationships with our customers and dealers and those markets and that's how we think about the world.

Okay got it and then my next question.

And as more on the vertical integration front.

And the next year looking like a strong for lack of production year and with you guys.

And other Oems of allocating investment dollars, along a whole host of new technologies as well as the score operation do you think you might do less vertical integration and.

And at least next year.

You know I don't think of it that way at all.

I think that we're making the investments.

And where they make sense on the volume standpoint.

Continuing to grow our pack our engine business, obviously, the 60% of our sales of powertrains are engine and around the world and we continue to just making the right investments to bring the best products to the customer it's really of.

Elegant and it's simple and we just want the best things from a customer.

Since we were that will be good for Packer and some of our R&D and our thinking is to <unk>.

Vertically integrate where it makes sense and partner with others, where it makes sense and make sure that brings the best products out of our.

People using them.

Great. Thank you very much.

Net.

Your next question will come from Jeff Kauffman with Virtu.

And that's partners. Please proceed with your question and.

And thank you very much and congratulations on the quarter.

Thank you.

Big topic out there as raw material parts inflation and I.

We've talked about some of the challenges on the chip side, and the supply chain and getting the trucks out but.

And I.

I was really kind of impressed that the gross margins.

And what they were this quarter and.

Could you give us a feel for are you seeing inflation and the in your supply chain kind of when will that start to hit and flow through and are we offsetting that with with price are we offsetting that with anything I just kind of wanted to get a sense.

Because some of the other Oems we've spoken to are kind of citing that but I didn't see it and your numbers.

Yes, we are if we are seeing inflation of course and raw material costs have gone up.

But we are baking that into our pricing when we price the new trucks to our customers.

And that's how we deal with that.

Okay. So not you Wouldnt tell us.

Brace for <unk>.

Gross margins to come down a little on inflation and the second half you feel like you're containing and in terms of what youre seeing and the market right now.

And that's probably the best way to think about it.

Okay, great well congratulations.

Thank you.

Your next.

Question is a follow up from David Raso with Evercore. Please proceed hi. Thank you. My question is on the duration of the cycle I mean, given this is a pretty unique supply constraint moment youre.

Your conversations with some of your largest customers the larger fleets and what are they laying out for you when you try to look.

Look out a year or 2 you know thinking about potential growth or not beyond 'twenty, 2 and maybe different conversation in Europe and in North America, just trying to digest.

We're having to go back to key customers and you know understandably, maybe you can provide them everything they want today, how is that impacting their thought on their trucks needs over the next call.

And at 18 to 30 months.

Sure I think 1 of the things to think about as trucks are as we talked about a lot of this call and becoming more and more efficient and so I think their percentage the percentage of how they'll haul freight and the future beyond the 18 and 30 months even is that they will continue to take a.

The vast majority.

And of the freight ton of hold around Europe, North America around the world actually so trucking is and it really good position for the world. Our customers are doing a fantastic job of becoming more efficient, but the demand is really really high and so we and they I would say expect that there'll be a strong market certainly through next year, which ties to the 18 months.

And it's harder to say, but in essence, they are doing really well right now they have all of that all of the freight that they can hall and the business is doing really well so together and he is doing fine.

And when you think of the capacity and the industry I mean, theres pinch points today, but when folks try to think about how much.

Beyond the street could build next year and then obviously that sets the bogey for can you grow off of that and 23.

My understanding of its hard to analyze exactly some of the chip issues when those will be resolved and so forth, but just as a framework. How do you think about build capacity for next year versus this year just so.

The events of the few served all of the demand how much could demand you know production grow next year.

Sure I don't want to kind of comment on other People's capacity is what I'll tell you is that we have sufficient capacity and all of our markets to go up substantially and to meet the demand that's needed and so we're looking forward to that as we get through the supply base issues.

So we have as look forward to the operation running really smoothly and and build a lot of trucks next year.

And last quick 1 on the <unk> versus <unk>. The shutdowns that you would normally taken 3 Q given the dynamics out there are those shutdowns still intended to take place.

The shutdown we've taken Europe is taking place indeed, okay. Thank you very much appreciate the time.

And we just have a good day.

Your next question is also a follow up from and Degen with J P. Morgan.

Yes, just the.

The thing and David's question, a little bit and yeah.

And we saw cancellations spiked last month.

And maybe an industry problem or whatever but can you talk a.

That's about what Youre seeing and in terms of cancellations out there and is there any risk that customer and just say too late or too expensive or whatever.

I decided that I don't need my trucks that Raul if you could just give us some color on what you're seeing on the cancellation side of that I'd appreciate it.

Yeah and.

But I can't speak well to the industry. We are not seeing that I can tell you that our order board has been solid we arent seeing cancellations I think that probably has to do with the great products, we're putting out but there is really not that's not a factor right now and we're seeing excellent demand and really really strong request for more and more products from us.

And but on the other hand, you do like to tell us what your share of orders.

The last quarter or at least and in the first half of the year and what your share of backlog is that maybe and then.

The GAAP at least from your.

Sure happily and we had 42% of the orders and the first half of the year.

And once here.

The backlog then.

You know I.

Don't know that number off top of my head.

Okay.

I can tell you is that as we see that kind of order intake.

Higher than our market share and so things are and really good position from us from.

Supporting the customers from our quarter and taken.

And the demand standpoint, and the share of the backlog at the end of June was 36% of ago.

Okay alright, thank you.

You bet and have a good day and thank you.

At this time there are no other questions in queue are.

And additional remarks from the company.

Sure and just like the close by thanking everyone for the discussion day.

Think that the key points for us as we look at the business is there is really strong demand and order intake as we just covered.

We have fantastic new trucks, all around the world. The finance team is setting records and has great momentum and their business the parts team.

Team is just killing it as an industry leading team they are bringing in new technology and customer focus and they really are going to keep driving record success and so I'm. Just so proud of everyone at Packer and the great work. They are doing and we look forward to talking to all of you soon and with that we'll conclude and say thank you.

Ladies and gentlemen, this concludes the <unk> earnings call.

Paul Thank you for participating you may now disconnect.

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Sure.

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Yes.

And then.

And.

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And then.

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Good morning, and welcome to pack cards, and second quarter 2021 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.

And I would now like to introduce Mr. Ken Hastings, Patkars director of Investor Relations. Mr. Hastings. Please go ahead.

Good morning, we would like to welcome those listening by phone and those on the webcast.

My name is Ken Hastings, <unk> director of Investor Relations and joining me this morning.

The Star Preston and fight Chief Executive Officer, Harry <unk>, President and Chief Financial Officer, and Michael Barkley Senior Vice President and controller.

And as with prior conference calls, we ask that any members of the media on the line and participate in a listen only mode.

Certain information presented today will be forward.

Alright, and involve risks and uncertainties, including general economic and competitive conditions that may affect expected results.

For additional information please see our SEC filings and the Investor Relations page at <unk> Dot com.

I would now like to introduce press and fight.

Hello, everyone.

Good.

Looking call with all of you.

Harry Skippers, Michael Barkley and I will update you on our second quarter results and business highlights.

First and foremost I appreciate our outstanding employees around the world, who are providing excellent trucks and transportation solutions to our customers.

I'd also like to thank Packers fantastic dealers and suppliers for their support.

To be on the <unk> achieved very good quarterly revenues and net income and the second quarter of 2021.

<unk> results reflect quarterly sales and profit records at pack of our parts and pack of our financial services.

The economies and freight markets continue to be robust and all of the <unk> geographic markets.

Demand for <unk> premium.

So strong.

Our second quarter sales and financial services revenues were $5.8 billion and second quarter net income was $493 million.

<unk> of our parts achieved record quarterly revenues of $1.2 billion and record pretax profits of 266 million.

Liam trucks out of our financial achieved record pre tax income of $107 million.

And I would just like to take a moment to recognize these wonderful achievements by our great team.

So looking at product.

2021 is the biggest year of new truck introductions and pack of ours history.

The most recent truck introduction.

Introduction was in June when the off launch the excess ex G and ex Jeep plus.

These daft trucks are game changing.

And the office of the first manufacturer to utilize the new European regulations, allowing for longer cab.

And the regulations enabled das engineers to design and aerodynamically optimized trucks.

And that provides up to 10% greater fuel efficiency and and equal reduction in greenhouse gas emissions.

Technology enhancements include a new powertrain.

New digital Mirror's digital dash displays and a full suite of advanced driver assistance systems.

The new models provide drivers.

There is a new level of luxury and comfort.

And there is great customer excitement for the new trucks and this is being reflected in strong orders.

Production start is in October.

The next generation Peterbilt, 579, and Kenworth <unk> hundred 80 began production in May the.

These new.

Trucks feature enhanced aerodynamics, and powertrains that deliver up to 7% higher fuel efficiency in.

The industry, leading led headlights advanced driver assistant assistance systems, and the state of the art interior with a configurable digital display.

So in addition to launching the new class 8 trucks. This.

And what and the Peterbilt began production of their new medium duty truck lineup.

These vehicles have and 8 inch wider cab.

Best in class visibility for enhanced safety and of premium interior with Configurable dash displays.

The new medium duty trucks feature of the Packer 8 speed automatic transmission.

And we are.

<unk> excellent customer demand for these new peterbilt and kenworth vehicles.

The <unk> industry, leading zero emissions battery electric trucks are now and production with 60 vehicles and customer operations, and Europe, and North America and.

And we've received orders for over 450 battery electric trucks and are working closely.

We're seeing customers and our dealers as we move forward with these exciting zero emissions product offerings.

During the second quarter back of our enhanced its autonomous truck development partnership with Aurora by becoming a minority investor and their planned public offering.

The <unk> partnership continues to make progress and developing.

With our level 4 autonomous solution.

And looking at the truck markets.

U S and Canada class 8 industry retail sales are estimated to be and a range of 260 to 280000 vehicles Ken.

Kenworth and Peterbilt market share was 29, 4% and the first half.

And Europe truck.

Eloping of registrations and the above 16 tonne market are estimated to be and a range of 270 to 290000 vehicles and off year to date market share is 15, 7%.

The South American above 16 tonne market is projected to be and a range of 100 to 110000 trucks and the off Brazil's above 16 tonne market share through June was.

Industry <unk>, 7%.

As has been discussed in recent months industry truck production has been tempered by the under supply of semiconductor chips.

Kenworth Peterbilt and <unk> had a good quarter and delivered 4100 trucks with an additional 6500 of waiting key components.

5 Paul it's very dynamic we currently anticipate supplier constraints improving towards the end of this year.

<unk> continues to advance its industry, leading environmental focus with our products and and our factories Packer.

<unk> committed to achieving science based carbon reduction targets and pack or continues to receive high rankings for its <unk>.

The leadership.

These are really exciting times for <unk> as we create our future and <unk>.

Harry Skippers will now provide an update on pack of our parts Packer financial services and other business highlights. Thank you Perry.

Thanks breast and <unk>.

The parts had another outstanding quarter.

<unk> achieving record revenues of $1.2 billion.

Compared to $823 million for the second quarter of last year.

Parts of pretax profits were a record $266 million.

Compared to a $152 million and the same period last year.

<unk> gross margin.

And a robust 28, 2%.

<unk> benefited from strong trade, the mountain and truck utilization investments and E Commerce technology and distribution capacity.

Strategically located pdc's reduce delivery times and increased customer uptime.

Margin e-commerce parts sales increased 56% and the second quarter compared to the same quarter last year.

Becker is continuing its investments and world class distribution.

The opening of new distribution center in Louisville, Kentucky next year.

We expect third quarter parts.

Sales to be similar to the strong second quarter.

Becker financial services earned record pretax income of $107 million.

Reflecting strong portfolio performance.

The robust used truck demand.

We expect third quarter Becker financial results to.

To be in line with the excellent second quarter.

Becker financial is increasing its retail used trucks center capacity worldwide, which enhances margins.

A new bank or financial used truck facility is under construction imagery of Spain.

Kenworth and Peterbilt truck resale.

Values come out of the 10% to 20% premium over competitive those trucks.

<unk> invested $7.3 billion and new vehicle programs and Hans facilities and new technologies during the past decade.

This includes the investment of $1 billion.

<unk> for the new Dr truck range and expand at the factories.

Capital expenditures for the year are projected to be $550 to $600 million.

And research and development expenses are estimated to be 300 of $40 million to $360 million.

Becker is investing and a zero.

And <unk>.

And ultra clean diesel powertrains and.

Fond of driver assistance and autonomous driving systems connected vehicle services and enhanced production and distribution facilities.

Second quarter truck parts and all of the gross margins were 13, 5%.

So a major of some of the amount of strong and Dove Kenworth and Peterbilt are sold out for the year.

Depending on the supply of materials.

Third quarter global truck production and gross margins could be similar to the second quarter.

The recently introduced the kenworth and Peterbilt truck.

Provide packer of the newest and most exciting product lineup and company history.

These new trucks will support our customers dealers and our success in the coming years.

We'd be pleased to answer your questions.

Model.

Operator.

At this time at the we'd like to ask a question. Please press star followed by the number 1 on your telephone keypad to withdraw your question press the pound key.

Your first question will come from Jerry Revich with Goldman.

And then sacks. Please proceed.

Yes, hi, good morning, everyone. I'm wondering if you could just talk about.

With the new product lineup that you have rolled out globally.

Do you have a higher proportion of common platforms and core components.

And the platform today compared to.

And what we would've been looking at under prior generation products.

And just talk about the implications of product development going forward.

Given the timing of overlap of the product Rollouts globally.

Thanks, Ed.

Jerry that of the fun question [laughter], we could talk a long time.

Keep it brief for you, yes, we have we have been able to globally make sure that we're leveraging our core competencies and software development and and some of the electronics capabilities for the vehicles around the world. So between the off Kenworth and Peterbilt, we take the best approaches and apply them and that shows up and the way some of the vehicle functionality is and which is just I got to tell you the really.

And I was able to drive the new DOF of few weeks ago and was over in Europe and the truck is amazing.

And I think obviously on the subjectively bias, but we had a bunch of our dealers and in it and they got to see it and everybody is just thrilled with it. So we're seeing just a beautiful new truck there in Europe and the same and can be said for the trucks in North America, we are theres more commonality between.

By the broken worth and of Peterbilt in terms of the chassis design. There. So we use best practices to make sure we provide the best ride and capabilities and those trucks are equally just just fantastic to be in.

Yes, we're using our best practices and getting global leverage as we do our designs.

Okay terrific and then.

Between the <unk> off to a strong bookings for your electric vehicles and I am wondering if you could just talk about over what timeframe do you plan to produce the electric.

The vehicles.

And you spoke about and in backlog and.

Can you just quantify to what extent, you've been successful and layering on and charging stations and other expanded services.

And as their revenue number associated with the unit number that you might be willing to share it with us.

Well I would say that the orders are coming in I mean, so the 450 is just a moment in time, we're getting new orders every day, we had good order from Amazon and yesterday, a couple of days ago and Europe.

From a battery electric vehicles that we use and the U K. So we're getting this around the world.

And there'll be built as the orders come in some of the origin of multi year. They could take a few years because theres high quantities.

We anticipate the market just continuing to evolve.

And grow over the years, so it starts and the hundreds as we've shared before and we see it moving to the thousands as that happens and our team at Packer parts is doing a great job of rolling out of charging stations.

World and.

And being supportive to our customers and our dealers with the infrastructure needs that they have so we've taken a holistic approach there and see these as good opportunities for per pack or to grow the business beyond just the provision of product there.

Okay, and lastly, and here you spoke about expectations from similar production and.

Gross margins in.

<unk> third quarter can you talk about how you expect the supply chain to look into the fourth quarter. What are you hearing from from the supply and the supply base.

And that far out do you think our inventory of uncompleted trucks.

The declines as we go through the year.

And like we said Gary.

There's a lot of uncertainty around the supply base.

And the deliveries and the third quarter and beyond and lot of that will depend on the ability of the supply base to delivered especially in the into semiconductor the area.

Okay.

And I appreciate the discussion thanks.

And have a good day.

And our next question will come from and icon with J P. Morgan.

Alright, thank you.

And if you could expand.

And those last comments, a little bit I think we depreciate it at the end.

And it takes that and the gross margin going into Q3.

Seasonally in Q3.

And the weaker than Q2.

Yes.

On the plant shutdowns of Tetra and Europe, However, and you've got all of this inventory build.

And should you be able to we've seen kind.

Opponents, and perhaps deliveries are higher and though we don't get the absorption because theyre already built so I'm trying.

3 of them.

Really understand the puts and takes because he seemed kind of hesitant. When you said debt gross margins and performance might be similar in Q3 to Q2. Please.

Please expand on that and any way shape or form net you can't.

Sure and happy to happy to take a swing of that for Ya and I understand the market really well and.

Trying to excellent demand as we said we're sold out through the year.

And all of our markets. So with this great demand great market need for trucks around the of the around the world really.

Customers are looking for trucks as quick as they can get them and we're building and as quick as we can get them and so we had.

Good second quarter and our deliveries at 40000.

And we have obviously you can do the math, there's several thousand and sitting there that are waiting of component and as we get the components, which is unclear and the semiconductor front, we complete the trucks and get them to our customers. So wish we could give you more clarity on how that semiconductor suppliers.

The supply is going to proceed through the third and fourth quarter, but we just don't have any.

More than that right now.

And just for clarification when you ship those trucks after you get the semiconductor.

Already gotten the absorption of building those products, they're just sitting at the end of the line waiting for semiconductors and.

That is correct and so the of.

Of course, the absorption is already taken.

And when we deliver and ship the truck that's when we record the gross margin on the trucks.

Alright, okay.

Okay.

And then on the parts.

And the same code.

And you had given us.

The full year guidance per parts.

The expected net pay up about 15 to 18.

18% and stuff.

And with the revision today.

Calling from more like 18% to 20% now for the full year.

And thank all of the you said the performance will be similar in Q3 to Q2 is there any reason to believe that the henkel couldn't continue to perform at this level of into year end.

Taken from.

So the parts of we're expecting the full year to be an increase of about 20% to 22%.

Okay.

And sort of finance company, the 1 of another $7 million into the second quarter was the record outstanding result.

And if we look at the current market dynamics with.

And all of the used truck markets and <unk>.

Excellent payment behaviors by all of our customers strong portfolio.

We expect the business to run a debt level for the next quarter and.

And that's pretty good run rate now.

And that's a good run rate I'm, just trying to figure out the model and get real.

And finally, a real quick just and dealer inventories right now versus where they ought to be.

Well the dealer inventories are limited, which will extend the market also we have about.

And $1.6 months of inventory of the dealers.

And I think the industry and 1.9 or 2 so it's less and we'd like it to be.

The stroke, but that does bode well for a strong extended demand cycle.

Okay. Thank you and I'll get back in line appreciate it you bet.

Your next question will come from Stephen Volkmann with Jefferies. Please proceed.

Hi, good afternoon, and here and good morning, there guys.

Okay.

Of course flow Steve.

Alright.

So couple of quick ones Preston your industry commentary does that factor in the supply chain issues and Thats kind of of your best guess or is that more of a number that would be kind of the high side and then.

Supplier issues might cause it to be lower than that.

Well I would say that we tried to factor in everything into those numbers. So that $2.60 to $2.80, and North America. The reason the shift out a little of it is because of the supply side provision.

With the demand and we have it's really what the throttle as on the on the business right now.

Okay Super and then.

With respect.

These new truck launches that you that you kind of went through I guess the bottom line question is would you expect these products to be kind of higher margin and the products that they're replacing.

Well, we think that we set out to design products that are great for our customers and.

With the kind of fuel efficiency the driver comforts the feature capability.

To all of the is that they all provide to the customers. We think the want to buy them and that should that should be good for Pac R and good for the customers.

Alright.

Maybe the final quick 1 just any commentary on pricing I mean, I know things are sort of sold out when do you start taking orders for 'twenty 2 and is there any reason.

<unk> ability to assume that the pricing wouldn't be more robust as you start to do that.

And we are taking pricing for 2022 and.

We had if you just look at our our order intake has been very strong.

And so we're seeing how that's progressing through the market and working on raw materials pricing into those models and just moving.

And that.

Thoughtfully into 2022, as we take those orders and we do expect the new trucks to be a bigger percentage of our build and the second.

Secondly over the next year and that'll be that'll be good for everyone.

Got it thank you.

Yes.

Your next question will come from David Raso with Evercore.

Moving from I think you are saying about the dosing for the rest of the year. When you mentioned you're sold out for the rest of the year does that speak to the pricing is pretty well set on your deliveries for the rest of the year or is there and ability to adjust pricing.

For any further shipments this year.

So it's.

Largely set but I would tell you. The these have been unusual times and so we've adjusted pricing as necessary to match into raw materials pricing and that's kind of the way we've approached the market.

Okay, so still some flexibility.

The backlog is sort of spoken for for the rest of the year.

Alright, well limiting with the limited versus historical you want it usually.

And historically, yeah, what I would say is we're working really closely with the customers to get them. The trucks they need as quickly as we can and and I think they understand we understand that thats, taking extra efforts right now and so we're applying those efforts.

And when it comes to the 6500 red tagged trucks waiting for a component.

Of those.

The adjusted Specced those to ship the large majority of those would ship and the third quarter or because that's the greatest pinch point.

When we think about say potentially flat deliveries to 2 to 3 Q.

They might not include a lot of those 6500 and I think we're all just trying to get a feel for some of the overhead absorption issues.

Do you chipping already built trucks or not and the near term.

Yes, I would tell you that thats a constant dynamic there.

Had some trucks that we build minus component and we received a batch of components for those and of ship those out.

Only to find ourselves and different circumstances with like a <unk>.

Malaysia, Covid outbreak, which then causes.

And as with the strength of a different component, so it's pretty dynamic and hard to really talk about which trucks ship win.

By corridor.

Alright. Thank you very much I appreciate it sure you bet have a good day.

Your next question will come from Nicole the plays with Deutsche Bank.

Yeah, Thanks, Hi, guys.

Hey, Nicole.

As of confirmed.

Clarification on the third quarter production guidance. So have you guys or do you plan on taking your usual plant shutdown the seasonally in Europe and.

And I'm, just trying to think through like Q on Q production by region.

Yeah.

So we do plan to take our European shutdown and factor in.

But now it started started this week and none of them, but anything else you want to add the thinking about regionally.

I think other than I don't think there's any other regional the guarantees that I'd add into it.

Okay, Europe down Q on Q that and maybe the other 2 regions up a little debt Q on Q to compensate for that to get you to flat overall.

And I would say it's.

And the midst of more about which components, we get win and Thats really whats driving those deliveries by region.

Okay, Okay understood and then.

And maybe just to elaborate a little bit from David point. So if you think about the pricing that you guys realized and the corner, which I know, we'll all see when the 10-Q is filed but did you have a pinch at the margin line from price.

It's really hard and what is the expectation for how that progresses and tier 3.

So when you when you see the 10-Q the call you'll see that the pricing was up 2% to 3% compared to last year.

And then of course.

The resulted in margin improvement compared to.

But if you look at it more on a sequential basis and I would say that we've been able to increase prices.

And to cover.

The cost increases.

And.

I think that's what gives us the margins as we know them and in the second quarter.

And Thats assuming.

And of the assumption, if we look at the third quarter.

Got it okay, and Thats really helpful. And then I'll just squeeze 1 more and could you just comment a little bit on what you're seeing with respect to used truck pricing like the magnitude of the growth.

Well I mean, it's grown quite of bit obviously, and the year over year and North America has grown and the 40 something.

Per cent and Europe has grown double digits also and so we've had great growth and our used truck pricing. There's a limited supply of used trucks I mean, obviously, the packer products command the premium in that space, and it's and even more precious premium right now.

So we think that as long as supply is limited and there'll be a there'll be a good opportunity for our team selling used trucks.

Getting customers.

And the ability of the freight.

Got it thanks I'll pass it along.

Your next question will come from Joel <unk> with BMO. Please proceed.

Hey, guys How's it going.

Good Joel how are you doing hanging in there.

And is this is this automated cab factory and Europe is that of new temple.

Template for for what you can do around the world or is that more of just.

Building on what you already have in place in terms of the footprint.

Well Joel it really is a new approach its an evolutionary approach was the new approach. The factory is amazing and we hope to get you over there soon to be able to see it we were just there a few weeks ago and.

All I can say as well.

When you look at the level of robotics that we've applied to bring the highest degree of quality and capability and putting those trucks together, it's really fantastic state of the art factory and.

It brings a new level of I'd say competence into our manufacturing operations.

And I think what everyone's asking.

And I'm wondering too can you give us some of the pieces to to raise your kind of structural incremental margins they've been kind of stuck in the 12% to 14% range for a while and and I. Just wondered you know everyone keeps asking maybe elect maybe its electric maybe it's the automation maybe its pricing can you give us a little sense.

And maybe just some of the things you are thinking about internally that could structurally push those margins higher and the next 5 years.

Yeah sure you're happy to look at the parts business and again that team is just doing a fantastic job and so on and the focus there is to continue growing and theyre able to do that because they really think about what the customers' needs are and what the dealers needs.

Sense of the putting systems in place and enable a.

It really world class delivery of parts and same day and more and more frequently and so that's an area of growth opportunity as we look at it the finance companies of great foundational growth opportunity for us as well the new trucks.

And we'd be really remiss to not talk about how the new trucks or can help to grow the business over time.

So you mentioned other things like alternative powertrains zero emissions vehicles, that's of great opportunity for <unk>, where we're already putting ourselves and our leadership position in terms of order intake and so that that not just the sale of the trucks, but the support of the trucks and the field battery electric charging stations battery Energy management Fleet management help those.

And we can provide we see embedded software and connected trucks being an opportunity for growth and the future.

We have this relationship with the autonomous vehicle producers and namely Aurora, that's an opportunity as we go forward and increasing.

Utilization of safety systems like that so.

Our skills there.

And there's a whole plethora of great opportunities per pack or to grow as we move forward and the future.

And Thats excellent. Thank you so much yeah you bet.

Your next question will come from Rob Wertheimer with Melius research.

Hey, good morning, everyone.

Rob.

During the question I guess I think I have to 1 of electric 1 of <unk>.

And obviously noted the 3 competitors.

And the and alignment on charging and Europe, and I don't know whether you specifically comment.

And your thoughts on doing that with that of alliance, but maybe more broadly 1 of the role for and OEM and trying to prep if any the prep.

So from some of these changes are coming in and the infrastructure isn't necessarily there.

Well I'll stop there.

Okay, well, that's a good line of thinking there.

They did make that announcement, we are rolling out our infrastructure system and so basically what everybody is trying to do and the in the all the Oems car and truck returned to creative and infrastructure. This.

First of all by each other and Thats, what there would be.

So usable by all of our products at the same time, we're also rolling out of our capabilities and into the dealers and with the customers obviously with each electric vehicle.

And the early phases before range is unlimited theyre going to be largely use and a return to base kind of and operating style, which means when you buy a trucks you're probably.

As usual the charging station also and the integration of the truck and the charging station how those how that system works together as a core competency that we bring to our customers and we'll share with our customers. So we see that as kind of an and avenue forward. So there's some symbiotic relationship with all of the Oems, but there's also this unique capability of the pack or has and bringing.

Looking at right battery energy management, and the right kind of system to a customer.

That's a very helpful and until she's not youre not kind of sitting passively by of letting others do this you're involved and yourselves and the different way, where do you think it's more of volume Okay got it exactly yeah. That's on the on your outlook.

And your electric truck orders of those most of the medium duty or is there heavy.

And what I'm, saying about the you mentioned return to return the base anything about the roots of the base or the duty cycles of the vehicle configuration that is currently attracting attention and I will stop there. Thank you.

Yes, sure the orders have been spread out there've been medium duty orders been heavy duty orders and the and the.

And kind of the pickup and delivery space.

And can also been refuse kinds of trucks that we've taken good orders from so again anywhere where urban applications, where you're running 200 miles and youre coming back at night and so we have time to recharge. Those are those are the right spots for the battery electric systems today, and we're doing that and Europe and in North America.

Thank you.

And Theres no debt have a good day you're.

Your next question will come from Jamie Cook with Credit Suisse. Please proceed hi.

Hi, good afternoon, or good morning to you I guess, a couple of questions 1 I've been in the.

Chuck margins are coming in a little lower because of the supply chain inefficiencies. The parts margins have continued to progress and.

Like this year will be at a record level. So I'm wondering if gross margin structurally and parts can be higher and and and that's what we're missing and how much runway you have to go there and then my second question is you know understanding you probably don't want to talk about next year, but as you think about the order book and then some of the inefficiencies that we're seeing.

And 2021 do you think Theres a set up for next year for incremental margins.

The industry forecasts are right to potentially be better in 2022 versus and 2021.

Jamie I'll, let Michael talk about the first part of it and then kind of come into the second and the.

The margins.

And are benefiting from the higher volume, we get to spread that over.

The the fixed cost base, if you will sort of get volume leverage out of the.

The much higher volume that we're enjoying right now and plus there has been decent pricing because it has been strong demand that's been able to at least keep pace with the cost increases.

And that we're seeing on the.

And the raw material side.

And then as we look at 2022, we see that as this operation's kmarts flow steadily and put it that way then.

That should be of great opportunity for us as well right and the production efficiencies return at higher levels. We expect the market will be strong next year and.

And that should be good for <unk>.

Okay, and then sorry, 1 last follow up question. It sounds like from your prepared remarks, you guys were having.

The good success with the automatic with the.

The transmission with that as your new partnership there. So can you just give a little more color there and what youre seeing on adoption range of and does that.

Trans.

And mission and how you think penetration and how to think about penetration I guess over the next 12 months and over the longer term with that product line. Thank you.

I don't know the exact number of percentage take rate so on and I know, it's been pretty high and growing as people get the experience with it. So I can't give you a numeric answer I can just tell you that and being in the vehicle.

A lot and driving it and talking to customers about it it's working really really well and we expect that just to continue to to increase.

Okay. Thank you.

The next comes out of a day from Chad Dillard with Bernstein.

Hi, good morning, guys.

Got it so just morning afternoon.

And I just wanted to go back.

The supply chain challenges.

Can you just give a little bit more color.

And beyond semi is can you talk about what other components of our in short supply.

Has the breath of components of the shortage grown and then if you can just talk about to take the month over month cadence.

Did things get better.

Or worse as we progress through the second quarter.

She had I'd love to be able to give you more of what we've given you just about everything we can on explaining where we're at with the supply base and that there's a degree of uncertainty that you can see and every manufacturers report write ups and.

We have that same kind of uncertainty working through our system and.

If I could tell you more and new more of I would.

We're going to continue to operate this business and a world class fashion and as we get the parts, we put them and the trucks and get them to the customers as quickly as we can.

Got it and.

Maybe you can just given the sense for how much less you need to spend on promotional discounting.

And it really strong environment.

Are you at 50% of typical spend levels of 20% and I'm just trying to think through if.

And the environment the demand environment remains strong can you actually pull up a little bit more of that marketing expense.

Well.

And we don't really have a marketing expenses associated.

Given the promotional discounting and the way we build the order and I think that our products do a great job of selling themselves and.

And I don't know anything else because our sales expenses of part of our SG&A and.

As you've been able to see our SG&A has been pretty stable going from the first of the second quarter and.

And thats the kind of the level we.

With the SG&A to stay and tight cost.

Charles.

Good budget discipline and.

And we'll continue to do so.

Okay, great, Thanks, and I'll pass it on.

Right.

Your next question will come from Ross Gilardi with Bank of America.

And there thanks for taking my questions.

We expect the.

Have you guys disclosed how big your stake is if its been out and articles and your filings I missed it I apologize but.

Sure.

No Ross, we Havent disclosed that this is Ken.

And the Aurora has and either I don't think of any of the pipe investors of disclose the amounts.

And our thinking.

Thinking around it was to make sure that we just had a strong partnership with them and the real focus is our developing of a pack or specific autonomous vehicle platform that will work with the Aurora, but can also work with others and.

And that's where our focus has been and they've turned into a great partner and we've been riding around and the autonomous trucks with them and.

And there's great progress being made on that on the development of and elsewhere system.

And then sorry for another price cost the question, but I'm just trying to think of this more of the at a at a high level I mean cost push of side recognizing that you are raising prices to offset cost inflation and over time.

You'll probably be successful doing that just why isn't there seem to be.

More.

If any structural pricing power and the commercial vehicle industry. When you have all of these new products you have all of this new technology creates enormous cost and productivity benefits for the fleets you have.

A tight used equipment market Youre sold out why can't this industry and.

And you probably don't want to speak for the industry, Let's just say why can't the car just steadily raised prices, 2% to 3% whatever the number is every year, regardless of what is happening with cost given the amount of value.

Net debt your new products are bringing.

I guess youre right, we wouldn't want to talk for the industry and to tell you that debt.

We're constantly working on providing industry, leading margins and we do that.

And I think our results show that and we're going to keep doing that and a good way and as we bring out these new products. We do expect that they will provide again benefit.

Benefits to the customer and Packer and that's that's kind of the model we work with the stay as the best company there is.

But I mean, the deal of the data.

Are you just pushing more to just.

Take market share grow the installed base and therefore, you see improve.

<unk> margins be the parts business, because you're selling more content and the aftermarket or theres got to be some type of strategy. There. It just seems like the the focus is much more on driving volumes and share then.

And on pricing itself, realizing I get that you have the best margins and the.

Industry, but it would just seem that maybe this is more of a comment than a question.

And welcome your further thoughts.

Just.

Why the array.

As prices.

Yeah, I think I think you said I think you said it right you said, we of the best margins and the industry and we do and we continue to work on that.

And we continue to grow our business around the world geographically, we continue to make these great investments, which are good for our customers you continue to see the growth that comes along with it through the parts business. The finance company I mean, <unk> is really doing a great job and we're going to keep doing that.

Alright price and then the last part of it just just pricing.

<unk> for your Evs.

And the broad spectrum of you got all of these new entrants and the market you get a lot of new vehicles that are coming out.

You're 1 of the first if not the first book, but where are you on pricing relative to everyone. Allison and can you comment at all what do you think happens.

The pricing for some of your core vehicles over the next the 3 to 5 years as penetration really starts to grow.

Our margins our margins for the Evs are kind of comparable to 2 diesel powertrain margins and so those are those are looking really good the market's obviously a market thats emerging.

It's not mature so theres a lot of dynamics around battery costs, continuing to come down there's government grants and subsidies that come along with some of these projects would be the battery electric or hydrogen fuel cell. So it's a pretty dynamic world and our focus is on achieving high quality margins and high quality of trucks of our customers and the zero emissions space.

<unk>.

Okay. Thanks very much.

Have a good day.

Your next question will come from Vivek <unk> with Raymond James.

Hey, good morning, everybody.

Hey, how you doing.

Good Hey, I was hoping to touch on the new product launches from just a quick second correct me, if I'm wrong, but I think you mentioned about.

The percentage of fuel efficiency improvement in Europe and.

It should start production and a couple of months and then and I.

I heard the 7% on Peterbilt and Kenworth can you help us understand how good that is from the upgrade perspective.

And maybe versus prior fuel efficiency increases and sort of a historical model changes.

About 10 sure.

The good way to think of it and the first thing is double digit changes in Europe, where speeds are more like 100 kilometers an hour a day excuse me 80 kilometers an hour for trucks is Wow, I mean getting that kind of improvement is just amazing and the Doc team did such a fantastic job and 1 of the reasons the Airbus do such a good job as.

Closely with the government there all of the in defining what the shape of the vehicle can be and so the government allowed a different shape of the vehicle and the office of first OEM and the only 1 that's announced to do so so far of being able to bring out of cab that meets the new shape, which is more aerodynamic.

So just fans.

They worked with effort by the team at dock and bringing that truck out and it doesn't just create aerodynamic benefit but the interior and the visibility of this truck are just amazing.

And I would also say that from being a user of the trucks, if you get and the truck and you're driving it just the way it feels it's really really quiet like I would say quieter than of 5 series BMW.

When you're running down the highway it's just fantastic and then if you use of the sleeper compartment of it.

Got all kinds of creature comforts and luxury for the.

For the drivers and so it's just a beautiful product that delivers the double digit fuel economy, and and characterizing it against other programs you might think 5 percentage a lot that's.

<unk>, we would look at as of 5% change of fuel the kinds of big change and fuel economy. So for them to get 10, just amazing and same thing for the Kenworth and peterbilt teams getting 7% on these next generation, 579% and <unk> data set of great job of of <unk>.

Bring everything they could of the table and Thats, obviously, you had a big impact on.

That's how we bring and costs for our customers. So these trucks are going to set the mark for the industry.

Yes, and and I appreciate that and that's kind of where I was trying to go with it from.

And the Opex perspective, and a 10% improvement year over year, it feels like a very big deal.

If you could if you could indulge.

And maybe characterize how you think that's what impact multiyear of truck demand. If indeed upgrade features of our maybe higher.

And then and that same vein, I guess, where I'm coming from.

And the near term focus on margins given all of the temporary noise of the numbers, but if demand does stay elevated for longer and is there anything structural.

My goal and the model why margins should not move sort of in tandem with that prolonged demand.

And any color kind of the appreciate it.

I think your second comment is right.

And they should move in tandem with it and.

And I would say that youre right and the new products coming out that make the operating costs lower for our customer.

Shows cycle independent they want to lower their operating costs as what they used to be competitive so of buying new doffs peterbilt and kenworth, just how they win that game.

And so they keep their drivers most happy and so yes that is good for the business.

And that will extend the cycle for them the biggest cost to operate of truck is the driver for.

The fuel is.

Okay and then.

If you can cut the fuel bill by 7% of 10% that's huge I think 10% is the <unk>.

This reduction the Duff has seen and its entire history.

And reducing the like I said and the fuel bill by 10% mix any of our customers will look more competitive. So they are looking forward to getting those new trucks.

Good I appreciate the help all I'll leave it there.

Great.

Your next question will come from Matt Alcott with Cowen. Please proceed.

Hello, and thank you for taking my question.

And my first question just a quick 1 you guys are now the only U S based class 8 truck manufacturer.

Do you think this could and.

Anyway help you competitively in the U S class 8 market longer term.

I don't know we are proud of who we are and we're proud to be of great company.

Lover, Kenworth and Peterbilt operations here in Mexico are Daft and Europe, our dolphin and Brazil, So we feel.

And we represent the markets, where we where we operate really well of.

Great relationships with our customers and dealers and those markets and that's how we think about the world.

Okay got it and then my next question.

And as more on the vertical integration front.

And the next year looking like.

Feel like good luck of production year, and with you guys and other Oems allocating investment dollars, along a whole host of new technologies as well as the score operation.

And you think you might do less of vertical integration.

And Jim has at least next year.

I do.

Strong, but that way at all.

No I think that we're making the investments where we where they makes sense on the volume standpoint.

And to grow our pack our engine business, obviously, the 60% of our sales of powertrains are engine.

And around the World and we continue to just making the right investments to bring the best products of the customer it's really of.

Think of it as elegant and it's simple and we just want the best things for our customers that will be good for pass car and so our R&D and our thinking is to <unk>.

Vertically integrate where it makes sense and partner with others, where it makes sense and make sure that brings the best products out of our.

People using them.

Great. Thank you very much.

Your next question will come from Jeff Kauffman with vertical Research partners. Please proceed with your question and.

Thank you very much and congratulations on the quarter.

Thank you.

Big topic out there as raw material parts inflation and I.

We've talked about some of the challenges on the chip side and the supply chain and.

Net getting the trucks out but.

And I was really kind of impressed that the gross margins.

And what they were this quarter and.

Could you give us a feel for are you seeing inflation in the and your supply chain kind of when will that start to hit and flow through and are we offsetting that with with price or we offset.

Setting that with anything I, just kind of wanted to get a sense because some of the other Oems we've spoken to are kind of citing that but I didn't see it and your numbers.

Yes, we are we are seeing inflation of course on raw material costs have gone up.

But we are baking that into our pricing when we price the new trucks to our customers.

And that's how we deal with that.

Okay. So not you Wouldnt tell us.

Brace for <unk>.

Gross margins to come down a little on inflation and the second half you feel like you're containing and in terms of what youre seeing and the market right now.

And that's probably the best way to think about.

Okay, great well congratulations thank you.

Your next question is a follow up from David Raso with Evercore. Please proceed hi, Thank you my questions and the duration of the cycle I mean, given this is a pretty unique supply constraint moment your.

Your conversations with some of your largest customers the larger fleets.

What are they laying out for you when you're trying to look out a year or 2 you know thinking about potential growth or not beyond 'twenty, 2 and maybe different conversation and Europe and in North America, just trying to digest youre, having to go back to key customers and you know understandably you maybe you can provide them everything they want today, how is that impacting their thought on.

And their trucks needs over the next call it 18 to 30 months.

Sure I think 1 of the things to think about as trucks are as we talked about a lot and this call, becoming more and more efficient and so I think their percentage the percentage of how the haul freight and the future beyond 18, and 30 months, even is that they will continue to take a.

The vast majority of the freight ton of hold around Europe, North America around the world actually so trucking is and it really good position for the world. Our customers are doing a fantastic job of becoming more efficient, but the demand is really really high and so we and they I would say expect that there'll be a strong market certainly through next year, which tightened.

Due to the 18 months beyond that it's harder to say, but in essence, they are doing really well right now they are all the all of the freight that they can hall and the business is doing really well. So together everybody is doing fine.

And when you think of the capacity and the industry I mean, theres pinch points today, but when folks.

Think about how much of the industry could build next year and then obviously that sets the bogie of for can you grow off of that and 23.

My understanding of its hard to analyze exactly some of the chip issues when those will be resolved and so forth, but just as a framework. How do you think about build capacity for next year versus.

As part of this year, just so we have a sense of if you served all of the demand how much could demand production grow next year.

I don't want to kind of comment on other People's capacity is but I will tell you is that we have sufficient capacity and all of our markets to go up substantially and to meet the demand that's needed and so we're looking forward to that as we get through this zone.

Supply base issues, and we just look forward to the operation running really smoothly and and building a lot of trucks next year.

And last quick 1 on <unk> versus <unk>. The shutdowns that you would normally taken 3 Q given the dynamics out there are those shutdowns still intended to take place.

The shutdown we've taken Europe is taking place indeed, okay. Thank you very much.

And I appreciate the time.

Have a good day.

Your next question is also a follow up from Ann Duignan with J P. Morgan.

Yeah, just building and David's question, a little bit and.

And we saw cancellations spiked last month.

And maybe an industry problem or whatever but.

Can you talk a little bit about what youre seeing in terms of cancellations out there and is there any risk the customers, just say too late or too expensive or whatever.

I've decided I don't need my of trucks up Raul if you could just give us some color on what you are seeing on the cancellation side I'd appreciate it.

Yeah, and I can't.

Speak well to the industry, we are not seeing that I can tell you that our order board has been solid we arent seeing cancellations I think that probably has to do with the great products, we're putting out but there is really not that's not a factor right now we're seeing excellent demand and really really strong request for more and more products from us.

Can you put on the other hand, you do like to tell us what your share of orders.

And last quarter or at least and the first half of the year and what your share backlog and maybe and then.

To get at least that from your.

Sure happily and we had 42% of the orders and the first half of the year.

And what's your.

The backlog then.

I don't know that number off top of my head.

Yes.

I can tell you is that is that as we see that kind of order intake.

And higher than our market share and so things are and really good position from us from.

Sure the customers from an order intake and.

And the demand standpoint, and the share of the backlog at the end of June was 36% of ago.

Okay Alright. Thank you Yeah, you bet and have a good day and.

Thank you.

At this time there are no other questions in queue.

Support and additional remarks from the company.

Sure and just like the close by thanking everyone for the discussion today.

I think that the key points for us as we look at the business is there is really strong demand and order intake as we just covered.

Of fantastic New trucks, all around the world. The finance team is setting records and has great momentum and their business the parts.

Are there and is just killing it as an industry leading team they are bringing in new technology and customer focus and they really are going to keep driving record success and so I'm. Just so proud of everyone at Packer and the great work, they're doing and we look forward to talking to all of you soon and with that we'll conclude and say thank you.

Ladies and gentlemen, this concludes the <unk> earnings call.

Team and thank you for participating you may now disconnect.