Good morning, ladies and gentlemen. This is Christian Herrmann speaking. On behalf of Daimler Truck, I'd like to welcome you on both telephone and the Internet to our Q2 results global conference call. We are very happy to have with us today Martin Daum, our CEO, and Jochen Goetz, our CFO. Martin and Jochen will begin with an introduction directly followed by a Q&A session. The respective presentation can be found on the Daimler Truck IR website. On our request, this conference will be recorded. The replay of the conference call will also be available as an on-demand audio webcast in the investor relations section of the Daimler Truck website. I would like to remind you that this telephone conference is governed by the safe harbor wording you will find in our published results documents.
Please note, our presentation contains forward-looking statements that reflect management's current views with respect to future events. Such statements are subject to many risks and uncertainties. If the assumptions underlying any of these statements prove incorrect, then actual results may materially be different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made. Now, with this, I would like to hand over to Martin.
Yeah. Thank you, Christian. Good morning, ladies and gentlemen, and a warm welcome from me as well. Thank you all for joining us for the results call for the second quarter in 2022. Before Jochen Goetz will provide the details of our financial results, I first want to give you an overview of the key topics in our second quarter. Let me start with the obvious. We all observe every day that our environment remains quite volatile, and at Daimler Truck, we of course monitor the various geopolitical developments very closely. As for the war in Ukraine, we informed you about our measures and their impact on our business in our annual results call in March. For now, there's nothing to add to that. We see no additional impact. Regarding the discussion about potential shortages of natural gas, we of course monitor developments here closely as well.
As of now, we expect increasing cost, but no impact on production. In important markets like Europe and the U.S., demand remains strong and our group order backlog remains on a higher level. Today, the limiting factor of our business still is not demand. The limiting factor is supply and our ability to produce and deliver. In Q2, we could not deliver as many vehicles as we could have delivered without bottlenecks. Yet, I'm happy to report that we increased our unit sales despite these headwinds. Please consider that Q2 2021 was a quarter without major supply constraints. Furthermore, we increased net pricing offsetting inflationary cost increases. This obviously positively contributed to our bottom line. An additional contributor was a continued strong performance of our after-sales business. Another key topic relates to Daimler Buses. Here we took an important step to improve our competitiveness.
We announced that we would reduce our production cost in Germany by EUR 100 million annually. To that end, we, for example, intend to move our body shop for buses to the Czech Republic. Regarding zero emission, we further accelerated our transformation by unveiling our all-electric Freightliner eCascadia in the US. Our eCascadia will enter series production in 2022, and we already got the first major order of 800 units. Moreover, as part of our battery strategy, we acquired a stake of around 10% in the German high-tech machine manufacturer, Manz AG. The aim of this partnership is to develop innovative battery technology and production processes that meet the very specific requirements of trucks and buses. That said, let us now look at our business results in the past quarter.
On a group level, we achieved a strong financial result in the second quarter, with an adjusted EBIT of more than EUR 1 billion and a corresponding adjusted return on sales of the industrial business of 8%. We are satisfied with the operational performance. Within the 10.5% adjusted ROS at Mercedes-Benz, we had two extraordinary special effects included in Q2. The earnings impact of the license for the localization of the Actros in China, and a positive valuation result from increased interest rates. Even without these effects, this is exactly where Mercedes-Benz was planned to be based on our turnaround plan. As for our other key figures, group EBIT amounted to EUR 1.1 billion and earnings per share to EUR 1.12. Free cash flow of the industrial business was a negative minus EUR 756 million.
It was adversely impacted by three main items. First, significantly higher inventory. Second, a EUR 250 million contribution to the pension fund, which we communicated as part of the spin-off. Third, significant cash taxes paid in the second quarter. This leads to a decrease in net industrial liquidity from EUR 6.1 billion in Q1 to now EUR 5.5 billion. All in all, in Q2 of 2022, we again faced a challenging business environment. Despite these challenges, we made good underlying progress, even without the recorded positive special items. I am satisfied with those results as we are exactly on track to achieve our expectations for the full year with a significant improvement compared to last year. We are fully in line with our 2022 full year guidance of 7%-9% for our industrial business.
At this point, a big thank you to all our Daimler Truck employees worldwide. Thank you for your dedication, your hard work and accomplishments in these exceptionally challenging times. I am very proud to be part of this great team. Now let's take a quick look at the key market developments in Q2. In North America, demand in the heavy duty segment continues to be very robust. During the first half of the year, our market share remained strong at over 40%, with a continued upward sales trend in a market that is now 1% up year-over-year. Please be aware that the complete ramp up of our new vocational Western Star truck offer further potential going forward.
In the EU region, market volume for heavy trucks moved sideways in the second quarter as well as in the first half year compared to 2021. Our market share developed stable quarter-over-quarter at 19.3% for the period January until May. As in the first quarter this year, supply remains the limiting factor in North America and Europe. Without the supply chain constraints that persists throughout the entire trucking industry, market volume would have been noticeably higher and our sales would have been noticeably higher as well. Both of our key markets remain strong and our market volume guidance seems to be very appropriate. One exception of the positive market developments is China. There, the market volume significantly decreased by 70% year to date compared to the same periods in 2021.
This is important because it helps to understand the results at Daimler Truck Asia and the lowered guidance for this segment. Looking at unit sales and orders. Overall unit sales at Daimler Truck increased by 4% compared to Q2 of 2021. Main contributor here is Trucks Asia. Also, we are still reallocating semiconductors from Asia to higher margin markets. Keep in mind that the Chinese at equity results are included in Trucks Asia, but the unit sales of our Chinese joint venture are not included here. Slight increase in unit sales are coming from Trucks North America and Daimler Buses with a flat sales development at Mercedes-Benz. Demand is very strong, especially in Europe and North America, and so far we have not seen any step in cancellation rates in any of our markets.
Order intake is being carefully managed and consequently decreased in Q2 by 14% year-over-year. Our U.S. order book for 2023 has not opened yet. In Europe, we are being restrictive with allocating slots and are only taking orders with very robust pricing, plus the option to retroactively adjust pricing if needed. Our order backlog at the end of the second quarter remained close to record high levels. Regarding zero-emission vehicles, momentum remains strong for Daimler Truck. In the first half of 2022, we sold 446 battery electric trucks and buses compared to 128 units in the same period last year. ZEV orders also increased significantly to 1,280 units from 308 units in the first half last year.
Maybe most importantly, we got a lot of great customer feedback for these all-electric members of our Daimler Truck family. Our customers, of course, appreciate the top-notch zero emission technologies of our zero emission vehicles. They equally appreciate that our ZEVs come with all the other leading qualities our trucks and buses have always stood for. Great safety, great connectivity and great driver comfort, for example. Going forward, we will further improve our zero emission products, and we will continue to further broaden our zero emission portfolio. Our zero emission offerings, therefore, will become more and more attractive. As you know, the point in time when our customers will be able to make zero emission vehicles a backbone of their fleets will also depend on the availability of a suitable infrastructure.
It will depend on cost parity, which again, is largely determined by regulation and the development of all energy prices. With that, I would like to hand over to Jochen Goetz for a deep dive into our financials.
Thank you, Martin, and also a warm welcome from my side. Let me now give you some more details on our earnings performance in the second quarter of 2022. Slightly higher unit sales of total 101,021 units in Q2 2022, paired with stronger pricing, better after sales and a positive FX effect, mainly coming from the US dollar, generated significantly higher revenue for the group. Year-over-year, an increase of 18% to EUR 12.1 billion in the second quarter of 2022. Adjusted for positive FX effects, revenue increase was still significant at 11%. Adjusted EBIT increased by 15% to EUR 1 billion, while reported EBIT increased from around EUR 900 million to around EUR 1.1 billion.
Besides clear operational improvements like increased unit sales, better net pricing, positive contribution from after sales, as well as favorable FX, the results are positively supported by the two special items. On the other side, significant headwinds came in from the strong inflationary cost pressure. With significant efforts in the markets, we fully offset cost headwinds with pricing adjustments. The mentioned special effects are mainly visible in the Mercedes-Benz segment and result from the recording of around EUR 160 million of license income for the localization of Mercedes-Benz trucks in China, as well as a positive contribution from the revaluation of the long-term liabilities caused by higher interest rates. Free cash flow of the industrial business decreased from EUR 500 million in Q2 last year to -EUR 756 million in this year's Q2.
Major impact comes from working capital, which is still negative due to higher unfinished vehicles, especially in North America and Asia, as well as finished inventory, especially in Europe. Driven by the conscious decision to produce based on our customer orders, even if semiconductors are missing or customers are unable to pick up finished trucks because of current driver shortage. We also made a EUR 250 million contribution to the pension fund as part of last year's spin-off agreement. Next to that, higher cash taxes of more than EUR 200 million further contributed to the year-over-year lower industrial free cash flow amount. For the full year, we confirm our guidance, expecting a mid-three digit positive free cash flow in Q3 and a very strong free cash flow in Q4, reducing finished and unfinished goods to normal levels.
Net industrial liquidity remains strong at EUR 5.5 billion at the end of Q2 2022. Moving now to the industrial segment. Year-over-year industrial revenue increased to EUR 11.7 billion. The positive effects were improved pricing, strong after-sales performance, and positive FX effects. EBIT adjusted increased to EUR 940 million, with a corresponding return on sales adjusted of 8%. Trucks North America achieved an EBIT adjusted of EUR 523 million and an adjusted return on sales of 10.2%. As stated on our Q1 result call, we are back in double-digit territory. In Q2, our Class 6 to 8 unit sales continued its upward trend, but still, our offline inventory level remained high due to ongoing supply constraint.
As mentioned before, we believe supplying trucks to our customers as soon as possible is more important than optimizing a single quarter without impact on the full year. Positive effects came in from the pricing side, where in the second quarter we saw the full realization of the first surcharge that was put in place at the end of 2021 and a minor impact of the second surcharge that we have done in June. The full effect of the second surcharge will then be effective in the upcoming third quarter. Our aftermarket daily part sales remained very strong year-over-year. On the negative side, we had significant cost increases driven by raw material prices, supply chain constraints, and inflationary effects. All in all, at Daimler Truck North America, we saw, as expected, a much stronger second quarter with a better and almost balanced price and cost development.
Full-year guidance of Trucks North America is unchanged between 10% and 12%. To achieve that, we expect the remainder of the year a positive impact from higher volume and the described price realization. With the first half year being at 9.3% return on sales, the second half will accordingly be at the higher end of the corridor. Mercedes-Benz realized an adjusted EBIT margin of 10.5% on the back of an adjusted EBIT of EUR 512 million. Important to understand, earlier than originally expected, we recorded a positive non-cash EBIT impact of around EUR 160 million from license income for the localization of Mercedes-Benz truck in China. To give you some background on the license income.
Daimler Truck entered into a technology license agreement with our joint venture, Beijing Foton Daimler Automotive, in the context of localization, localizing Mercedes-Benz trucks for the Chinese market produced by BFDA in China. The license agreement includes the use of defined intellectual property for Mercedes-Benz truck, research and development by BFDA for the localization of Mercedes-Benz truck. DTG transferred the final technical documentation in the second quarter, fulfilling its obligation under the license agreement. The revenue recognition and the positive EBIT effect was triggered by the acceptance of the documentation by the Chinese authorities. To be clear and open, the recording of the income was expected for 2022 and was included in the guidance. The timing was depending on the final approval by the Chinese authorities. We received the required approvals in Q2 and therefore could record the positive impact earlier in the year than initially expected.
In addition to the license income, increased interest rates have resulted in a EUR mid-double-digit million positive impact because of higher discounting of non-current liabilities. Even without these two items, we are exactly on track to achieve our targets. Looking at the Q2 EBIT bridge, I want to highlight further positive contribution in the volume structure net pricing bucket from an ongoing strong momentum in new truck business based on high transport activity in almost all markets. High fleet utilization also drove a positive profit contribution from our after-sales activities. The major positive contribution here come from better pricing, which helped us to successfully ease rising material costs, as well as ongoing burdens to the ongoing supply chain constraint. This bucket also includes the impact from the Chinese license agreement. On a negative side, headwinds from further increased raw material prices and from inflationary cost increases.
Supply constraints from semiconductors and freight remain bottlenecks for our sales development. In the other bucket, a positive effect from discounting non-current provisions due to higher interest rate was partially offset by the gain we recorded last year from the sale of the Campinas plant in Brazil. Full-year guidance of Mercedes-Benz is still expected within the range of 6%-8%. However, we see this now more on the upper half of the range. For the remainder of the year, we expect a positive impact from price increases. However, this is offset by higher raw material headwinds and a weaker product mix. As mentioned in the Q1 call, Q2 should operationally, that means excluding the two special effects, be the weakest quarter of the year.
We expect Q3 then to see step-by-step operational improvements, which will continue in Q4 with better volume and pricing, but still significant headwinds from the raw material side. Trucks Asia could realize an adjusted return on sales of 1.9%, significantly below the performance of last year's Q2. Main issue here is the at-equity result from our Chinese joint venture, BFDA, which came in below the second quarter of last year and worse than expected earlier this year. This was driven by the market slowdown and especially the economic impact of the COVID-19 related lockdowns in China. While last year included significant positive one-time effects. The strong year-over-year sales growth in Q2 at Trucks Asia mainly came from international markets. However, Japan and also India were adversely affected by chip allocation to other regions.
It was a conscious decision to prioritize higher margin markets elsewhere in the world. In addition, Daimler Truck Asia second quarter industrial performance had to face further cost headwinds from the raw material side and constraint costs. As a result, positive pricing impacts in India and in the international markets could not fully cover the negative price and cost development we saw, especially in Japan. Moreover, in Japan, we are not able to adjust pricing in the short term due to regulatory rules. These price adjustments will only be visible in 2023. Nonetheless, with a growth of 10%, our customer service business showed some positive momentum, further improving our service income business. For the upcoming Q3, we expect more or less a stable development at Trucks Asia.
Volume is expected to be above the first half of the year, and we expect an improvement in our regions outside of China. The difficult situation in China will continue in the second half of the year. Q4 versus Q3 should then see more or less as a flat development. This was the reason why we had to lower our full-year guidance for Daimler Trucks Asia. I will come back to that in a minute. Daimler Buses adjusted margin came in at -1.2%, and this segment remains affected by COVID-19. Although sales in Europe and Latin America are increasing due to strong market demand, and also the coach segment is showing first small signs of recovery. In Q2, we saw positive volume effects in Europe and Latin America, as well as positive contribution from our after-sales business.
Industrial performance was still significantly burdened by further increase in material costs, mainly driven by raw materials. To counter the material cost inflation to at least some extent, we were able to realize improvements on the pricing side. Industrial performance also included a negative mid-double-digit million elimination effect, where we saw a positive effect in Q2 last year. The elimination effect had no impact of the full year of 2021, as we had a counter effect in Q4 last year. This year, we equalize the effect over the year. Now let's have a closer look at the year-over-year EBIT performance of the overall group in the second quarter of 2022. As in Q1, main driver for the Q results were volume, mix, and pricing. Total positive contribution of EUR 915 million year over year.
Pricing made up two-thirds of the total positive development of this bucket. In addition, the Chinese license agreement and our after-sales business contributed here as well. FX was positive with EUR 124 million, mainly coming from the US dollar. Within industrial performance, Q2 was mainly burdened by a mid-double-digit raw material increase. Manufacturing costs, constraint costs were still a burden. As you see, we are facing higher inflationary cost headwinds in our selling as well as G&A expenses. Achieving our fixed cost targeting is getting more ambitious. In others, you can see the mentioned negative contribution from our BFDA at equity result, as well the year-over-year negative impact from the valuation of our shares in Proterra and the sale of Campinas plant in 2021.
EBIT contribution of financial services to the group performance was flat with a positive FX effect from a higher FX result, higher interest result in North America and an improved cost of risk situation. This leads to an adjusted group EBIT of EUR 1 billion. The positive adjustments are primarily to be seen in connection with the spin-off, here above all at financial services. EBIT performance of our industrial business shows differing segment contributions. Trucks North America and especially Mercedes-Benz delivered major contributions to the second quarter industrial business performance. Trucks North America delivered a strong improvement as expected. In Mercedes-Benz, the positive EUR 269 million EBIT increase includes the mentioned positive special effects. However, the second quarter last year also included positive contributions, for example, from the sale of our Brazilian Campinas plant.
Trucks Asia and Daimler Buses had a negative contribution each, both still heavily impacted by the high supply chain constraints, correlating higher manufacturing and significantly increased material costs. As said before, Trucks Asia saw positive contributions last year from the China at equity result, where now the opposite is the case, and we have to digest a negative at equity result. As you already know, the reconciliation bucket, which is part of the industrial business result, mainly contains our group participations, like Cellcentric and Proterra, autonomous activity and eliminations. The recon made a negative contribution of -EUR 87 million to the Q2 industrial business result compared to last year. Therefore, Proterra was at -EUR 30 million revaluation effect. In total, EBIT adjusted of the industrial business came in with EUR 0.9 billion, a return on sales adjusted of 8%.
Looking at financial services, our business is still in the ramp-up phase by adding more and more new markets. However, performance has remained ahead of our expectations at the start of the year. In April, we went live in 5 more countries and are now active in 12 out of planned 16 countries. Compared to 2021 year-end, the portfolio increased by 24% to EUR 21 billion due to improved penetration rates, increased new business volume, and a positive FX effect in the United States. Adjusted EBIT increased to EUR 731 million due to improved interest margin and strong portfolio performance in North America, offset by a normalization of cost of risk and higher operating expenses in the new markets to ramp up the portfolio. This led to an adjusted return on equity of 15.1%.
In the appendix to this presentation as well as in our fact book, you can find detailed walks and further information on the financial performance of each segment. Due to the ongoing supply chain constraints, cash flow of the industrial business is still facing higher offline and new vehicle inventories, which amount in Q2 to a negative inventory impact of -EUR 560 million. In total, working capital went up by EUR 1.1 billion in Q2. As in Q1, depreciation, amortization of EUR 271 million once again exceeded the net investments in PP&E and intangible assets in the second quarter of 2022, underlying our strict CapEx management based on our active portfolio management approach.
This leads to CFFIT of the industrial business of -EUR 60 million and an adjusted for restructuring measures and M&A transactions to a CFFIT adjusted on the industrial business of -EUR 37 million. Cash taxes came in in May at -EUR 473 million. Free cash flow of the industrial business, excluding the adjustments for M&A transaction and restructuring measures, came in at -EUR 756 million. This leads to -EUR 730 million free cash flow adjusted of the industrial business. Net industrial liquidity decreased a bit to EUR 5.5 billion at the end of the second quarter. Regarding the outlook for the full year 2022, please allow for the following remarks.
The following outlook of Daimler Truck is subject to the further development in the war in Ukraine and its impact on the global economy, as well as the development of the very high inflationary pressure and the associated central bank increases in interest rates. The further macroeconomic, geopolitical, as well as the COVID-19 pandemic development led to an exceptional degree of uncertainty. However, we assume decreasing supply bottlenecks compared with the first half of the year and no production downtimes due to the availability of gas in 2022. Based on current information, we currently feel confident to achieve our targets for 2022. The market guidance for the full year 2022 we gave you back in March at our annual result conference and confirmed at our Q1 disclosure in May is still valid.
For the heavy-duty market in North America, a range of 255,000-295,000 units. For the European heavy-duty truck market, a range of 240,000-280,000 units. Looking at the overall Daimler group level, we can also confirm our full year guidance for the group and the industrial business for all KPIs. Regarding the 2022 outlook on segment level, we had to make some minor adjustments. First of all, the full year guidance for the three segments, Mercedes-Benz, Trucks North America and Daimler Buses, remains unchanged. The first change of the guidance relates to Daimler Truck Asia. The adjusted return on sales expectation for the full year 2022 was previously at 3%-5% and is now changed to 1%-3%.
To make it clear, operationally we are fully on track. However, the market expectation for China is even worse than what we have seen at the Q1 disclosure. For Daimler Truck Financial Services, we previously anticipated adjusted return on equity of 5%-7% and are now changing that to an expectation for a higher adjusted return on equity between 9%-11% for the full year 2022. Main reasons for this change here are lower cost of risk. Lesser project related expenses for the portfolio ramp up and an anticipated positive impact from FX. Moreover, we are also increasing our guidance for the new business and financial services from EUR 8-9 billion to now EUR 9-10 billion for the full year 2022 because of its positive impact from the FX side.
Both changes are offsetting each other, and we are not expecting any impact on group level. Much from my side on the financial outlook for the full year 2022. Back to Martin.
Thank you, Jochen. Let me conclude by looking at our strategic priorities for 2022 and beyond. You know our two strategic goals. We want to unlock our profit potential and to lead sustainable transportation. We want to do so by leveraging our people, our culture, and our ESG strategies. These goals are deeply anchored in our organization, and we will continue to work on them with focus and commitment. I will not go through all the bullets on this slide because strategic topics do not change every quarter, and therefore, you already know them from our past calls. I just want to point out one update on the right-hand side of the slide with respect to accelerating zero emissions. At the trade show, IAA Transportation, that is coming up in September, we will celebrate the premiere of our Mercedes-Benz eActros LongHaul.
At Daimler Truck, we are really proud of this vehicle. After our eActros, our eActros LongHaul will take zero-emission transport to the next level and bring it to long-distance transport. It will have a range of around 500 kilometers and series production is planned for 2024. In sum, I think it is fair to say that Daimler Truck is in full swing. We have clear, ambitious ambitions, and we are consistently executing these ambitions, and we show that quarter by quarter, including this past second quarter. With that, I would like to thank you very much, and we are now looking forward to your questions.
Thank you very much, Martin and Jochen. Ladies and gentlemen, you may ask your questions now. The operator will identify the question by name, but please also introduce yourself and the organization you are representing. A few practical points. Please ask your questions in English, and as always, as a matter of fairness, please limit the amount of questions to a maximum of two. Now, before we start, the operator will explain the technical procedure.
Ladies and gentlemen, if you want to raise a question, please dial zero and one on your telephone keypad to enter the queue. If you want to withdraw your question, please dial zero and two on your telephone keypad. Once your name has been announced, you can ask a question. The first question is from Nicolai Kempf, Deutsche Bank. Your line is now open.
Yeah, good morning. It's Nicolai Kempf speaking from Deutsche Bank. Thanks for taking my question. My first one would be on the current lead times. Can you provide some more color here? Is it fair to assume that if production increases in the second half of the year that the order intake should be much stronger in the third and fourth quarter? My second question would be on the market guidance. Looking at the midpoint, both for Europe and North America, the market is already over 50% at both these markets. Assuming a better supply chain second half, this does look a bit conservative.
Thank you. The first question is fairly easy to answer. We are sold out, especially in Europe and North America for 2022. That means there is no room for any more orders for the third and fourth quarter. What you see in orders in those two regions is ours, strictly for 2023. As I stated, in the US, we are not taking any order for 2023. In Europe, we are only taking very selected, well-monitored orders. We have in both markets this very, very strong order backlog, and therefore, no concerns at the moment at all. For the overall market, it will still be constrained by supplies.
It will be determined at the end of the day how the supply situation is with us and our competitors. We are confident that it will stay in that range we have stated.
Perfect. Thank you.
Klas, your line is now open. You can ask your question.
Thank you. Hi, Martin and Jochen. Klas at Citi. The first on the cash flow. It's a pretty big improvement that you need to see here in the second half, given the negative cash flow in the second quarter. I would suggest that you're pretty confident on supply availability improving quite a bit here. If you could comment, Martin, on both the semi side and other supply availability, what gives you the confidence that you will release more inventory and be able to ship more trucks in the second half? Thank you.
Yeah. Klas, good morning. Yeah, cash flow. Well, I would say traditionally, if you look for an example in last year, you see quite similar development on the cash flow in the second half, especially Q4 on our side is normally a very strong quarter, where we really ramp down the overall inventories, and we will ramp it down in a way that it's not ending up in the receivables in the end of the year. I think what's really important, and I mentioned it in the speech, we still produce every single truck and basically make the conscious decision to allow ourselves higher inventories at that point of time. Because if we would stop production today, we don't have the slots to fulfill the customer demand in the second half. So with that, we have high stocks, that's absolutely fair.
Given the availability of drivers in the second half, the customer demand and the availability of parts, we feel confident that we can reduce the inventories early enough that at the year-end, we also get the cash in. To the semiconductor supply overall, Martin, over to you.
Yeah, Klas, this is a very difficult to answer question because on the supply side, anytime you have one problem solved, another pops up. So that is, at the moment, a very unpredictable bag, and it's a daily battle. When I thanked our people in my speech, I meant especially everyone working on supply management and in production. It's really unbelievable. It's not just semiconductors, it's meanwhile nearly in every part of our industry, even low-tech parts, it's like plastic coverings. At the moment, we are able to still manage everything and to keep up our sales pace.
If you look at the monthly sales or look at the sales in the first quarter now compared to the second quarter, you see that uptick, and it will continue throughout the remainder of the year.
Yeah. No, I appreciate it. It's tricky. My second one and final one is on slide 10 and 11 on the bridges. On the industrial performance, Jochen. The EUR 620 million negative on the industrial performance. If you could help us again with how much of that was raw material relative to inefficiencies using air freight and so forth, i.e. excessive cost inflation that will eventually drop out. On the recon line, the EUR 87 million bridge effect was a bit. It was similar to the first quarter, quite big. I appreciate EUR 30 million of that was Proterra. If you could give us some sort of indication into the second half, because that recon line is again quite big. Thank you.
Yeah. Let me start with the recon. I think we said already in the call for the first quarter, roughly EUR 60 million is the ongoing cost we have here for our group activities, especially also autonomous. If you deduct the EUR 30 million, which was a kind of a one-time effect in the second quarter, we are basically the same run rate. That's the number you can also expect for the remainder of the year. On the walk, on the bridge, if you look on the overall industrial performance, the vast majority of that is driven by material cost increase, and within material it's mainly raw material. That's the big chunk of the EUR 620 million.
All others, if you look at inefficiency, we still have because of the supply constraint on the variable overheads and some volume issue. That's more or less minor amount meanwhile. Raw material is the big issue.
Thank you very much.
The next question is from Tom Narayan, RBC. Your line is now open.
Yes, Martin, Jochen. Tom Narayan, RBC. Thanks for taking the questions. The first one is on Mercedes-Benz Trucks. The Q2 margins, if we exclude the one-time benefits, looks like we're maybe down sequentially versus Q1. I would think that the ongoing cost cutting there would be improving margins. Just maybe could you help us understand what could be happening there? Maybe it's just a seasonality thing. Then the second one is on natural gas. Could you remind us how much gas your specific production uses mainly in your exposure specifically to Germany for production? You know, Volvo told us a couple of weeks ago they expected trucks could be protected by authorities given the need for medical and food transport in a gas rationing situation. Is this your understanding as well? Thanks.
Tom, thanks for the question on the Mercedes-Benz. What we said at the end of Q1 was we had an operational performance of 6.5% in Q1 if you exclude the one-time effects. We said we expect in the second half, in the second quarter, the weakest quarter on an operational basis. Basically that's what happened. The reason for that is we see more raw material coming in in Q2 and the pricing mainly kicking in in the second half of the year. Like expected, the second quarter was the weakest one. It's mainly driven by
Increase in raw material. Then in the second half of the year, with the price increase, we can balance that out. That's the reason why Q2 is on the lower end of the quarters. Klas, Martin, over to you.
Yeah, gas is a very difficult question. We monitor it very closely. We increased our energy savings efforts. We looked for a lot of alternative powers that we have. Higher electricity, more oil, using oil for the heating and the, what we call process heat. We have a couple of production process, especially when it comes to paint and hardening of steel, where we need the carbon, the C out of the natural gas, not just the energy, which is not able to replace. Yes, there are certain processes we are dependent on gas. I think that's manageable. My biggest concern would be that it will further deteriorate the supply chain. I'm more worried than that some crucial suppliers can't supply us stuff because they don't have natural gas.
As I said, we monitor it very closely. At the moment, we don't plan for any major shutdowns.
Regarding the maybe commentary from authorities or maybe the German government specifically, and any color there, conversations you might be having?
I give you the honest answer. I don't expect anything. I would say the moment we have a real gas shortage, everyone will be extremely important, and I have no clue. Because of the very complex supply chains, yeah, even if the truck manufacturing itself got an exemption, then I might need a glass supplier to get an exemption as well because that company provides us the glass. I see that extremely tricky when it comes to such a situation.
Okay. Thank you.
The next question is from Daniela Costa, Goldman Sachs. Your line is now open. The next question is from Daniela Costa, Goldman Sachs. Your line is now open. Daniela Costa, your line is now open. You can ask your question. Okay, we move on to the next questioner. It is from Miguel Borrega, BNP Paribas. Your line is now open.
Hi. Good morning, everyone. Thanks for taking my questions. I've got two. On your order intake, some of your peers have already started to open the books for next year. Can you maybe elaborate why haven't you and maybe when you'll start to open the order book for 2023, if you already start in August? I don't know. Then I remember you saying that the recent orders had a surcharge to account for the higher raw materials. You know, steel prices are now coming down. Logistics costs are also easing. Would you expect pricing also to ease as you open the books for 2023? My second question on margin performance. Are you still expecting to reach the midpoint of the margin guidance between 7%-9%?
Maybe some color on the main levers to achieve this in the second part of the year. I believe most of your invoice deliveries in Trucks North America already have the price increase, so maybe more volumes coming from Trucks North America. Mercedes-Benz, I think it's all gonna be pricing in the second part of the year. Lastly, would you expect further one-offs at the adjusted level? Thank you.
First, about the order intake. Look, I can't comment on any of our competitors. It depends on the market. It depends on how you allocate for next year the slots to certain markets, to certain customers. We do it our way, and I would say we are in very close contact with our dealers, with our foreign sales organization, and with our big key customers, how we do that. I don't know exactly when we will open it. It will happen somewhere between now and the beginning of October. I know for the United States especially, the moment we open it, we will see a surge like we did, by the way, last year, in the third quarter, as well.
I told you already that at Mercedes-Benz we are already taking in selected orders, not on a broad basis. That means for selected markets, for selected customers, we do it with clear discussion about pricing. When it comes to pricing itself, even if it now some of the costs are easing, I have to remind that the price increases you see now
Things where we have to play catch up for the fourth quarter in 2021 and the beginning of the year. You know, if the increases would have continued, we would have to debate another round in the second half of this year. The easing helps to not even go further, but we definitely will keep our pricing and we have to keep it just to keep go back to normal margins and have not a depression in margin. Jochen, potentially you the second half.
Yeah. I take the one on the margin. Well, hi again. Well, we confirm the guidance for 7%-9% and feel confident within that range, so it's fair to say that we are in the midpoint of that. If you look on second half and go through the segments for a bit, as discussed in the U.S., the second surcharge has a full impact in the second half, so pricing plays a major role. We also want to reduce the inventory, as we said, and expect an ease on the semiconductor and other parts, which does not mean that all the problems will go away because otherwise we would have even more potential. Clear upside on Daimler Trucks and aftersales in the second half, as I said in my speech.
On the European side, more and more pricing kicks in as well. We see raw material, given the contract structure we have. Even if, stock prices are more stable now, we still see increases because I said also in the past, there's a time delay in our contracts when increased raw material prices hit us in the P&L. That will happen in second half. also in Europe, we have opportunities on the volume side, and we have also a lot of already finished truck sitting at the end of June on our parking lot, which we can sell up in the second half and especially then also in the third quarter. both very positive. Asia, rather stable, and then on bus, traditionally we have a good fourth quarter with high volume.
Overall, we really feel confident that we can deliver on the 7%-9%, and it's fair to say, as I said, to think about the midpoint of that. On the one-off, from today's perspective, nothing specific to expect. You might remember that I said we have more than EUR 210 million or roughly EUR 210 million on the Russian side. So far, it's a little bit more than EUR 170 million. There's one portion we think depends on our influence we still have legally on the company, but we expect that will happen at the end of the year. So we then also book from accounting perspective the remainder of that amount. But it's baked in the guidance, so it's nothing new. Other than that, nothing I can think about at the moment.
Thank you very much.
The next question is from Michael Jacks, Bank of America. Your line is now open.
Hi, good morning. Thanks for taking my questions. My first one is on price realization. Jochen, you mentioned that prices contributed about two-thirds of the EUR 950 million in the industrial bridge, which suggests that realization was running around 6%, if my math is correct. Can you just give us a sense for how much more you expect to come through still in the second half? My second question is just going back on the topic of gas shortages. What is your exposure to spot energy pricing, and do you have any sense for how significant the potential cost impact could be? Thank you.
On the pricing, your math is correct. If you look at this roughly EUR 600 million we have, and with the additional surcharge, if we see in the second half, would roughly expect another 50% higher than in the first half. Keep in mind, we also started first price increases already in the second half of last year. That means when we come to Q3 and compare quarter to quarter, we have a different starting point than we had in Q2 last year.
Klas, Martin, or-
Yeah. Gas. We have a mix out of long-term contracts and spot market prices. Yes, the impact comes through. Please understand that I don't want to give details. You have always to see that gas certainly has in Europe an impact on energy pricing as well. We buy electric energy a lot for our plants as well. This is impact. When in the question before, there was mentioned the easing on transportation. There are enough other bad stuff happening outside, so the price, the cost pressure will continue and certainly our efforts to mitigate those pressures and to increase efficiency are still there. It's the challenges for production are still out there.
Understood. Thank you. Jochen, if I could just maybe ask, can you please just remind us then, how much pricing was in the base, in half two last year?
Well, I would say let's have this discussion then when we come to the Q3. I don't have the effect off the top of my head between Q2 and Q3. Let's have the discussion when we disclose the numbers for Q3. Pricing.
All right. Thank you.
That's okay.
The next question is from Jose Asumendi, J.P. Morgan. Your line is now open.
Thank you. Good morning, Martin and Jochen. It's Jose from J.P. Morgan. Couple of questions, please. Can you discuss a little bit the actions to reduce the fixed cost base in Europe? In the initial plan, you talked about personnel and non-personnel actions. Where are you on this plan? Are you on track or ahead of the plan? How is that feeding through the P&L? Second, if you could maybe talk a little bit more about the working capital reversal. How do you expect that to flow through the second half of the year? Thank you.
Okay. Hi, hi Jose. Thank you for your questions. Well, on the fixed cost, I think we have to differentiate between different categories. On the one hand, if you look on our structural measures on the personnel side, we are on plan. We are executing on that. And as I said earlier, we have the contracts and aligned measures with the works council to achieve that. On the non-personnel cost side, we also from a measure base, we are on plan and achieve also here our targets. However, there are two other things which come on more and more in play. I also mentioned earlier that this year for us is a very special year because we have to separate still a lot of topics compared related to the spin-off.
I refer to IT systems, but also if you look on the sales environment, which was very much embedded in the Mercedes-Benz world in the past. We see some cost pressure here. Overall, and I think that's obvious, we also see higher inflationary impacts than we have originally expected. I would really separate between structural measures, where we are in plan, and other effects which are a challenge for the remainder of the year. On the working capital side, especially in Europe, there's good and bad. On the one hand, the supply chains in Europe is more stable, which helped us to reduce the unfinished good.
However, at the end of the second quarter, we had a rather high stock of finished goods, and the main reason for that was that short-term, we were not able to get enough transport capacity to bring the trucks to the customer. Well, we acted on that, and we will increase the capacity for that so that we do not expect it to impact for the full year. A little bit different situation in the United States. There, still the problem is to have the parts available. It's not only chips. Martin elaborated on that already. It's meanwhile a lot of parts which are missing. There, the target is to get all the parts and then the finished trucks. The good thing in the U.S. is, as soon as the trucks are ready, we can bring it to customer hands.
The stock in the U.S. is also an okay level on the new truck side. These are the two main impacts, and topics we have to tackle in the second half.
Thank you. Thank you very much.
The next question is from Himanshu Agarwal, Jefferies. Your line is now open.
Hi, Himanshu Agarwal from Jefferies. Thanks for taking my questions. First one is on pricing. Just want to understand, how much of the pricing will you have to give away if raw materials roll over and we reach normal levels? I'm just trying to understand if margins can be structurally higher in a normal environment. Second one on inventory. Can you talk about the share of finished and unfinished trucks in the total inventory? We are already halfway into Q3, so are you seeing any sequential improvement month-on-month since July? Lastly, in North America, you just mentioned about a lot of parts are missing, if I got that right. Can you just specifically mention like which parts are you talking about outside of semis? Thank you.
Okay, the first one, pricing. First of all, the costs have to go away and to normalize. We have no specific cost-related accelerators in it. We just do a normal pricing. So yes, then you'll have the debates with your customers about what the pricing is. It's not that we go in now and just raise prices that will have immediate discussion with customers. They have all the chance if we change the pricing of the truck to cancel the truck. We haven't seen any cancellation yet, so the customers are accepting it. We are in an inflationary environment. We see in a lot of areas of the world, wages and salaries go up.
For that, I would say a lot of that pricing will stay just because we are in that inflationary environment. We have on the other side great products that have an input too. Our customers really want our products. The quality of the Actros is better than ever. The total cost of ownership of a Cascadia in the United States is by far the best money can buy. Our new vocational truck in the United States is an absolutely smashing truck with rave reviews from press and customers. In my opinion, there are enough good arguments why the pricing can be strong in the years to come, and the outlook is good. To the inventory itself, it's semis on the one side, but it has to do with aftertreatment system.
It has to do with ordinary plastic parts. It is not that one part that kills this, and it's therefore not that one problem to solve. It's a myriad of problems to solve. Once you solve one problem, then another one pops up. That will keep us busy in the second half. Jochen, for the last one, for the share of the finished and unfinished.
Yeah. Well,
By nature, if you look well value-wise, the big chunk is obviously the finished trucks. If you take the finished and the unfinished, it's fair to say that 75%-80% of the value is on the finished side. As I mentioned earlier, unfinished is mainly in the U.S. at the moment. Martin elaborated on all the parts where we have our challenges to bring them in right quality and amount at the right point of time. On the stock level, generally speaking, we have higher stocks in Europe that's also based on the business models for a couple of reasons. One is we have short-term rent volume in the inventory, which is always there, so nothing special, but it uplifts the volume of trucks in inventory compared to, for example, in the U.S.
We have then more also overseas, in fact, Near East and Middle East, Southeast Asia, out of Mercedes, where we have longer lead times as well. We have a stronger portion of body builder business, so also that is a structural effect where we have higher inventories. Last but not least, I mentioned that in Europe, we had not enough transport capacity at the end of Q2, and that was another reason for an increase in inventories. That's the structure of the inventories overall. Bear with me, I will not disclose any development of the Q3 quarter. You have to wait basically for our next call, where I'm happy to talk about the development.
Mr. Reichman, you can ask your question. Your line is now open. We can't hear you.
Thank you. Stéphane Reichman, Société Générale. I have two questions, please. First of all, could you comment now, a few months since the separation, how the sort of increased entrepreneurial freedom is reflected in your performance and your thinking? Maybe you could also update us on how long you think the process is going to be in order to get to benchmark results across the group compared to competitors. Thank you.
Stéphane, the first difference you see right in the last 30 minutes. In a Daimler AG call over 30 minutes, we would have seen half a question about trucks. Now we talk 30 minutes exclusively about trucks. And, with that alone, increased scrutiny, you know, helps the entire organization to be fully aware what we get asked. Yes, it helps a lot, and it continues to help. When it comes to benchmark results, we have clearly stated our path to what we call 10. 10 means 10% return on sales. In good markets, and we are in good markets. Yes, there is enough room to improve in our company, and we are well under way for that.
It has to do with, you know, streamlining our portfolio, increasing our margins, pulling out great products like the vocational product in North America and working on our cost. There are still a lot of challenges and homework has to be done. If everything is fine, then we will be there where we promise to be.
Thank you.
The next question is from Daniela Costa, Goldman Sachs. Your line is now open.
Hi. Good morning. Can you hear me?
Yes, we can hear you.
Oh.
Please go ahead.
Sorry, I don't think you could hear me earlier. No, I have two questions, and apologies if some of this was asked because I was trying to reconnect. My first question was regarding your comment on the US order book, which you said was closed for 2023. I think we've heard from some of your competitors that their order book is open. I just wondered if you could give a bit more color about how you're thinking about the management between market share and margin. Is it that you're just prioritizing margin for next year and given you have strong backlog, you're not so much worried with market share? Or is there a market share loss risk in the US next year if they start taking a lot of orders and you don't take now?
The second question, and it might be a follow-up from some of the prior questions, but you've mentioned, I think earlier that in Europe, for the few orders you're taking in 2023, you have some price mechanism, retroactive potential price adjustments. I wonder if those could work both ways. Understand that we're now in an inflationary environment where raw material situation, for example, can change very fast. If we have a reversal on raw materials declining further, could customers also ask for retroactive price reductions, or does it only apply sort of in your favor? Thank you.
Daniela, first one is fairly easy to answer. No, the order behavior at the moment has nothing to do with potential market share in the U.S. If you have seen this year, we significantly gained market share in the U.S. If we would have had no constraints or if we only would have the unfinished product on the roads, our market share would be even bigger. I am extremely bullish about our product.
Our portfolio in the United States and so are our customers. It has more technical reasons why we opened the order book. We have a very sophisticated system in the U.S. of allocation of slots to dealers, to long-term customers, to conquest accounts, knowledge of how the production capacities, and that means the supply, will be for the first and second quarter. Once we have that, we open the books. As we did it last year, it's unnatural at the moment in the U.S. to take in already. I remember the times when I was in the U.S., where the majority of the next year's orders came in October, November. It's already pulled forward now to September. We shouldn't get now impatient and expect that now from July and August.
I am not worried at all, and you'll see, either in September or October, a huge spike, and then we will report certainly about that. I'm not worried for market share at all.
Okay. Hi, Daniela. On your second question regarding Europe, just to make that clear, well, one of the lessons learned was that if there's a significant increase in raw material, but also energy or general inflation, it's good to have the flexibility to adjust pricing. I think that was one lesson learned of the year 2022. Well, if you look on 2023, it's hard to predict what really happens on the three components I just mentioned. Energy prices most likely will be on a high level, at least in Europe, assuming that the ongoing inflationary tendencies are very strong and most likely will stay. On raw material, you never know. At the moment, we see a kind of a stabilization and some also a slight decline.
Well, if in the course of the year, the cost will significantly go down, there will be a portion of the price increase where customer for sure will ask if we take that back, and I think it's also fair. We called it in some area surcharge. Not everything of the price increase is surcharge, but a portion of that. That's basically the law of the market, and there's a discussion which portion will then go back. That can happen in the year 2023.
Very clear. Thank you very much.
The next question is from Michael Punzet, DZ Bank. Your line is now open.
Yes, Michael Punzet from DZ Bank. Good morning. I have two questions. First one is on the tax rate. If I calculated that correctly, you have a very low tax rate of roughly 10% in the second quarter. Maybe you can explain what is the reason for that and can give us any guidance for the full year. Secondly, on your order intake in the bus section, there we see a very strong increase. Maybe you can elaborate a bit on the reasons for that and when this will turn into sales.
Okay, Michael, let me start with the tax one. First of all, good catch. It's a low tax rate. The reason for that is, when we adjusted the pension liability because of the change in discount factors, we could re-release some portion of the deferred tax assets, and that has an ordinary positive impact in Q2. For the remainder of the year, you can expect a similar tax rate like we saw in the first quarter.
On the bus, Martin, over to you.
Yeah.
On the bus side, first of all, the very strong increase comes from an extremely low basis, and it mainly shows that we are back in the coach business. As you might remember, we had, for nearly 18 months, no order at all on the coach side and subsequently closed our factory in Neu-Ulm. We are now not back to normal levels, but we are back to an okay level, and that now with the orders coming in on the bus side, coach buses are running again, so customers are ordering. We just launched a new generation of our Setra coach buses, so that helps orders as well. That shows that bus is back to life, and buses was the only segment that was negative in the second quarter.
Bus is not a business that is negative in normal times, so it just shows that the order intake foreshadows that bus comes back to normal fairly soon, and we are very positive about the outlook for that business in the future.
When will the orders turn into sales? Already in 2022, or is it more related to 2023?
Our guidance for the year of 2022 is black zero. As you see, for half the year, we are away from the black zero. Yes, some of those orders have to turn into sales to achieve the target of black zero, where we are still confident. Otherwise, we would have changed the guidance.
Okay. Thank you.
Ladies and gentlemen, thank you very much for your questions and for being with us today. Thank you, Martin and Jochen, for answering. Now, as always, IR remains at your disposal to answer any further questions you might have. We hope you can enjoy the summer. We and the members of our board are looking forward to seeing you on the upcoming investor events or the IAA Transportation in Hanover. You can find all these events on our Daimler Truck Investor Relations website. We are looking forward to meeting you there. Have a great day, and stay healthy. Thank you, and goodbye.