Good morning, everyone, and welcome to Daimler Truck's third quarter 2026 earnings call. I am Marcus Poppe, Head of Investor Relations at Daimler Truck. On behalf of Daimler Truck, I would like to welcome you to our global Q3 earnings call. Joining me today are Karin Rådström, our President and CEO, and Eva Scherer, our CFO. Karin and Eva will begin with an introduction, directly followed by a Q&A session. The presentation is available on the Daimler Truck Investor Relations website. Please note that this conference will be recorded. The replay of the conference call will be also 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 teleconference is governed by the safe harbor wording you will find in our published results documents.
Please note that our presentation contains forward-looking statements that reflects 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, actual results may be materially different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made. With that, let's jump into the results. Karin and Eva will walk you through how the quarter developed, and after that, we will open things up for analyst questions, followed by the media. Karin, over to you, please.
Thanks, Marcus, and good morning, everyone. Let me start by sharing the key figures for the group. For the group, we generated EUR 12.6 billion in revenue, up 19%, with adjusted EBIT of around EUR 1.1 billion and a net profit of around EUR 700 million. Earnings per share from continuing and discontinued operations amounted to EUR 0.91, and our balance sheet improved further, reaching a net industrial liquidity of EUR 9.2 billion. Now, to the performance of our industrial business. At our Q2 disclosure three months ago, we said that our positive trajectory would accelerate in the third quarter, and it did. Revenue increased 20% year-over-year to EUR 11.6 billion. At the same time, adjusted EBIT increased significantly by 77% to EUR 1.1 billion, and adjusted return on sales rose to 9.1% compared to 6.2% in the prior year quarter.
The strong year-over-year earnings improvement was driven by Trucks North America, where we had significantly higher volumes, solid pricing, and a positive net tariff effect, which more than offset the continued material cost inflation. Mercedes-Benz Trucks also recorded higher earnings, while Daimler Buses delivered resilient profitability despite lower volumes. Incoming orders remained at a healthy level in the third quarter, reaching around 71,000 units, up 10% year-over-year and down 4% compared to the previous quarter. This brings year-to-date incoming orders to around 260,000 units, which represents a really strong increase of 30% compared to the prior year. Unit sales increased by 26% year-over-year to around 91,000 units in the third quarter and were also up 5% sequentially. This resulted in a book-to-bill ratio of 78%.
Incoming orders for electrified vehicles increased by 23% to around 1,300 units, and our electrified vehicle sales amounted to around 1,200 units in the third quarter, down 28% year-over-year, which is mainly related to our electric city bus eCitaro production, which we expect to catch up in the fourth quarter. For our electric heavy-duty flagship, the eActros, it continues to perform strongly with both sales and incoming orders significantly higher year to date. In the third quarter alone, we had orders of eActros increase by more than 400% compared to Q3 last year. If we look to the markets, we remain strongly positioned in both of our key regions.
In North America, the Class 8 market totaled 71,000 units in the third quarter, up 9% year-over-year and also up 9% quarter, and with a market share of 30 year to date, we maintained our leading position in the market. In Europe, the EU 30 heavy-duty market remained above prior year levels, reaching approximately 70,000 units in the third quarter, up 2% year-over-year, but down 18% sequentially. We saw positive development across most parts of Eastern Europe and Spain, while Netherlands and Germany remained below the levels seen in the third quarter last year. Our overall market share stands at 19.2% year to date. In the European electrified heavy-duty truck segment, we are holding a market-leading position at 38.5% as of September 2026. Overall, we see our markets developing positively, and we are well-positioned to benefit from those trends.
Now, Eva, let's turn to the individual segments.
Thanks, Karin, and good morning, everyone. Let me start with Trucks North America. In the third quarter, revenue increased by 43% year-over-year to around EUR 5.7 billion, reflecting a 51% increase in unit sales. Revenue was also up 10% compared with the second quarter. Adjusted EBIT rose to EUR 691 million, up from EUR 257 million in the prior year quarter and EUR 435 million in the second quarter. Adjusted return on sales improved to 12.1% compared with 6.4% last year and 8.4% in the second quarter. This significant improvement was driven by strong volume increase, positive pricing, and tariff-related improvements. Combined, these effects more than compensated for continued material cost headwinds and supply bottlenecks, as well as negative effects from customer mix in North America. Order intake reached approximately 29,000 units during the quarter, up 12% year-over-year, but down 17% compared to the second quarter.
Order share in Q3 improved sequentially to 35%. Underlying replacement demand remains strong, although uncertainty around the final EPA27 regulation is currently weighing on customer order behavior. At Mercedes-Benz Trucks, revenue increased by 10% year-over-year to around EUR 5.4 billion. Adjusted EBIT increased to EUR 337 million from EUR 319 million in the prior year quarter, resulting in an adjusted return on sales of 6.3% compared with 6.5% one year ago. Group sales increased by 13% to around 40,000 units, driven by strong momentum in EMEA and India. Order intake reached around 38,000 units, an increase of 14% year-over-year. In Europe, group sales increased by 13% year-over-year. Higher volumes, improved conversion costs, and positive effects from Cost Down Europe supported earnings.
At the same time, negative net price cost development, driven by raw material cost inflation due to the Middle East conflict and higher R&D spending, combined with a lower capitalization rate, remained headwinds. In Latin America, group sales declined by 5% year-over-year, mainly due to the weaker development in Argentina. Despite continued market pressure from high interest rates in Brazil, our sales increased, supported by the government's Move Brasil fleet renewal program. In India, group sales increased by 35% year-over-year, driven by a healthy but competitive market, infrastructure-led investments, and replacement buying. Revenue of Daimler Buses decreased by 4% year-over-year to around EUR 1.3 billion, reflecting lower volumes and a weaker product mix. This was partly offset by positive pricing and favorable foreign exchange effects.
Adjusted EBIT amounted to EUR 123 million compared with EUR 137 million in the prior year quarter, resulting in an adjusted return on sales of 9.2% compared with 9.8% a year ago. Order intake reached around 4,300 units, a decrease of 16% year-over-year, resulting in a book-to-bill ratio of 81%. Unit sales declined by 16% to around 5,400 units, primarily due to lower chassis sales in Latin America. At the same time, sales in Europe remained broadly stable at the prior year level. At Daimler Truck Financial Services, adjusted EBIT increased to EUR 62 million compared with EUR 48 million in the prior year quarter, while adjusted return on equity improved from 6.5% - 7.8%. The earnings improvement was supported by higher new business, improved interest margins, and positive credit risk development in the United States.
Better remarketing results also contributed positively, while Mexico and restructuring expenses in North America remained headwinds. In the third quarter, we generated a strong industrial business free cash flow of around EUR 1 billion compared with EUR 24 million in the prior year quarter. The strong cash generation was supported by the significant improvement in earnings and a cash inflow of approximately EUR 600 million from the reduction of our equity stake in ARCHION to 25% as planned. As a result, net industrial liquidity increased from EUR 8.3 billion at the end of the second quarter to EUR 9.2 billion at the end of the third quarter. We completed the first tranche of our ongoing share buyback program on September 16th with a volume of EUR 300 million and launched the second tranche on September 21st. As of October 30th, we have repurchased additional shares worth EUR 219 million.
The second tranche has a volume of up to EUR 1.1 billion and is scheduled to be completed by June 30, 2027, at the latest. Our guidance for the two key regions remains unchanged. We continue to expect the North American heavy-duty truck market to range between 250,000 and 290,000 units, and the EU 30 market between 290,000 and 330,000 units. Our direct exposure to the Middle East conflict remains limited, although a prolonged conflict could result in higher energy, commodity, and freight costs. Our guidance continues to assume that existing USMCA and tariff framework remains in place. We confirm our group and industrial business guidance. At group level, we continue to expect adjusted EBIT of EUR 3.6 billion-EUR 4.1 billion.
For the industrial business, we continue to expect unit sales of 340,000- 370,000 vehicles, revenue of EUR 43 billion-EUR 47 billion, and an adjusted return on sales of 7%-9%, and free cash flow of EUR 3 billion-EUR 3.5 billion. For the fourth quarter, we expect a further increase in unit sales and continued strong profitability for the group. As the industry significantly ramps up production, our suppliers' ability to keep pace with increasing demand will be an important factor in our ability to expand output across all segments. All segment-level guidance KPIs for 2026 remain unchanged. For Trucks North America, we expect a return on sales of 9%-11% and unit sales of 160,000- 180,000 vehicles for the full year 2026. Supply bottlenecks pose a risk to fourth-quarter production, and mitigation measures are underway.
Depending on the effectiveness of these measures, fourth-quarter return on sales is expected to be around the upper end of our full-year guidance range. For Mercedes-Benz Trucks, we confirm our 6%-8% return on sales corridor. For the fourth quarter, we expect profitability to be above the full-year guidance corridor. For Daimler Buses, we are also confirming our full-year guidance corridor of 8%-10%. For the fourth quarter, we expect profitability to be in the upper half of the full-year guidance corridor. Financial Services remains on track, and we continue to expect an adjusted return on equity of 6%-8% in 2026. Overall, the third quarter confirmed the positive trajectory established earlier in the year. Strong volume growth and improved operational performance drove a significant increase in profitability, providing a solid foundation for the remainder of the year.
With that, Marus, I think we are ready to open the call for questions.
Thank you, Karin and Eva. That concludes our presentation for quarter three results. As usual, we will start with questions from analysts, then move on to the media. Both sessions will be recorded and made available on our website. Before we start, the operator will explain the procedure.
Good morning, ladies and gentlemen, and welcome to the Q&A part of today's Q3 results conference call. I would like to remind you that this Q&A session will be recorded on the Daimler Truck request. The replay of the conference call is also available as on-demand audio webcast in the investor relations section of the Daimler Truck website. A few practical points. Please ask your question in English. Please also introduce yourself and the organization you are representing. As a matter of fairness, please limit the amount of questions to a maximum of two. Anyone who wishes to ask a question may press star followed by one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using a speaker equipment today, please lift the handset before making your selection.
Please mute the sound of the internet stream while you are asking your question on your telephone. We will now begin the question-and-answer session.
Our first question comes from Hemal Bhundia from UBS. I guess it is your birthday, Hemal, so happy birthday.
Thank you, Markus. That's very kind of you. And good morning, Karin, Eva, Markus. It's Hemal Bhundia from UBS. Thanks for taking my questions. I just wanted to understand how you've seen your Class eight order market share trend in October for North America, and any color on the drivers as to whether that's how you're managing your 2027 order book, pricing levels, or the great need for fuel efficiency. I'll follow up with my second question after.
Yeah, thanks, and happy birthday also from me. I can take that one. On order share in October, we were at 33%, so it's slightly lower than we've been trending for the full year, but I believe it's more a matter of timing of orders and not any reason to be concerned. I was actually visiting the U.S. together with the rest of the board of management in September, a couple of weeks back, visiting ATA conference and meeting with a lot of our big customers. I think outlook quite positive on 2027. A little bit of hesitation with the EPA27 on clarity on the non-conformance penalties, but overall fundamentals still very good. Freight rates are up, and also perception of our products and even more the relation we have with our customers extremely strong.
I would say we look optimistically on 2027, even though it's a bit early to give any further guidance. In terms of pricing, I think also on healthy levels, also looking into 2027.
Thank you, Karin. I know we've had, just on topic, we've had a lot of different timelines about the EPA27 finalization. Just curious as to when you think this will be announced, and if you are seeing pent-up demand for your trucks being put on hold off the back of this. We've heard a lot from dealers about the engine preference for 2027. Just curious on how you see the adoption of EPA27 engines over the course of 2027. Do you think there's a certain point in the year where you see a great inflection or great penetration of the EPA27 engines? Thank you.
We have a little bit different approach than some others. We will only offer the EPA27 engine starting from next year, and we do expect the final ruling towards the end of the year. What else was in there? Oh, and yeah, how the demand would develop. Yeah, I mean, we are already taking orders then on the EPA27 engines. We have some test units out there performing really well. We have made the promise, or we see a 3% fuel consumption improvement with that engine, but we are getting really good feedback now from the engines we have out there that it is even better than that. I think we walk into 2027 quite confident, and we will convert fully to the new engine, regardless of what happens with NCPs and other things.
Understood. Thank you very much again.
Next question comes from Klas Bergelind at Citi. Morning, Klas.
Morning, Markus. Hi, Karin, Eva, Klas at Citi. I am coming back to the North America orders. The September Class eight look obviously very low when I backed them out, and there is a lot of debate around your new engine. I mean, the tech performance versus Gen 6 versus Gen 5 is quite low. You do not have the electric heater, so it should not be an issue short term, but it seems like carriers are hesitant then on the new engine, because why would September be so low? I think, Karin, you said it is a 33% market share in October. It is obviously improving, but it is still below your normalized 40%. So, a little bit curious when you say that the feedback is good on the engine, because for September and October, it looks like there is hesitation, and I am just curious why. Thank you.
Yeah, thanks, Klas. As you mentioned, September was quite low, and then October improving. I honestly don't see any reason to worry. I think it's more a matter of timing. In fact, I also talked to John yesterday, and we had a very big order 1st of November. So, if that would have been in October, we would have had a super strong order share in October. So, I think it's more a matter of timing. As I said, also having directly spoken to many of our big customers just a few weeks back, there is no hesitation around the new engine. So, it's not something that worries me.
Okay. Well, that's good to hear. My second one, and maybe for you, Eva, is on the sales and margin in North America. My first one is, did you get any IEEPA benefits in the third quarter, and by how much? Then on the fourth quarter, it seems like it's supply chain issues, it's mix as reasons why you're guiding towards the upper end, which is below consensus. Did the Portland costs shift around as well between quarters? I think you had some MSRP catch-up effects as well. So, what I'm really asking, the exit margin, ex the catch-ups, I get to be slightly below 10% now for the fourth quarter. Is that correct or not? Thank you.
Hi, Klas. Good to hear from you, and happy to answer your question. Of course, it's not an unexpected question to have. So, maybe let me first start with tariffs, and then I go to the moving pieces in quarter three. So, let's start with IEEPA, because you asked about it. We have received an IEEPA refund for 2025 in Q3, but it was just a low to mid double-digit million amount. The U.S. content Section 232 refund that we expected because of the higher U.S. content being approved already last quarter, that was a low triple-digit million amount in Q3. Also, if I take U.S. content and IEEPA together, it's still a low triple-digit million amount. There was no MSRP credit in the third quarter. We expect that for the fourth quarter.
So, this MSRP, or now also called Import Adjustment Offset, IAO, yes, fourth quarter topic, which was already our assumption with Q2 results. What happened in the third quarter is that we had a lower number of units being able to be assembled because we already had issues with supply chain. So, that also meant that our production was a bit inefficient because of the shortage in parts. We also had actually quite a headwind due to expedited freight, in order to get then parts quickly into the plants when they came late, in order to be able to assemble as many trucks as possible. That was also a low to mid double-digit rate, alone this expedited freight impact. We had an impact for Portland in quarter three. It was a low to mid double-digit impact.
There will be a bit also in Q4, and then also a bit into next year for the Portland topic, not for restructuring, but for as we then sell the assets and really decommission the site. But the main impact in the third quarter with a negative impact was really lower unit sales, inefficiencies production, expedited freight. If we now move into Q4, we will have the higher U.S. content and the lower Section 232 truck tariff rate as a result of it. Then we expect the MSRP credit, but we will still, in the fourth quarter, as it looks as of today, suffer from supply bottlenecks. It's not so broad-based. It's actually related to one particular impact there, and we're doing everything we can to mitigate, but at the moment, we're really missing the parts to be delivered.
To our factory, and that means that from a unit sales perspective, at the moment, we expect to be a bit below the midpoint of the guidance range for the year. That's also then the reason why, from a profitability perspective, at the moment, we see then the upper end of the guidance range is around 11%, but it could be also a bit above, which is what I'm hoping, but we have to see, which is why we're saying around. I still expect high impact from expedited freight in the fourth quarter because we will do everything to get the trucks to our customers. Then on the IAO, Import Adjustment Offset, and the MSRP, it's expected for Q4, but it might be that some of it will also shift into next year.
We might not get the full refunds as we expected in the fourth quarter. Now, the end of my long answer when it comes to exit rate, if I really take out all the extraordinary effect and look at my run rate and then the tariff effective rate as we go into next year, I still expect a double-digit run rate around 10% operationally as we enter next year.
That's good. Okay, I have MSRP for 11 months, EUR 110 million, so when I backed that out, I got a little bit below, but okay, fine. Thank you. Thank you, Eva. Thank you.
Next question comes from Alex Jones at Bank of America. Good morning, Alex.
Morning. Thank you. The first one, just to follow up on this timing of orders that you're talking about in North America. Could you expand on that a little bit? Is it that you're slowly opening the order book, given cost inflation, as one of your peers is talking about? Do you think your customers, in terms of the mix, are a little bit slower to place orders than others? Are you expecting later orders given the test fleets or trucks that you have out there on your new engine? Could you just describe what the timing impact is on your market share? Thank you.
We have not done any restriction when it comes to the order book. When I referred to timing, I was more saying I think it's a little bit erratic. I mean, first of all, orders overall are a little bit lower, and then, if you get an order of 1,000 units - 2,000 units, it really also shifts the percentages in that month. What I was saying was more like, yeah, we were at 33% In October in order share, but then if November 1st would have been included, we might have been more like 40%. So, I think no reason for concern. Order books are open. As I mentioned earlier, a little bit hesitation from some customers with regards to the EPA27, but more like they're holding off some weeks than that there is a change in their intent to purchase trucks.
Okay, that's very helpful. Then maybe one on Mercedes-Benz. Obviously, earlier in the year, you had a number of different inefficiencies from various factors, but Q4 now you're talking about a margin above 8%. I guess similar to the prior question on North America, you just help us understand sort of is that a representative run rate, doing some adjustment for seasonality, into 2027 or anything else to bear in mind as we think about next year's margin there? Thank you.
Thanks for the question, Alex. When we look at the Mercedes-Benz profitability, maybe let's look at quarter three first. When we look at it sequentially, the situation in our global spare parts center in Halberstadt got better. Already in the third quarter, we expect it to be even better than in quarter four, which will also help, of course, with lower inefficiencies, but also support of our service revenues and margins. We did see in quarter three a strong sales growth in Europe. We believe that will continue in the fourth quarter, and also delivery of the Cost Down Europe savings, where we will also continue in the fourth quarter. In quarter three, negative pricing effects that will be a bit better in quarter four, but there we will still see that we have a negative impact from high material costs and also still high R&D expenses.
Also because, just to remind you, our capitalization rate is also lower than a year ago. When we then look for Mercedes-Benz into the exit rate, I mean, it will be quite high in the fourth quarter, also because of catch-up effects. I would normalize that a little bit as we go into next year, and then usually Q1 is seasonally a bit weaker. That's how I would say the moving pieces look like.
Thank you.
Next question comes from Daniela Costa at Goldman Sachs. Good morning, Daniela.
Hi, good morning. Thank you. I just wanted to follow up actually on the Mercedes-Benz Trucks margin in the commentary on pricing. If you could elaborate a bit more, why is it getting a bit better into Q4, and how much are you raising the price lists for next year? Maybe along, given Brazil matters, I guess, for that segment, if you can talk a little bit about what you are seeing there, given all the volatility we have had on the political side and macro there.
Sure. Thanks, Daniela Costa, for the question. The positive pricing effects sequentially that we expect to see in Q4 will be a price increase that we issued in Q1, which will only hit the P&L in Q4 this year. We then have another price increase that we issued in Q2, which will start hitting the P&L in Q1. That being said, these price increases at the moment are still not enough to compensate the significantly higher material prices, also due to the situation in the Middle East. That's where we're at. When we look at Brazil was stronger in the second quarter because of the Move Brasil program, but there, we really reached the peak of registrations in July, so we don't think any positive impact of that will come in Q4.
When I look at now also macro indicators for Brazil next year, it looks more like it would be another contraction of the market year-over-year as we enter 2027.
Thank you.
Next question comes from Nicolai Kempf at Deutsche Bank. Good morning, Nicolai.
Yeah, good morning. It is Nicolai from Deutsche. Thank you for taking my question. The first one would be again on Mercedes and moving to next year, because you do guide for significant improvements of the Cost Down Europe program. How much of this will we see in the actual numbers? Because you mentioned a couple of input cost headwinds. My second one would be on Germany, which is recovering, but maybe not as much as we hoped for. The European market for next year is guided around flat-ish, maybe slightly up. Would you expect that Germany could outperform next year?
Thanks, Nicolai. Obviously, good question. When it comes to Cost Down Europe, when I look at just Mercedes-Benz Trucks in Europe alone, there is a positive effect from Cost Down Europe that we see in our margin development in Europe. However, this year, and we have talked about it for the last couple quarters, we do have negative effects, in particular coming from Latin America. We also see that in India, we have a very competitive environment. These are kind of counter effects against that, but Cost Down Europe is delivering. Of course, then with our disclosure for Q4, we will give you also an annual update on the program and what our expectations for additional savings for 2027 will be out of Cost Down Europe. Germany, the big question. I mean, we have not had a bad year in Germany.
Our sales have been growing, but yeah, not to the significant degree that we have hoped for. Germany within the mix of Mercedes-Benz Europe is still weaker than in historical good markets. I would hope for a recovery that is a bit stronger next year. I also hope that for this year. We have to see, but it is certainly something that we would all appreciate going into 2027.
Thank you.
Next question comes from José Asumendi at JP Morgan. Good morning, José.
Good morning. Thank you, Markus. A couple of questions, please, if you can comment on CapEx 2027, 2026. Where would we stand on the cycle, and should we step up in CapEx in 2027 or maybe with or down next year potentially? How are you going to manage, please, if you could give us some color, please, on production run rate ratios, Q4 and into Q1 in the light of orders? Flexible is the production footprint, and how do you manage this order versus production on a quarterly basis? Thank you.
José, thank you for your question. I'll take the one on CapEx first. We're really still in our key capital investment phase when we look at where we are in the transformation. I mean, when we look at Europe, we have investments for Euro 7 that's coming. We have the new vision regulation, where we're developing a new cab and so on. We're at these peak levels also in 2027, where we might be a bit higher sequentially as we move into 2027, but only slightly is also because we then start setting up our new plants in the Czech Republic and also in the U.S. next year. Then your question about footprint and how you manage these orders versus production, was that related to North America, José, this question?
Apologies, yes. North America, and if I may ask that, the opening of the new plant, if there's any update on that.
Yes, I mean, the new plant, we're on track with everything, and we're finalizing the land purchase. Once we have a location for the new plant to share, we will, maybe before Christmas. As you can imagine, there are some negotiations underway, which is why it doesn't make sense to talk about it now, but we will update you once possible, but very well on track there. When it comes to production footprint in North America, also between Mexico and the U.S., we always manage that in a flexible manner. Of course, we also look at the tariff framework, and we shift around in a way that we have the maximum benefit for the business and, of course, also for our margins.
Thank you.
Next question comes from Harry Martin at Bernstein.
Hi, and morning, everyone. Thanks for taking my question. The first one I had on North America, just to try and smooth the production into next year, are you sort of incentivizing fleets to take earlier deliveries if there's some delays, that look like maybe a more back-half weighted year, or are you sort of happy with where the orders are coming in organically? The second question, just on the high diesel prices that we've seen in recent months. Has there been any impact to purchase behavior, or deferred maintenance, anything along those lines in the quarter? Then the follow-up would be if there are any pent-up or catch-up if the recent declines in the oil price were to continue.
Then the final question on cash return and the balance sheet, EUR 9 billion of industrial liquidity on hand at the end of Q3 could be EUR 10 billion, I guess, with the free cash flow guidance at the end of the year. So how are you thinking about shareholder returns in 2027 as well? Thank you.
Thanks, Harry. I'll take the first couple of questions, and then Eva can do the industrial liquidity one. So in terms of just the overall diesel and everything, I mean, what's kind of interesting actually is we've seen an improvement in demand throughout the year, despite quite high inflation, interest rates, diesel prices definitely going up until very recently, and also freight volumes not really improving. But what is the most important KPI for us is the freight rates, and that has continued to develop positively. I think year over year, it's almost 40% up on spot rates, and even sequentially Q2 - Q3, still an improving freight rate situation. Therefore, I think we walk into 2027 quite comfortable that the fundamentals are good. I mean, we know there is a replacement demand also in the market, which should support demand even further during 2027.
As for filling up Q1, it's not yet full, but we are at a, let's say, decent level for this time of year. So that's making us quite comfortable, but obviously working now. As is usual this time of year, we get a lot of fleet orders, and of course, working together with these fleets to really also place the orders in a good way throughout the year. Then, yeah, the diesel one I think I answered already. I mean, our customers generally have agreements with their customers that they're able to pass on high diesel prices. So this they can do. Sometimes it becomes a bit of a cash issue because they have to pay the diesel, and then before they can recover, that can be a challenge. But I think you saw also with our financial services development that that has also improved actually this year.
Yes, I will take the question on cash return to shareholders. Obviously, this is an important topic for us to return excess cash to shareholders, and we have always said that we appreciate the combination between share buybacks and dividends. We will look into the dividend potential for next year after we close the year. We have already announced and started the second tranche of our current buyback program, EUR 1.1 billion by latest June 30th. We might be also finished earlier. At the moment, the new program has started in a quite accelerated manner since September. When I take tranche one and two combined for the year, we already bought back more than EUR 500 million worth of shares.
Great. Thank you.
Next question comes from Anthony Dick at ODDO BHF. Good morning, Anthony.
Yes. Good morning, everyone. Thanks for taking the questions. The first relates to North America. Thank you for confirming the double-digit margin target for next year. I was just wondering, considering the slowdown in orders we have observed over the last couple of quarters and the prevailing uncertainty in the market, how do you expect that to phase H1 versus H2? Are you already putting some measures in place to kind of flex productions potentially for the early part of the year? Or do you actually expect this to recover in the next couple of weeks and to observe a more linear and traditional phasing of the margin? The second question is on Mercedes-Benz, or maybe more overall on the cost side. You have mentioned raw materials, which is an industry-wide issue.
Could you provide a bit more color into the actual impact of raw materials in absolute terms that we are seeing Q3, Q4, and maybe 2027? Thank you.
Thank you, Anthony. I will take the Mercedes-Benz Trucks one first. I mean, when you look at raw material impact, I would say low triple-digit million impact, mainly in the second half of this year overall. Looking at North America and volume development, first half versus second half, it is a bit difficult to predict right now when the orders will come in. First of all, Karin mentioned that we are really comfortable with the fact that our new EPA27-compliant engine will be well received by customers. We receive that positive feedback from the customers who have already tested the engines. We have at least 3% increase in fuel efficiency. But of course, it might take some testing in the next few weeks for the orders to come in. Again, there is this uncertainty because of NCPs right now, even though they do not affect us with our technology strategy.
Customers might be waiting a bit where market prices land for next year's engines and then trucks as a result. That is where we have to see how quick orders will come in, and that will ultimately determine how the ramp-up then next year will be. What I can tell you, when I actually look at the fill rates for quarter one, it is filling up nicely now, and the fill rate is actually higher than it was a year ago for quarter one in 2026. So, it is not something that I am concerned about, and we do not plan now to significantly ramp down our production program after a full quarter four, because that would be inefficient.
The other factor is that we also most likely will have some units that we have moved from quarter four into quarter one because of those supply bottlenecks that I mentioned before, that most likely also looking then at our bit more cautious guidance for quarter four profitability for Trucks North America, we might not be able to fully mitigate.
Very clear. Thank you very much.
Next question comes from Nick Housden at RBC. Good morning, Nick.
Hi. Thank you for taking my questions. The first one is on the mix headwinds that you called out in Trucks North America. If you could just elaborate a bit more on what those are, please.
Sure, Nick. Happy to do that. It is really the fleet mix. At the beginning of the year, we or mid-size fleets, a bit smaller fleets, which have a bit of a higher margin profile, and then, of course, the larger fleets, rental leasing fleets, and so on, have been ordering a bit more. That is the main impact of the mix effect.
Okay, great. Just a second question. Do you expect the EPA 2027 compliant engines to have any kind of a material impact on warranty provisions, given it's a fairly significant technological shift? Anything we should be aware of there as we think about margins in 2027?
No, we don't think so. For us, this is really more an evolution when we go from the Gen 5 to the Gen 6 Detroit Diesel engines. You can say that we have around 80% common parts, so there, I wouldn't see an additional risk.
Okay. Thanks very much.
Next question comes from Shaqeal Kirunda at Morgan Stanley. Good morning, Shaqeal.
Weak orders in North America caused by EPA27 NCP uncertainty, and your strategy does not use NCP. Wouldn't you have expected that your share of orders would be higher rather than lower? I am trying to understand how tight the margins are between switching from one OEM to another. Isn't the biggest risk that EPA increases the NCP penalty? Could you shed some light on what your regular long-term customers are saying on the topic, especially in relation to your Gen 6 engine cost increase?
Shaqeal, we missed, I think, the beginning of your question, so I will try to answer what I think you asked, and then you can ask again if we are not answering. In terms of our order share and whether it is affected by the fact that we only offer our new engine beginning of next year, as I commented on earlier, we do not see that as a big risk. It is true that our order share was lower in September, rebounded in October to almost the level of our normal share. As I commented before, we see it more a little bit as a coincidence maybe, but more of a timing issue, and actually also got that confirmed by a lot of customer conversations over the last couple of weeks. I think it is more of a timing issue than related to NCPs.
With regard to the size of the NCP, I think your guess is as good as mine. Obviously, we follow that very closely, but we do not know, and we plan for different scenarios, and of course, look forward to having the ruling, which I think will bring a lot of more certainty to the market and to our customers.
Understood. On Cost Down Europe, could you just remind us of the progress there? Expectations for next year are pretty strong. Would you say this is still running on track?
Yes, Shaqeal, I can confirm that it is running as we intend, at least. We said that after delivering more than EUR 100 million net savings last year, we expect to add another EUR 150 million to that by the end of this year to arrive at a total of more than EUR 250 million. We are well on track to achieve this, so I can absolutely confirm that. Of course, we want to keep accelerating the program as we enter 2027, and we will share that then with our Q4 results, what number in savings exactly we are targeting there. Overall, I think a positive situation, and it will continue to benefit the Mercedes-Benz Trucks performance. One thing I want to mention about the Mercedes-Benz Trucks performance, because we have been talking about supply bottlenecks in North America.
In North America, they are a bit more concentrated in particular to one supplier right now. In Europe, for Mercedes-Benz Trucks and Bus, it is a bit more broad-based as of today. We are on track to deliver the planned unit sales for quarter four in Mercedes-Benz Trucks and Bus. I just want to mention one thing. We need to make sure that in Germany also because of the current negotiations with the unions on the collective bargaining agreement. That is a watch item there.
Understood. Thank you.
Next question comes from Frank Biller at LBBW. Good morning, Frank.
Yes, hello. Good morning. Thanks, Karin, Eva, hello. It is a question about electrification. We have seen lower order intakes here, order intakes going up, but the sales figures got down. Given the high diesel price, what are you expecting for the time to come with this electrification? Is this more infrastructure issues still limiting the ramp-up here of electrification? What about profitability? You said earlier it is nearly at the same level as combustion engine. Is this still valid? The second question about autonomous driving, maybe you can give us here an update what is going on here.
Yeah, sure. I will start with the electrification one. I think on profitability, no change to the previous statements. In terms of the market development, I think the diesel price somehow gets into the mind of our customers, so I think that could potentially push some of them more towards looking at alternatives. It is so much up and down now, so it is a little bit hard to say. I would anyway say that the TCO for electric starts to be quite good for many of our customers, especially in Germany, where you also have the benefit of the Maut differentiation. The road toll is very supportive to electric with, I think, a EUR 0.33 per km benefit.
The customer starts to acknowledge that, but the bigger bottleneck and challenge is still the infrastructure, which is being built at a much too slow pace, both when it comes to the public charge points, but it is also not easy for many of our customers to electrify their depots, because of the waiting times to get the power they need, and so on. I think the overall market is still less than 3% of heavy duty in Europe, if you look year to date. For us, it is higher since we have a good market share, but I think still somewhere 5%-6% of our total sales in Europe. On autonomous, we are making good progress. Team is working really hard. We have a really important milestone in Torc to get to driver out on public roads, which we hope to achieve before the end of the year.
That would be a really testament to the technology. Then, of course, after that, we take further steps to broaden the sort of scope where we can drive without driver, and of course, also to start to ramp slowly commercially and start to haul also commercial freight. But we expect still the bigger ramp to come in 2029.
Thank you.
Last question now from Lewis Merrick at BNP. Good morning, Lewis.
Yeah, Lewis Merrick at BNP Paribas. Just one left from my side. Just coming back to the North American margins. I mean, correct me if I am wrong, but you spoke of a clean margin exiting 2026 around 10% for North America, a bit below consensus for 2027. Is there any other one-offs other than a bit of the MSRP credit spillover that will be lifting margins above that 10% level next year? Thank you.
Thanks for your question, Lewis. It is a bit early to guide for North American margins at this point in time. We will do that with our Q4 results when we guide for the year 2027. I mean, I was not giving an early guidance when I mentioned the double-digit margin exit rate. That is the exit rate, and then we will look at the other pieces into next year. Obviously, we will have also pricing effects, and then, of course, from a margin perspective, we have a new engine coming with better fuel efficiency and so on. I mean, we are comfortable with the pricing level that we are targeting for next year. Also, as we are accumulating orders for the first half already, we see that that is coming in at a good level. Then we have to also, of course, see how volumes develop.
Also a bit early to say, but first economic indicators that we are looking at also indicate that there could be a growth in the North American truck market in 2027 versus 2026.
That is clear, Eva. Thank you very much.
Great. Thank you very much. I would like now to hand over to Andy Johnson for the second part, where all participants from the media can ask their questions. As always, IR remains at your disposal to answer any further questions you might have. We are looking forward to staying in contact with you. Have a great day. Thank you, and goodbye.
All right. Thank you, Markus. Hello, everyone. I am Andy Johnson, Global Head of Corporate Communications, and welcome to this part of the Q&A session dedicated to all media representatives who have dialed in. Before we start, some housekeeping remarks. This call is conducted in English, so please ask your questions in English as well. The operator will now explain the procedure for registering questions for you now.
If you wish to ask a question, please press star and one on your telephone keypad. Please press star and two on your keypad if you wish to withdraw your question. One moment, please. We are now registering your question.
Thank you, Operator. We will now begin the media Q&A session. The Operator will address each questioner by name, but please be so kind as to briefly introduce yourself again, with your full name and your media outlet. Please take your time with your questions and ask them slowly and clearly. With that, operator, please begin.
Thank you. The first question comes from Robin Wille from dpa Deutsche Presse-Agentur. Please go ahead.
Yes, hi. Good morning. Robin Wille, Deutsche Presse-Agentur. Two questions. The first one, automakers such as Mercedes-Benz are expecting a very poor fourth quarter, primarily due to higher costs, for example, for raw materials. How is Daimler Truck affected by this trend in Q4? My second question concerns your cost-cutting program, or rather your severance program. Also here, companies like Mercedes-Benz are currently restarting their severance programs. Could you please provide an update on how your program is structured, your severance program, and how it has been received so far? How many people have left the company as part of this program to date, and are you planning any adjustments?
Thank you for your question. I will start with the first one on material price increases. Yes, we have these effects as well, and we have mentioned them in our speech also now when we commented on our Q3 results and also Q4 results. It is a headwind for us as well. But overall, I think you see the margins that we are guiding towards for the year. Headwinds, but we are able to compensate as much as possible, as you can see. On Cost Down Europe, the program is running as planned. There is no adjustment of the program, and we have started it last year, and we are going through it step by step, and we are comfortable with the progress. It is going in line with our expectations and in line with our forecasts, and we have also said we will not give interim updates on headcounts.
We will look at that then at the end of the program and give you an update then.
The next question comes from Ilona Wissenbach from Thomson Reuters. Please go ahead.
Good morning. Karin, I would like to know, what are you making out of the result of the midterm elections? Would you see any political change that is affecting your business when it comes to the overall economic development, how this may continue, and perhaps also related to this very hard-to-understand situation with EPA27 and NCP, the uncertainty around it? Is there any chance that there may be some regulative change as a result of the elections? Then the question, perhaps for Eva, can you give us broad numbers of the net tariff effect? I am very much puzzled about this credits and MSRP and so on. Perhaps you can say what is the negative effect all in all this year, and what is the counter effect with reimbursements?
Yes, I can start, and maybe just for the sake, I think you know it, but maybe for the sake of others participating, just to describe this EPA27 and NCPs. It is a little bit different than a European legislation with Euro 6, Euro 7. When EPA27 comes in, we will be delivering a compliant EPA27 engine, but unlike in Europe, OEMs are also allowed to continue to sell the old engines. In our case, it would be like selling Euro 6 after Euro 7 comes into place. But when they do that, there is a regulation under the Clean Air Act that this has to be disadvantageous compared to bringing the new technology, and therefore, there is this NCPs, which will be decided, which is like a penalty, a non-conformance penalty for these engines. The challenge we have now is that they have been preliminary announced but not finalized.
We will go into 2027 not exactly knowing how much a customer has to pay if they decide to take an old engine, which is rather confusing. Actually, from what I understand, it is also partially because of the midterm election that this decision was pushed out a little bit towards the end of the year. We hope to get clarity on that. I do not expect that this now quite strong result for the Democrats in the midterms will have any effect on the ruling of the EPA or the NCPs. If you look more broadly on the business, it is, I think, a little bit early to say, right, how it will affect. But I think short term, we do not expect any material changes because of this election result.
For trucking, I mean, the biggest issues are how the fiscal stimulus will be going forward, what will happen to trade frictions and tariffs overall, or possibly if there is more policies coming and more uncertainty. But to give you my honest answer, I think at least for the near term, the next couple of months, we do not expect this outcome to have any effect on the business in one way or another.
Ilona, I am going to answer your question on tariffs. Yes, it is a complex topic with also a lot of different tariff types that are affecting us. I think the easiest way to look at it is just to look at the full year net tariff effect that we are expecting. Net tariff means after retroactive refunds and also then, of course, also after pricing, because a portion at least of the tariffs we are also passing on through tariff surcharges. The net tariff effect for the full year 2026 that we expect is a mid-triple-digit million amount.
Thanks.
The next question comes from Markus Klausen from Dow Jones News. Please go ahead.
Hello. Good morning. Thanks for taking my questions. In the analyst call, you said that you experienced some supply bottlenecks in North America. Could you please give a little bit more color on this? Which vehicles are affected by this, and what are the specific reasons for this? Possibly also, which part is affected, and what is the timeline when you believe these bottlenecks will be resolved? Thanks.
Sure, I can do that. I mean, first of all, I think it has been a pretty crazy year in North America. We started with an extremely low volume coming into the year, and looking at our volume in Q3 and also what we plan for Q4, it is extremely high volumes. So we were in contact with our suppliers during the spring to ask them to start getting ready to recruit more people, to add shifts, acquire raw materials, et cetera, to be able to ramp up. We see now that this has been a struggle for some of our suppliers. When it comes to the particular suppliers where we have challenges now, it is mainly on axles and engines.
I think you know that for the North American market, we both offer our Detroit powertrains, but we also work with an independent engine and axle suppliers, and it is mainly on these independent ones for customers who do not use the Detroit powertrain where we are having the challenges. In terms of catch-up, I think it will be difficult to catch up before the end of the year, but hopefully we can manage that during beginning of next year.
The next question comes from Alexander Jungert from Mannheimer Morgen. Please go ahead.
Hi, and good morning, everyone. Just one short question. A few days ago, there was a large warning strike at the Mannheim plant with 3,000 employees. The union responds for a 5% pay increase. What do you think about it? Thank you.
Alexander, yes, Eva here. I am happy to answer that one, and I want to make it very clear. I believe in Germany, and I want Germany to remain a strong and competitive industrial location. That matters for companies, and it also matters for all our employees. But to strengthen the German industry, we have to stay competitive, and we have to deliver reliably to our customers. If we have the situation now that strikes disrupt production when our order books are full and our customers are waiting for their vehicles, this really limits our ability to do exactly that. Ultimately, I think that doesn't benefit anyone.
Thank you.
So far, there are no further questions.
Okay then, that will call the end of our session today. Thank you, ladies and gentlemen, very much for your questions and being with us. Thank you, Karin and Eva, for answering the questions and earlier today. As always, IR and communications remain at your disposal to answer any further questions you might have. A recording of this session will be available later today on our Daimler Truck website. We are looking forward to standing with you. Have a great day. Stay healthy. Thank you, and goodbye.