FOR THE COMPLETE MEDIUM- AND HEAVY-COMMERCIAL VEHICLE INDUSTRY
FORECAST

Demand is softening while production sustains in 2023,
slowing into ’24 – whereupon both rebound in the build-up to the
GHG-3 pre-buy wave.

Post-pandemic market corrections will flatten North American
demand and growth of Class 5-8 commercial vehicles and buses in the
near term. Electrification will drive accelerating growth as next
tier of regulations arrives in 2027.

The <span/>US economy
appears to have skirted the short recession in 2023, thanks to
stoic consumer spending in durable and nominal goods, coupled with
the resurgence in services, travel, and restaurants
– which have buoyed freight and truck activity
though still being constrained by supply chain issues after the
Covid-19 pandemic. A slowing-down is expected to be visible by the
fourth quarter, turning into a soft-growth 2024.

After a strong first half of 2023, there should be a moderate
reduction in medium- and heavy-duty commercial vehicle and bus
demand through 2024, according to the <span/>S&P Global Mobility’s <span/>Q2 2023 forecast
update. However, the updated forecast maintains a more positive
outlook for 2025 to 2026. when the truck market gears up for the
next level of emissions regulations. The third tier of the 2027
greenhouse regulations, combined with the timing of the fleet
replacement cycle, will <span/>likely fuel a strong wave of pre-emptive
buying.

“The added cost of those tougher regulations will drive more
purchase activity in the middle of the decade,” said Antti
Lindstrom, principal analyst for commercial vehicle forecasting at
S&P Global Mobility. Furthermore, in the bus space, support
measures from the public sector are driving the conversion of
school buses and transit buses to zero-emission solutions, adding
to this optimistic outlook.

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As momentum slows, demand is estimated to dip to a low of around
505,000 units in 2024 (including buses and motorhomes), with
projections indicating approximately 543,000 units by 2025. While
not the primary driver, the energy transition in the trucking
sector starting in California – plus about a dozen
other <span/>CARB states
with similar trajectories – is poised to support
volume growth in 2023 and after. In addition to expected
new-product updates, both established players and startup <span/>OEMs are continuing to
introduce “cleaner” versions of their existing truck models such as
the Freightliner eCascadia and Hino’s XL8 series, not to mention
PACCAR’s Kenworth and Peterbilt <span/>BEV models that comply with zero-emissions
standards.

There are several variations in observable market trends across
different vehicle classes:

• Class 4 trucks, which were popular until the beginning of 2022,
  have been increasingly taken as lighter-duty applications for
  last-mile distribution during the pandemic. Ford’s Class 4
  Econoline Cutaway model accounts for <span/>nearly two-thirds of models in this
  segment and may see increased competition rising from the start-ups
  entering the fray.
• Class 5 vehicles, while facing supply chain issues, are
  expected to see an increase in demand following a post-pandemic
  pause – for example in public-sector buying.
• Class 6 trucks have gained attention due to their fuel
  efficiency and suitability for many commercial purposes. However,
  softening of the housing and construction market triggered a dip in
  Class 6 truck registrations.
• Class 7 trucks have been on a decline in popularity due to
  their licensing requirements and higher costs vs. Class 6, in
  addition to the recent preference of OEMs and customers for trucks
  that bracket this segment.

• After a stronger 2022 where OEMs continued to focus on Class 8
  trucks amid supply chain bottlenecks, we expect tractor-truck
  registrations to remain flat this year before a dip in 2024, and a
  modest upward trajectory picks up again starting in 2025.
• Not yet recovered to pre-pandemic levels, bus and motor home
  demand is projected to climb significantly in the current year and
  remaining at a similar level in 2024, supported by a rebound in
  school bus purchases. Growth is to resume in 2025, with motor homes
  and other bus types expected to provide the additional lift
  then.

Regardless of weight class, the more stringent environmental
compliance will be the key driver in demand and production of all
vehicle types. Upcoming regulations, specifically the proposed
greenhouse gas emissions standards by the Environmental Protection
Agency are forcing traditional OEMs to re-evaluate their
manufacturing and investment strategies and prompting a potentially
rapid shift from internal combustion engine (ICE) products to
electrified vehicles.

These laws, in conjunction with the continued push for more
aggressive decarbonization efforts by states like California with
its Advanced Clean Fleet regulation, are acting as the key catalyst
in the transformation of powertrain technologies. However, the
transition to the adoption of hydrogen and fuel cell technologies
remains limited by cost, infrastructure, and availability issues.
This suggests battery-powered electrification as the go-to strategy
will be pushed further into the midterm until those issues can be
resolved – notwithstanding the recharging network
for BEV trucks, which remains to be built.

Disruptor brands like Tesla and Nikola will accelerate this
transition for their part and help strengthen the US as the
region’s epicenter of production. As for the legacy brands, despite
supply chain and labor issues, their Class 4-8 production rates for
the North America region reached and even slightly exceeded the
average build rates of 2019 by the end of 2022. While some
production targets are still not being achieved, inventories
continue being rebuilt – setting the stage for
potential growth later.

“Inventory figures of Class 4-7 trucks – which
represent about half the market – remain below
long-term averages, which is one reason why we think production has
some upward potential,” said Andrej Divis, executive director of
global truck research at S&P Global Mobility.

Overall, present demand is still strong, owing to the muted risk
of recession compared to the previous two quarters, combined with
surprisingly resilient consumer activity. Production is expected to
sustain its surge in the short term, while remaining constrained by
supply chain and labor issues, before levelling off and even
declining in 2024.

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FOR THE COMPLETE MEDIUM- AND HEAVY-COMMERCIAL VEHICLE INDUSTRY
FORECAST

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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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• Source: http://www.spglobal.com/mobility/en/research-analysis/commercial-vehicle-forecast-mdhd-truck-market-coasts.html