Deflated Truck Demand Could Send Paccar’s Rebound on a Detour
Report shows heavy truck demand softening as final regulatory rules loom.
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Shares of heavy-duty truck-maker Paccar (PCAR) are up today along with the market. They are also emerging from an oversold condition. But ACT Research is out with preliminary data that could put a dent in Paccar’s immediate potential.
According to data from ACT, heavy-duty Class 8 Orders for October landed at 13,500 units — a sharp fall from ACT’s final September net order figure of 19,172. The numbers are also down to final August Class 8 orders that tallied 16,951.
For Paccar, that downward trend in orders is likely to restrain any meaningful rebound. But the weak October print should not be a surprise, because we have yet to know the results of a pending resolution for nonconformance penalties tied to the 2027 emissions rules. That’s expected to come by early December or earlier.
NCP Background
The Environmental Protection Agency is mandating a massive (~80% to 90%) reduction in heavy-duty truck nitrogen oxide (NOx) emissions starting in 2027. Because building fully EPA-compliant engines is complex and adds an estimated $8,000 to $15,000 to the cost of a truck, the EPA proposed a so-called “noncompliance penalty” framework. The penalties act as a financial bridge, allowing manufacturers to legally sell uncertified but proven current-generation engines by paying a flat penalty. The penalty is believed to be around $6,000 to $7,000 and that potential cost has fleet and owner operators holding off until the final rules are announced.
Until that regulatory void is filled, we are likely to see limited new orders for heavy trucks. That suggests we could see another weak print for November if the final NCPs are not published in the near-term.
At the same time, the underlying demand picture remains favorable: fleets are ageing, there’s a desire for more fuel-efficient products, and we see a growing truck demand.
Source: ISM
Accelerating manufacturing activity captured in the Institute for Supply Management’s October Manufacturing PMI report reaffirms the demand for trucking services as trucks carry over 70% of all freight tonnage in the U.S.
At the time of publication, TheStreet Pro was long PCAR shares.
