Paccar Inc. Chief Executive Preston Feight outlined the company’s strategy to build battery-electric and hydrogen fuel cell Peterbilt and Kenworth trucks during a recent conference call with industry analysts and investors.
Rivals such as Freightliner and Volvo are starting to deploy electric trucks and announce plans for commercial production. Feight explained in Paccar’s second quarter earnings report and the conference call that the truck builder has its own robust strategy. An edited version of that conversation appears below.
But first the numbers. The Bellevue, Wash., truck manufacturer has proven resilient in the face of the Covid-19 pandemic recession. While earnings and revenue took a drive, the company remained profitable and Feight said its business started to rebound in June. Paccar’s second quarter profit was $147.7 million, a 76% decline from the same period a year ago. Revenue fell 54% to $3.06 billion compared to $6.63 billion in the same quarter a year earlier.
What is the status of Paccar’s electric and hydrogen fuel cell truck development programs?
To date, we have deployed over 60 battery-electric, hybrid and hydrogen-powered trucks. DAF (Paccar’s European truck builder,) Peterbilt and Kenworth have battery electric vehicles operating in North America and Europe. These vehicles are placed with customers and local and regional delivery, refuse collection and port applications. We expect that these customer segments will be the first to adopt battery electric technology because they typically operate in the city and return home every day for recharging.
Paccar will begin the production of battery-electric trucks next year. Volumes are expected to grow gradually as the cost of batteries decreases, charging infrastructure is expanded and regulations drive customer adoption of these technologies.
Paccar is simultaneously developing hydrogen fuel cell-powered vehicles and has built 10 Kenworth T680s for customers in the Port of Los Angeles. In the longer term, hydrogen could be promising for long-haul applications, due to its high energy density and its relatively fast refueling times.
What is Paccar’s zero-emissions truck development strategy?
We have a three-prong strategy.
First, we have to have the technologies, and that can be battery-electric and hydrogen fuel cells as they come down the line. So one element is just being aware of the technology and having it on vehicles.
The second element that’s going to be critical is having good distribution when it comes to market, a dealer network that works really well. Paccar obviously is very proud of our relationship with our dealers… having the ability to sell and support, take care of our customers, that’s a big deal.
The third part of being able to have electric vehicles or hydrogen fuel cell vehicles is that you have to have flexible manufacturing capability so that you can combine not just zero emissions but clean diesel technologies and run them down the same line. You can maintain efficiencies and be profitable in that way. And in Paccars’s case, we have actual factories that exist and can build vehicles.
Why is your fuel cell development only taking place in the U.S.?
We mentioned in our disclosures that we have 10 trucks that we’re putting into operations in the ports of Los Angeles. They happen to be Kenworth T680s. But we have a global approach to technology and we can use DAF, Kenworth and Peterbilt to leverage each other’s capabilities. So it’s where we’re starting right now, but they can be applied in Europe when the time is right.
The trucks that we’re putting in the ports, some of them are already gathering miles. We’re in a partnership with Toyota as a fuel-cell provider and that’s going well, as well as Shell as a hydrogen provider. For the time to production and commercialization, there is a cost element to that which has to come into play. Hydrogen is $12 or $13 per kilogram. And for it to be really efficient from a commercialization standpoint, it needs to be in the $2 or $3 per kilogram range. There needs to be infrastructure put in place and then the cost of fuel cells needs to come down. We don’t see that as something that is a near-term commercialization. We see that as a five-year to 10-year kind of a window. We think there’s a lot of long-term promise for hydrogen, but it’s a long-term promise.
Will there be different configurations of zero-emission for North America and Europe?
It’s early days on these technologies right now as far as their readiness for commercialization. The most important thing for us is to be abreast of, involved with and partnered with great companies like we and watching how it develops. There will be some invention; there will be some cost downs during the coming few years. Our goal is to make sure that we’re in a position to provide our customers the lowest operating cost vehicles, whenever the market is ready for them when there is infrastructure, when there is regulation and when the technology is ready. We feel like we’re on top of it and we’re focused on a plan that is actionable and buildable.
What is the sales model for the Paccar electric trucks that come online next year?
We think the fleets that come into production next year could be leased or purchased both available, PacLease, as you know, has a great leasing operation. So, we can run them through PacLease. And we can also have the customers purchase them. When we bring something to market, we have confidence in its performance and we do with the electric vehicles. The price point obviously at the stage of the development, and next year, will be higher than diesel. But I think people are interested in seeing what that technology feels like in their fleets. And then, obviously, we have regulations coming in the ’24, ’25 time frame where some markets will need the electric vehicles. That is what is going to bring some gradual increase in demand. We’re developing trucks for both Europe and North America in 2021.
Can you build the trucks on your existing assembly lines?
From a demand standpoint and a flexible manufacturing standpoint, it is really important to note with Paccar’s factories that we build to order. They are custom trucks that can be configured with various displacements of diesel engines or different numbers of axles. And our teams do a great job of being able to integrate different designs onto our main (assembly) line. That’s one of the real core talents that Paccar has. And electric vehicles will be the same kind of thing. We will be mounting them on our lines, whether it’s the batteries or the electric motors. And we have flexible lines that can accommodate that in low and high volume. So, we’re prepared. It’s nice to have actual factories that are able to build trucks. And we can do that today and we’ll be able to accommodate all the demand in the future.
What is your sense of the time frame for advanced technologies, including powertrains and autonomous trucks?
I think the key to keep in mind is the customer at the end of the day is interested in the lowest total cost of operation. That’s what the trucking companies like to think about. That’s what they’re trying to deliver. And they will use zero-emissions vehicles, whether they’re battery-electric or hydrogen fuel cells, to do that. What we do is evaluate those technologies, develop those technologies and bring them to market as soon as they’re ready, and commercially they’re the right answer, or regulations ask us to bring them to market. They develop iteratively. We are always making those strategic decisions about which way things will go. We continue to develop zero-emission vehicles while developing clean diesel at the same time because that’s going to be the primary motive power for the coming years.
Autonomy is a great technology. We have strong partnerships with a lot of autonomous vehicle companies. We have developed autonomous vehicles. If you look around at the space, you’ll see that a vast majority of the vehicles that are operating in trials are Peterbilts and Kenworths and DAFs. We’ll watch that technology and when it’s ready, we’ll bring it to our customers.