Analysts expect 16% decline in Class 8 vehicle production this year
But coming regulations could force pre-buying and boost demand
The commercial Class 8 trucking market is expected to see production further decline this year as the industry copes with oversupply and waning demand, but coming regulations could kick-start growth.
Analyst firm William Blair expects a 16% decrease in Class 8 truck production through 2024 before returning to a growth pattern in 2025-2026 ahead of regulations in 2027, it said in a research note published Feb. 23.
William Blair estimated that manufacturers will produce 285,000 Class 8 vehicles this year, compared to 340,000 in 2023. The industry is expected to hit a high of 364,000 new vehicles in 2026 as the market gets closer to regulatory changes.
“Economic indicators are pointing to a soft landing in 2024; this ultimately puts a floor in demand in the medium- and heavy-duty commercial vehicle market, which is facing headwinds from overproduction in 2023,” William Blair analysts Lawrence De Maria, Ross Sparenblek and Sam Karlov wrote in the report.
De Maria further told Equipment Finance News that he expects “probably a better first half than second half from a production standpoint.” He said that while production in the first half of the year has been strong because of a high level of orders within the last six months, that’s not expected to continue.
Supply chain issues have made demand for Class 8 vehicles significantly outweigh supply. But regulatory factors could force dealers and fleet managers to begin buying again.
Looming regulations
Dealers are already beginning to consider buying vehicles to stock up ahead of expected price increases on compliant vehicles from regulatory changes issued by the U.S. Environmental Protection Agency and the California Air Resources Board, which aim to reduce the number of polluting trucks on the roads.
“Everybody expects a pre-buy ahead of 2027, and with the economy stronger than expected, there’ll be pressure to get orders in sooner than later,” De Maria said. While it’s “a little early to start pre-buying vehicles,” existing challenges like inflation, truck production or supply chains might prompt dealers to act sooner, he said.
William Blair estimates that regulatory changes could add $25,000 to $30,000 to the price of every diesel-powered commercial vehicle. On average, a Class 8 vehicle can cost $115,000.
De Maria said some dealers and fleet managers view this almost as a tax.
“They’re incentivized to buy a new truck sooner than later because there’s not initially too much value you’re getting from a new truck,” he said, adding there won’t be a large difference in fuel efficiency between older and newer models right now, adding that it’s not as if the new trucks right now will provide an extreme difference in fuel efficiency. But with the expected price increase, many operators will likely opt to pre-buy, shoulder the upfront cost and then make it up from a pool of clients as they do business, De Maria said.
Medium-duty vehicle backlogs fall
William Blair also found that while backlog-to-bill ratios for medium-duty commercial vehicles are still surpassing historical norms, the overall backlog continues to fall.
The Class 5 market backlog is “mostly back” to a normal level, William Blair said. But backlogs for Class 6 and 7 vehicles are more than 2.5 times higher than average.
Production values of medium-duty vehicles are expected to drop 10% in 2024, before pre-buying of those units affects the market, De Maria said.
Manufacturers are expected to produce roughly 264,000 medium-duty vehicles in 2024, down from 294,000 the prior year. Of these numbers:
- The majority – 210,000 – trucks are expected;
- Buses will account for an estimated 39,000 vehicles; and
- Roughly 15,000 recreational vehicles (typically the lowest-volume category) will be produced.
But switching these vehicles to electric or hydrogen power is not yet feasible either, De Maria said.
“The production outlook is essentially not great in the near-to-medium term because the upfront cost of the vehicles is too high,” De Maria said of EVs. “The trucks themselves are not yet fit for the duty cycles, and the infrastructure is not there… The economics don’t make sense yet,” he said. “There’s enough uncertainty in the market with high capital costs to keep this from happening in the near term.”
