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PACCAR Inc.
7/22/2025
Good morning and welcome to PACCAR's second quarter 2025 earnings conference call. All lines will be in a listen only mode until the question and answer session. Today's call is being recorded, and if anyone has an objection, they should disconnect at this time. I would now like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead.
Good morning.
We'd like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACR's Director of Investor Relations. And joining me this morning are Preston Fite, Chief Executive Officer, Kevin Boehne, Executive Vice President, and Bryce Poplosky, Senior Vice President and Chief Financial Officer. As with prior conference calls, we ask that any members of the media on the line participate in a listen-only mode. Certain information presented today will be forward-looking and involve risks and uncertainties that may affect expected results. For additional information, please see our SEC filings at the investor relations page at paccar.com. I would now like to introduce Preston Veidt.
Preston Veidt Hey, thanks, Ken. Morning, everyone. Kevin, Bryce, Ken, and I will update you on our second quarter financial results and business highlights. In these dynamic times, our PACCAR employees have done a great job providing our customers with the highest quality trucks and transportation solutions in the industry. PACCAR achieved good revenues and net income in the second quarter, including record revenues at PACCAR Parts, good performance by the truck divisions, and strong financial services results. PACCAR achieved revenues of $7.5 billion and adjusted net income of $724 million. Packard Parts achieved record quarterly revenues of $1.72 billion and excellent quarterly pre-tax income of $417 million. The team did a great job increasing revenues in an overall flat parts market. Packard Financial had a very good quarter, increasing pre-tax income to $123 million. We estimate this year's U.S. and Canadian Class 8 market to be in a range of 230,000 to 260,000 trucks. The North American truck market size is a result of general economic conditions, a soft truckload market, and tariff and EPA 27 policy uncertainty. Customer demand in the less than truckload and vocational segments is good. In Europe, DOS innovative aerodynamic trucks provide customers with best-in-class fuel efficiency and driver comfort. And we were recently in Europe and met with some of those customers who shared their appreciation of the performance of these great DOF trucks. We project the 2025 European above 16 ton market to be in a range of 270 to 300,000. This year's South American above 16 ton truck market is expected to be in the range of 90 to 100,000 vehicles. Packard delivered 39,300 trucks during the second quarter. and anticipates delivering around $20,000 to $32,000 to $33,000 in the third quarter. Third quarter production reflects the normal summer shutdown in Europe and build rates in North America that are matched to the market. Packard's truck, parts, and other gross margins were 13.9% in the second quarter. Given the uncertain tariff structure, it's difficult to forecast third quarter margins. Assuming the current tariff structure and market conditions, third quarter margins could be around 13%. I'm proud to share that over 90% of PACCAR's U.S. delivered trucks are produced in our American factories. Clarification of the ongoing IEPA and Section 232 trade policies could enhance market clarity as well as benefit PACCAR and our customers. We anticipate the North American market will strengthen As tariff policies become certain, the truckload market gains momentum, and customers begin to anticipate the 2027 NOx emission standards. Kevin Behney will now provide an update on Packard Parts, Packard Financial Services, and other business highlights. Kevin?
Thank you, Preston. Packard Parts achieved record revenues in the second quarter, with excellent gross margins of 30%. We estimate that PACR's year-over-year part sales to grow by 4% to 6% in the third quarter. PACR Parts continues to grow through ongoing investments in capacity and services. PACR Parts is focused on delivering the right part to the right place at the right time to provide industry-leading support for our customers. PACR Financial Services' pre-tax income was a robust $123 million up from $111 million a year earlier. This reflects strong credit quality and improving used truck results. PACCAR Financial operates 13 used truck centers around the world to support the sale of premium Kenworth, Peterbilt, and DOP used trucks. PACCAR is building another used truck center in Warsaw, Poland, which will open this year. PACCAR used trucks sell at a premium compared to competitors' used trucks. Similar to PACCAR parts, PACCAR Financial provides steady foundational profitability during all phases of the business cycle. This year, PACCAR is planning capital investments in the range of $750 to $800 million, and R&D in the range of $450 to $480 million. as we invest in key technology and innovation projects. These include next-generation clean diesel and alternative power trains, advanced driver assistance systems, and integrated connected vehicle services. PACCAR is also investing in its truck and engine factories to support long-term growth, as well as our customers' and dealers' success. PACCAR's industry-leading trucks expanding parts business, best-in-class financial services, and advanced technology strategy position the company for an excellent future. We are pleased to answer your questions.
Thank you. We will now begin the question and answer session. If you would like to ask a question today, please do so now by pressing Start followed by the number 1 on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press start followed by two to withdraw yourself from the queue. Our first question today comes from the line of Jerry Reavich with Goldman Sachs. Jerry, please go ahead.
Yes, hi, good morning. Good afternoon, everyone. I'm wondering if you could just comment on the really strong sequential price improvement performance you saw in the quarter, how much of that It was makes versus getting the price increases in for the higher tariff content. And, you know, as you think about pricing based on what's in backlog for 3Q, what's that cadence in pricing look like 3Q versus 2Q compared to the roughly 3% sequential increase we just saw in this quarter?
Sure, Jerry. It's an interesting time in the market. And as we look at the effect of tariffs on Q2, they were certainly well present for us. And we think that the amount of tariff impact will, and the current structure, increase in Q3. So we'll have an increased weight of impact on price versus cost for us in Q3. And that's obviously a North American-centric comment. There's some variability sitting in there because it depends on how the tariff structures continue, whether that's 232 or court rulings on AEPA. It could also be affected by the current August 1st statements around what new tariffs might be affected and what rates they'll be at.
Okay. Thank you, Preston. And then in terms of your discussions on Section 232 with the government, can you touch on that? We've heard that they might be committing to a 60-day review cycle versus the quoted maximum of 270. Are you hearing that in your conversations as well?
Well, I think the way we think about it is PACCAR builds, as I said, over 90% of our trucks for the U.S. market in the United States. That's really... I think it's good for the country. If we use a little bit of reference of 232 for the auto and light truck industry, you could say that that was a review where it was felt it was strategically important that cars and light trucks be made in America. That's kind of the government indicated. That's what their stated policies have been. And so the current ongoing investigation in 232 for medium and heavy trucks, they had their open comment period. They completed that. They're now in the investigation phase. And as you noted, Jerry,
don't have to take the full 270 days be speculating to know what they're actually going to do but it wouldn't be utterly surprising if it was less than that and then a conclusion was made super and you know lastly in terms of uh the tariff impact uh on a per unit basis in in the third quarter can you just comment directionally is that in the $4,000 per unit range the way it looks like from the bill of materials, or can you just help us understand that so we know the variables if we do see a favorable Section 232 outcome?
Yeah, as we look at it, obviously I mentioned already there's some variability within that tariff structure of whether copper is included, whether there's an August 1st change to things, so I'm giving you a plus or minus number. But in general, what we would say is maybe the quarterly effect is something like $75 million to
Thank you. Nice performance given the variability.
Appreciate the comment, Jerry. Thanks for the questions.
Thank you. Our next question comes from Jeff Kaufman with Vertical Research Partners. Please go ahead.
Thank you very much and congratulations in an uncertain environment. I was just wondering with the passage of the One Big Beautiful Bill Act, and the R&D and CapEx depreciation acceleration that a lot of companies will be getting. Have customers reengaged you about the 26th order season?
Yeah, I appreciate the comments on the quarter and also a really insightful question. And the answer is, yeah, they're actually starting to engage us on that as that legislation is passed and it does have benefits to their cash, their ability to deploy that cash for capital asset purchases like trucks. is starting to be part of the conversation and is part of our optimism for the latter part of the year.
Yeah. And then I would just add, as is Bryce, it'll be very positive for us as a company as well, because that R&D expensing, as well as the immediate R&D expensing on the fixed assets, we think will provide cash tax benefits in the $300 to $400 million range. So it's good news for us, good news for our customers.
All right, Bryce, you beat me to the second half of the question, so that's all I have.
He's that good.
Thank you. Our next question comes from Angel Castillo with Morgan Stanley. Please go ahead.
Hi, good morning. Thanks for taking my question. I just wanted to maybe follow up on that just in terms of the I think the second half delivery is implied by kind of the industry outlook and assuming your market share remains intact is a little bit more kind of stable in terms of U.S. and Canada for the second half versus the first half. And to your point or the comments around seeing good kind of conversations with customers around potential benefits from the one big beautiful bill that maybe drives some incentive to ordering. Curious, could you just provide a little bit more color? I guess we've had three months now of pretty weak orders. So do you expect then the next month we'll start to see that essentially rebound and that's what gives you confidence in the second half? Or, you know, as we think about order dynamics here that we're seeing, why won't that have a bigger kind of impact on underlying deliveries that you're kind of expecting in the second half?
Yeah, really fun question, Angel. Thanks for asking. There's a few factors going into the sequencing of orders. One of the things that's in the truckload sector, which is a pretty significant part of the overall market in the US and Canada, is that there was some overcapacity. I think that overcapacity is coming out gradually. And as that gets in balance, it'll help with rates, which will help with profitability for the carriers, which will help with truck orders. So that's one factor in there. Another key factor that gives us confidence that we'll see improvement is the fact that the big, beautiful bill that you referenced has an upside potential for us as the year gets through. Another one is regulatory emissions standards. As we all know, there's a greenhouse gas component and a NOx component. The greenhouse gas component for 2027 is likely not to change. So that's what a lot of people can understand now, which means there'll be no further GHG requirements. However, the law is in 2027 that the standard of NOx will move from 200 milligrams down to 35 milligrams. If it moves from 200 to 35 milligrams, that'll bring on costs to the product which will encourage customers to be buying trucks, you know, probably beginning later in this year. And then there's the factor around tariffs. I think that with uncertainty, customers kind of pause, and with clarity comes confidence. So if we get confidence and certainty around tariff structures in the third quarter, then I think customers' reactions to that will be positive, and we think that that should be favorable for PACCAR. So there's quite a few reasons to weigh in there for our confidence as the year goes along here.
Super helpful. Thank you. And then maybe just another one that I thought was really powerful, I guess, the guidance for parts in the third quarter. I thought if I heard you correctly, I think you got it to four to six percent top line growth. Can you just help us understand maybe what's what's kind of driving that reacceleration in the parts business, what you're seeing and kind of demand trends? And if you could also maybe just comment on what gross margin is assumed for 3Q within your guidance for parts?
Yeah, I'll just start with reiterating that we had record revenue in Q2 and 3.4% sales growth. And so that was done during a flat parts market. So anytime we can get revenue growth and sales growth in a flat market is a good thing. So the forecast for 4% to 6% for the third quarter is just a testament to the parts team doing a really nice job providing parts and programs to deliver excellent customer service. And we see that performance starting to normalize back to stronger sales growth.
So I think the parts outlook is strong. And in the second quarter, we have a few more bank holidays and other holidays in Europe. So we see a higher number of ship days in the third quarter in Europe. And that's our very strong market for parts sales. So that'll help us as well.
Very helpful. Thank you.
You bet. Have a good day.
Thank you. Our next question comes from Chad Dillard with Bernstein. Please go ahead.
Hey, good afternoon, guys. So to what extent is the possibility of a pre-buy changing your down cycle playbook? Do you feel the need to hold on to labor longer just in case a pre-buy happens? I'm just curious how this influences your view on what sort of fixed cost absorption is acceptable.
Yeah, sure, Chad. As you know, Packard focuses on lean, efficient production, always has, always will. And so we continue to do that. What we see is that we've done a great job of controlling costs, both in our fixed operations, if you want to call them that, and also in our factories. But we're very proud of our wonderful employees. And so as we see upside to the market, we obviously are looking for them to keep building great trucks. And as we see the market's likelihood of improving as the year continues, then we'll see that it'll be good for everybody, good for employees, good for the company. And so we're trying to keep that in the right balance.
I hope that's helpful. And then just second, can you just comment on just the sort of pricing that you're seeing in the back half of the year? Are the price increases sticking? Just comment on just what your clients are telling you.
Well, I think it goes into the earlier discussion we had around the market in general. I think that as their profitability improves and their need for trucks continues to increase, then that's good for the market dynamics. Right now, I think as that capacity has come out, but still coming out, there's this balance that's being achieved. And once we get through that balance point, then we'll start to see increasing demand. And going back to remember that we're really kind of talking about a replacement market, which should be in the 260s, 270s. And so we're not really chewing into that at all. And trucks are running. And freight ton miles are not low. So this is all creating some level of pent-up demand for the future.
Thanks, guys.
You bet.
Thank you. Our next question comes from Michael Feniger with Bank of America. Please go ahead.
Yes. Hi, everyone. Thanks for taking my question. Just on the parts with the 4% to 6% top line, I realize you guys are growing parts in a flat market. With the top line potentially up 4% to 6% in the third quarter, do you think you can grow profit at that same rate? I know it's a little challenging in a flat market. Just kind of curious, you know, what's the right environment where we can kind of see the parts revenue growing and see that pre-tax profit and that margin also maybe growing along with that?
Yeah, Michael, great question. You know, we, we are proud of the team for being able to deliver the parts growth in a flat market. You know, we definitely see upside upside when we look at the overall truck park. You know, it's still at elevated levels and, you know, those customers still need the truck serviced and that comes with parts. And so, you know, our, our dealers continue to add capacity and whether it's an updated locations, new locations, uh, Packard continues to add distribution centers. And so all of that points to, as we see the ongoing sales growth, we see upside in the profit as well. Yep.
Great. And just my last one is just on the inventory side. I know there's your inventory, then we obviously have the industry. How do you feel your own inventory set up? know given some of the moving pieces that you're seeing with tariffs but also you know potential of a pre-buy at some point maybe next year do you carry a little bit more do you have to kind of work work some of that down as you move through the year just kind of curious how you visit how you think your inventory's position and how you think your competitors in the industry overall is set up as we're getting these dynamics as we move into 2026. thank you sure sure you bet nice question michael
If you look at the industry Class 8 inventory, it's at 4.2 months of retail sales. You look at Kenworth and Peterbilt's inventory, it's really 2.9 months of retail sales. We feel very good about our inventory position. And one of the things that also factors into that is roughly half of our trucks are at bodybuilders. That inventory is at bodybuilders. So that's an overrepresented part because PACCAR is the leader in the vocational segment. And so our inventory feels well positioned. And as you know, we build the order. So we feel like we've maintained our disciplines and are in a very good position from an inventory standpoint.
Excuse me.
Thank you. Our next question comes from Jamie Cook with Truer Securities.
Please go ahead. Hi, good morning. Nice quarter. I guess first, you know, the deliveries Preston and the deliveries exceeded the high end of your expectations, margins were at the high end. Was there anything unusual in the margins and why were the deliveries better? Was it just sort of a pre-buy ahead of tariffs? And then I guess my second question, just given what you're saying, seeing about the thing about the back half of the year, to what degree do you have confidence that like the 13% in the third quarter, could mark sort of the bottom for margins if things start to normalize. And to what degree do you think, you know, while you're not guiding for 2026, ACT, I think, is assuming productions about flat next year. Any color around how you're thinking about 2026? It sounds like you're more optimistic, but I don't want to put words in your mouth. Thank you.
Jamie, that's a series of questions right there. And first, thanks for the comments on the quarter. Feels like a good position that we're in. You know, when I think about deliveries for the third quarter, it kind of has the European normal shutdown period. So that's part of it. And then I think adjustment to the market is part of it as we look at it. And then we feel like it depends on getting some of the stability that we've talked about in terms of other positions for like, are we going to have tariff clarity? And will we have regulatory clarity around NOx emissions? So as we think about deliveries and the 13% for the quarter, it feels like that we could be into your words, thinking about talking about the bottom of a cycle. And then I would kind of, we've been kind of internally thinking and sharing with you that we feel like we are structurally stronger. And we went back and looked at the last time we had roughly 38,000 deliveries, 36,000 deliveries. And we had like $4.9 billion in revenue and made $386 million in profit. So comparatively, I think this is just demonstrating that cycle over cycle strength that our team has delivered. And that's the Parche team. That's the financial services team. That's the truck divisions. I mean, that's the new trucks that are in the marketplace, the great dealers, the relationships with suppliers, a lot of good things that are going the right direction. And that is delivering for our shareholders, our customers, and our employees.
And any color on how you're thinking about 2026? Better than what the flat? I feel pretty good about 2026.
Yeah, I feel pretty good about 2026. I think that... There's going to be clarity in these regulatory standards because they're implementing in 2027 one way or another. There will be clarity around tariffs one way or another. And as we said, the trucks are getting used, so 2026 should see improvement.
Thank you.
You bet. Have a good day, Jamie.
Thank you. Our next question comes from Tammy Zakaria with JP Morgan. Please go ahead, Tammy.
Hi. Good morning. Thank you. Good afternoon. Thank you so much. I wanted to ask you about the engine remanufacturing plant. When do you expect that to be fully operational? And when at run rate, how many engines do you expect that facility to be able to remanufacture annually?
Okay. Good question, Tammy. So, it'll be operational in the first quarter of next year. And then when it gets up to full run rate, we anticipate about 5,000 remand engine a year going through that facility.
Got it. Thank you. And my second question is on the outlook for South America. I'm guessing the reduced outlook is the function of what's happening in Brazil. So just any color you can provide. on what drove that revision in the outlook versus the beginning of the year? What changed that's driving this outlook revision?
Yeah, Tammy, thanks for the second question. For sure, you're right. It's mostly driven through Brazil. And the biggest impact there is interest rates. You know, they have the 400 basis point interest rate increases in the past since the beginning of the year. And so that's certainly affecting consumer confidence and willingness to invest in trucks right now. And so I think those are the two biggest factors.
Okay, thank you.
You bet.
Thank you. Our next question comes from Steven Volkman with Jefferies. Please go ahead, Steven.
Stephen Konyaard- Great Hello everybody thanks for taking the question just a couple quick follow up here we don't have nearly as much visibility into the European market i'm just curious if you can comment on. Stephen Konyaard- sort of directionally is that market, do you think a growth market going forward we've talked about some investments, I guess, some government investments over there. Stephen Konyaard- But i'm curious if you're saying anything in that regard.
Stephen Konyaard- Yes, even i'd say you know, given the. Robert Marlayson, Economic overall economic conditions or you know have some uncertainty in Europe at 270 to 300,000 truck market is relatively strong, given that the economics and so you know for for pack our end off specifically. Robert Marlayson, We we've had a strong market share in the in the in the last month and and year to date share is up compared to this time last year. You know, Doff share is traditionally strong in Eastern Europe. And as Preston said in his comments, we were with some customers recently and see some upside. And so, you know, if you look at that size market, you know, that's a little above replacement value. So I'd say that that's a strong market given the conditions. And that's likely the, you know, the short-term ongoing forecast.
Yeah, and I would add that the thing that's helping us there is we introduced our new product, and it's still the only truck that is designed to meet the masses and dimensions regulations over there. It's providing industry-leading fuel economy. It's the best truck for the driver. It's the coolest truck, to be honest with you. And so there's a lot of things to really like about how things are going. And then in 2025, we introduced some advanced technologies onto the platform, which also further enhances performance and fuel efficiency. So feeling very good about the dock team and what they're doing. Super. Thank you for that.
And then on the vocational side, we hear some channel checks that sort of suggest that there were a lot of orders and obviously a lot of backlog in the industry. And now we're starting to kind of work through all that. And the orders on vocational have also been a little bit weaker recently. So I guess I'm wondering, as you deliver this 50% Preston of your inventory that's at bodybuilders, Is there a risk that vocational is sort of the next the next end market to kind of go down before it goes up?
Well, I think that's a that's kind of a I would never have used the word weaker to describe the vocational market. I would have said that it was frothy for awhile and now it's just good. So so I might say that we're operating in a good vocational market. I think there's a lot of infrastructure spending that's going into the country under the administration's objectives and infrastructure spending is good for the vocational market. So I think that that bodes well for a steady, strong vocational sector for a while.
Okay, great to hear. I'll pass it on. Thanks.
All right, thanks. Have a good day, Steve.
Thank you. Our next question comes from Stephen Fisher with UBS. Please go ahead.
Thanks. Good morning. Just on the pricing topic, just curious how far out you are able to provide firm pricing to your customers or do all the units basically come with a caveat that that pricing can change as the tariff situation evolves and and and how does that affect the order patterns yeah we we do have a tariff surcharge listed onto our trucks for the us and canada right now and so we are pricing that in which allows us to price out into the future and then you know
These are customers their business partners and their friends that we're talking about and so each of these discussions and business relationships has that discussion around if tariffs change. Then there's a change potentially in what the pricing is so that's a very active and live dialogue and it allows us with these great relationships to price out into the future.
Okay, and then just looking beyond the cyclical dynamics here really just thinking about the growth opportunities ahead. It seems like maybe EV and autonomy are perhaps a bit slower to develop. Do you think there's any structural growth opportunities in trucks or is it all really in parts and Finco? And if so, should we expect you to really increase your focus on parts and Finco even more relative to what you talked about at the investor meeting last year?
Sure. Well, I would suggest that in general, Trucks move most of the freight in the country. I don't think that's going to decrease. I think if anything, that's going to increase. You referenced autonomy. I don't think that's tomorrow, but when autonomy happens, then you'll see that increase the number of trucks required in the country because it'll become even more efficient at delivering freight. So that will be good for PACCAR's business. You mentioned EV. So EV adoption curves. We've been wise and prudent through our investment cycles on EV investments over time. We continue to believe that there's a role for them to play as we look forward into the future. But a market-based role is probably what more likely happens for the next several years. So that's great for us. We're well positioned for that. And we think that EV vehicles tend to be more expensive. So that's obviously good for PACCAR's overall business model. Regulations are going to happen. Regulations drive complexity. Complexity ends up being more components on a truck, which is more proprietary parts share. And then I think so all those things are foundationally good. Packard continues to deliver the trucks that our customers want, that the drivers desire in all sectors of the market. So that's good for our business growth. And then I would say from a parts and Finco standpoint, our parts business is just part of our overall strategy of delivering connected and vehicle performance for our customers. So the more we're able to deliver uptime for our customers, the better it is for them and the better it is for Packard. It's a win-win situation. So parts, Finco, and connected services for us are great growth opportunities for the future.
Thanks for the insight.
Thank you. Our next question comes from Kyle Menges with Citigroup. Please go ahead.
TAB, Alex Weinheimer, Thanks for taking my question, I was hoping, if you could just comment a little bit on the medium duty truck market just power inventories. TAB, Alex Weinheimer, And then you mentioned you you feel good about 26 I assume that was more of a class a comment, but I mean does that apply to medium duty as well, and just how do you think about changes to mission standards in 27 the catalyst for some pre by and medium duty next year.
Yeah, great question, Kyle. Thanks a lot. If you look at the industry inventory for medium duty, it's around six months. And for Kenworth and Peterbilt, it's more like four and a half months. And then again, you have that same ratio of bodybuilders and that high percentage of vocational mix for Peterbilt and Kenworth. So we're in a very good position from a medium duty inventory standpoint. I think that there is the same factors that are playing into the medium duty market for 2027, which could create stimulation for a medium duty market improvement in 2026. A good question.
Got it. That's all from me. Thank you. Thank you.
Have a good day.
Thank you. Our next question comes from Scott Group with Wolf Research. Please go ahead.
Hey, thanks for the time. The $75 million of estimated tariff cost in 3Q Just any, can you just maybe try to quantify what the impact was in Q2? And if we, if things stay stable, where do you think that net 75 million impact falls to in Q4?
Well, help me a little bit, Scott, with your question around stable. What does stable mean in your vernacular?
Sorry, maybe I didn't ask right. Meaning there's no incremental change in tariffs. So you just have an opportunity to sort of catch up on price.
Yeah, I think they were less in the second quarter, for sure, because there's a timing effect of when they came in. There was the effect of what material was in country. So it's a gradual increase through the second quarter into the third quarter. And it was, you know, something significantly less than the $75 million. Now, as we get to the fourth quarter, to your question, I think the most important factor is 232 clarification. and whether or not there's a change as a result of 232 and how that could affect the fourth quarter tariff structures we have. Without that even, our teams are doing a great job of working with suppliers and looking for how you think about USMCA content of parts coming into the country and ensuring that the maximum number of parts are USMCA certified under the current rules, which then reduces tariffs risk to us over time. But that's how I generally think about the 2Q, 3Q, and 4Q tariff picture.
Okay, that's helpful. And then just in terms of just sort of the order book and activity, maybe just are we, where are we on the order book for 25? When do you think you, when do you open up 26? And then within that recent uptick in maybe some conversations, any notable difference in, is that more vocational, private fleet for hire, just sort of where you're seeing that? Thank you.
Sure. Markets filling in, or the order book is filling in in the third quarter. North America's roughly 50%. Europe's mostly full. And I think that what we see is still, as we said, vocational markets remain good, and the LTL market maybe especially remains good. We mentioned already in the discussion that the term, the big, beautiful bill, is probably helpful to our customer's cash position and could create some incentive for orders further out in the year. So I don't think it's just one area. I think it's just getting certainty Because as we get clarity, that'll create confidence for our customers and as they have confidence, then that'll increase their ability to order trucks.
OK, thank you. Appreciate the time guys.
You bet.
Thank you. Our next question comes from Nick Houston with RBC Capital Markets. Please go ahead.
yes hi thank you for taking my questions i've just got two um so in terms of the q3 deliveries i think you said 32 to 33 000. can you provide any comments around the regional breakdown with that please um i would think of it in terms of plus or minus normal normal splits is kind of where i would go with it i wouldn't really shift around very much in it
So, you know, you're going to have Q3 has the impact of this, of the three week time off in Europe, which is very, very normal. Um, so that's going to sit in there. And then I would think that there's probably the drops in North America to match to the market. So that ratio stays maybe more effective in the third quarter than might normally be. And then I would say Mexico continues to be experiencing the same kind of tariff discussions. So that's a space in the market. That's a bit softer.
Got it. And then your comment about 90% of trucks for the U.S. are currently being built in the U.S. Can you provide any comments just around what the breakdown for the supply chain is and how those percentages might move around?
Well, the supply chains varied, obviously, right? And so we would have to spend a lot more time than we probably have to think about how the supply chain works because there's tier one, two, and three, and they all factor in from different places. But suffice it to say that there are components that come from Mexico or from Canada or from the ASEAN region or South America or Europe that go into the trucks. But PACCAR, as we said, has the production facilities in North America, which is critically important. And I think that's what the administration feels so as well. And so we think that as we look forward from a tariff standpoint, they'll encourage the truck production. Hope they'll encourage the truck production in America. and that components that are critical for manufacturing in America will also be included in that, which we'll be able to support and our suppliers will support.
Great. Thank you very much.
Thank you. Our next question comes from Walter Pesick with LightShed. Please go ahead.
Thanks. Hey, Preston. Your partner, Aurora, is very well respected, obviously, within the technology industry. And you used your truck to go driver out this past quarter. And then I guess you guys had some interest in having them put a driver back in the driver's seat there. Just curious kind of what your thoughts are there. Like, what was the reasoning for that? How does that differ from other PACCAR trucks that are also, you know, using autonomous technology with your truck, like why in Aurora's case do they have to have a driver back in and maybe when you anticipate being okay with them taking that driver out and then seeing that market start to expand a bit more because obviously that certainly could be a demand opportunity for you. Thanks.
Good question. Thanks for asking. You know, we think there's great progress being made in the field of autonomy. Packer continues the development of its autonomous vehicle platform. So that's encouraging for us. And we think that Aurora is making good progress as well in the development of the autonomous driver that could go into that, as are others like Kodiak and others like Stack. So we see others making progress as well. We always operate at PACCAR with the safety being our most fundamental foundational principle. And so for us, we want that to remain as the true north for us. It will remain as a true north for us. And so that having the driver in seems like the smartest idea. And that's how we're operating the trucks.
Is there a certain milestone you're hoping that they achieve? Because obviously that company won't exist in the future if they always have a driver in. The whole point of it is to have a driver out. So what do you think you need to see to permit at least your trucks to have driver out?
No. We don't ever discuss when we're going to go to production with things, but always what we do is things should be fully production. And when things are fully production, validated, completed production, then that's when we have that conversation. Great. Thank you very much. You bet. Thanks for the question.
Thank you. There are no further questions in the queue at this time. Are there any additional remarks from the company?
I'd like to thank everyone for joining the call, and thank you, operator.
Ladies and gentlemen, this concludes PACCAR's earnings call. Thank you for participating. You may now disconnect.