As we step into 2025, Morgan Stanley has painted a rosy picture for the truck original equipment manufacturers (OEMs), with Daimler Truck and Volvo emerging as top picks. The brokerage's positive outlook is driven by several factors, including improving freight conditions, upcoming emissions regulations, and the potential impact of tariffs on the sector.



Improving Freight Conditions

Morgan Stanley expects a gradual improvement in freight conditions, which will boost demand for new trucks. This is supported by data from ACT Research, which shows that road freight rates have started to recover in the U.S. and are expected to continue improving. As freight demand strengthens and fleet utilization improves, carriers will be increasingly compelled to update their aging fleets, driving new truck purchases.

Upcoming Emissions Regulations

The upcoming EPA 2027 emissions regulations are expected to support margins and encourage fleet owners to invest in new vehicles to comply with the stricter emission standards. This pre-buy effect is anticipated to pull fleet orders forward in 2025, driving demand for new trucks. Heavy-duty truck OEMs like Daimler Truck and Volvo are expected to benefit from these regulations, as they will be well-positioned to offer compliant vehicles.

Potential US-Mexico Tariffs

Potential US-Mexico tariffs could pose a risk to Daimler Truck's investment thesis due to its significant North American exposure. However, Morgan Stanley favors Daimler due to its low valuation and shareholder return strategy. In contrast, Volvo offers balanced geographic exposure and 100% US truck production, making it less vulnerable to tariff risks. The company is also poised to benefit from emissions regulations, which could offset any negative impact from tariffs.



Economic Recovery and Pent-up Demand

A global economy with moderate growth, disinflation, and monetary easing should encourage investors to look to equities and other risk assets, including truck OEMs. After a significant increase in deliveries in 2023 due to pent-up demand resulting from the COVID-19 pandemic, global sales are expected to stabilize at just above 1.95 million units in 2025 as demand normalizes.



In conclusion, Morgan Stanley's positive outlook for truck OEMs in 2025 is well-supported by data and trends in the industry. With improving freight conditions, upcoming emissions regulations, and a favorable economic backdrop, Daimler Truck and Volvo are poised to lead the sector in the coming year. However, potential US-Mexico tariffs could pose a risk to Daimler's investment thesis, and investors should monitor the situation closely. As always, it is essential to conduct thorough research and consider your risk tolerance before making any investment decisions.