Paccar Inc (PCAR) — Q1 2021 Earnings Call Transcript

Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR’s Director of Investor Relations. And joining me this morning are Preston Feight, Chief Executive Officer; Harrie Schippers, President and Chief Financial Officer; and Michael Barkley, Senior Vice President and Controller. 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, including general economic and competitive conditions that may affect expected results. For additional information, please see our SEC filings and the Investor Relations page of paccar.com. I would now like to introduce Preston Feight.

Good morning. Harrie Schippers, Michael Barkley, and I will update you on a very good first quarter results and business highlights. First, my sincere appreciation to PACCAR’s employees around the world for their dedication, hard work, and upbeat spirit. Throughout the past year's challenges, they’ve delivered outstanding trucks and services that provide essential goods to our communities. Now, as the world moves forward, we have many reasons to be optimistic. In the first quarter, PACCAR achieved very good revenues and net income. PACCAR’s first quarter sales and financial services revenues increased 13% to $5.85 billion. And first quarter net income increased 31% to $470 million. PACCAR Parts increased its first quarter revenues to a record $1.16 billion, and Parts pretax profits were a record $251 million, 17% higher than the same period last year. Truck and Parts gross margins increased from 12.6% to 13.4% in the first quarter. And PACCAR Financial had a great quarter, delivering excellent portfolio performance and achieving pretax income of $76 million. PACCAR is having a tremendous year of new product introductions. In February, Peterbilt and Kenworth launched beautiful new heavy-duty truck models. The new Peterbilt Model 579 and Next Generation Kenworth T680 feature enhanced aerodynamics and powertrains that deliver up to 7% higher fuel efficiency. They feature new LED headlights, new advanced driver assistance systems, and a state-of-the-art interior with a 15-inch configurable digital display. Truck owners and drivers will appreciate these and many other features in these great new trucks. In April, Kenworth and Peterbilt introduced a new medium-duty truck lineup. These vehicles have an 8-inch wider cab, lower cab heights, which makes it easier to get into and out of the truck, best-in-class visibility for enhanced safety, and a new premium interior with configurable dash displays. The new medium-duty trucks feature PACCAR’s PX-7 and PX-9 engines and the new PACCAR 8-speed automatic transmission. In April, DAF began producing CF Electric trucks, and Peterbilt and Kenworth expect to deliver their first production battery electric vehicles in the coming months. PACCAR has strategic partnerships with two electric vehicle battery providers, CATL and Romeo Power. These two excellent partners provide our customers with the right technology choice for their applications. As the U.S. economy recovers, GDP and industrial production are each projected to expand 6.3% this year. Consumer spending, the housing market, and the automotive sectors have strengthened. Good freight tonnage, high truck utilization, and a shortage of drivers have created strong demand for PACCAR’s premium trucks. The 2021 market size will be tempered by the industry-wide undersupply of semiconductors. We estimate the U.S. and Canada Class 8 market to be in the range of 260,000 to 290,000 trucks. The UK and European economies are also expected to grow strongly. Economists project UK GDP to increase 4.8%, and European GDP to increase 4.2%. The 2021 European truck market is expected to increase to a range of 260,000 to 290,000 trucks. Harrie Schippers will now provide an update on PACCAR Parts, PACCAR Financial Services, and other business highlights.

Thanks, Preston. PACCAR delivered 42,200 trucks during the first quarter. This was a 3% increase over fourth quarter production, despite an ongoing supply of semiconductors. This was enabled by all the efforts of PACCAR’s outstanding purchasing and production teams. Truck, Parts, and Other gross margins improved to 13.4% in the first quarter. Second quarter production has a higher than normal level of uncertainty; depending on semiconductor supply, we anticipate second quarter global truck production to be similar to the first quarter with Truck, Parts, and Other gross margins also at first quarter levels. PACCAR Parts had an outstanding quarter, achieving revenues of $1.16 billion, which is 16% higher than the same period last year, and its pretax profits were a record $251 million, with robust gross margins of 28.2%. PACCAR Parts benefited from strong freight demand and truck utilization investments and distribution initiatives such as all-makes parts and stores and a growing population of connected vehicles with PACCAR Engines. Ecommerce part sales increased more than 30% in the first quarter compared to the same quarter last year. Parts is a business where speed of delivery is a major factor in customers' purchasing decisions. Each new distribution center we open increases sales capacity, parts availability, and delivery speed to customers and dealers. PACCAR will continue its investments in world-class distribution by opening a new distribution center in Louisville, Kentucky next year. We expect second quarter parts sales to be similar to the strong first quarter, with full year parts sales up 15% to 18% compared to last year. PACCAR Financial Services benefited in the first quarter from strong new loan and lease business volumes, improved used truck prices, and excellent portfolio quality. Revenues were $432 million, 13% higher than last year. Pretax income was $76 million, 58% higher than last year. The excellent portfolio performance resulted in low past use of less than 0.5% at the end of March. In the first quarter, North American Kenworth and Peterbilt used truck pricing increased by 30% compared to a year ago. Kenworth and Peterbilt truck resale values continue to come at a premium over the competition. PACCAR Financial has been increasing its retail used truck center capacity, and now has 12 facilities worldwide. Selling used trucks at retail has resulted in higher prices and margins. PACCAR Financial plans to open another used truck retail center in Madrid, Spain later this year. PACCAR has invested $7.3 billion in new and expanded facilities, innovative products, and new technologies during the past decade. Capital expenditures are projected to be $575 million to $625 million, and research and development expenses are estimated to be $350 million to $375 million this year. PACCAR is investing in many exciting projects. These include next-generation truck models, zero emissions and ultra clean diesel powertrains, advanced driver assistance and autonomous driving systems, connected vehicle services, and enhanced production and distribution facilities. We thank our excellent independent Kenworth, Peterbilt, and DAF dealers for their support to our customers. Kenworth, Peterbilt, and DAF dealers are well capitalized and have invested $1.7 billion in their businesses in the last five years. These investments make a significant contribution to PACCAR’s truck market share and support the growth of PACCAR Parts and PACCAR Financial Services. Thank you. We'd be pleased to answer your questions.

Great, thanks. Good morning, guys. Looking back historically, the deliveries in Q2 tend to be higher than Q1. So, regarding your flat delivery expectations, are you anticipating kind of shutdowns already? And maybe what’s the risk that you can see that delivery number go to the upside for the quarter?

Yes, Steve, good question. It’s something that we’re all looking at obviously. You think about the way the industry is working right now. There is an undersupply of semiconductors globally, which does affect the truck industry as well. That’s why we delivered 42,000 trucks in the first quarter, and I’m so proud of the teams all throughout PACCAR who brought that up from 40,000 to 42,000. So, nice job by all of them, really good work. We do expect that the undersupply will continue in the second quarter, and then begin to improve as we get into the second part of the year. So that could have some impact on our deliveries as we’re in the second quarter and that’s reflected in the flat deliveries for the second quarter.

Okay. And then I guess you have the same industry retail forecasts for U.S., Canada, and Europe. Can you just talk a little bit about the relative confidence you have in each market, any different risks that you see on either side where you might see more upside or more downside risk in either of the markets?

I think both markets are performing really well. Our customers are doing well. The economy is doing well. Utilization is high. Freight tonnage is good. Spot rates are up. So, I think we see a good economy. There’s strong order intake. We had 42% of the orders in the first quarter for Kenworth and Peterbilt in North America. So great order intake. We have a strong percentage of the backlog, 32% of the backlog. And so our confidence is pretty good that the industry will be able to have the demand for the products and probably build will be constrained by the supply as we look at the year.

Okay, thank you.

You bet. Have a great day.

You too.

Yes. Hi, good morning, everyone.

Good morning, Jerry.

I’m wondering if you could talk about the new flagship truck products that you’re introducing here. Typically, you folks see assembly efficiency gains when you have new product rollouts. I’m wondering if you could quantify what the increase in automation here is with the new models, and also, is there an increase in terms of proprietary parts content on these trucks versus the prior models, so you might be willing to quantify for us?

Thanks for the question, Jerry. I mean, we are really excited about this year in terms of product launches. I can’t remember a year we’ve had quite so many new product introductions. The new T680 and Model 579 are beautiful, but from a performance standpoint, up to 7% fuel efficiency is going to mean a lot to our customers. So that’s going to be good for the business as well. The Medium-Duty product is a brand-new cab and tire new platform. It’s a fantastic truck, both for Class 5, 6, and 7 markets for Peterbilt and Kenworth. There is a higher degree of automation in the product. It has more robotic assembly, which is good for us, good for quality, and good for our customers. There is more proprietary part count in the medium-duty and heavy-duty trucks as well. So, those are all really good things for I think everyone.

And Preston, any chance you might be willing to quantify those two pieces, how many labor hours per truck expected to be down? And what’s the magnitude of increase in proprietary parts? Would you be willing to flesh that out for us?

I can’t really flesh that out for you simply. Maybe if we were together, we could spend some time thinking about it. But I think it’s a more complicated than simple answer, Jerry.

Okay, I appreciate that. And then nice to see the momentum on e-commerce. Can you just frame for us what’s e-commerce revenue share of your Parts business today? And is it more profitable than conventional orders, can you talk about that please?

The biggest thing with e-commerce is really that the world is changing, as we all know and have experienced especially in the past year. We have a great new e-commerce system in place which makes it very easy for people to order parts, find like parts in the models or even for other OEs parts. You can do that on your handheld device. You can do it on your laptop. And so the system is fantastic, and that’s what’s causing the growth and up to 30% increase we’ve seen in e-commerce sales. So, we just see that as a foundation to what we’re doing, and it is continuing to grow as part of the business. We think it’s just a convenience and strength for the Parts business in general.

Okay. And lastly, I’m wondering if you could talk about as you look at your supply base, what’s the critical count of suppliers that you’re monitoring where we might see the issues that we’re seeing on the microchip side? How concerning is the broader supply chain picture outside of the semiconductor shortage that we’re obviously experiencing?

I’d start by saying we have a great set of supply base partners for us and around the world. They do an amazing job of supplying PACCAR. This specific issue of semiconductors comes back to just a handful. And so it’s in that handful that we have our concentration, and they’re located around the world. We’re working closely with our first-tier suppliers and our second-tier suppliers on this and looking for ways to solve problems. We’ve come up with some good solutions and we keep working for the future to get it all put behind us.

Okay, terrific. I appreciate the discussion. Thank you.

Yes, you bet. Take care.

Yes. Good morning, everybody. Can you talk a little bit? It looked like your deliveries were up quarter-over-quarter in the U.S., Canada versus down quarter-over-quarter in Europe? Can you just talk about the supply chain issues in both regions? It does seem like it’s more exacerbated in Europe, is that what you’re seeing also? And then beyond semiconductor chips, can you talk about input costs and pricing power whether higher steel prices. I know you’re more of an assembler, et cetera, et cetera. But if current input costs prevail, how much pricing power do you have, given where your backlog is and where your share of orders are right? I know there’s a lot embedded in there. Sorry, but…

That’s great. Yes, it’s fine. To begin with on your EU North America question on the semiconductors, I would say that there isn’t really any differentiation. It all kind of comes back to really just a handful of suppliers that make wafers, and then those translate out into another handful of suppliers who make semiconductors, which are distributed globally for all industries. Obviously, I know you’re really well aware of how the auto and truck industry both are using those components and are affected by it. We don’t see differentiation between the EU and North America. It’s really about which chipset is used in whichever vehicle, and that’s ubiquitous across markets. From a cost standpoint, that second part of your question. Certainly, there’s raw materials impacts in cost recently without steel or aluminum. That’s also true on resins, as we saw in the first quarter, which affect plastics. There is a good backlog across PACCAR in the industry. So we’re starting to see pricing advantage in that, and we think that it’s balanced well right now.

So, your backlog does include some price increases to offset higher input costs, is that how I should interpret that answer?

Yes, you should; that’s a good interpretation.

Okay. I’ll leave it there. Since my questions were longwinded. Thank you.

Take care, Ann.

Hi, thank you for the time.

Hey, David.

Hey, good morning. The scenario that you laid out for the year and the industry sales, you’re willing to increase your outlook. But where do you see just trying to think about 2022 a little bit the setup? Where do you see year-end inventory versus how we wanted to define the historical norms and so forth. And then second part is the inability to ship as many trucks as you would like or the industry would like, how that plays into the stronger parts outlook, because obviously, you raised that parts outlook fairly? Thank you.

You bet, David. From an inventory standpoint, as we think about it, inventory is relatively tight. Right now, the industry is at 1.9 months, we’re at 1.7 months. I wouldn’t expect to see a lot of change in that through the year given the demand that’s out there for product. So, I think we would enter 2022 in kind of a similar fashion. As I mentioned earlier, there’s a strong economy and strong truck markets, and in working with our customers, they have a desire for our great trucks that we just have introduced. So, we see that carrying through, I think, because there are limitations and build in the first half of the year. It’s rational to think that there’s a lift in parts, just because people are running their trucks for longer periods of time. That’s advantageous to us. I also think that it has to do with the great systems the team has built. I probably can’t overstate how strong a job our team has done putting in distribution centers that are close to our dealers, making it easy for people to get parts the same day building this e-commerce system, introducing TRP parts and stores which serves the all-make market very well. Plus, all those factors are important in the performance of the record-setting performance or parts team delivered.

And for some quantification of your answer for the 1.7 months, that PACCAR add for their inventory, and let’s say that remains throughout the year until year-end, how would you quantify that versus, quote normal or your desired levels? And if you can sort of quantify the parts revenue increase? How much was that interplay from last new sales?

I would – let me take your second part first. I think the biggest percentage of the parts performance is the team and the business of parts and our dealers, and relationships with our customers. I think that’s overwhelming. I couldn’t quite quantify beneath that. From your first part of your question on inventory, I think that inventory is less than normal. But it’s not an order of magnitude less, it’s just less, so it’s probably a fair enough way to characterize it, David.

All right. Thank you.

You bet.

Yes, thanks. Hi guys.

Hi, Nicole.

On production output, I presume that you’re assuming that each geography is flattish from a production perspective. Q-on-Q, is that the right way to point that?

Yes, that’s probably fair to look at it. It will depend a lot on where we – if we have spot shortages of parts that would have some impact, but for your generalization, yes, I agree with you.

Okay, got it. And then you said on the 13.5% gross margin in 2Q, as we move into the second half, and some of these supply chain issues abate, and hopefully productions are able to step up again, with the strong backlog, how do you guys think about the ability to improve gross margins as we move into the second half?

Sure, I’ll ask you. I’ll take the second part of your question. We had some cutting out on the first part of your question, if you can ask that again after we go through this one. But as we began with, as we look at the margin performance, we’re really pleased with the year-over-year growth and the sequential growth that we experienced in gross margins, and teams are doing a good job in that. We think as the situation gets resolved and the supply bases get ameliorated in the second half of the year, then we will see improvements in margin. We have built capacity, and we think that will be institutional for all of us to think of margins improving in the second half. And then if you could help me back with the first part of your question.

You actually, you captured the whole spirit of it so go ahead and pass it on. Thank you.

Wonderful. Have a good day.

Hey, guys, how’s it going?

Good, Joel, how you doing?

All right. So, I wonder, can we just talk a little bit about sort of the shape of the cycle? Can the industry meet these zero emission mandates by 2024 and 2025 without just relying on over-the-road, just doing refuse and port trucks and things like that? Can you help us understand how the cycle looks?

Well, I think there are two questions in there. One is the shape of the cycle and then one is the electrification strategy. I’d say where we’re at in the performance of the truck market is, I think we’re just at the beginning of a really nice steady growth in the truck market. Things are going well; our business is doing well; customers are doing well. Just to complement that, the great new trucks we’re introducing, the new medium-duty and the new heavy-duty trucks are going to be fantastic for our customers. I think that’s going to help PACCAR in the coming months and years actually. I would say that’s an important story. The second part of your question was around electrification, and I would say that we have great products. We outlined a little bit of that in the earnings release. Our thoughts are – as we have partnerships with CATL, and we have partnerships with Romeo Power and battery pack production. That’s important because that enables us to meet different applications for customers. Some people will use a truck for eight hours a day and then park it overnight and can charge it overnight. Others want multiple charge cycles in a day; that requires different battery types. So, we have that capability built into our systems, which will give us a strong product offering. That product offering will enable us to meet the demands of California, the 15 states or anything else, whether it’s port drayage, medium-duty, or heavy-duty trucks.

Okay, great. Thank you.

Great. Have a good day.

Hi, thank you. Good morning, everyone.

Good morning.

I have two questions. One is just a simple one. You probably saw a Scandinavian competitor reported pretty good orders in Europe, and obviously, COVID and inventory, there’s a lot of disruption going on. Just wonder if you could characterize as European like there’s real and profound underlying strength in new orders, to the extent you’re willing to comment?

Sure, I think that we do feel there’s real underlying strength in the orders. We work closely with our customers and our dealers; these are personal relationships, and we know them all. We pay close attention to what their needs are. So yes, we definitely have a clear eye on their needs and the backlog.

Perfect. So, it’s not just a catch-up work. I think the question is a little bit more profound, and I’m not sure how far you’re going to be willing to go on it. But you saw two simple kind of throughout a revenue share, or cents per mile kind of idea on autonomous. You guys are obviously working with folks on autonomous. I wonder if you’ll characterize what the potential revenue streams for PACCAR are as the years go by. I assume as higher content per vehicle, maybe it’s a decent margin. Maybe there’s some autonomous revenues that didn’t get shared or service revenues or whatever. Just wondering about if you could give us any update on the strategy there and the timeline, the potential in terms of revenue for PACCAR? Thank you.

Sure. On the strategy standpoint, we have a great partnership with Aurora. They’re really strong to work with, and we’re enjoying that early on. Our teams are together all the time. Our leadership teams are together, talking about how we’re going to develop these vehicles, and they’re very complicated vehicles; we’d all understand that. We continue to have good partnerships with other startups in the valley, others that are using our production working with us on developing autonomous platforms. Our strategy is to work with the best of the best and to contribute an autonomous vehicle platform which has a lot of technology in it. Then we would provide that to the market space, which would be able to eventually rely on PACCAR’s product lines and autonomous vehicle platforms in partnership with the autonomous driver to help our customers out. We think it’s really going to work well. As far as predicting revenue streams, I feel like it’s a little bit early for that. There’s a lot of development work. There’s a lot of regulations, societal work, that needs to be taken care of first, and I think we should let that sort itself out before making projections that are sure to be wildly wrong at this point.

Understandable. Okay, thank you.

Hi, good morning. I guess just two follow-up questions. One, I think last quarter when you talked about costs associated with COVID, you were embedding sort of 40 basis points of margin headwind in your numbers. Is that sort of tracking where you thought, or what are the expectations for the rest of the year? And then just to follow-up on Rob’s questions on the orders with Peterbilt and Kenworth, I think you said you’re 42% on the order book just trying to understand how sustainable that is? Is it just the new products? Or what’s driving that market share growth? And are you concerned at all that there’s double ordering in the order book just given the market’s concerned about supply chain? Thanks.

On the COVID cost side, Jamie, I think those costs as a percentage have definitely come down over the quarters, and we expect those costs to continue to come down. We do see some more expense last quarter and probably also in the second quarter associated with the undersupply of certain components and the inefficiency that those costs, and then going forward, we’ll also have some startup costs for the new products. But those new products will definitely generate stronger margins for us going forward.

Okay, that’s helpful. And then just the orders, the sustainability of it and just concerned if there’s any sort of double ordering just because it concerns on supply chain.

I think we kind of tried to talk about that. We feel like we know the customers well, we work with them, and feel like the order board is solid. I mean, this is good backlog. I mean, we have confidence in it.

Okay, thank you.

You bet.

Hi, good morning, everyone.

Good morning, Chad.

So, can you talk about your price-cost assumptions as we go through the year? Maybe you can share your first half, the second half, and how you’re thinking about that?

So, think about it, we mentioned that we’re starting to see price realization that’s occurring, and we would expect that to continue throughout the year. That’s generally how we think about it.

All right. And then can you talk about your EDR book today, how far does it stretch and just remind us when you think you’re going to hit high-volume production in that product line?

I think that for us right now, it’s simply about getting the right semiconductor supply in the second quarter. As that stabilizes, we’ll see builds increase. That’s how we’re thinking about it. We have a good order book, good backlog, and our great production teams did a good job raising production in the first quarter over the fourth. We think that’s kind of the trend for the year.

Got it. Thank you.

You bet.

Hey, good morning, guys.

Hi, how are you doing?

Great, thank you. Just a couple of questions. Just on the semiconductors, Preston, what gives you confidence that they will in fact be more readily available in the third quarter? I mean, a lot of the recent news flow seems to suggest that tightness could be longer lasting than previously assumed. I mean, are you actually seeing or hearing anything that supports the view that they’re going to become more readily available in the second half? And then in terms of general procurement practices, do you see yourselves entering into more long-term supply agreements for semiconductors or any of your other critical inputs just to cope with, it seems to be some real widespread tightness across any number of different components?

Yes, if I think about the third quarter and our confidence recovery, you’d have to put into context the fact that there have been a couple of unique circumstances in the first quarter. There was a storm in Texas, which took two plants down in the Austin area. That’s a big impact. Then there was a fire at a supplier in Japan that had a big impact. As those facilities recover, that will certainly help. I think that there’s also been a lot of good work, by the way, for manufacturers, understanding the need. Those together, along with their suppliers' forecasts, give us confidence that we’ll see improvement into the third and fourth quarters. I don’t think tightness is going to be eliminated, but I just anticipate that there’ll be improvements.

Where PACCAR has done really well is that we early on gave a very reliable future outlook of our needs to our supply base. That means when things start to recover, we will get priority in those deliveries; that’s what we’re assuming.

The second part of your question, you asked about procurement practices, and Harrie just said we do a good job with forecasting and working with our second-tier suppliers in our needs, so that we can have good supply.

Okay, got it. And then can you talk a little bit more about this new medium-duty transmission that you discussed? This sounds like a good product you’re making in-house versus sourcing currently from the Allison’s of the world, but I just want to verify that is it fully automatic or is it an AMT? And what's the longer plan on... longer-term plan on transmissions? Are you going to source more of your transmissions, much like you’ve done with your engines?

We have great partnerships with our transmission suppliers around the world. This is a fully automatic transmission with a torque converter. That’s going to be a great help for our customers. It goes up to 1,000 foot pounds of torque and 380 horsepower, so it fits perfectly into the medium-duty space. It’ll give us the aftermarket part stream that is really advantageous to us. It allows us to integrate into the powertrain in a very efficient way to help optimize performance for our customers. All that together is good for PACCAR and good for our customers.

And Preston, you’re saying you have great partnerships with your suppliers, but is this something that you're making internally, or is someone making it for you?

We are partnered with ZF on this.

Okay, got it. Thank you.

Good morning. Thank you for taking my question. I know you guys – it’s good to hear that the order – the quality of orders seems to be pretty solid here. But I wanted to ask the question from a different angle. From your conversations with customers and dealers, do you have any reason to be concerned that despite the demand for equipment, you might see some cancellations because of people’s inability to source trucks?

I guess you could build that scenario, but no, we don’t. To be simple with that, we don’t see that happening. We see strong demand for the trucks. We see strong demand for our used trucks as well, which means that there is a need for freight movement, and the economy is doing well, which means people are buying things, and that is likely to continue. Our premium trucks could use truck business, good order board; all bode well for a steady good future.

Got it. That’s really helpful. And just one more question on the technology front. You guys have been investing quite a bit in-house and through partnerships in technologies. Given the increasing interest in technology, whether its autonomy or new energy technologies, would you consider kind of taking another look at your acquisition strategy and maybe consider acquiring companies instead of the partnership model that you’ve gone with so far?

We look at all options. We don’t have a single strategy. We just take the best approach that we think is going to provide the best returns for our customers and bring the right technologies to bear with the right economies of scale on a global level.

Got it? Thank you very much.

You bet.

Hey, good morning, guys. And thanks for taking the question.

You bet. Happy to.

With regard to your delivery outlook, obviously, there’s some supply chain challenges that you’ve talked about earlier. Can you give us a sense of kind of the monthly cadence? Is it pretty similar throughout the second quarter? Or are you expecting an uptick kind of later in the quarter just to give us a sense of upside and downside risk?

Rob, I think it’s a little hard to characterize that. I think the teams are moving things around. We’re talking with suppliers. As there are parts coming available, they’ve done a good job finding parts, and we’re able to increase the cadence of delivery at other times. We’ve had to moderate that, so it’s hard to get to a monthly basis.

Okay, but it’s not outside of way into the second half of the quarter. Is that a fair characterization?

No, no, it’s not. It just depends upon the chip and the supplier and where it sits. Things coming back might be a way to think about it: these things come in batches as they’re produced. You might get a batch of parts, which alleviates the supply constraint, then you might be tight for a little while somewhere else. So, think of it more like that. But it’s not a continuous flow.

Got it. Helpful. So kind of the red-tagging effect, if you will, and ability to kind of make up or accelerate or decelerate depending on kind of how the supply chain is working. I guess looking out in terms of the – you talked a little bit earlier about kind of some of the new electrification partnerships that you guys have. When I’m thinking about kind of like the early models with regard to electrification, how should I think about the PACCAR kind of proprietary part next initially? And then how do you see that evolving over time?

I think it’s going to evolve over time to be higher content as we move along as volumes increase, and economies of scale make sense to do that. We have great partners, and that’s working really well. We talked previously about hundreds of trucks and then into the thousands of trucks. As it grows, we’ll see probably higher prepared content come along with it.

Really appreciate the color. Thanks guys.

Yes, you bet.

We’d like to thank everyone for joining the call and thank you, Lindsay.