Jeff Kauffman: You guys crushed it. I want to ask about two, kind of, oddities if I can. I don’t want to focus on the tail wagging the dog, but I think they’re relevant questions. The first has to do with what’s going on with electric vehicles right now. And it seemed like there was this big push for EV, and you’re still seeing that in some of the lighter duty models, but a little bit of a pullback on the heavy side. But we are moving forward with the EV plant for batteries and we’re moving forward with investment. What is your feeling about the state of the EV market? And is this a surprise at all? Is it expected, how should we be thinking about framing EV demand for commercial vehicles?
Preston Feight: Jeff, I think you nailed it. Actually, I think that there was maybe a lot of enthusiasm, maybe too much enthusiasm. I think it’s something that is going to happen. It’s going to happen gradually rather than rapidly. There’s a lot of things that have to come along with it, energy and infrastructure from a PACCAR standpoint. It’s been our approach all along. As we’ve shared with you over the years, is right. We’d start in the tens, move to the hundreds, go to the thousands, that’s the progression we’re in. We continue to make prudent investments that will be timed to what we think the adoption rates are going to be. We felt in 2023 was the right time to make sure that looking into the future, we could begin the journey of creating our own batteries, so that we had the most cost-efficient, high-performing batteries when the time was right.
So I think as we talked about in the last call, building a battery cell factory in a joint venture manner will give us sufficient volume to supply our needs throughout the rest of the decade as we gradually adopt. And it puts PACCAR in a really good position to offer our customers the best products they can get when they’re looking for EVs, and keep up with the regulatory and also take a thoughtful approach to the adoption.
Jeff Kauffman: Okay. Thank you. And then the second one, I’m expecting, kind of, a no comment on this one, but I’m going to ask anyway. The last time we had a certain Republican President, there were some EPA mandates that ended up being canceled and rolled back and who knows what the future holds. But I think there’s an industry think that there is a certainty about a massive 2026 pre-buy. And I think everyone is kind of thinking about that. I know it was part of David Raso’s question earlier. Do you political people think there’s any risk if there’s a Republican victory, and we get a certain presidential candidate back that any of these EPA mandates might be at risk or card mandates might be at risk?
Preston Feight: Jeff, I think you nailed it. We have no comment on that. That’s all I can say for PACCAR. We feel really good about PACCAR either way.
Jeff Kauffman: Exactly. We’re going to drive the road we see in front of us. I get it. Well, again, congratulations and thank you.
Preston Feight: Thanks Jeff.
Operator: Thank you. Our next question today is from Jerry Revich from Goldman Sachs. Jerry, please go ahead, your line is open.
Jerry Revich: Yes, thanks. Good morning and — good afternoon. I’m wondering if you could just talk about the record gross margin performance you folks had in 2023 was despite really significant supply chain disruptions continuing. Can you talk about just directionally where your labor hours per unit today versus their targets? And is there a potential for things like overhead expense, et cetera, to turn to be a tailwind on a year-over-year basis as surety of deliveries ramp up and maybe productivity ramps up?
Preston Feight: Yes. It’s a fun conversation to have with you. First of all, our hats off to the supply base. They’ve done a really good job of trying to work through the challenges. And I think as you note, things have become improved, maybe not perfect, but improved, which is good. We’re used to that. And I think as we look at it, smoother factories are more efficient factories. And so as we look into 2024, if we have a smoother supply provided to the factories, we will have benefits in that regard. So, it could be a tailwind as you word it.
Jerry Revich: Very interesting. And another area where you folks have worked through even as you put up record margins is higher warranty costs because of higher per repair cost trends, can you talk about whether you expect to return to that 1.5% warranty accrual rate in 2024 or are there still things that you’re working on in terms of per unit repair costs or other moving pieces in the warranty provisions?
Preston Feight: Well, I can say that we have a great group of analysts who understand our business well because I think that your question is salient, it is true. Like we’ve seen increasing truck complexity over the decades as an industry, with more electronics on them, that contributes to more opportunities. But we do think that the trucks are performing well and we’ll be in that kind of normal range again.
