Investing.com -- Morgan Stanley expects improving freight conditions and upcoming emissions regulations to boost global truck manufacturers in 2025, with Daimler (OTC:MBGAF) Truck Holding AG (F:DTGGe) and Volvo (OTC:VLVLY), AB ser. B (ST:VOLVb) emerging as top picks.

“A rising tide lifts all trucks,” the analyst said.

The brokerage identified five key trends for the sector which included complexity in the truck cycle, an EPA 2027 pre-buy supporting margins, gradually improving freight conditions, potential US-Mexico tariffs, and a weaker first half followed by a stronger second half.

Daimler Truck, which is rated “overweight,” has a price target of €48 offering upside of 22%. Morgan Stanley (NYSE:MS) favours Daimler due to its significant North American exposure, about 70% of its EBIT, low valuation, and shareholder return strategy. However, potential US-Mexico tariffs could pose a risk.

Morgan Stanley upgraded Volvo to “overweight,” with a target of SEK323, an upside of 14%. 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.

Other heavy-duty truck OEMs, including Traton and Iveco, are also expected to gain. Iveco’s improving free cash flow could drive upside, particularly in its Q4 results on February 7.

Morgan Stanley sees the tariff outcome as a critical catalyst for investor decisions, with Daimler preferred in a status quo scenario and Volvo favoured if tariffs are imposed.

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