Paccar (PCAR) is unlikely to see a rebound in truck demand in the second half of 2025 due to policy uncertainty and muted market conditions, UBS Securities said in a Tuesday note, advising caution until more clarity emerges.

UBS analysts had previously expected demand to recover in late 2025, supported by a freight market rebound and a pre-buy of heavy-duty trucks ahead of stricter emissions rules in 2027. However, they now see an increased risk that these factors will not materialize, leading to weaker-than-expected demand through 2026.

The firm also noted broader policy uncertainty could create macroeconomic headwinds and potentially lead to a recession, further pressuring freight and truck demand.

Tariffs are expected to raise costs for materials and components, making both imported and domestically produced trucks more expensive. UBS said Paccar may face challenges passing along these cost increases. The firm noted that Paccar could still have some relative upside compared to peers with greater reliance on Mexico for production.

While UBS sees lower odds of a significant pre-buy before the 2027 emissions regulations, the firm said a modest lift in 2026 remains possible if engine manufacturers focus solely on new engines.

UBS downgraded the company's stock to neutral from buy and lowered the price target to $108 from $124.