Data released in early June by the VDMA (German Engineering Federation) shows that Germany’s domestic machinery orders fell 4% to 5% in real terms year-over-year. High manufacturing costs and rigid bureaucracy continue to weigh down the home market. However, the industry is forecasting a 1% production recovery to $15.72 billion USD (€13.7 billion) for the latter half of 2026. This mild turnaround is entirely driven by the rollout of the German federal government’s “Special Assets” (Sondervermögen) off-budget funds, which are finally trickling down into physical orders for climate protection, infrastructure, and defense machinery.

Source: VDMA and VDW   Read The Article   Read The Article   Read The Article

PSR Analysis. For German heavyweights like Wacker Neuson, BMW Group, and Stihl, the message is clear: survival inside Germany requires a shift away from standard commercial lines toward state-funded infrastructure and municipal grid expansion.

To fight off rising Chinese export competition (which jumped 18%), German OEMs are increasingly shifting to a “Local-for-Local” manufacturing footprint, moving up to 20% of their production capability out of Germany into other eastern EU regions (like Poland and Romania) to capture lower labor and operational costs while maintaining an EU-origin label.   PSR

Emiliano Marzoli is Manager of European Operations for Power Systems Research

Volvo Trucks has unveiled a multi-billion SEK investment of an entirely new 13-liter combustion engine platform. Engineered to meet Europe’s strictest efficiency mandates, these engines are the most fuel-efficient ever produced by the OEM, delivering immediate reductions in CO2 emissions.

Crucially, the platform is built with a “fuel-agnostic” architecture; the base engine is ready to run on renewable diesel (HVO) and bio-gas, and is structurally designed to accommodate future hydrogen internal combustion engine (H2ICE) applications. This platform rollout complements Volvo’s existing battery-electric and fuel-cell programs, cementing their “three-path” strategy toward net-zero emissions by 2040 while continuing to secure top-tier safety marks, including recent five-star Euro NCAP ratings for its regional distribution trucks.

Source: Volvo Trucks Global Product Launch (May 12, 2026)

PSR Analysis. This massive powertrain investment signals that Europe’s leading heavy-truck manufacturer is doubling down on the internal combustion engine’s future by decoupling it from fossil fuels. For players like Traton (MAN/Scania) and Daimler Truck, Volvo’s move sets a high technical benchmark: zero-emission targets cannot rely solely on batteries.

By ensuring the new engine platform can transition seamlessly to hydrogen combustion, Volvo creates an incredibly flexible asset for transport operators. Hauliers can buy the truck today for HVO or biogas compliance and trust the architecture for future hydrogen integration, avoiding the risk of stranded assets. It also shifts the regulatory conversation in Brussels, validating the argument that the mechanical ecosystem of the European automotive supply chain can be preserved while achieving aggressive decarbonization.   PSR

Emiliano Marzoli is Manager of European Operations at Power Systems Research

Source: European Commission Draft-IAA Analysis & Review (May 2026)

PSR Analysis. The finalized text of the IAA represents the most aggressive, defensive pivot in modern EU trade policy, directly establishing a subsidized “lead market” for domestic. Non-EU OEMs—particularly Chinese and US manufacturers—will find themselves legally locked out of lucrative municipal tenders and state-backed construction projects unless they establish massive, vertically integrated European facilities that fulfill local-content quotas.

However, the strict origin requirements for core materials like aluminum and concrete mean European machinery manufacturers will face a “green premium” spike in raw material costs. Companies must quickly restructure their supply lines to guarantee that components are tracked and verified as “Union-origin,” accelerating the adoption of digital supply-chain tracking across the Continent.   PSR

Emiliano Marzoli is Manager of European Operations at Power Systems Research

Volvo Construction Equipment has officially transitioned the A30 Electric and A40 Electric articulated haulers into serial production at its Braås site in Sweden. Originally unveiled as prototypes at bauma 2025, these machines represent the largest electric articulated haulers currently available on the global market, boasting payloads of 29 and 39 tons, respectively.

Designed for high-utilization environments like large-scale infrastructure projects and mining, the haulers offer up to six hours of operation on a single charge, depending on the application. The first production units are scheduled for delivery to customers in the United Kingdom and Norway this month.

This move solidifies Volvo’s commitment to lead the heavy-duty transition, moving beyond compact machines into the most energy-intensive segments of the construction industry.

Source: Volvo  Read The Article

PSR Analysis. The serial production of 40-ton electric haulers is a “proof of concept” for the entire European construction sector. For years, the industry argued that electrification was only viable for small excavators or urban projects; Volvo has now shattered that ceiling.

For competitors like Komatsu and Caterpillar, the pressure is now on to move their European fleets toward serial production rather than limited pilot programs. For fleet operators, the “total cost of ownership” (TCO) equation is shifting; while the upfront cost remains high, the reduction in fuel costs and maintenance for such high-utilization machines makes them increasingly attractive.

This is particularly relevant given the Industrial Accelerator Act’s focus on green procurement, as public infrastructure projects in Scandinavia and the UK are now likely to mandate zero-emission machinery of this scale.   PSR

Emiliano Marzoli is Manager of European Operations at Power Systems Research

Simultaneously, KTM’s corporate structure shifted as Stephan Reiff (formerly of BMW Motorrad) officially assumed the role of Chief Commercial Officer on April 1. On the community front, KTM confirmed that the 2026 KTM Europe Adventure Rally in Gubbio, Italy, has reached near-capacity registrations.

These developments signal a move away from the “overproduction” issues of 2025 toward a leaner, premium-focused strategy centered on Austrian-made electric innovation and high-margin “Orange Family” events.

Sources: Bajaj, AutoEvolution, KTM   Read The Article, Read The Article, Read The Article

PSR Analysis.  The stabilization of KTM through Bajaj’s $642.72$ million USD (€550 million) refinancing and the Mattighofen hub expansion is a critical “rescue story” for the European motorcycle industry. By localizing the production of high-performance electric components like the Freeride E’s drivetrain in Austria, KTM is positioning itself to benefit from the EU Industrial Accelerator Act’s “Made in EU” incentives.

For the broader industry, KTM’s aggressive pivot to a “premium-core” strategy—divesting from bicycles and non-core sports cars—highlights a trend of consolidation among European motorcycle manufacturers facing pressure from Asian imports.

The successful registration of the Adventure Rally also underscores the rising importance of “experiential retail”; for players like BMW and Triumph, the message is clear: survival in the 2026 market depends as much on building a gated community of riders as it does on the technical specs of the bikes.

The integration of Indian financial capital with Austrian engineering creates a formidable competitor. KTM now possesses the scale of Bajaj Auto for global sourcing and the high-end R&D capability of Mattighofen for the European premium market. This “hybrid” model allows KTM to weather economic volatility better than it did as a standalone entity in 2024.

As the Freeride E hits dealerships this month, it serves as a laboratory for the next generation of electric street bikes. If KTM can successfully migrate this technology to a “Duke E” or “SMC E” platform by 2027, it will likely dominate the urban European motorcycle segment, particularly as cities tighten noise and emission regulations. For your newsletter, the key takeaway is that KTM has successfully “right-sized” and is now the leading European edge for electric off-road technology.  PSR

Emiliano Marzoli is Manager of European Operations at Power Systems Research

On March 4, 2026, the European Commission unveiled the Industrial Accelerator Act (IAA), a cornerstone of the “Clean Industrial Deal” aimed at reclaiming Europe’s manufacturing prowess. The Act sets a bold target to increase manufacturing’s share of EU GDP to 20% by 2035.

To achieve this, it introduces strict “Union origin” (Made in EU) and low-carbon requirements for public procurement and subsidy schemes. For the automotive and heavy machinery sectors, the Act is particularly transformative: starting in 2029, public tenders for electric vehicles (EVs) will require that at least 70% of the vehicle’s non-battery value originates from within the EU, with final assembly and significant battery production also taking place on European soil.

Additionally, the Act creates “Industrial Acceleration Areas” to provide a digital “one-stop-shop” for permitting, drastically reducing the bureaucratic delays that have historically hampered the expansion of European factory sites.

Source: EU Commission Report     Read The Report

Industry Implications. This legislation creates a “protected lead market” that directly shields listed companies—such as Volvo AB, Traton, and Iveco—from low-cost global competition. By tying public funds to European origin, the EU is effectively subsidizing demand for local manufacturers. However, this “Buy European” pivot forces a massive supply chain recalibration. Companies must now ensure that their tier-one and tier-two suppliers for steel, aluminum, and electronics are also EU-based to meet the 70% threshold.

For the agricultural and construction sectors, this could lead to higher equipment costs in the short term as manufacturers move away from cheaper global inputs. Long-term, however, it incentivizes a “Giga-factory” style scaling of the entire industrial value chain within Europe. The Act also places high bars on Foreign Direct Investment (FDI), ensuring that any non-EU entrants must provide genuine “value-add” through technology transfer and local employment.  PSR

Emiliano Marzoli is Manager of European Operations for Power Systems Research

Parallel to this commercial growth, MAN is finalizing the transition of the Lion’s Coach E into series production. Following its world premiere at Busworld Europe in late 2025 and the successful completion of rigorous winter trials in the Arctic Circle in March 2026, the Lion’s Coach E is the first battery-electric coach from a major European OEM to enter serial production at the Ankara facility, with first customer deliveries slated for later this year.

Source:  Traton Press Release  Read The Article

Industry Implications. The 30% year-on-year order increase (2025 vs. 2024) underscores a “decoupling” of European fleet demand from the broader global freight recession seen in North America and Brazil. For MAN, this growth is a critical endorsement of its “full-liner” strategy, proving that its diversified portfolio—particularly in urban buses and light vans—provides a necessary buffer when the heavy-duty truck market fluctuates.

The launch of the Lion’s Coach E represents a high-stakes strategic play to capture the “last frontier” of transport electrification: long-haul travel. By being the first major European manufacturer to move from prototypes to a dedicated serial production line in 2026, MAN is effectively setting the technical benchmark for the industry. This first-mover advantage is bolstered by the use of shared components from the MAN eTruck program, allowing for rapid scaling and providing a mature solution for tour operators facing imminent “Zero Emission Zone” restrictions across European capitals.   PSR

The EU-US trade agreement is facing intense criticism from European policymakers and industry leaders who deem it unbalanced, unfair, and a “significant policy mistake.” The persistence of high US tariffs and mounting non-tariff barriers are severely hurting Europe’s export-oriented industrial sector. Experts warn the deal has cornered the EU, increasing its dependency on critical raw materials and semiconductors.

Specifically, US Section 232 tariffs on steel and aluminium derivatives are crippling the machinery sector with complex compliance rules. Failure to comply can trigger punitive tariffs up to 200%, prompting some firms to halt US exports entirely and leading to a sharp drop in sales (e.g., German machinery exports have fallen 18.5%). EU lawmakers are now pushing for amendments, including sunset clauses and safeguards, amid concerns that the current framework is unsustainable.

Source: Euractiv     Read The Article

PSR Analysis: These mounting export barriers are projected to negatively impact European vehicle production volumes, both on-road and off-road, in 2026. For on-road vehicles (passenger cars), while a modest production recovery of approximately 1.9% is possible in 2026, volumes are forecast to remain significantly below pre-pandemic levels due to new, escalating US tariffs (up to 15-50% on EU-made cars) and intense competition from global rivals.

To bypass these tariffs and preserve market share, European automakers are incentivized to shift new production and investment to the US, which risks the long-term contraction or “hollowing out” of EU manufacturing capacity.

For off-road vehicles (construction, agriculture, etc.), which are steel-intensive and rely on general machinery, the production outlook is severely depressed. Punitive tariffs, high compliance costs, and restricted access to the US market for components ensure that the sector will face reduced volumes, margin erosion, and sustained challenges to global competitiveness in 2026.    PSR

Emiliano Marzoli is Manager of European Operations for Power Systems Research

The Agritechnica 2025 trade show, held under the guiding theme “Touch Smart Efficiency,” cemented the industry’s focus on integrating digital intelligence with advanced hardware to achieve higher yields while ensuring environmental and economic sustainability. The primary trend was the transition of alternative power and robotics from concepts into commercially available, high-performance machinery.

The 2025 show was bigger than the previous show in 2023–there were more attendees (476,000 vs. 470,000) and exhibitors (2849 vs 2812) and more countries represented (171 vs. 149). The total space for the two shows was the same–394,000 sq in 24 halls at the Hanover Exhibition Center in Hanover, Germany. The bi-annual show ran Nov. 9-15.

Key New Models and Technology Unveiled
Manufacturers focused heavily on hybridization, automation, and engine efficiency:

• Hybrid and Next-Gen Power Systems:
  • Zoomlion DV3504 Hybrid Tractor: A flagship hybrid tractor (350hp class) featuring a distributed intelligent electric drive system (MIDD) for high traction and fuel efficiency, showcased performing autonomous harrowing operations.
  • Zoomlion H7-600E Hybrid Harvester: The world’s first hybrid large-capacity intelligent combine harvester, pairing a 480hp engine with an 11.55 kWh battery to achieve a peak output of over 600hp, offering improved efficiency and reduced energy consumption.
  • Fendt 800 Vario Gen5: Powered by the new AGCO Power CORE80 engine (8-liter, 252 kW), this release highlights a focus on highly efficient, low-emission diesel technology with enhanced torque (1680 Nm).
  • AGCO Power Future Battery Concept (150 kWh): A key component of the electrification push, demonstrating a dedicated, in-house developed battery for agricultural machinery.
• Automation and Robotics:
  • XAG P150 Max Agricultural Drone & R Series Rover: The P150 Max drone offers an 80kg payload for autonomous spraying and spreading, while the R Series Rovers (R100, R200) are designed for precision crop protection in controlled environments like orchards and greenhouses, emphasizing robotic task automation.
  • DEUTZ-FAHR Tractor Assisted Guidance System (TAGS) (Silver Award): An advanced AI-based stereo vision and real-time 3D mapping solution specifically designed for improved safety and automation in the variable terrains of agricultural operations.
• Specialized Machinery and Components
  • Merlo HyperCompact Telehandler Concept: A debut concept focused on high maneuverability and performance in confined spaces, like traditional farm buildings.
  • BKT AGRIMAX PROHARVEST VF 1020/55 R38 CFO Tire: A massive tire designed to reduce soil compaction on high-capacity combines through a large, evenly distributed footprint.

Main Topics and Discussions
The guiding theme, “Touch Smart Efficiency,” steered the main industry discussions:

1. Sustainable Productivity Growth: This was highlighted as the new overarching goal, shifting the focus from mere yield to yield balanced with ecological resource consumption. This requires measuring and evaluating performance in terms of climate protection and biodiversity alongside economic viability.
2. Digitalization and Automation Integration: The trade show emphasized software-driven processes and digitally integrated systems. The debut of the Digital Farm Center in Hall 21 showcased the importance of robotics, AI, cloud-based data platforms (like MerloMobility), and sensor technology for real-time decision support and optimized farming.
3. Alternative Fuels and Energy Transition: Discussions continued regarding the use of “drop-in” renewable fuels like RME and HVO in current diesel models, while the high-power sector saw advancements in hybridization (e.g., Zoomlion’s harvesters) and dedicated battery-electric solutions for smaller machines (e.g., AGCO Power’s battery concept).  The latter was also a testimony of the challenges in electrification of large tractors.  AGCO new battery will most likely in series production only after 2027, if not later.  PSR

Emiliano Marzoli is Manager-European Operations for Power Systems Research

In recent weeks, the US has expanded its 50% tariff on steel and aluminum to over 400 derivative products, creating a new, complex trade landscape with the EU. This goes beyond raw materials and now includes a wide array of manufactured goods. The EU has a new deal with the US, which introduces a 15% tariff ceiling on a large portion of European exports, including strategic sectors like vehicles. However, the 50% metal tariffs override this, a development that has caused alarm in Europe’s industrial sectors. The deal is a “first step,” with both sides still working out details, but the high metal tariffs remain a source of significant uncertainty and a point of contention.

Sources:     Read This Article       Read This Article

PSR Analysis: The expanded tariffs have severe consequences for agricultural, construction, and vehicle manufacturing. As stated by CECE (the Committee for European Construction Equipment) last week, the inclusion of machinery and equipment under the 50% tariff is a significant setback. For these industries, this means a steep increase in production costs, as key components like chassis and engine parts are now subject to the additional tariff on top of base 15%.

This puts European manufacturers at a competitive disadvantage, forcing them to either absorb the cost or pass it on to consumers, which could dampen demand. The complexity of calculating the metal content in each product creates a bureaucratic nightmare and adds to business uncertainty, making it difficult for companies to plan and invest in the US market. If an amendment is not agreed upon, the tariffs threaten to disrupt supply chains and could lead to reduced exports.  According to the CECE, the new duties cover 80% of that trade flow, putting approximately €2.8 billion of EU exports at risk.    PSR

Emiliano Marzoli is Manager-European Operations for Power Systems Research