Traton SE

Good morning, everyone, and welcome to Trayton's Q1 2025 results conference call. My name is Ursula Caret, and I'm head of investor relations at Trayton SE. With me on the call today is Christian Levin, our CEO, who's dialed in from Sweden. Dr. Michael Jagstein, our CFO and CHRO, is here with me in Munich. Christian will start today's presentation. with the key results and highlights of the first quarter, and Michael will guide you through the financial performance and our outlook in more detail. Some of today's KPIs are already known to you, as they were pre-released on the 9th of April. As always, we will conclude the call with a Q&A session, where we welcome questions from financial analysts, investors, and media representatives. To handle potential media inquiries during the Q&A session, Camilla Devon, our head of corporate relations, is also present. A recorded version of the call will be made available on our investor relations website as soon as possible after the event. You can also find our three-month 2025 interim statement, which we published this morning, and the slides to this event on our IR website. Before we start, let me remind you of the disclaimer with respect to forward-looking statements on page three of our presentation. And with that, I hand it over to Christian.

Thank you very much, Ursula. And good morning, everyone on the call, also from my side. Well, most of the numbers that you can see on this page were no surprise to you as we communicated that through an ad hoc earlier in April. Actually, on April 9, we published our delivery figures. The decline by 10% is mainly due to challenging market conditions in our key truck markets in both Europe and North America. And it reflects normalized order book in times where we are not operating at full capacity. Sales revenues also declined by 10% in line with our unit sales. However, our vehicle services and bus business provided some positive effects. Also on April 9, we pre-release our operating result as it was below analysts consensus at that time. The decline of our adjusted return on sales to 6.1% was mainly due to volume effects. But in addition, foreign currency had wins and the higher R&D expenses weighted on the Q1 margins. Net cash flow of the trade and operations was also including in this pre-release the decline to minus 111 million euros, primarily results from the lower operating result and from higher future investments. All the effects mentioned also impacted our earnings per share for the first quarter, which came in at one euro per share. The last figure to the right on this slide is at least not known to you or was not known to you. And it is a healthy growth figure. As in Q4, we saw a continued strong water intake in Europe actually increasing by 56%. This growth effectively overcompensated the decline in orders in North and South America. So our total incoming orders grew by 12% to 74,300 units. While this is promising and aligns with our outlook for a stronger performance in the second half of this year, we are, of course, monitoring the current market and geopolitical uncertainties very closely. to adjust our production planning when and if necessary. Within this geopolitically turbulent quarter, we stayed focused on our business development. In mid-March, we announced the strategic partnership between Trayton and Applied Intuition on software-defined vehicles. Like in all industrial goods, the truck industry is gradually shifting from hardware-centric products to software-driven electronic devices. To remain at the forefront of development and reduce time to market, we decided to join forces in this strategic area. Within days of signing the partnership with Applied, a team of engineers from their US offices were on-site working with our trade and engineers. We're now integrating existing trait and technology with applied solution stack targeting our next generation of ee and software architecture another crucial technology focus area is autonomous driving where we are dedicating substantial r d efforts and here we also work in collaboration with partners min for example is engaged in several projects aiming at introducing full automated city buses to public transport one of these projects is called be and telly where since the start of the year an automated emma and ebus is on the streets of berlin's city center to collect valuable data and experience This project involves an interdisciplinary team from science and industry with the aim of developing an intelligent transport system with automated vehicles. End of February, Scania announced its largest orders since the 80s from the Swedish Defense Administration. Products for the defense industry currently only represents or less than 1% of the trade-on group revenue. But we are convinced that the planned ramp-up of European defence industry will boost general transportation needs besides incremental demand for our defence products, which will both enhance our future revenues and margins. The present Scania order consists of 475 vehicles to be delivered between 2025 and 2027. These vehicles can transport cargo, military units and defence systems and are designed for challenging conditions. This point, please let me note that sales for Defence Force are always preceded by the due diligence and risk assessment in line with expert regulations to ensure responsible and sustainable business. Last but not least, Trayton Finesse Services continued its successful journey to ramp up our captive offering. We had three new markets going live during Q1 this year, Mexico, France and Italy. In Mexico, we expanded on the foundation of international financials and now also offer captive financing for MAN and Volkswagen truck and bus customers. This positions Mexico to become the first market where we offer financial services for all our four trade and brands. under the Trayton Finances Services umbrella, once Scania is also integrated in the coming months. And by April 1st, MIM Finances Services was successfully launched in both France and Italy, expanding our footprint to two of Europe's key commercial vehicle markets. A clear proof that our integrated approach is scaling fast and delivering results is Spain. Spain was one of the first markets to go live under the Trayton Financial Services umbrella in 2024, and it is soon celebrating its first year of operations with already over 2,000 contracts signed for MAN customers. We're also making good progress with our battery electric vehicle offering, both on the demand and on the delivery side. The increase in order intake by 18% in Q1 was mainly driven by demand for e-trucks. Unit sales of electric trucks and buses almost doubled year over year. This coincides well with the fact that two weeks ago, MIN officially launched its battery pack production in Nuremberg. In the current expansion state, 50,000 battery packs can be produced per year on this site. But it is already designed and prepared to increase that up to 100,000 units per year. And to put this number into perspective, MAN has recently delivered its first MAN ETG-X from a large order placed by the French Jacqui Perrineau group. In a standard long-haul application, this electric truck is equipped with six battery packs which offers a driving range of around 500 kilometers, of course, depending upon usage. At our annual results conference, I mentioned how I am constantly advocating for charging infrastructure for heavy duty vehicles in the EU. And in my current role as chair of the ASEA Commercial Vehicle Board, I'm also working hard to influence the entire commercial vehicle ecosystem with the EU automotive dialogue. Over the last weeks, my colleague Alexander Flasskamp, the CEO of MAN, and myself had several meetings with the EU commissioners, including Commission President Ursula von der Leyen and the EU Transport Commissioner Apostolos Tsitsikostas. Besides addressing the improvement of enabling conditions, we continue to discuss an earlier review of CO2 emission reductions to ensure Europe's commercial vehicle manufacturers remain competitive. To sum it up, we're making comprehensive efforts internally and externally to increase the demand for electric commercial vehicles. This should ultimately lead to significant trade on BEV sales, aligning with our purpose of transforming transportation together for a sustainable world. So let's turn Back from our future plans to the current market situation on slide eight. I already talked about a slow start into this year with declining deliveries in both Europe and North America. These regions are burdened by macroeconomic challenges and respective low transportation activity, although it is steadily improving in Europe. In the US, uncertainties about tariffs, economic outcomes and inflation add to the negative market sentiment. In addition, the dealing with the EPA 27 emission regulation remains unclear. In this environment, our customers are not willing to make larger investment decisions. Consequently, our North American order intake dropped by 35% to 12,400 vehicles and unit sales decreased by 12% to 17,800 vehicles. On the back of this, it will be no surprise to you that we had to adjust our manufacturing capacity for class eight trucks and removed our second shift in our Escobedo plant in Mexico. In contrast, Our European order intake was 56% up in Q1, resulting in 38,900 orders thereof 29,300 trucks. This translates into European book-to-bill ratio of 1.3. While looking at the overall trade on book-to-bill, it's coming in just above 1%. This is, of course, a great achievement of our European sales team, and it supports our more optimistic outlook for the second half of 2025. However, we must recognize that this brings us only back to historic average levels. Hence, this positive momentum is mainly replacement driven and can be explained by catch up effects after having processed last year's strong order books. In South America, we've seen a mixed picture. Despite the declining market momentum with lower order activity, especially in Brazil, Volkswagen truck and bus delivered an increase in unit sales, while Scania saw slightly declining volumes in South America, driven mainly by Brazil. On the other hand, strong sales in Argentina had a positive offsetting effect. So how does these q1 experiences in our brands operation reflect on our total market outlook well starting with europe to the left on this slide where we foresee a decreasing truck market within the range of minus 15 to minus five percent in this year the lower end of that range aligns with european registrations in q1 both for the trucks above 6 tons and trucks above 16 tons, which were down both by around 15% in a challenging economic environment. However, with the positive truck order momentum continuing throughout the first quarter and improved transportation activity in Europe and lowered interest rates, we are more optimistic about the second half, which would justify the minus 5% in the upper end of the market range. Notably, The formation of the new government in Germany and the decision to increase investments into defense and into infrastructure also on an EU level may create more positive momentum. The second graph and the one in the middle shows our North American track market outlook. Due to further uncertainties and under the updated assumption of no sizable EPA 27 pre-buy, we now expect the North American market to be closer to the lower end of the minus 10 to 0% range. This would mean that the class eight volumes would fall below the 300,000 mark to around 280,000 vehicles. In fact, according to our market intelligence, class eight registrations in January and February were down by minus 11%. But we do anticipate a slight recovery in the second half of 25, whereas the medium duty segment continues to cool down. With what we saw at Volkswagen Truck & Bus in Scania in South America in the first quarter, our outlook for that region remains unchanged with a range from minus five to plus five percent. And with that short run through, I hand it over to Michael for the financials. Michael, please.

Yes. Thank you, Christian. And of course, a warm welcome from my side as well. You just heard the market and actual Q1 registration data from Christian. The weak market environment in Europe and North America affected three trading brands, MAN, Scania, and International, and therefore well explains the 10% decline in our group unit sales. In addition, the International brand was hit by the introduction of Euro 6 in 2025 in Mexico, which had led to a pre-buy in the previous year. On the other hand, much higher bus deliveries contributed positively to the international unit sales after last year's sales were affected by the delayed ramp-up of the new school bus model. While unit sales in Europe and North America together were down by 15% in Q1, sales in South America grew by 10%, which had a positive effect, especially on Volkswagen truck and bus. Total trade and group unit sales in Q1 amounted to 73,100 vehicles. Total group revenue amounted to 10.6 billion euros and was also down 10% year on year. The effect of lower unit sales could be partly mitigated by a strong vehicle services business. And in addition, trade and financial services contributed positively with a 17% revenue increase. Let's now have a look at the next page at the operating result on slide 12. With the decline in unit sales and revenues, the lower margin was expected by us. In fact, our internal margin forecast was in line with the outcome. Therefore, in our annual results conference, I stated that we see a weaker first half of 2025. So with unit sales and revenues down by 10% and weaker order book tailwinds, reduced capacity utilization and lower fixed cost absorption, our adjusted return on sales came in at 6.1% in the first quarter. This was 3.3 percentage points lower year on year. Besides the negative volume effects, higher R&D costs, increased investments into the China production facility, and foreign currency headwinds affected our group margin. Consequently, the adjusted return on sales of trade and operations was similarly affected and came in at 7.3%, three percentage points lower year on year. Only Volkswagen truck and bus contributed positively among our four brands. But let's start with the performance of Scania on slide 13. Scania's Q1 revenue and margin not only suffered from lower sales in Europe, but also in Brazil. Nevertheless, with its super engine offering, Scania profited from higher pricing for certain trucks. and an increased vehicle services share also had a positive impact on revenue and margin. On the negative side, as mentioned, Scania's margin was impacted by currency effects and China project costs. So, Scania ended Q1 with a margin of 10.5%. Next, MAN. Our full lineup brand with a strong European focus saw reduced revenues both for trucks and buses. Bus deliveries are still delayed due to higher regulatory software requirements, but normalization is anticipated in the second half of the year. The successful realignment program helped support the margin despite the lower unit sales. MAN's margin came in at 4.6% and showed gradual improvement within the three months of Q1, which gives us confidence for the next quarters. International delivered a margin of only 2.3%, and we have already explained the main reasons for the decline. Volkswagen truck and bus managed to deliver increasing revenues in Brazil and the rest of South America due to a solid truck business and improved product positioning. They achieved 13.1% adjusted return on sales in Q1, despite some negative currency effects. Trayton Financial Services saw a 17% revenue increase in Q1 due to a larger portfolio volume. As the ramp-up of the financial services network comes with higher costs, the TFS return on equity decreased to 9.1%. Other reasons for the margin decline were higher funding and risk costs, which came with a larger portfolio. Let's move on to the next slide, where we see that the lower operating result of trade and operations also affected its net cash flow and hence our net debt situation. As you can see on page 14, the net debt of trade and operations, including corporate items, increased by 282 million euros in the first quarter 2025 to end the quarter at 5.2 billion euros. The net debt increase was partly driven by a net cash flow outflow from trading operations of 111 million euros. This resulted from a working capital buildup and investment spent which exceeded the gross cash flow of trading operations. In addition, Other net cash outflows of 171 billion euros, including holding costs, led to the increased debt. With an improved operating performance, which we are foreseeing in the second half of this year, the cash flow from trade and operations is also expected to improve, which will enable us to continue our debt reduction journey. This leads me to the last page of our presentation. which is the 2025 outlook slide. I believe with our presentation, we explained the reasons for the slow start into the year. We did also give you some rationale why we are expecting a stronger performance in the second half of 2025. Therefore, we maintain our 2025 full year outlook and continue to expect unit sales and sales revenue for the trading group to come in between minus 5 and plus 5 percent. And Group adjusted operating return on sales between 7.5 and 8.5 percent. But please note that due to ongoing and changing tariff discussions, the potential outcome of U.S. import tariffs remains far too uncertain for us to quantify. Therefore, tariff implications are still not included in our 2025 outlook. so that it remains subject to future geopolitical developments, particularly in the US and their impact on trade and groups business. With that, I would like to hand over to Ursula to kick off the Q&A session.

Thank you, Christian and Michael. And as always, there are already a lot of questions lined up from the audience. But before we start, let me quickly re-explain the rules. The Q&A will be recorded, and the replay will be made available on our website later today. If you want to ask a question, please press star 1 on your telephone keypad. If you want to cancel your question, you can dial star 2. If you need operator assistance, press star 0. And in respect of the time, please limit yourself to two questions. Now let's take the first question, which comes from Klaas Bergelind from Citi. Claes, please go ahead.

Thank you Ursula. Hi Christian and Michael, Claes at City. First question I had was on international. It seems like it was the operational gearing to the weaker volumes that was the key reason for the margin drop, not much negative pricing there in the P&L at the moment. Obviously, industry inventories are high and the North American outlook is tricky, which could see incremental price pressure bringing down the margin further. I think you said you're removing one shift there, Christian, taking down production. But I'm curious to hear if you're planning any further mitigating cost actions to help the margin in the next couple of quarters. I'll start here.

Yeah, maybe Michael can start with the coffee.

I can start. Klaas, welcome. And first of all, let me confirm your assumption. You're fully right. The impact that we have seen here on the margin is really primarily coming from the volume drop. So I can clearly confirm that. You mentioned the shift that we have taken out in Escobedo, Mexico that Christian mentioned. That is right. And yes, of course, we and the team are looking into further measures. I can say that there is a hiring freeze in place also at international taking into account the really difficult situation. It's linked to certainly the uncertainty that we see in the North American market at this point in time, which then correlates really with challenges when we look at order intake. And therefore, the team, again, has established the hiring fees. The team is looking at the cost, what they can do here, taking into account the difficult situation, maybe to kick it off like this.

Okay, that's good to hear. Then my second one is on Scania. Would it be possible to help us with the FX impact and then also the impact from the China ramp? I'm trying to understand to what extent the impact was less than the linear 125 or bigger. What the impact was. Thank you very much.

Maybe I can also start here and then Christian, of course, if you want to fill in. Let me first say, maybe to disappoint you here, that we don't quantify the effects here. It's a combination when we look at the margin of Scania. As mentioned before, also here we see some volume effects in Europe, in addition also in South America and Brazil, especially as we mentioned during our presentation. And then there is, in addition, some FX effects coming from the stronger SEC. And in addition, as we have stated also during our annual press conference, the China ramp-up also affects the margin. This is why we said there in the pre-close call and then also during our annual press conference, that you should not expect for the full year the same margin for Scania as in the previous year, taking into account these effects coming together here. I don't know, Christian, if you would like to add something.

Yeah, I can do a few additions on your first point also with international. So sadly, 900 people left the company in Mexico. Because we closed down the second shift and of course we are preparing for needed actions also in the rest of the organization. If this continues, it's really a wet blanket on the entire market right now. And that's a truly unsustainable situation, which hopefully will not endure. For Scania, yeah, I will also not quantify, but it's predominantly volumes, Klas. Secondly, I would say it's a currency. And thirdly, it's China that is weighing on the Scania volumes. But it was mainly not getting through the pipeline, which was somewhat disappointing in terms of volume. So we have over average inventories still in the Scania system, which shouldn't really be the case. And to check thoroughly, it's not that there is resistance to take the vehicles. It's still that we have some trouble with bodybuilders which we've had now for a couple of years since the delivery challenges we had, and other, well, let's call it just disturbances of the flow all the way out to the end customers. But these are the big impacts on the Scania results. Thank you. Thanks, Klaus.

Okay, then let's take the next question from Himal Bundia from UBS. Himal.

Thank you, Christian, Michael, and Ursula for taking my questions. I appreciate the color provided. I just wonder if you give us an idea on the order momentum that you've seen so far in April, specifically for the European and North American markets, and how was the pricing on these new orders versus what was seen in Q1? Thank you.

Thanks, Christian. If I start and Michael can fill in. Order intake, starting in Europe then, has been gradually improving, I would say, for both Scania and MAN, all the way up from after summer vacations, so starting August in Scania and September in MAN. It's been holding up well all throughout the first quarter, but we see an effect already, well, quite immediate after Trump's tariffs were were communicated and understood that that would not be a quick fix, so to say. So from mid-March, we see a bit lower activity, and I will not quantify that, but we see a bit lower activity in Europe, which has continued in April. It's not dramatic, but the upwards trend is broken. When it comes to US, it remains depressed, we could say. So look to some of the segments like the rental segment, for instance, which is a good indicator of the short-term transport need. We see a very, very low activity. And, you know, you need basically to go back to 2008, 2009 to see such a low activity on the rental business. We do believe that, especially on the Clause 8 on-road, we will see a bouncing back here towards second half of the year, as there is also in the US big replacement need. But the situation in the US remains, as you well understand, very, very difficult to predict. I stop there. Michael, anything to add?

Well, maybe just confirming what we have said also during our annual press conference, that we clearly see a silver lining, as Christian just mentioned, that continues still at this point in time. We would not call it a turnaround yet. especially not for, let's say, the entire trading group, taking into account the really difficult situation in the U.S. You heard coming a little bit to the questions before or what we mentioned during the presentation that we expected the, let's say, slow start into the year. This is why we were quite clear, at least I believe, saying that the first half is going to be challenging and that we expect that the second half of this year is going to be better. This is based to a good extent on some confidence for Europe, especially based on the order momentum that we have seen in Europe. And as Christian just mentioned, we have to see how this continues here. Clearly, we are all aware that there is some uncertainty, not just in the U.S., but in the entire world based on the tariff discussions. So this is something we will have a look, close look in the upcoming weeks and months.

Thank you. Sorry, it was just on the pricing comment on how this is fed so far.

Sorry, Christiane. So we don't see any major impact when it comes to pricing, which is, as I've underlined in these calls before, we're trying to do what we can to preserve our gross margins on the vehicles. So we are certainly not the ones engaging in any pricing combats or price wars. So good on the pricing side, tough on the volumes. Thank you.

Okay, then let's take the next question from Mayhan Yang from Goldman Sachs.

Hi, good morning. It's actually Daniela here. So I have two questions as well. I'll ask them one at a time. First, just to kind of follow up on some of the comments you were just doing regarding sort of what gives you confidence on that sustainability of orders in Europe, which seems to be the driver of maintaining the guidance. You mentioned in the statement kind of replacement has one of the drivers. Just looking at that one factor, can you maybe give us some color on like how you see age of fleet now versus what is normalized and how long, macro aside, could that angle of replacement carry on to some improvement, basically? Is that sort of...

few quarters do you see that has a multi-year trend just some color there yeah daniela christian here yeah i think the average age is still very high so has increased somewhat but we're still about 14 years in the in europe where we see really old fleece especially in southeast of Europe and countries like Italy, Greece are rather closer to 20 years of average fleet. So I think the replacement need carries the market many years ahead actually to be above at least 250,000. And now this is not coming from a very analytical approach, but just gut feeling after many years of this business. So I think that creates some kind of floor as long as there is liquidity in the markets. But on top of that, we of course see some, at least parts of Europe, where there is also an underlying transport need increase. And we can see that through our fleet management data. And hopefully that continues. And of course, as I mentioned, the very good moves in Germany now, being Europe's biggest economy, and releasing now funds for both defense spendings and infrastructure. I mean, that's the dream for transport. So both of these industries really drive a lot of transport throughout the tiers of suppliers that are needed. And hopefully, at least the majority of these orders also end up in European industry. I mean, for construction, that's a given, but also for defense, I really hope so. So I remain optimistic. But as we have stated, I mean, it's super hard to predict. And we did see... a cooling down of order activity mid-March when the tariffs or when I think the world realized that the tariffs wouldn't go away soon. So super hard to judge, but we have discussed a lot and we stick to our guidance of the total market in Europe, which would then bring Europe to actually a rather good total market level. And I can also comment and say that our market shares For Scania, MAN continues to be on a, particularly for Scania, on a historically high and stable level. Scania has actually been able to further increase market shares, which in a way goes beyond our planning. But it shows that we're also doing a good job in the market.

Got it. Thank you. And then the second question is more regarding thinking about free cash flow. We had a week quarter. There's obviously some seasonality, but also given all that's happening, tariffs and supply chains and everything, how should we think about sort of your need to maybe build up more inventory, especially in the U.S. in the coming quarters? And and the normal this year versus what the normal seasonality would have been and the normal cash conversion would have been if you could steer us with any direction there.

Yeah, happy to do so, Daniela. Also here, let me start maybe with the remark that also the free cash flow development was very much in line with our expectation for the first quarter. We see an increase in the working capital, which is largely due to inventories also, as you mentioned. But I would say overall for the entire trade group, quite normal. And also, I would say very much in line with the previous year. We expect also here the second half to be significantly stronger when we look at the cash flow. So you will very likely see a similar development like in the previous year, where you recall that also after the first half, the net cash flow was more or less zero, and then we brought the cash in to the very large extent in the second half of this year. We expect the same development in 2025. Thank you.

Okay, then let's take the next question from Nicolai Kemp from Deutsche Bank.

Yes, good morning. Thank you for taking my questions, Nicola from Deutsche. First one, can you just remind us on your current lead times, both in Europe and US? And second one would be actually on the improvement. You've mentioned Europe. I mean, all of us have been good in Q4. There have been good in Q1 as well. So is it fair to assume that MAN and Scania should improve already with the Q2 results? Thank you.

Okay, I can take the lead times down. So what we see now, MIN has lifted its short-term work and are back to normal capacity, meaning that lead times are now normalized and you order now and you will get a vehicle in the beginning of Q3. Scania with a little bit, still hesitating to increase capacity. We decided to postpone our decision that we have planned due to tariffs. You're now in the end or rather towards the beginning of Q4 for Scania vehicle. In the US, we have totally normalized the lead times and we are in a three months waiting time for all sorts of vehicles except vocational where we have a longer lead time due to bottlenecks in our in our supply chain. I shift it over to you, Michael.

Yeah. Thank you, Nikolai, for the question. And since you know that we are not guiding quarters or our S-level for the brands, I cannot give you a specific number, but I would say very much in line with what Christian mentioned and taking into account that we said The major effect for the margins that you have seen in Q1 was the volume, both for MAN and Scania. I would say the math is quite simple. Yes, there is potential for a better margin. And maybe let me at least give you that comment. We have seen clearly better volume at MAN in March compared to the first two months in the year. which gives us also quite confidence that we see here a better result in Q2. Understood. Thank you.

Okay. Then the next question comes from Eric Golrang from SEB.

Thank you. I want to ask a few questions on China. First of all, if you can confirm the start of production there. And then perhaps talk a bit about the type of product you'll be producing there, and we might see orders being impacted. And I find that also the cost development or the impact on the P&L in 2025 and 2026. Thank you.

Maybe Christian first with the start of production.

Yeah. So, Erik, thanks for your question. We are actually on plan here with this project. So we'll have an inauguration of the factory on the 15th of October. And that coincides well with with production starting in the beginning of October. We're already filling the factory with orders from from both China and the rest of Southeast Asia. We are, of course, building out the modular system gradually, but we start with the main models for this region or the main components in the modular system utilized for these models, meaning that we target somewhere between 60 and 80 percent of the sold volumes in the region. To start with and then of course there will be a ramp up or we will have volume restrictions especially in 2025 so I'd say the real target is to have a smooth good ramp up in the in the first half of 2026 That's that's somewhere where we are Industrially, I don't know if you want to continue with the financial impact Yeah happy to do so so I

I mean, as Christian mentioned, going here to China is really a strategic investment. We have communicated before at our Capital Markets Day that the total investment there for R&D and CAPEX will be roughly 2 billion euros. We have invested roughly a billion until end of 2024. So, in other words, you can expect the remaining $1 billion to be invested in 2025. And since you asked about the P&L effect here, you can roughly calculate that about the half of that is planned to be directly expensed.

Thank you. Nicola, you're done, right? Then the next question comes from Akshat Kakkar. Welcome, Akshat, to the Triton analyst team.

Thank you so much. Yes, Akshat from JP Morgan. Just one housekeeping question left. Could you please comment on the overall R&D expenditures and capex that you're expecting for 2025, given the current uncertain economic outlook, please? Thank you.

Well, what I can say is very much in line with our guidance. What we are projecting here is a significant increase in CAPEX and a slight decrease in primary R&D. I would say, to put this into context, it's a given we're in the transformation here, so we are investing in electrification, autonomous driving and software. In addition, as we also mentioned at our Capital Markets Day, we are clearly investing into our Trayton modular system. And then related to the question we just answered before, we're in the ramp-up phase for our China production facility. So if you take this all together, then this explains the significant increase in CAPEX, where the main drivers are the China plant and also increased investments in TMS. The reason why we project a slight decrease in primary R&D compared to the previous year, which might be a little bit counterintuitive, putting or taking into account the context I just mentioned, it's also quite clear that we also invest, of course, into R&D. But there is one aspect. In 2024, we have heavily invested in R&D regarding electrification and especially the heavy-duty BES. So this has changed now in 2025. This is why, overall, we see a slight decrease here in primary R&D, to give you a little bit more transparency and light here. Thank you for that.

Next question from Shakil Kirunda from Morgan Stanley.

Hey, good morning. Shakil from Morgan Stanley. Christian, could you please tell us a bit more about the China investment? How much of an impact did this have on Scania and Q1? What kind of cadence should we expect for the rest of the year? And also, is it fair to say that 2 billion is quite a large investment for a factory of this size? Or are there some additional factors to consider?

Okay, Shaquille. Yeah, I think Michael covered it actually quite well in the previous. So it's around about 1 billion remaining. of total capex and one half of that will be put into the P&L of 2025. If 2 billion is a lot or not a lot, it's a bit of a tricky question. It's a complete industrial system we're building up. So you need to think of this as a new Scona Latin America. So there will be, if you take it by function, there will be everything then from R&D, procurement, logistics, production over to the commercial functions. We are, as we have communicated, considering a second brand as we have gotten a license for up to 50,000 trucks, which we believe not reasonable to fill up with the Scania volumes only. We are, of course, building out the organization as a whole. We think One of the most important reasons for us to be in China, of course, beyond supplying vehicles to the region with short lead times and tailor-made specifications, is to learn actually from what is happening in the Chinese industry. Perhaps not so much the truck industry right now, but the past car industry is, of course, very, very impressing to see with the speed that they are scaling new technologies, especially on battery electric and on digital. So having an R&D presence with around about 500 people to start with, I think is crucial for us to make sure that we adopt the technologies where we meet Chinese competitors. And that's, of course, predominantly and first and foremost, where we'll be in China. But I do believe that at least one, perhaps two of the Chinese players will be very successful globally. And we will meet them first in Asia and then in other parts of the world. And therefore it's super important for us to be there to really hook into the Chinese ecosystem of technology. So not just employing people, but of course also working in partnerships with universities, with suppliers or technology partners, et cetera, et cetera. So it's really building a complete industrial and commercial system that can take on Asia for now and for the future. And I think I think, yes, two billion is a lot of money, but I think when we see what we get for that in terms of future proofing, I think that's actually a very, very good investment. And you do remember that we have looked for this for many, many years from a Scania perspective. We've known about our shortcomings in terms of delivery times and tailor making for Asia, but we never wanted to step into the joint venture trap, if I may call it like that. And therefore we have waited and now we got this opportunity to build this ourselves and to run it ourselves. And then we jumped on the train. And four years later, we're now ready to start to deliver. So I think that will be a fantastic thing for the Skåne organization. Then we should all realize that it will take time, of course, before we have this factory fully filled. And that's the backside of getting a big license, of course. But I think we will see a fantastic contribution here over the many years to come, both in terms of volume and in terms of technology. I stop there.

Thank you very much, Krister.

Thank you. Very helpful. Next question comes from Paul Skjerta from Bankhaus Metzler.

Yes, good morning. It's Paul Skjerta from Metzler Bank. I have one question left, and the question is regarding the trade in the modular system. There have been some media reports suggesting that there might be some, that you might have some challenges with the modular system project. So I was wondering if you could maybe give us an update on the progress of the project and the integration of R&D activities between Scania and MAN. And do you think that we should expect any adjustments to the rollout timeline And if so, what potential impact could that have on product momentum and your cost structures going forward? Thank you.

Yeah, thank you, Palle. I guess I take that one. Christian here. No, you should not expect any change in the time plan. We continue on a very broad scale to address large parts of the technology platforms starting predominantly in Europe and then moving towards the West and then down towards Latin America in the coming years. Yes, it has been cumbersome in our environment, unionized with the history of Long Proud Brands, maybe not the fastest decision making, et cetera, et cetera, to get this huge endeavor up and running. I was super And we worked everyone, Michael, myself, but the whole, I'd say whole organization has been involved in creating one R&D organization. And looking back, you would, of course, have wanted this to go faster, but that doesn't make us any happier. Let's look forward now and rather see that now the teams really work together under one management in technology areas that are global and allows us to basically work around the clock. uh not uh doing parallel work anymore but really working sequential on what needs to be done for the group it's a huge step forward and i do not worry that we cannot deliver a trait on modular system uh on time and over time uh but uh there are of course more pieces to this puzzle to be to be taken uh but uh Yeah, the plans stick and we expect and I don't think we have talked about exact time plans, to be honest. I think you have read the speculations you mentioned in the press. I have seen one article. It's our good old friends in Magazine that continue to speculate on our short and foreseeable. Let's not speculate what they actually speculate about. But there is nothing behind that. So we remain really committed and convinced that we will be able to do a much better work working as one team in R&D than working as four parallel teams. Michael, you want to add? You've been instrumental in making this happen.

Well, maybe I can just fill in and say that, as I mentioned, the R&D organization that we have in place right now, will play an incremental role. That's very clear. And I can say that just recently, last week, I talked to several engineers, took the time here to get a firsthand impression. I can say that there is really a lot of excitement and energy. So I'm also very positive. TMS is a strategic project for us, and we will put the right focus on this project to make it successful.

Thank you. Next question from Michael Aspinall from Jefferies.

Yeah, thanks, Ursula. G'day, Christian and Michael. Just one over starting in the U.S. The U.S. Secretary of Commerce announced that they're looking into the medium and heavy-duty truck and parts market on national security grounds. Can you give us an idea of what you make of this so far? I know it's early days.

Well, let me maybe start and say, yes, of course, we are fully aware that they are looking into this. What is crucial for us, pretty much in line with what we mentioned also during our annual press conference, that we are here, let's say, as flexible as possible, which we are, let's say, on a short-term basis. The point is As you know, and as we mentioned also during the annual press conference, that we produce our class eight trucks in Escobedo in Mexico. So if we'd want to shift this, this would take certainly some time and would go in line with some investments. But you can imagine that, of course, first of all, we are looking into various options. And then secondly, which is important for us, We are in good exchange here with policymakers in Washington, and we will continue to do so.

Okay, great. And then one over into Europe. You mentioned that Scania market share is kind of beyond your planning. Do you have capacity to maintain that market share If, say, the market does grow in 26, would you rather lose market share but, say, be running at full utilization of your industrial facilities, generating high margins? Just interested in where you're at in terms of that.

Yes, Michael. Scania's strategy is to be the price leader. and always go for profitability over volume and being in the range of 16 to 18% of Europe's market has always been our target. And currently we're on 18.8 after the first three months, that's a little bit too much. It's of course impossible to control this in detail as there are lots of delays or lots of lead times involved in the delivery process. But so no such target. But yes, I do believe that we have the capacity with the product range and the organization that we have to maintain this range of 16 to 18 percent, regardless actually where the market is growing. And allow me also to add that with the China investment, we should not, as has happened in recent years three times already, we should not end up in a capacity constraint situation. Because as you know, probably right now, we are shipping from Europe markets all the way over to Australia, but also China itself, of course. And every market in Southeast Asia, that we're now taking out of the European production and create space for us to have when needed the capacity as Europe has had tendencies over the cycles to grow all the way up and about 350,000 units. But of course, also gives us some space to focus a bit more on the logical near European markets, such as North Africa, Middle East and other regions where we could be a bit more aggressive and still make really good money. Thank you.

Thank you. Next one comes from Anthony Dick from Adobe.

Yes. Hi, thank you. Just one remaining on my side. It's on MIN. I believe you started the production of a new engine in February this year. So I was just wondering if you could discuss this a little bit. What should we expect in terms of a ramp up for that engine in terms of penetration and also in terms of the financial impact of that new engine? Maybe comparing it to what you did with the Scania Super and the S13. Thank you.

Yes, Anthony, if I start a bit with the engine and then Michael, you can take the financial impact. But yeah, so it's the third brand in the group that takes on the FPP. It's actually not only an engine, it's engine, gearbox, after treatment, software and axles. It's been going, as you know, very well in Scania and in international. We, of course, aim for better fuel economy. longer maintenance intervals and also lower weights. So this seems to be repeating now in MAN. So we had, as you said, the successful integration of the factory. We have started slowly the first deliveries. We are planning, of course, to completely replace the current D26 engine with this one. This one is called D30. So that's what you should remember, the D30 in the MAN lineup. We have seen the first customer reactions, we have seen the first press tests, and it seems that the improvements in fuel efficiency are coming in in the range of minus four to minus six percent, so we're talking publicly about around about the minus five percent, which allows for a good price increase and or better demand up to MAN, of course, to balance this in the best possible What is, of course, also good is that with more proprietary gearboxes and after treatment systems, we also over time with the rolling stock will improve our services penetration. So very, very curious also myself to follow the ramp up. We have the first the SOP was in January and we're just now seeing the first customers take delivery. But so far, we see a really, really positive feedback, which is, of course, great to hear. Maybe also to comment that this engine is, of course, very much based on the so-called CB1, which is the engine part of the FPP project. But we are then integrating this into a chassis and under a cab and into an electrical system that is not the same as Scania and that is not the same as international and therefore back to the to the earlier question on the from PAL on the Trayton modular system therefore it's so important that that we can come over to one modular system because then we could have had this engine in MAN up and running already three years ago and integration costs would have been lower And of course, scale on more components would have been achievable, hence lower product cost. So I'm super happy to have this now finally in MIM, but I would have been even more happy if it would have been at the modular system where we could have made this faster and better. Michael, anything to add?

Well, actually, not that much. I mean, Anthony, you asked about the financials and you will understand that I can give you no concrete number here. But, of course, I can attach my comments to exactly what Christian said. To put this into context one more time, we can say that the CVE story here continues after the Scania Super driveline and S13, now with the D30. And the key factor, of course, is the energy efficiency that Christian mentioned with roughly 5% in the case of MAN, which of course gives the advantage to our customers regarding the TCO perspective, which then also, as Christian mentioned, gives us the chance for certain pricing. So this is the positive financial effect that we are expecting, that we have seen at Scania, that we have seen at International, and that we expect to see also at MAN. Thank you very much.

Thank you. Last analyst question comes from Hampus Engelhau, and then we have one question from the press. Hampus.

Thank you very much. Thank you very much. Two questions from me. Firstly, Christian, if you could maybe give us an update on how international are doing on penetration rates with the Captain Indian, and also linked to potential service contracts on the back of this. And then I'll continue on the international second question. It's related to market share. I know there's a lagging on the ECT numbers, of course, but if I look at those numbers, you're at around 13.5% market share compared to 11 if I look at January-February numbers. That said, if I look at the order take, you're down 30. Class A numbers are down 18%. So could you maybe talk about how you're doing the market share in North America, for instance, despite the tough market, of course?

Okay. Hi, Hampus. I guess I take that one as the first part of it. So, yes, it continues to take market share, our S13 engine, as it's called in international. So we were at around 40 percent of the close eight when we closed the 2024 year. Our goal for this year is that we should come up in about 50% with the S13 engine, which would give us, Dan, as you're in, to the advantage of having full proprietary business on the services. We do aim at always selling this product with a repair and maintenance contract. And as we're gradually getting financial services also in place for retail customers in the US. We will also try to make operational lease contracts with these products. This will, of course, have an impact on our P&L in the bit longer future. We need to get the population up. But it's very illustrative to see the less resilience we have in the international brand now that the market is turning south. And we see that our over-the-counter sales of parts is taking a hit as customers are looking for cheaper solutions. And this is not something you can trace in Scania and MAN, where we have more vehicles under contracts, where we have less sales over the counter and where the parts are proprietary parts not being under such competition. So it's really important for our strategy going forward that we manage not only the engine and the driveline, but also the the service contracts connecting to it. And that that looks really good in terms of market shares. Yeah, it's it is a bit. Also, I'm learning as we go here with the US. So we were we were a bit unhappy last year as we ended the year, not where we wanted. We had the target to remember from our capital market days, even the first one, saying that we should grow. every year. One percentage point we didn't manage as we ended up with class eight on 13.6, or even if that was an increase. But we are year to date now very good and outgrowing the market. But is that logical when we look to our total order intake figures over industry? No, not really. So I draw the stick to the statement and say that we are back on track. And we are targeting to grow the market shares again when we close this 2025 year 1%, which would then put us, if you look to medium and heavy duty together, it was put us somewhere in the range of 14 to 16%. And then I would be happy with that. But ask me again after Q2. Thank you very much.

OK, then the last question comes from Thomson Reuters from Christina Ammann. Please go ahead.

Good morning. I hope this works. I just have one question that goes back to Northvolt. Now, you're saying that the order intake and the demand for battery electric vehicles has increased by quite a bit. How are you able to fulfill that demand? Are you still getting sales from Northwold? And what is the way forward also in regard to the 100 million euro loan that you gave Northwold in connection to the Chapter 11 procedure in end of last year?

Yes, Kristina, Christian, I guess I take your questions down. So starting with do we still get sales from Northwold? Yes, we do. So now it's the bankruptcy state that is running the business. And we are, of course, very keen to get sales and we actually get more sales than what we are consuming currently, which is somewhat of a paradox, of course, in this difficult situation. But I guess it's really good for the bankruptcy state to keep running and trying to sell this as a running concern instead of shopping up, selling the pieces. We're very happy with the cells and the quality of the cells and the vehicles that you saw here in our numbers being delivered to Scania customers are performing extremely well. So the feedback from our customers is absolutely positive. What we are doing to protect ourselves against a potential interruption then of Northvolt cells is to bring in more cell suppliers. And we have advanced these plans. And what we currently see is that there will be no major disruption in our supply, apart from, of course, a restart of the ramp when you bring in one or several new suppliers into the vehicle. So we're doing, of course, what we can to also accelerate that. But it's inevitable industrial operations that you will have a a ramp up period where you have to safeguard quality by delivering lower volumes. We are expecting that then work to start during the summer vacations where we can prepare our factory as we are anyway standing still because of vacations. You also asked about our $100 million loan that we have made against the good security in the so-called Northvolt Labs in Westerås. big industrial facility, both status there is that Northwood Lab continues to operate and we still hold this security and we of course hope for a buyer to step in and take over both Skellefteå and Labs and in that case we would of course sell back that security and get the money back with interest. But how that goes is of course something between the bankruptcy estate and the and the potential buyers. So I cannot really comment upon that, but that you have to ask him. I hope I covered your Northvolt questions. Did I?

Oh, thank you very much.

Thank you. So thank you, Christian and Michael. Thank you participants. With this, we are concluding our event. In the next two days, we will intensify our discussions with some of you during our roadshow in Frankfurt and London. And on 14th of May, we will hold our annual general meeting. In the meantime, if you have any questions, please reach out to the investor relations or the corporate relations teams. With that, we wish you all a nice remaining day. Goodbye.