Volvo Car AB (publ.)

Good morning and a warm welcome to the presentation of VolvoCast's third quarter financial results. We are coming to you from downtown Stockholm today. We are currently in the VolvoCast studio and our tech hub in Stockholm is just a few blocks away. My name is Ron and I'm joined this morning by our Chief Executive Jim Rowan and our Chief Financial Officer Johan Egdahl. At the top of this earnings call, Jim and Yuan will walk us through our performance during the third quarter. And thereafter, we'll throw it open for a Q&A via the chat and the phone lines. I'll come back with more information right ahead of the Q&A. But without further ado, let me hand over to Jim. Jim, over to you.

Thanks, Ryan. And as Ron said, it is fantastic to be here, right in the very heart of Stockholm, in our Volvo studio, surrounded by our latest technology. With that, let's talk about Q3. Our momentum continues while performing and transforming. Share of our fully electric cars at 13% versus 7% in Q3 2022, which means our BEV sales are up by 111%. We've improved our margin on fully electric cars 9% versus 3% only last quarter, and this is very much in line with our plans and our expectations, again, as we had previously indicated. Retail sales are up 22%, production volumes are up 16%, again, compared to the same period last quarter. Continued solid underlying EBIT growth with lower variable costs, including our raw materials, again, as we had indicated. Stable order book, and we have maintained our premium price discipline. We also declared the end of diesel. Our last diesel car will be produced early 2024. That marks an end of an era and the start of another era. Construction of a Novo battery plant started in Sweden and we will accelerate the production of that in line with our plans. Volvo Cars' first fully electric MPV, the EM90, will be launched in November 12th in China. And we have started production of the EX30. During the second quarter, we revealed our first ever fully electric small SUV, the EX30. This competitively priced car will serve to strengthen our position and help us reach our global ambitions to become a fully electric car company by 2030. Not only has the demand for this car been higher than our expectations, but it has now also received several industry awards and we expect that to continue in the coming weeks and months ahead. In the third quarter, we also started production of the EX30, and that sets us up for the first deliveries of this car in the fourth quarter, with ramp up through the first quarter next year. The expectations for this car is that the gross margins for this fully electric SUV will be in the range of 15 to 20%, as previously indicated. In addition, we're also planning to produce this car, the EX30, in our Ghent plant in Europe. This decision reflects the strong demand for the car and supports our global strategy to produce where we sell. It also boosts our production capacity for this car in Europe as well as for global exportation. Let's move to the financials. Johan will take us through the financials in much more detail in just a second. But in summary, retail sales are up by 22%. Revenue is up by 16%. And our EBIT margin has grown compared to the same quarter last year from 3.5 billion sec to 6.1 billion sec. And that reflects the growth that we expect in our company and the growth that we expect in our performance. As I say, Johan will take us through that in much more detail in just a second. This positions as well for our mid-decade ambitions in terms of volumes, fully electric car sales, fully online sales, and also our EBIT margins and our reduction on CO2 emissions. Moving to CO2 emissions, you can see here both our BEV and our recharged cars in total. And whilst we see that go down slightly in the third quarter, this is very much in line with our plans and with our expectations as we move to a new model here. As we progress to Q4, we expect our BEV sales to be more online with the first half of 2023. And again, this positions as well for our global ambitions of CO2 reductions of 40%. from the mid-decade when you compare that to our baseline of 2018. Again, very much on track to what we had signalled before. With that, we look at global sales of what we call recharge cars, which includes our hybrids as well as our BEV cars. Again, we see this accelerating. And if we move to full BEV, then we see the same phenomenon. Fully electric cars are now becoming a global phenomenon. We're starting to see that in many markets around the world. Our bold ambitions to be early movers in the move towards electrification is now starting to really pay dividends for us. And we expect this to be something which accelerates in the coming months and years ahead. With that, I'm going to move to the financials and I'll hand over to Johan.

Thank you, Jim, and good morning. On the financials, retail sales up 22% in the quarter, revenue up 16%, but also worth mentioning is that wholesale is up 14%, slightly lower than retail sales, which is normal seasonality over the summer, which also shows that we are increasing revenue more than we're increasing wholesale, which also is a proof point for our ability to maintain good price discipline. On EBIT, 6.1 billion compared to 3.5 billion same quarter last year, 6.7% versus 4.4%, showing that we are continuously on a positive trajectory when it comes to the profitability for the underlying Volvo car operations, including Javis & Associates at 4.5 billion or 4.8% in the quarter. And on free cash flow, we are positive 2 billion SEC in the quarter, more or less in line with last year. On revenue, the biggest driver for the increased revenue is really volume, showing our normalized production situation where we see improved production month over month now since quite some time. Sales mix and pricing more or less flat, showing that we are maintaining solid price discipline. fx still a tailwind on revenue side contract manufacturing more or less flat compared to last year and also we have some further positive effects especially from sales of parts and accessories taking us then to the 16 growth and 92 billion in revenue for the quarter on ebit again volume being a strong driver for the increased profitability We also do see, compared to last year, as we have said, we see lower raw materials flowing through, we see lower cost for semiconductor purchases, we see lower logistics cost, et cetera, which is then also driving the underlying increased profitability. Sales, mix and pricing, slightly negative, although we see a higher BEV share, which still have slightly less margins than the other car lines. We see a normalization of mix compared to last year on the back of the improved production situation, but we also are maintaining good price discipline, taking us to 0.5 negative, but in all in all, limited effects on that side. On FX, more or less flat, slightly positive on EBIT due to the fact that other currencies such as Euro on the cost side are offsetting the positive effects on the revenue side. So that takes us then to the 6.7% EBIT margin, which is then Quite a big improvement compared to the 4.4% for the Volvo corporations compared to last year. J Business Associates, minus 1.7 billion, taking us then to the 4.5 billion or 4.8% EBIT for the quarter. BEV margins. As we already said in the second quarter, that was the low point at 3%. Now we are heavily increased that to 9%, which is driven by a number of different things. We see lower raw materials materializing in the second half of the year, especially lithium, which will continue then into the fourth quarter. We also see improved pricing due to the new model year and improved range, etc. And we also see cost efficiencies coming from, among other things, the in-house produced e-motors, taking us then to the 9% BEV profitability in the quarter compared to 3% in the second quarter. So also there a positive underlying trajectory. On liquidity, we are at a very solid liquidity level at the end of Q3, 70 billion, including undrawn credit facilities. We have a positive free cash flow in the third quarter. We will continue to have so in the fourth quarter, and this really caters for us being able to continue to deliver on our transformation and our upcoming investments. So with that, I'll leave back to you, Jim, for the summary.