AB Volvo (publ)

welcome to the volvo group second quarter report today we'll do as always we'll listen to the presentation from our ceo and cfo martin and mats and then follow up with a q a session so with that i hand over to you martin

Thank you, Johan, and also welcome from my side. So as we conclude now the second quarter of 2024, I would like to start by thanking all colleagues, business partners and of course customers for a continuous very good cooperation during this quarter as well. In very challenging conditions, a lot of moving parameters, close and trustful relations are more important than ever. So thanks for that. and also when it comes to the business side as expected and following the trend we have seen for a while now demand continued to normalize across many of volvo groups major markets during the second quarter but still despite lower sales we did see or volumes i should say we did see sales coming in on the same level as last year also with strong operating income and strong operating margin also posted a number of records when it comes to return on capital employed and earnings per share. Operationally as a company, we are continuing to focus on being extremely close to our customers. Of course, the service operation also continue to execute on price and commercial realization flexibility in our industrial system and continuous tight cost control. But we are also maneuvering from a position of strength. In times when transformation in different shapes and forms are more important than ever, we are continuing to pursue also a very strong agenda, a strong investment and activity agenda when it comes to research and development, launches of new products and services, not at least also during this quarter. as well as digitalization as some examples. And that is of course to execute here and now, but also to make sure that we are competitive for the future. So if we summarize a number of the highlights for quarter one, starting then with sales on par with last year at 140 billion SEK. Adjusted operating income of 19.4 billion with a margin of almost 14% at 13.9%. Operating cash flow was 9.1 billion SEK in quarter two, which brought also the financial position in our industrial operation to a level of 59.3 billion SEK, almost on par with last year. We also, as I said, posted two records, a return on capital employed exceeded 40% for industrial operations, increased to 41.3%. And also when it comes to earnings per share, that rose to 7.65%. So all in all, we summarize another strong result. And again, I would like to thank everyone involved for the achievements. Then when we go to volumes, on the back of the normalized demand, our truck deliveries softened by 8% to 58,900 vehicles. And we are continuing to adapt our operations to the normalized demands in steps. And you will hear us talk more about that today, both me and Mats here. Also, construction equipment deliveries continued to normalize and softened 10% with Europe and North America down, while China showed signs of bottoming out now after rather major corrections over the last quarters and years here. So for both trucks and VC, it was a good job done, continue to work with the flexibility tools that we have in the group and to gradually and firmly adjust to the different demands in different regions. Electrification. Underlying electric demand is slowing down currently, and the switch over to zero emission transport is still driven by early adopters. In quarter one, booked orders were down 16%, one six percent, compared to last year. but we regard this as mid or short term temporary mainly related to uncertainty in the general economy interest rates incentives but also when it comes to energy prices and infrastructure availability and those components must continue to come together in order to to really ramp up here Deliveries on the other hand increased with 52%, but the broad adoption at scale will happen when enabling conditions are coming in place in a broader sense. We now have equipment available when it comes to the machines, when it comes to the comes to the trucks when it comes to the buses. But customers are still a bit hesitant before they know how exactly, for example, TCO will play out in relation to current powertrains in relation to the to the future powertrains but also and maybe more and more important also infrastructure availability both availability of different charging stations but also when it comes to grid capacity and energy availability But with that said, we are first out in our core markets and pushing the envelope here. Seven out of ten trucks in Europe are coming from the Volvo Group, still from low levels, but we are building a lot of knowledge. We are building a lot of relations with our customers. But we will continue also to be clear for society and the ecosystem as a whole that this is a coordinated effort to make it happen. And even if there is a short-term hesitation, we all know, both from a business perspective, but also from a societal perspective, that we need to deliver on these targets in order to be truly sustainable moving forward. Coming to the sales figures and then starting with equipment sales, on the back of continuing price carryover from 2023, vehicle sales remained at high level in Q2. Group vehicle sales excluding currency was down with 2%. Truck sales growing with 2% despite the lower volumes. Construction equipment down 19% primarily due to lower volumes in Europe and North America. Volvo buses, higher deliveries at higher value, gave a vehicle growth of 22%. And Penta had lower sales, minus 7%, and especially in the marine segment. We continue also our focus to grow services and had a 5% growth year over year for the second quarter adjusted for currency. Rolling 12 months, service sales exceeded 130 billion SEK. All business areas are growing during the quarter, mainly driven by improved commercial conditions. Efforts to increase service contract penetration and other services are also paying off step by step. Specifically in this quarter, the solid service growth for buses was mainly driven by more coach activities and VFS service growth was supported by the higher interest rates and a continued good penetration. When it comes to group news, Volvo Group and Daimler Truck, we share this ambition to lead now the transformation and implementation of software-defined heavy-duty commercial vehicles, which will enhance customer efficiency, customer experience, and also enable a more swift and solid transition into sustainable solutions. And building from that, Volvo and Daimler announced during the quarter the intention to form a joint venture for software-defined vehicle platform. Of course, still subject to necessary approvals from authorities. And just after the end of the second quarter on July 2nd, the divestment of Arcus to John Cockerill of Belgium was completed. And this was another step of pruning the Volvo Group's business portfolio and at the same time giving Arcus and the colleagues of Arcus a good home for their future development. And we thank all of them for a great job done within the Volvo Group. When it comes to truck news, we are also, in order to complete our roadmap for fossil-free solutions when it comes to powertrains, developing hydrogen-powered combustion engine trucks. As can be seen in this picture, you see part of the execution and not the details with injectors, etc. But on-road tests with trucks with using hydrogen for combustion will start in 2026 and we intend then to have a commercial launch at the end of this decade. And to further support this development, the joint venture together with the Westport Fuel System and Volvo Group is now operational. Also, Renault Trucks is moving ahead, decarbonizing its intrafactory logistics. The first stage involves the electrification of transport between their Bourg-en-Bresse and Lyon facilities. And in the quarter, the strategic alliance with Isuzu Motors took another important step when Volvo and Isuzu agreed to leverage Volvo technology also into Isuzu branded, and not only, if I may say so, Audi branded products in the coming years. When it comes to market forecast, starting in North America, we are reiterating our forecast from last quarter for this year, 290,000 units, and that is a correction of approximately 12% in relation to 2023. For Europe, we are also reiterating the correction, but we are making a small adjustment upwards to 290,000. from 280 000 that we had as a forecast in last in conjunction with quarter one and that means that we see a correction of around 15 percent in relation to 2023. Brazil slightly upwards, another correction upwards with 5%, up to 100,000 total market. India unchanged, but we are also correcting China downwards with another 50,000 units down to 750,000. When it comes to book-to-bill globally, and this is medium and heavy duty trucks, since that is more the complete value chain that we are sitting on, book-to-bill improved to 87% as the European manufacturing system was further and swiftly adjusted during the second quarter. Book-to-bill 12 months rolling was 84%. And the total heavy-duty order intake for the quarter improved with 11% year-over-year, and in Europe, book-to-bill for medium and heavy-duty was 87%, same as the global figure. In North America, we have mainly delivered out from the big order backlog that we have had, so book-to-bill was weak, even though the orders were improving year-over-year with 12%, mainly that related to MAC. We did see a continued good momentum in South America with a book-to-bill of 142%, and Asia was in good balance in the quarter. Then when it comes to truck market shares, and we can start in Europe, Volvo and Renault are on a combined level of the total market of 26%, and at 72% on battery electric vehicles. And in North America, the two brands, Mac and Volvo, have rebounded and had a combined market share of 17.6% for the first six months. Good performance in Brazil, market share of almost 23%, and the same goes for Australia with a combined market share for Volvo and Mac of 26%. Then moving into construction equipment, a lot of big news also here during the quarter, showing that we are, of course, forward leaning when it comes to the introduction of new products and services. As a matter of fact, Volvo CE unveiled during what they call the Volvo Days, well attended with customers and media in SC Stuna. biggest product renewal launch ever during this well attended event. And what you can see on the slide here is also the 12 ton wheel loader, fully electric. And you can also below see a full lineup of a lot of different news. For example, among the news, a complete range of excavators between 14 and 50 tons. were launched and also we are continuing to invest in vce for the preparation of a different type of powertrains in draws for example investments are ongoing to host different type of technologies Market forecast wise, slight adjustments. I mean, the continuous normalization and correction in our main markets are more or less on the expected levels as we already communicated in quarter one. But we are making two corrections. We are taking down Europe to minus 20% in relation to 23 as midpoint. And that is correction down with five percentage points. And the same goes for Europe. Latin America or South America where we are now expecting a flat market in relation to 2023 and also there it's a correction down with five percentage points for in relation to quarter one forecast. For book-to-bill orders and deliveries, the overall book-to-bill of VC was 89% in quarter one and 87% 12-month rolling. In Europe, we had a book-to-bill of 65% and we have been adjusting pretty heavy downwards there now. Dealer inventories need further reduction and hence we have reduced production accordingly and work with flexibility tools to balance with the order intake. And in North America book to bill is 75% as the market is also softening but from high levels. Dealer inventories are somewhat elevated both in Europe and in Latin America and we are having a very close watch on that obviously. But we are also showing with the flexibility tools that we can manage that in a good way. In South America, book-to-bill was down to 73%, but it should seen also on the back of a very strong first quarter. If you look at the 12 months ruling, it is in good balance, 96%. And that goes also for Asia, Africa and Oceania that were on basically 100%. Volvo Buses, strong quarter, strong structural improvements. If we start with the news, buses continue to introduce new smart safety systems which support the drivers and bring also more safety features for other surrounding people, not at least vulnerable road users, so a very important element for passenger transport. And the restructuring program and the introduction of a modified and partly new business model in Europe is progressing well and supports the structurally improved profitability for Volvo buses moving forward. Book to bill was 84% in the quarter and 93% 12 months rolling. Here it should be said that the order book is really full and Volvo Buses for the time being selective in placing orders since the order book is full for the year. Penta then. On the news side, a lot of interesting development. Maybe some of you did see the film just before the press conference started here. We have developed a fully electrified rural tractor, of course, in application with high potential. in partnership with the Belgian company MOL and the first unit is now operational in the DFD's terminals in Ghent. Good feedback there. In addition, and also related to applications where electrification is well suited, has retrofitted also a conventional crew vessel on the marine side with fully electric propulsion system installed with the inboard performance system, the so-called IPS system. And this is the first ever Volvo Penta IPS powered 100% by batteries and with no onboard diesel generators. And that is a really robust, sustainable and energy efficient solution. Book to bill 76% in the quarter and 84% for 12 month ruling and also here we are adapting our capacity as customers and especially in marine are destocking on the back of softer demand. Finally, when it comes to business update, VFS, Volvo Financial Services, good portfolio growth across most markets. The increase in the overall portfolio is related both to growth in the retail as well as in the dealer portfolios. Penetration level were good in competitive marketplace. The 12-month rolling penetration was 28% end of June. And VFS had stable performance and good earnings. The portfolio performance continued to be on an overall good level, although a return to more average business cycle conditions and behaviors are visible.

So that is the business update, Johan, and I leave back the word to you. Thank you, Martin, for the business update. Then we will start to take a look at the financial update from our CFO, Mats.

Thank you, Johan. Before getting into all the details, maybe a brief summary and a couple of highlights on the second quarter. Overall, we continue to have a strong financial performance. Operating income and margin were on a high level, and this is despite the lower volumes we see mainly in Europe. Operating cash flow in industrial operations was strong, and we marked new records for return on capital employed being above 41%, and our earnings per share being at 7.65 SIC, a quite strong number. While we keep investing in transformation activities, we got a good balance in our performance as well. Price realization, mainly driven by price carryovers from 2023, offset the underlying cost inflation and was together with increased productivity key to deliver an all-time high gross income margin for a quarter at 28.5%. We expanded our service sales and for the first time reaching 33 billion SEK in a quarter. And we continue to address production capacity and cost levels to balance the normalizing demand in Europe. Our trucks industrial system in Europe is now balanced with the current demand. We also continue to work on our inventory levels. Second quarter showed a slight buildup of inventories, but comparing to last year, we had almost $4 billion less inventory buildup. Focus going forward will be to reduce the overall inventory levels in the second half of the year with positive impact on the group's cash flow. And in parallel, as Martin mentioned, we continue to invest in our future and to execute on the transformation agenda. So all in all, another strong quarter with a high activity level. Looking into some details then and starting with the net sales. Adjusted for currency movements, net sales were on the same level as second quarter last year. We keep seeing a weakening demand in Europe, with sales down almost 5% FX adjusted. The decrease is driven by lower volumes, mainly in construction equipment, but also visible on trucks, however, to a lower extent. South America is showing a strong comeback after the downturn last year, mainly driven by group truck sales. And in Asia, we see some contraction in both trucks and machines. Moving to the adjusted operating income then. The adjusted operating income for the group was 19.4 billion SEK, with an adjusted operating margin of 13.9%. On gross income, we continued to be successful with price realisation both for vehicles and services, which together with a lower freight cost contributed positively to the improvements we saw year over year. This was, however, partly offset by lower volumes and negative brand and market mix within construction equipment. The general inflation and salary increases were negatively affecting the operating expenses. And we are also investing in the transformation to zero emission vehicles and autonomous vehicles. And this is reflected in higher activities and thereby increasing R&D and selling expenses. The net capitalization effect in the quarter was negative with some 600 million SEK compared to last year. The full year impact on current year is expected to be about 1 billion SEK positive from net capitalization. And that would represent a negative deviation versus last year of about 1 billion SEK. FX had a small positive impact of some 200 million SEK in the quarter. And we expect the effect from the transaction exposure to be neutral for the full year 24. And we don't give any guidance on the full FX effect on earnings. Moving over to the cash flow. We delivered a consistent and stable cash flow during the second quarter. While inventory went slightly up, the strong earnings were the main contributor to reach 9.1 billion SEK in operating cash flow. Thanks to the strong performance and our efficient balance sheet, the return on capital employed improved to 41.3% on a rolling 12-month basis. Net financial position remains solid at 59.3 billion SEK being impacted by the positive operating cash flow and by the dividend distribution of 36.6 billion SEK in the beginning of the quarter. Then looking at the different segments and starting with the trucks. The increased FX adjusted net sales for group trucks of 2% on lower volumes were driven by positive price effect and product mix. The high adjusted operating income and adjusted operating margin was mainly driven by price realization vehicles as well as service, lower freight cost and a positive product mix. This was achieved despite the lower volumes, especially in Europe, and the cost inflation. We also saw increasing investments in the transformation impacting the level of R&D, and FX was neutral in the second quarter. Moving over to construction equipment then. FX adjusted net sales decreased 16% due to lower volumes and negative brand and market mix. Adjusted operating income decreased with 1.5 billion to 3.9 billion SEK. Higher prices on both new vehicles and parts together with lower material costs and R&D expenses were offset by negative mix from more volumes in China and less volumes in North America and Europe. Adjusted operating income margin reached 15.9% and there was no impact on earnings from currencies. Moving down to buses. FX adjusted net sales increased with 19%, mainly driven by strong price realization and volume. Adjusted operating income increased with 335 million to 554 million, driven by price, volume, and market mix. Partly offset by supply disturbances, which had a negative impact. Adjusted operating income margin increased to 8.5%, representing a record level for a second quarter. Currencies had no material impact on the results. And then looking into Volvo Penta. Driven by lower volumes, FX adjusted net sales decreased 3% to 5.2 billion SEK. Adjusted operating income increased to 1 billion due to strong price realization and a positive product mix, slightly offset by the impact of reduced volumes and higher R&D expenses. Adjusted operating margin came in at 19.5% and there was no material FX impact in the quarter. And then last but not least, looking into financial services. The credit portfolio increased to 271 billion SEK with a rolling 12-month return on equity at 13.6%. Return on equity peaked in late 2021 and early 2022 due to the gradual release of the COVID reserves and the strong price realization achieved during the pandemic and is now starting to normalize to the target range of 12 to 15%. Customer financials and payment continue to be good, reflected in relatively low write-offs and credit provisions. Adjusted operating income increased to more than 1 billion SEK, and FX had a positive effect of 77 million SEK in the quarter. So with that, I'm handing back to Johan.

Thank you for that, Mats. So taking a holistic view, how would you like to summarize the second quarter, Martin?

I think most have been said already, but maybe to take a step back and talk a little bit about all the moving different parameters that we see. We have a correction in the market. We are following that smoothly. We are adjusting accordingly. We are showing that we have flexibility in the system. and often when we talk about a quarter we are talking in financial terms about carryovers and i mean what leverage do you have and utilizing a number of different But the reality is that the job needs to be done. And the job has been done in a fantastic way by our colleagues, but also by business partners. And we see that in the underlying business here, a strong gross margin, a strong flexibility, and not sacrificing the quality of the business while we are continuing to invest for the future, for sustainable solutions, safe solutions, knowing that infrastructure, transport, logistics will continue to increase.

Very well. Thank you. So we will very soon start with the Q&A session. But just before that, we will also remind you about the capital market that is coming up in November. So please reach out to us in Investor Relations so we can book you in. So with that, we move over to the Q&A session. We kindly ask you to try to limit yourself to one question. And first out today is Hampus Engelau from Handelsbanken. Please go ahead, Hampus.

Thank you very much. I would like to, if you could maybe talk a little bit about this Westport collaboration and hydrogen in combustion engines. In terms of cost for this product, If you would compare it with fuel cell trucks, which I presume would be quite expensive, is this more a price attractive alternative? And if you would compare that to a normal combustion engine truck. And then if you could just give a comment on when you would reduce run rate in North America, or if that has already happened. Thanks. That's one and a half questions, sorry.

Thank you Hampus for those questions and a little bit coming back then to Johan, maybe also to have that as a cliffhanger. I think we will go more into depth regarding your first question in November than when we have the Capital Markets Day. So that is also, I think, giving a certain level of attractiveness to attend. But having said that, I should say, generally speaking, you are right, but you need to look into the complete, so to speak, TCO equation and also revenue equation. And that's the reason why we all the time in Volvo has been very clear that the future transformation will consist of a number of different technologies running in parallel. And when we have talked about the combustion engine technologies, we have always been clear that that will be a part of this equation together with the fuel cell electric and battery electric. And the reason for that is obviously that depending on application, depending on geography and depending on legal requirements, not at least in cities where it's not only about the CO2 reduction, but also about particulates and NOx reductions, etc. We will need to have that portfolio to comply and to cope with it. The smart piece is that we really can utilize, so to speak, the modular setup for trucks, but then leverage that also for buses, for construction equipment, and also for our business partners, as we see now, for example, providing components to Isuzu Group, etc. So the question is rather broad because the answer on price points, cost points will depend very much on applications. The name of the game to reach that is to have a technology that is scalable while still flexible and that you can actually combine that in the industrial system and there we have the right type of formula but more on those details but it will be an important component Because the Westport joint venture is both about future hydrogen, but it's also a very important component already today when it comes to liquefied natural gas, but even more important for the mitigation activities, liquefied biogas, where we have a very competitive and fuel efficient solution for long haul already today. Then when it comes to US, we have, as you have also maybe noticed, seen a good development when it comes to our market shares in quarter two. We have a strong offering and we have been limited by our own industrial capabilities over 23 and into quarter one. But as we have seen for Europe, we will be very clear on adapting according to the demand and swiftly doing so when it's required but we have not done any bigger changes so far but when that will be required and that is of course a balance with the current demand going forward and how we will look into 2025 given also that we know that in 27, we have a new legal requirement coming in. So being very close to that, as we have been doing in Europe, is the name of the game.

Thank you. Very well. Thank you for that. Then we move over to Jefferies and Michael Aspinall. Please go ahead, Michael.

Thanks. Good morning, Matt and Johan. Just one on custom utilization. You mentioned that it's at good levels. Could you just give us a bit more color there, maybe what you're seeing as the year progresses in Europe or any other details you can provide on how your truck customer's operating environment is evolving?

Yes, we have said and I also said it in some interviews here that still we feel that utilization level is holding up well. Of course what we see is certain corrections in certain segments and that is really related to also how does a consumption pattern look like and how does industrial pattern looks like for different sectors. But generally speaking, we feel that the utilization level is holding up. There is a certain drop over a couple of percentage points, but no drama. Then obviously, how will that play out now a little bit longer will also, of course, relate to the common track demand, but no dramatic changes to what we've seen before. I don't know if you would like to add something on that.

No, I think well on, Stig.

Good. Then we move over to ABG. Please go ahead, Olof Skadron.

Thank you very much and good morning, everyone. I'd like to talk a little bit about the backlog versus new orders. How should we think about the lead times now in trucks and construction equipment in particular? Is there any support from backlogs in these businesses when we go into the second half of the year? Or is the Q2 order intake the basis for volumes in the second half?

If I start then, as we already said in quarter one, we are starting to see now that we are coming back to more normalized order levels. And that's the reason also what we have been clear for, not at least in Europe, that we have been adapting step by step, starting at the end of last year and then in a number of steps in quarter one and quarter two. In relation to the Q1 report, we said that we should be in balance during Q2, and we are that also now for Europe. So you can say normal lead times when it comes to the order backlog, with maybe then the exception of Latin America, where we had a very good order intake and that the order backlog had built up and we are adjusting upwards. And the same goes also for MAC in North America, where we still have a prolonged order backlog, given the fact that they are positively exposed to segments that are still running very strong, and also still some, so to speak, carryover effects on the backlog related to the strike that we had during the fall. but generally in good balance and now it is so to speak the handcraft of adapting to the current demand and you see that also in the book to build on heavy duty medium duty that it's coming up and we are getting to that balance I don't know maybe to stress a little bit looking at Europe and the situation in Europe with the normalized lead times that you talked about and

And relating that to the capacity and the capacity utilization internally as well. I mean, we started the adjustments in Europe already in November, and then we have done it gradually throughout the first quarter and becoming in balance then in the second quarter. So we are kind of fully balanced. balance when it comes to the capacity and the demand situation, which I think is good. And I think it's also kind of due to the good deliveries we had already in the fourth quarter in Europe, giving us the visibility then to take quick actions and not having this kind of long order stock. So I think the organization have managed that in a great way.

Very good. Thank you.

Thank you, Olof. Thank you, Olof. We move over to Citibank and Claes Berglund. Please go ahead, Claes.

Thank you. Hi, Martin and Mats, Claes at Citibank. I have a couple of questions. My first one is on discounting on fleet orders. We're hearing that this is increasing. Obviously, we can't see this in the ASP in the P&L today, but given short lead times now, this could perhaps weigh on pricing. here into the second half, maybe even into the third quarter. Would you say, Martin, that the discounting towards fleets are increasing now versus what you saw early in the year? Thank you.

I mean and Mats I think you can compliment as well later on but I should not call it discounting because I mean in that regard is more about I mean how can mix evolve temporarily between different quarters depending on who are in the market quarter by quarter But in my book and what we see now, it's not the discounting, it's more in that case, so to speak, a customer mix effect. And that might be a little bit more visible given the fact that the fleets are more recurrent, more planning when it comes to their replacement and their cycles than smaller customers are. But still, we feel that we are well positioned when it comes to the pricing. It's easy to talk about price carryover. But as I said in the summary, the job needs to be done. So if you have, so to speak, orders normalizing, means that what we are producing during the fall are orders taken during the spring. So the job needs to be done and our commercial organization is doing a great job here.

No, exactly. That's my point. Obviously, it's all about pricing now on orders first and second quarter that you will obviously deliver on in the second half. Just a very, very quick one. This is my half question. I promise to be quick. On the track margin, the JV and Dongfeng are still tough in China while your net capitalization looking at R&D came in lower than I thought. But You also had higher inventories. Did that boost the truck margin much? Did you in any way run production higher, or was this just a volume effect? I mean, typically it is summer effect ahead of the shutdowns, et cetera. Or was it just pure volume, trying to understand the inventory effect on EBIT, if any?

No, I don't. I mean, you can't really say that we have an inventory built up that is driving some kind of overabsorption. I wouldn't say so. And I mean, just looking year over year, as I mentioned, I mean, we had kind of a less stock built up year over year with almost 4 billion SEK. So from kind of an inventory point of view, I think it's a good prediction. we have managed it in a good way and the built up has been more on the kind of work in progress side rather than than finished units done so i wouldn't say that we have any help from from kind of stock built up when it comes to the margin no okay very clear thank you thank you for that and we move over to paris the bmp and miguel borrega please go el miguel hi good morning everyone thanks for taking my questions

The first one, just on order intake, maybe can you explain what happened in Renault European Light 2T with orders down 70% year-on-year? Is that market-related or something internally? And then maybe a follow-up to that, can you help us understand how we should think about the current run rate of orders and delivers into the second half. I think it's well understood that the European market is slower. But do you think there's an element of price to it? In other words, do you think if you cut prices a little bit, it would help orders to pick up? Or should we wait it out until the market recovers? That's my first question.

Thank you, Miguel. I mean, when it comes to light commercial vehicles and the light duty segment for Renault, then it's fully, I should say, related to the fact that we have a model shift together with the Renault SA when it comes to our master model, you can say. And thereby, we are hesitant in order to make sure that we have the right balance with the phase in and the phase out. So it is not market related, but it's related to the shift of models, basically. And that's the reason also why we in the book to build wanted to be clear that we showed, so to speak, the medium and heavy duty. I think... uh from from a market perspective right now a 290 000 market is still a good market we have had strong markets obviously both related to catch up and also to the cycle in general now that is correcting downwards to somewhat 290 000 i don't think that any type of price support will substantially help that because the market is as we see it now in rather good balance so it's about really making sure that we are maintaining a good commercial discipline that we are providing value we are now also introducing a new models as we speak the volvo aero for example in europe that would provide further value uh we have done that rather recently for renewals in europe etc so we need continue to work with the value in this market but to to try to gain volumes from from commercial reductions is is not in the cards that's very clear thank you thank you yes i think we move over to to nordea and agneska please go ahead

Perfect, thank you and good morning. So I have a question regarding North America. Just looking what you did in Europe, you did quite good balancing job when it comes to production adoption to the volumes. What is your planning now for North America trucks given that we see close to record high truck inventories in the market and production so far has been running quite high? So my question is, do we need to see a significant production cut in order to balance the market?

Thank you Agnieszka. As we said, we will of course apply the same strategy as we have done in Europe. Being very close to our dealers, to our customers and look to your point about inventory levels. I don't think we can answer that generically because it depends very much on the segments we talk about. And when it comes to long haul and regional haul, there have been, so to speak, correction also in utilization, etc. We see that on spot rates. So here we need to be cautious. And make sure that we are following the market. And then I should say primarily also for the Volvo brand. For Mac it is different as I said. We have an order, solid order backlog that is more or less covering the full year and partly into next year. Here we need to continue to execute given the fact that they are serving markets that are still doing well in terms of infra, road building, energy markets etc. I don't know if anything more to add.

No, I mean, just like you say, Martin, it's a little bit of a different story with North America comparing to Europe as we are kind of getting into 2024 with some kind of supply chain issues in North America that we didn't have had in Europe with the strike late 23 and so forth. And also with a very long order book when it comes to Mac. But we are for sure kind of monitoring it, but it is a different dynamic in North America with the new products and when we are aiming for market shares as well and we're aiming for volumes in North America. But we are monitoring it in the same way as we are doing in Europe, but we are still not there, so to speak.

I have to say we are super excited about it also because as we speak now, we are just about introduction of the all new VNL. It's a fantastic range of products for Volvo in the hauling segments with a very good reception. So the race is on.

And just maybe a short follow-up. When do you expect the pre-buy orders start to realize ahead of the new legislation?

Difficult to say. Obviously, a little bit also related to the sentiment in the general market, because the better the sentiment, I think the more forward-leaning customers will be in planning. So if we will see a little bit of development now on interest rates, etc., That might be a little bit earlier in that case because then the market tend to be more forward leaning and want to plan a little bit ahead because they know that it will be a certain hedging situation at one point in time. Agnieszka, I think the name of the game here is again flexibility. Be very close, not over optimistic, but not over cautious, but be able to move quickly when you have the right signs.

Perfect. Thank you. Good. We move over to Bank of America, Virginia Mondozori.

Good morning. Thank you for taking my question. I had a quick one on R&D. Could you help us understand how to think about R&D development for the second half of the year, particularly for trucks and construction equipment? And apologies if I missed it, but could you clarify your comments on the R&D impact on the group EBIT Bridge that you made in the presentation?

I guess probably it's the net capitalization when it comes to the R&D that you are alluding to, Dan. And we had year over year a negative effect of 600 million, Dan, from net capitalization. And what we foresee for the full year is a year over year effect of 1 billion, Dan. So we will have lower capitalization this year, which is kind of hitting the P&L. But in terms of the gross R&D, that's kind of a different story. But we have a negative impact from the net capitalization, yes.

But I think the good news here, and thank you for that question, I think it's an important one, is of course also that we see that we have a very good underlying quality in the business. And that's the reason why we don't want to have a type of stop and go situation for R&D. We have a great pipeline and we want to continue to pursue that. So to Matt's point, Given the situation where we are now, we are, of course, monitoring if something should further, so to speak, be corrected in the marketplace. But given the situation we are now, we find that responsible, executing here and now and investing for the future. And it's not massively excessive. We are at 6% R&D level, including this net effect. So I think that is a good way of looking at it.

Thank you very much, O'Clear.

Thank you. We move over to JP Morgan, Jose Asamendi. Please go ahead, Jose.

Very good morning. Just one question, please. Do you think order intake in Europe on heavy duty is stabilizing now in the second quarter? We should expect an uptick now as we go into the second half of the year. And do you think you have done enough cuts on the blue collar, and hence you have already stabilized your industrial footprint to the lower levels? Thank you.

Thank you, José. When it comes to Europe, we see ourselves being in balance now during the second quarter, including, so to speak, the industrial part, as you alluded to, blue-collar or the complete, so to speak, ecosystem there. Of course, we have further flexibility tools if needed, but as we can see it now, we are in balance. So I think that is the short answer, basically. And then when it comes to, we are of course not guiding beyond what we are saying, but that is following, of course, the planning that we have over 290,000 market for Europe.

And maybe to add on that, I mean, we have done the capacity kind of adjustments, and I mean, that's done. We are in par with the demand. But I think what is also important to stress, and especially when we're coming from a year that 2023 with kind of abnormal volumes is that, I mean, now the name of the game is continuous improvement and to work daily with issues. It might not be as exciting as talking about the big adjustments, but that is very high kind of priority in the organization as well.

Thank you. We move to Daniela Costas at Goldman Sachs. Please go ahead, Daniela.

Hi, good morning. I have two questions, if it is possible. One is regarding buzz margins and how do you view the sustainability of these margins? You've done a lot of changes on the model on buzzes, so I'm interested on that. And then if I have time, I want to ask one other thing.

I mean very briefly on that obviously we had a good quarter when it comes to I mean volume improvements and also product mix coach activities but we also see that buses and the whole organization in and around buses they have done a great job and we see an underlying structural improvement of that obviously not at least when it comes to the drag that we have had in Europe with the previous business model and when we are moving into a business model that contains much more flexibility in terms of partnerships and ways of working. So positive development and we have expectations that that will of course continue to structurally improve.

I don't know if you would like to... Yeah, I mean, we are looking at sustainable kind of improvements then, because, I mean, we have done the restructuring and we are kind of benefiting from that in Europe right now. So the expectations is to be sustainable when it comes to improvements, yes.

And maybe just to add on that, that is not visible in bus segment is also on the NOVA piece that is sitting in group and others, NOVA bus of Canada and North America, where we are also pursuing the same type of activities, right?

Got it. Thank you. And then just given all the discussion at the moment regarding potential U.S. tariffs to anything coming into the U.S. from anywhere else, can you talk on your production system in the U.S.? Are you bringing any components from Europe or from elsewhere? And how would you deal with this, if so?

Of course, I mean, we have a global production system, so some components are coming in from outside, and that doesn't go only for us, but because when it comes to some specific components, it's not just available in that system. But having said that, we are continuing to invest even further in our regional value chain when it comes to North America. We are at the time now pursuing the biggest investment program ever for North America in the group. And we have seen a part of that result now with the launch for the all new VNL for Volvo Trucks that contains also further strengthening of the regional value chain. And on top of that, of course, we have the majority of our production in the United States in itself. that is also further so to speak guarantee so so i think we are well positioned but but of course we are watching that closely thank you thank you daniela we move over to deutsche bank and nicolai kemp We don't hear you, actually.

Oh, hey. Thank you. I know the European market is quite fragmented, and so sometimes it's a bit more tough to forecast. But what are the key drivers here for your uplift? Is it country mix, is it segments? Can you just give a bit more color on that? Thank you.

I think of course it is a built up of the different type of components that you're alluding to but maybe even more at this point in time that we've had so to speak a strong start of 24 when it comes to registrations in Europe and we don't see with that strong start that the market should be equally weak in order to compensate for that strong start so that is the main reason for for the uplift, actually. Then again, of course, it's consisting of the different components that you said, but if you take on a more overall view, that is the main dynamics.

Thank you. Thank you, Nicolai. We move over to Stockholm and Björn Enarsson at Danske Bank. Please go ahead, Björn.

Thank you. I just have a question on battery investments. I mean, over the years you have had quite a few announcements and you have some big plans ahead. Where are you on those? If needed, can you stop some of these plans or are all of them live and running, et cetera?

Thank you for that question. Very important, obviously. The whole setup in that sense is, of course, built of a mix of captive, if I may say so, internal investments, but also external partnerships in order to keep flexibility. and so that is a continuous work we are doing with our key partners on how do we make sure that we contain the flexibility because we are still convinced that for certain segments this will take off to a much higher extent than we've seen so far but flexibility is the name of the game so for us that we have the mixed model assembly that we have flexible contracts that we have a visibility together And that we also have other downstream opportunities, for example, for batteries, very important with Penta and Volvo Energy, for example. Then when it comes to our own investments, we have already from the start said that we should do this step by step. and thereby not doing, so to speak, big investments. And that goes for the cell production, it goes for the module and pack production. So that will also be mitigated following, so to speak, the demand built up, but also what we are sitting in terms of opportunities together with our partners. So it's a flexibility toolbox also in that area.

It's important to conclude that the potential quite big investments captive then for cell production is that's an opportunity depending on where the market ends up and also where it's possible to use external partners instead of suppliers.

Again, as we have in other areas already today, historically, for example, on powertrain, we have had a mix of captive and non-captive. It is the same here. So we will, of course, look at the holistic view. And when it comes to our long-term captive investment, we will not make them to have... a negative backpack without feeling sure that that capacity is needed over time. So here I think we have an advantage in relation to others that are more a pure play, obviously, that we can take it step by step.

Thank you. Clear. Thank you, Björn. We continue in Stockholm with Erik Goldrang. Please go ahead, Erik.

Thank you. I have a question on your growth ambitions in North America and Actually, the new VNL and the new plant is a big part of that. You want to drive share. Plenty of others also want to do that, and the concern is then that it happens on the expense of pricing. Could you say something about how the new VNL is priced compared to the outgoing version, and also in terms of the impact on sort of near-term order intake from that? Is there a negative impact or a positive impact from the recent launches? What's the dynamics there?

Thank you Erik. I mean generally speaking of course we have ambitions otherwise I mean we should not have invested that amount in North America. I think we are in that sense maneuvering from a good position since we are Still relatively small in relation to some others when you look at the market share now. The introduction of the all-new VNL and also further investments will bring good opportunities. The all-new VNL is a considerable uptick when it comes to productivity for the customers and that will be of course, priced and commercialized accordingly. So I will not give the exact figure there, but it is, so to speak, of course, value-based pricing based on the extended performance. We have conducted big activities now during this quarter, not at least since mid-May, with both customers and dealers, et cetera, and very good reception. Dan, I don't know if you would like to comment something in the short run regarding launch,

No, and I mean, when it comes to pricing, I mean, this is an opportunity when it comes to more kind of value-based pricing, charging for the kind of the improvements we have in the new models and new features as well. But I think if looking at the kind of expectations on that, I mean, it will kind of start late 2024. So this is from a kind of a pricing and a value pricing point of view, more a question for 2025 when we are fully up and running.

But I mean, we will not aggressively drive market share. We will do that thanks to the fact that we have a very strong offering. And recently, we have been short of market capacity due to the fact that we didn't have the value chain capabilities as others. But we are taking step by step and we'll do that with quality and not with quantity.

Very good. And more about that when we meet in North America in November. So, conscious of time, thank you for all the good questions. And with that, we thank you for today. And all material is available on our homepage. So, see you next quarter. And wish you a great summer. Thank you.