AB Volvo (publ)

good morning and welcome to this second quarter presentation uh today we'll cover the second quarter of the volvo group and we will do as always we'll listen to the our ceo martin lunstedt followed by our cfo matt spackman and then follow up with the q a session so without further ado i hand over to you martin

Thank you, Johan, for that introduction and also welcome from my side. And to start with, this second quarter has been characterized by a general stabilization in European markets and more of uncertainty and wait-and-see mood among customers in North America. We did see a solid performance with an adjusted operating margin of 11%. The societal transformation, not at least in Europe, to zero-emission solutions is slower than anticipated and therefore also one of costs have had a negative impact on the reported operating income. Across the group, we have continued to prioritize a high quality in the business by focusing on our customer deliveries and service operation. We did see good service activity levels, but also volume flexibility in the industrial system, tight cost control combined with commercial discipline and price management. We've had a good traction to adapt cost while we at the same time are maintaining high priority on innovation and technology. But also in these areas, we are now gradually adjusting for the right timing in relation to the speed of the transformation. Specifically for volume flexibility, we are in good balance for almost all markets. The only exceptions are group trucks in North America and partly South America, where we continue to have more cost related to specific situations. Firstly, there is a wait-and-see mood among customers in North America to place orders given the current uncertainties. We are therefore continuing to adjust production levels for group trucks in North America to minimize the under-absorption in production going forward, and that work is ongoing in good pace here. And that goes also that we have done for South America. Secondly, the continuous ramp up of the all new on road ranges for both Volvo and Mack, where extra resources still have been needed. That said, the ramp up costs have continued to improve during the course of the second quarter, as we also did see in quarter one. But even if the situation in Group Trucks North America affected the global trucks margin negatively yet another quarter, we have high ambitions for North America and our customers over there. And it's important that we continue to build a strong platform for the future. Another good proof point in that regard was the launch of Mac's all-new Anthem regional hall models following already introduced at the Q3 and Q4 last year Volvo VNL and also this year the Volvo VNR and the Mac Pioneer. So moving forward in these turbulent times for global trade, we focus on activities that we can influence ourselves. Here and now, we'll continue to build on our strong regional value chains combined with global capabilities to mitigate the effects from tariffs and other uncertainties. And in times of uncertainty, it is also essential to take a step back. And it's motivating to know that transport logistics will remain exciting growth opportunities for many years to come. In addition, we start also to see and feel how the emerging investments in defense and infrastructure, for example in Europe, will further enhance growth opportunities. So as we conclude the second quarter of 2025 with strong resilience and solid margins, a big thanks to customers, business partners, and of course, to colleagues. If we then summarize the quarter in figures, net sales declined to 123 billion on the back of lower truck volumes. It was a year-over-year drop of 12% and minus 5% when adjusting for currency. Regardless, we delivered a solid result with an adjusted operating income of 13.5 billion SEK and an operating margin of 11%. Cash flow amounted to 2.9 billion, which resulted in a net cash position in industrial operations of 43.1 billion. Return on capital employed in industrial operations was at 25.7%, rolling 12. And earnings per share was 3.64 krona. In the quarter, we also accounted for two one-timers which are excluded from the adjusted operating income. Firstly, as a result of the slower than previously anticipated societal transformation to zero emission vehicles, operating income includes impairment of battery electric assets and renegotiated battery volume commitments to Samsung with a total negative effect of close to 4.5 billion. Secondly, the creation of CoreTura, the software-defined vehicle platform joint venture, along with Daimler, resulted in a positive effect close to one billion SEK. So all in all, we summarize another solid result and quarter in turbulent times. When it comes to volume development, truck deliveries declined by 10% in the quarter, with lower volumes in North and South America, while deliveries of heavy-duty trucks in Europe were on the same level as last year. For construction equipment, deliveries increased by 11%. For the Volvo brand, it was flat year over year, while SDLG increased by 22%. When it comes to electrification, with different uncertainties related to the electrification, underlying demand has been slowing down, and the switch over to zero-emission transport is still driven by early adopters. Still, orders for fully electric vehicles increased with 59%, with increases across the business areas, and in particular for SDLG machines in China. But also truck orders increased with 53%. Deliveries increased with 26% and a mixed picture, minus 7% on trucks, while construction equipment was up 82%, driven primarily by STLG. In summary, despite the slowdown, we continue to push, which is, for example, reflected in our high market shares for medium and heavy-duty trucks, with almost 60% market share in the European market for the quarter, and for the first five months. However, as we and the industry have the products and solutions ready, it is more than overdue now for policymakers and other key stakeholders to push for other enabling conditions such as charging infrastructure and actions to stimulate demand. When it comes to vehicle and machine sales development, on the back of lower volumes, over sales of vehicle and machines declined 6% adjusted for currency. Truck sales declined 9% with mainly North and South America down. Construction equipment sales were up 2% and sales for buses were also up but with 1%. Volvo Penta sales were strong, and up 18% driven mainly by Jenset Engines in the industrial segment. The service business amounted to 126 billion 12 months rolling. That was flat adjusted for currency. But when also adjusting for the Arcus divestment, service sales did grow with 2%. And that is, of course, a sign of strength. All businesses are essentially flat to positive, while Penta is impacted by lower service sales in the marine leisure segment in the United States. The outcome for services is showing that our efforts in this area are paying off and provide, and more importantly, will further provide increased resilience in uncertain times. So all in all, a good and strong result from services. It was with great sadness that we on May 18th announced the passing of our CPO and dear colleague and friend, Andrea Foder, following a short illness. Andrea successfully led the global purchasing team through numerous challenges during her tenure. She was instrumental in driving the group's transition and increased resilience. Andrea is deeply missed, but her legacy will continue to be strong. Thank you, Andrea. During the quarter, Volvo Group and Daimler Truck launched the new company Cortura, setting a new industry standard for software-defined vehicles. Another positive news is that Volvo Groups and Implant in Skövde, Sweden, has been awarded up to 49 million euro from the European Union Innovation Fund to support the carbon smart factory project that we are currently doing in Skövde. This initiative aims to advance Volvo's transformation through net zero innovation and clean technology. Moving then into truck news, Mack Trucks continued their model changeover with the launch of their new regional haul truck, the all-new Mack Anthem. There are truly exciting times for Mack, with the first new Mack Pioneer launched in April, and now the all-new Mack Anthem. This provides a very strong lineup in the on-road segments, and Mack Trucks is geared up for profitable growth, not least in segments where we see clear growth opportunities. Volvo Autonomous Solutions has reached a major milestone in mining efficiency and productivity, successfully hauling over one million tons of limestone autonomously for customer Brønnhøykalk in Norway. And this achievement underscores the transformative impact of autonomous technology also in the mining and quarry segments, alongside also the hub-to-hub segments. When it comes to market forecast for Europe, our forecast for 2025 is unchanged at 290,000 units. Utilization of trucks is on good levels and the market is still replacement driven. Forecast also unchanged for North America at 275,000 units. The total market in 2025 will be supported by deliveries from dealer inventory that we see across brands, while production levels are more muted and we have gradually adjusted. In Brazil, forecast unchanged at 85,000 on the back of good activity level in both agriculture and mining segments, while increased interest rates dampen demand in other segments. The Indian heavy duty and medium duty market is expected to reach 360,000 units, and that is 20,000 lower than previous forecast. And we maintain the forecast of 710,000 units for the Chinese market for medium and heavy duty trucks. The overall book-to-bill for medium and heavy-duty trucks amounted to 89% in the quarter and 100% 12-month rolling. The European book-to-bill reached 94% with a strong production push in quarter two to cope with the good order levels in previous quarters. European demand is overall stable and we are now booking orders for quarter four as quarter three is essentially full for the European industrial system serving both Europe and international markets. Softer order levels in North America in the quarter led to a book-to-bill of 63%, as I said, also the wait-and-see mood. But continuous adjustments are gradually being done to balance between order production inventory levels and to take out the under-absorption. For South America, Africa, Oceania, and Asia, the book-to-bill ratios had had a healthy balance during the quarter. For market shares in Europe, Volvo and Renault Trucks continue to deliver strong market shares year-to-date May, with Volvo at 19.8% and Renault Trucks at 10.5%, giving north of a 30% combined market share. On the battery side, giving a total share, and despite more OEMs are now delivering battery electric solutions, Volvo and Renault Trucks delivered a strong 57.4% market share combined. In North America, Mack Trucks continue to deliver market share gains on their improved supply chain, and they are now at 7.2% year-to-date May. And Volvo Trucks have stabilized their changeover process into the new models and reached 7.6% year-to-date May. In Brazil, Volvo remains solid and market leader in Brazil with 23.3%. And Australia is transitioning from Euro 5 to Euro 6. And for now, Volvo and Mac are at 21% combined. We see that other actors are still selling Euro 5 from inventory, but expect a better second half in terms of market share when the whole market has transitioned into Euro 6. Volvo CE have, during the quarter, taken a number of significant steps in different fields. Number one, Volvo CE invests in crawler excavator production capabilities in South Korea to start with, where we have our center for heavy excavators, but also building new capabilities in Sweden and in the United States. We are thereby coming closer to customers, shortening our response and lead times to customer demand, and we are improving the resilience through a stronger regional value chain setup. During the quarter, Volvo Construction Equipment has also come to an agreement with Lantmännen to acquire Swecon's business, i.e. dealer operations in Sweden, Germany and the Baltics, and the acquisition moves Volvo CE closer to their customer in several of our key markets, thereby strengthening the service business and further enabling total solution sales. Closing of the transaction is anticipated in the second half of 2025. And also during the quarter, VCE signed a contract to sell its 70% ownership stake in China-based SDLG to a fund predominantly owned by the current minority owner Lingong Group. Going forward, Volvo CE will be targeting focused customer segments in China and enhance our strong footprint in utilization of the Chinese supplier ecosystem for China, but also to some extent for the rest of the world. When it comes to the market environment, rather undramatic in relation to previous forecast. Europe flat development versus 2024, that is an unchanged forecast. North America minus 10% as midpoint, also unchanged in relation to previous. We also guide for South America and Asia excluding China, flat development versus 24, also that is unchanged. And the only change we are doing is that government stimulus in China towards real estate driving demand primarily of compact machines and thereby increasing with five percentage points to a plus 10% midpoint market in relation to 2024. Overall, Volvo Construction is in balance when it comes to its book-to-bill, 19% in Q2 and 102% 12-month rolling. The European book-to-bill reached 100% in the quarter as European dealers are also gradually building up their inventories, especially excavators with long lead times. That is a sign also of a comeback here. The North American book-to-bill reached 95% in the quarter and 85% 12-month rolling. And the North American market is still in a destocking mood in the anticipation of a softer 2025 than previous year. And that is the minus 10% midpoint that we have guided for. South America, Africa, Oceania and Asia maintain a healthy balance in the quarter. Moving into Volvo buses, Prevost Buses in North America delivered the first bus to New York City's Metropolitan Transport Authority out of its plant in St. Clair, Canada. This marked the start of delivery of the largest contract in Prevost's history, including the firm order of 250 buses signed in December 23 for deliveries in 25 and 26. Volvo Buses also started the production of its first electric bi-articulated bus chassis. The Curitiba plant in Brazil will from now on be capable of exporting the electric chassis to BRT system worldwide. Book-to-bill reached 64% in the quarter, but this is more of a timing matter rather than a sign of slower markets, as Volvo buses had a very strong order level in quarter one and have good order coverage for the full year 2025. The 12-month book-to-bill is 97%. Volvo Penta, a very strong quarter and continues to push the boundaries of sustainable innovation. Now also in the marine IPS systems are available with fully electric propulsion. The aim is to electrify all five drivelines in the Volvo Penta IPS range, targeting power outputs from 220 kilowatt up to 1.1 megawatt per driveline. Book-to-bill continued to improve to 77% in Q1 and to 107% 12-month rolling. The good demand in the industrial segment continues, and especially for power generation, but now we also see that the marine business, and especially the commercial side, is starting to regain momentum. And financial services, the portfolio performance continued to be good, with customer delinquencies trending at average business cycle levels. Credit provisions increased slightly year over year with a reserve ratio at 1.33%, write-offs were stable compared to last year. During the quarter, the credit portfolio for financial services continued to grow, plus 5% adjusted for FX, and the new business volume reached 27.8 billion SEK, which is a record for a second quarter, equaling a 9% increase year-over-year adjusted for currency. And the 12-month rolling penetration reached 31% in quarter two, up by three percentage points versus last year. So by that, Johan, I leave the word to you.

Thank you, Martin, for your business update. We will now start to dig into the financial performance, and I leave the word to you, Mats.

Thank you, Johan. So let's look into the second quarter financials in a little bit more detail. I'm starting off with the GroupNet sales. Net sales decreased by 5% on a currency-adjusted basis compared to last year. Vehicle sales dropped by 6%, mainly due to lower volumes in trucks. Service sales increased by 2% adjusted for currency and Darcy's divestment. European volumes declined, but to a lower extent than in previous quarter, with sales coming down 5% adjusted for currency. And the decline is due to lower volumes in trucks, while the other BAs saw an increase in their revenues. In North America, sales experienced a significant decrease of 10% FX adjusted, mainly due to lower demand and market activity for trucks and construction equipment. In South America, net sales decreased by 9% FX adjusted comparing to last year, and this was mainly driven by trucks. In Asia, performance was positive and the net sales increased by 7% adjusted for currency, mainly driven by trucks and construction equipment. Other regions experienced declining sales in trucks and growing sales in construction equipment. Overall, FX was negative with more than 10 billion due to a general appreciation of the Swedish krona against other currencies. The main driver is the US dollar depreciating almost 10% versus SEC with a negative FX impact on sales of 3.4 billion. The depreciation of the Brazilian real and the euro also had a negative impact on net sales. The adjusted operating income for the group was 13.5 billion with an adjusted operating margin of 11%. In Q2, earnings were supported by lower operational expenses and the positive development of our service business. The financial performance was significantly impacted by the volume reduction in trucks and by unfavorable brand market and product mix in construction equipment. At group level, tariff absorption started to build in the quarter, but still with a limited impact on the results. Trucks faced under-absorption from lower demand in North America and South America. The net R&D capitalization effect in the quarter was positive at 700 million, with a year-over-year effect of 800 million. Guidance on net R&D capitalization for the full year 2025 is positive at approximately 3.5 billion, with a year-over-year effect of about 2.5 billion SEK. FX had a negative impact of 2.3 billion in the quarter, driven by the strengthening of the SEC. And given the current trend of strengthening SEC, we expect the FX for transaction exposure to be negative with about 4 billion for the full year. And we don't provide any guidance on the full FX effect on earnings. Operating income in the second quarter was affected by two one-time items with a negative net effect of 3.5 billion. Firstly, a negative effect of 4.5 billion related to the slower than previously anticipated transformation to zero emission vehicles. This includes compensation payments for renegotiated battery volume commitments of 2.9 billion with a negative cash flow impact of 1.9 billion SIC in the second quarter. The 4.5 also includes an impairment of battery electric assets of 1.6 billion. Secondly, a positive effect of 1 billion related to gain from divesting 50% of the shares in Cortura to Daimler Truck, where of 500 million impact on cash. In the second quarter, operating cash flow was impacted by high level of investments and the one-time items. Operating cash flow amounted to 2.9 billion SEK. While inventory and receivables went slightly up, the good earnings and favorable development of payables were the main contributor to the positive operating cash flow. Return on capital employed trend declined to 25.7% on a rolling 12-month basis. And the net financial position was impacted by the large dividend distributed in April, but remained solid at 43.1 billion, supported by the positive operating cash flow generation. The decreased FX adjusted net sales for group trucks of 7% was driven by lower volumes and slightly negative price effect on new vehicles. The lower adjusted operating income and adjusted operating margin were mainly driven by generally lower volumes, higher material costs, and some additional costs related to overcapacity in North and South America. Tariff absorption started to build in the quarter, but so far with limited impact on the result. Earnings resilience was maintained through good operational cost control and stronger service business. FX was a major contributor to the performance decline with a negative 1.4 billion SEK in the quarter. For construction equipment, FX adjusted net sales increased by 1%. Adjusted operating income decreased by $900 million to $3 billion. Material cost was positive in the quarter, but the negative mix from higher volumes in China continued during the second quarter. Terrorist absorption started to build in the quarter, but so far with limited impact on the results. The adjusted operating income margin reached 13.1%, and the FX was also significantly negative at 534 million SEK. For buses, FX adjusted net sales increased by 1%, driven by price realisation on vehicles and the service sales. Adjusted operating income decreased slightly, but remained solid at 474 million, and this was despite lower volumes. The result was supported by price realisation on both vehicles and parts. The adjusted operating income margin decreased to 7.9%, and currency impact was negative at 113 million. For Volvo Penta, FX adjusted net sales increased by 12% to 5.5 billion. Adjusted operating income was 1.1 billion, and this was actually an all-time high for a second quarter. And this was on the back of strong volume development. The adjusted operating margin reached 20.7%, also an all-time high for a second quarter. And this was despite the negative FX impact in the quarter at 237 million. And then financial services. Adjusted for currency, the credit portfolio increased by 5% to 264 billion, with a rolling 12-month return on equity at 11.7%. Portfolio performance continued to be good, with delinquencies and write-offs under control. The adjusted operating income amounted to 980 million, impacted by the increased credit provisions, but supported by the portfolio growth. Currency had a negative impact of 124 million compared to the second quarter 2024. So with that, I'm leaving for Martin to summarize.

Thank you, Mats. I turn to you, Martin. How would you wrap up and summarize the quarter?

I think we can keep it very short. I mean, despite uncertainties and turbulent times, despite them, as a consequence of that, also lower truck deliveries, it has been a quarter with solid earnings and solid resilience. So we continue to maneuver from a position of strength here.

Very good. Right. We're moving into the Q&A session and we will do as always. We ask you to stick to your most important questions because there are many banks on the line. So we make sure that we cover all the questions that needs to be clarified from them. And without further ado, we turn to Nordea and Agnieszka. Please go ahead, Agnieszka.

Perfect. Thank you so much and good morning to you. So I have two questions. First one, looking at the North American and trucks or the development for you, you are down by 16% year on year in the quarter and better than the overall market, minus 40%. So it suggests that you are maybe taking some market share. Could you give us some color on this development? Are the tariffs playing in here with you being maybe in a bit better position than your competitors or is it related to the product launches?

Yeah, thank you, Agnieszka. I think, first and foremost, we see that also in orders that we are taking, so to speak, share here. But what we can also say is, of course, that we had a slower start in the beginning of the year since we've had a significant changeover of model range for Volvo, to start with both the all-new VNL and all-new VNR. And now we are gradually, so to speak, coming through that. We have a great product range now ready for the market. At the same time, we were also rather early out starting to adjust because we did see that the market should correct both of cyclical reasons, but then of increased uncertainty. And thereby we have also had a situation with inventory levels under control, etc. And on the other side, also for Mac, then we have seen when the delivery, so to speak, issues that we've had for Mac has faded away, that we also have been gaining market share. so now we will continue to make sure that we are very close to the market adjusting accordingly that we also continue to keep price and commercial discipline because we have great products out in the marketplace here and continue to build on that on the tariff side i should argue it's too early to see the the total effects of that yet since you have for example, the USMCA situation still in play, etc. But generally speaking, I feel moving forward that we have a strong and solid platform to build for the future here.

Perfect. Thank you. And then the second one, you are exiting the kind of mass market C segment in China with the divestment of the SDLG brand. Can you tell us what is your strategy for the truck business in China? and your strategy for the JV with Dongfang. And also, could you give us an update on the Chinese competition within tracks in China and outside of China? Thanks.

Yeah, big question, obviously, with a lot of different flavors to that. To start with the mass market, you are correct. We have come to the conclusion in order to really create value, we should also focus on selected segments in China that we also, to be frank, are doing in the rest of the world when it comes to construction equipment. And thereby, after many successful years together in the jv where we have also harvest so to speak synergies and knowledge we have come to the young conclusion it was time to to to to go separate ways here one more mass market focus and one more focused focus And when it comes to the truck side, of course, we see as the market will evolve that TCO-driven, lifecycle-driven executions and solutions will be our key play. And when it comes to Dongfeng, we are focusing now on continuing to build robustness and resilience together with our partner of DFG in that market. Then when it comes to the competition, of course, we see that in different parts of the world. We see that primarily in the value segment and we see that primarily in the emerging markets. But also in that area, we feel that our focus on, so to speak, TCO and lifecycle driven segments that has been our core play will continue to be the main opportunity for Volvo going forward.

Thank you. Thank you for that. We are turning to SEB and Erik Gullang. Please go ahead, Erik.

Thank you, Johan. Two questions then. First one on tariffs, you said costs related to them started to build in the second quarter, but so far limited impact. If you think about the net effect from tariffs here and countermeasures, is that increasing on a negative side with you going to Q3 and Q4?

Yes, because we have lead time in that respect. So I mean, the tariff, the impact from tariff on the results will gradually increase coming quarters down. But it was a limited effect now in the second quarter. So it will increase in terms of impact on the results going forward.

Thank you. Of course, also on the gross side, Erik. So, I mean, then it will be a continuous also work, obviously, to make a conversation because this is both an absolute game. What are the tariffs and how does it look? But it's also a relative game. How will that play out in relation to the competition and the marketplace as such? So, let's see how we can time phase also, so to speak, the gross and the compensation.

Okay. Thank you. And then the second question on the cash position given the decline year on year. I understand you won't talk about dividends at this stage, but when you think about reasons to keep a strong balance sheet the way you've had for some time now, have they changed materially or expected to change materially when we leave this year compared to when we left last year?

No, I mean, the strategy when it comes to the balance sheet and capital allocation, I mean, it's the same. And we need a robust kind of balance sheet going forward as well. I mean, given the cyclicality and other reasons I've been talking about previously as well. But maybe if you're looking at the kind of the cash position as it stands right now, the 43.1 that I talked about, I mean, if you're looking at at the kind of the the year-over-year effect on that one we have a couple of of kind of more of a one of items if i can put it like that and in terms of that we have increased equity on the on the vfs side from eight to ten percent and that's about five billions on on the cash and then we also have a currency effect of between two and three billion also done so so we have some discrete items done but then i think it's more important to focus on the underlying cash flow and i'm looking at the cash flow for the second quarter around three billion but you also need to remember that we had an impact of about two billion then coming from the from the one of items so around five billion than if you if you're adding that one back and and then so that's the kind of the more of the underlying kind of cash flow looking at the quarter done and and if you are comparing year over year yes we have higher investments this year but it is for a for a kind of a certain reason and from a strategic uh point of view with the investments we are making in in the manufacturing system then and that is more kind of temporary now when we're looking at 25 and to some extent into 26 as well then But, again, then, fairly good cash flow, fairly good control when it comes to the working capital. And, I mean, you know the seasonality when it comes to the cash flow in the company that we are kind of back and loaded throughout the year on the cash flow side.

Thank you.

And I think, I mean, just to add, and I must have already alluded to it, of course, I mean, we have been very clear over many years that, I mean, strong balance sheet, maneuvering from a position of strength, and the strong balance sheet is also belonging to the shareholders. We should have the maneuverability for innovation technology opportunities, and we should also be an attractive case when it comes to, of course, so to speak, returning funds to our shareholders. I think we have a strong track record in that we will continue to make sure that we have the right balance and with the right priorities in the interest of our shareholders here.

Good, thank you for that. We are moving to Danske Banken, Björn Enarsson. Please go ahead, Björn.

Yeah, thank you. Talking a little bit about delivery mix on the truck side. You had a little bit of a weaker mix in Q1 in terms of deliveries in Europe and perhaps more of a normal delivery mix in Q2 in Europe. So on truck order intake, are there any comments to say on mix looking into Q3 and also Q4 for the European part of the truck business.

I mean, in terms of customer mix, looking at the second quarter, we still have the kind of the, you can say, the negative customer mix with a higher share of fleets compared to retail. I mean, if you're looking back in 2014, so that effect is there in terms of a negative mix effect on the customer side. But that, I would say, will kind of gradually normalize going forward, but we still have that effect.

And on North America production pace, you are about to take down production a little bit more. Can you give some color on where production will end up?

i mean if we generally speak about it of course there is still a lot of uncertainty so you need to have a high level of flexibility we have done this now in a number of steps starting with the volvo system of two reasons first that we had a certain over capacity to cope with the changeover and then we did see that we had an actual, so to speak, overcapacity related to the market development. Then we had a better order coverage and still have a better order coverage for Mac, but as the general sentiment has been, I mean, colored by higher level of uncertainty, we are also adjusting in that regard. And we feel now as we are coming through here, quarter two and beginning of quarter three, that we are in good balance. And as was said earlier in one of the questions here also, we feel that our order intake is gradually coming back now also because we, of course, had a rather weak market share during this changeover period and also the the situation that we've had with the delivery problems for Mac. But it has been a lot of focus, maintain, so to speak, the focus of the changeover, make sure that we are adjusting to the actual demand, and then let's see what the uncertainty will bring now because it's both the EPA 27 and it has been the uncertainty generally speaking around tariffs and the general economic sentiment. But of course, moving forward, we are ready for continue to adjust if necessary. And what is important is that we have such a strong lineup now. So it's important also that we continue with our commercial and price discipline here.

Sounds very good. Thank you.

With that, we turn to UBS and Hemal Bundia. Please go ahead, Hemal.

Hi, good morning, Martin, Matt, and Jan. Thank you for taking my questions. So you mentioned about the impact of tariffs increasing, if I heard correctly, but should we expect these tariff and material costs to be offset by pricing in the coming quarters? And then on that topic, in terms of pricing dynamics for trucks in North America, Has this become more difficult in recent months? And is there any updates you can provide on ongoing topics in North America, such as Section 232? Thank you.

On the tariff side, and like Martin said, we are also working on the pricing or getting compensated from the tariff effects. But you can expect some increase in net effects from tariffs going forward. It's also more of a lead time or a timing effect on the tariffs, given the supply built up we have done in terms of lead times. But also from a pure kind of accounting point of view, when you are looking at the cost like this, this is also kind of going through the inventory valuation and throughout the system, so to speak. So you have kind of a natural timing effect built into it, but it will increase in terms of a net impact on the P&L, but still with very limited effect.

Thank you. We move to Citigroup and Claes Berglind. Please go ahead, Claes.

Thank you, Johan. Hi, Martin and Mats. Claes at Citigroup. First on Truxx North America, you're keeping the 275,000 guide there. I just want to understand if this is just reflecting your change view or more destocking ahead, I mean, with a bigger gap potentially between retail and build rates, or if you have seen anything in your discussions with your customers any green shoots at all. I mean, looking at the order rates monthly, they are at a very low level at the moment. So I'm just keen to understand the reason for keeping 275. Thank you.

No, but I think you are correct there, Claes, that the main reason as we see it is, I mean, where we are in registration so far and also, so to speak, the destocking in the general marketplace, what we see and what we are doing now when we are adjusting our production level The production level, as we speak, is not supporting that, but it's the stocking that is the delta, as we see it. Having said that, from a Volvo Group perspective, we see that we have inventory levels on rather healthy levels, but we are talking about the total market, and then we have come to the conclusion of 275. Then obviously with uncertainty in the North American market as we speak, that specific figure is maybe containing the highest level of uncertainty. And again, that's the reason why it's so important to keep flexibility, being disciplined on the inventory levels, not hope for the best, but really just and work with the tools that you have. But that is correct analysis.

Okay. No, that's great to hear. My second one is on price-cost, coming back to tariffs, Mats. You obviously said that limited impact so far. The impact will increase from here in the coming quarters, and you will obviously try and compensate. But can you help us out of the 4.8 billion gross income decline? Because you're highlighting on the slides that there was a negative tariff cost in gross income. How much was it, just so we have a base to work from as we move through the quarters? Thank you.

No, I wouldn't quantify it exactly, but as you know when we're looking at the slides, it was ranked as the third item, meaning that it's the smallest one on the slide. So it's not that, from that perspective, material comparing with the volume effects and the mix effects and so forth. So limited effect in the quarter, but it will gradually kind of increase from a low level.

Got it. Very quick final one on Europe. Obviously, you have increased your production levels. We are hearing of others taking down production a bit here because of some softness in Europe, not only linked to Brazil. You're fully booked to the third quarter in Europe. You're taking orders for the fourth quarter. I guess no change plans. You don't see anything in terms of incremental weakness looking at Europe and the discussions with the carriers.

No, I think, I mean, we feel that the figures that we have, both the order coverage as such is robust, also in the discussion with our customers. And this is, of course, the European industrial system, so Europe as the core market, but also the international markets. And it's also valid to say, and I think that is promising for the future, is also that we have been gradually now gaining market shares, maintaining also the commercial discipline. The FH arrow is a success. and and thereby we feel now that the production levels that we have moved up to will have further so to speak effect moving into the rest of the year here so doing this upward adjustment that we have done and now step by step so to speak work on that level with with stability will will be a good level for us moving forward and the order coverage is is solid

Thank you. Thank you for that. We move to Hampus Engelau at Handelsbanken. Please go ahead, Hampus.

Thank you very much. Two questions from me continue, I guess, on the demand side. First question is related to the US and more on an ad hoc basis. If you could maybe give us some light on your talks with customers in terms of what they are saying, how much is hesitant on uncertainty and of that is playing against the replacement cycle and trade cycle for this guy. Second quarter, maybe coming back to Europe, if you could talk a little bit more regionally, how the demand is developing for you guys, where are you gaining share? And also, I guess, if you're taking orders for Q4, we're getting close to the next year, if you maybe could indicate what time of pricing we should be looking at for 2026 models. This is the normal 1-2% range. Thank you.

Thank you, Hampus. No, I think a big part of the discussions that we have, both with our team, our dealers and our customers in North America, is about hesitation. So, I mean, not at least when you are a fleet or you're adhered to a fleet, both midsize and the big ones, you can also manage this for a couple of quarters, wait and see mode, as we have said during the presentation. So, I think that is the... to a big extent, the factor. Then you still have the uncertainty about, I mean, the pre-buy effect of EPA 27, how should you think about it, etc. So, again, if anything, of course, we are on a very low level now with a high level of uncertainty. For us, of course, it has been a double, so to speak, challenge with the changeover and also adjusting volumes. But on the other side, you can say maybe it's a good time also to do this big changeover being prepared also for the market because, of course, the underlying mid and long-term demand will still remain here. When it comes to Europe, we have continued to see strong development for us in Southern Europe, in Western Europe. And what I mean Western and Southern Europe is UK, Spain, France, Italy, etc. Also Northern Europe has been holding up. And then we have had, I mean, depending a little bit on how the fleet season goes also in Eastern Europe. But generally speaking, I think good development for us across the board here and really good work done. Mats has been into it before, of course, that we did see order intake at the end of last year to be somewhat weaker when it comes to pricing. It was mixed, but of course, a little bit also of the cycle type of effect. And gradually, we have been seeing that both from a mixed effect, but also from a pricing to come back. So there we expect that situation of improvement will remain, basically. I don't know if you would like to add something to that.

well said good thank you thank you we move to london godman saxon daniela please go ahead daniela

Hi, good morning. I just have one question, and I wanted to ask you to give us maybe a little bit more of a background on the strategic decisions you've been making on construction equipment. The China market had been tough for a while. It's actually now slightly recovering, but you're sizing down there, and you're buying a dealer into Europe. Can you talk a little bit through the timing and the why, and how should we think about this on the broader context of construction equipment within the group?

Thank you, Daniela. If I start with China and SDLG, as I alluded to partly during one of the answers here. Number one, it is that we have had almost two decades of a successful partnership here. We should have that as a starting point. that has meant also acquisition of a lot of knowledge in different areas for for the volvo group when it comes to our supply chain ecosystem when it comes to several segments when it comes to cooperation etc now when we move forward and look at the capital location and how we should play to win we are more focused on specific segments both when it comes to industrial verticals but also when it comes to machines and solutions where we see that the value pool for a company and a brand like Volvo will play out the most. Partly leaving, as Agnieszka asked about, the mass market, the small to medium-sized, And we have a strong brand and position in China. So as that market will continue to mature, we will keep our technology and industrial capability for the Volvo brand in China. But if you look at other markets, that is very much where we also play in construction equipment around the globe. That is on the medium and primarily on the heavy duty side of construction equipment. Then when it comes to our integration forward, that has several. We see that when we do that both on the truck and the construction equipment side, we are building loyalty, we are building closer context for more in-depth solution together with our customers, and we are building resilience over time. and now when we got the opportunity also to acquire this operation in our core markets of sweden the baltics and germany complementing also the the dealer structures that we have in finland and norway and denmark and poland and others it will further so to speak strengthen the ability for us to develop more in-depth solutions with our customers in the advanced segments as well as building resilience for the group And we see, as I said, also that construction equipment will have an increased role in the build-up of infrastructure and defense in Europe. And in that regard, it's also very, very important to sit on the customer interface. So this is a strategic rationale that we are looking forward to materialize.

Thank you. Should we expect more dealership acquisitions like this in general for construction equipment, or this is a very isolated case?

I think you should think about it, Daniela and Samin, step by step. And of course, if opportunities arise that we see fitting into our strategic rationale, we will always consider that. You have seen that also on the truck side where we have taken steps. that is building a very strong, so to speak, resilience for us over time, a good customer interface, and most importantly, we have had such a material size of the retail business in our own hands for a while now, so we are also confident that we can manage and develop that in a very professional manner. So let's see what the future will hold.

Got it. Thank you.

Thank you. We move over to Jefferies and Michael Aspinall. Please go ahead, Michael.

Thanks, Johan. Good morning, Martin and Matt. One quick one from me. Maybe back on tariffs, can you just talk to your ability to pass on tariffs in, say, trucks versus construction equipment, just in the context of how the supply chains have a little bit of a different set up?

I wouldn't say that it's a huge difference between the different business areas, but I think it's also premature to have a final statement about the ability to pass it to customers. We need to see how this will play out. I would say so far we have been quite successful. in pushing the effects from the tariffs. But who knows how this will look by the end of the day, because we don't really know how this will play out in terms of the different tariffs. So I think it's premature, but so far so good when it comes to compensating. But still, coming back to that, we will see a net effect negative from tariffs.

Fair enough. One quick one if I can. European truck orders on the medium heavy duty side slowed a little bit in 2Q versus 1Q, 4Q. Was that just that 1Q, 4Q was very, very strong?

I should say that and as you see here over there also we had actually if I remember it correctly now plus eight percent I think it was on the heavy medium duty side on Europe so I should rather look at that than compare sequentially given the the strengths that we did see as a catch-up also in the order intake thank you we move over to Kepler Chevreux with Mats Liss please go ahead Mats

Yeah, I thank you for taking a couple of questions. First, I mean, you have this one related to the battery demand easing off. And is this sort of a one-off, or should we expect this to be something that gradually, if current demand doesn't sort of recover or increase for battery EV vehicles?

Thank you Mats. This is of course a very important question and this is as always our best estimate of a one-off i.e. that we have adapted for what we see into the future. We have learned of course a lot during the last couple of years now when it comes to demand and how we are formulating our contracts, commitments, asset built up etc. So this is currently our best estimate of a one-off in terms of them having a robust situation for the future.

Good, and then just coming back to the changes there in construction equipment, I mean, there is the LDEU acquiring Swecon. What impact will this have on your margins going forward?

Yeah, I mean, as we have been very clear on when it comes to the mix effect with SDLG, I mean, it's a delusion from SDLG today, so that will have a kind of a positive effect when we're taking out that revenue stuff.

And just finally, about if I'm allowed, to what amount do you increase the production capacity in Europe, the trucks?

I mean, we are not guiding exactly how we are increasing that, but we have said that we have been increasing in step now during the spring, and we will continue to see effects of that increase now moving forward here. So that is what we'll say. But we are guiding for the total market 290,000, and we have seen also a good development of our market share.

Very good. We conclude there. So with that, we thank you for everyone listening to this call today. The material is available on the web. So with that, we thank you for participating. Wishing you a great summer. Thank you and goodbye.

Goodbye.