AB Volvo (publ)

So welcome to the third quarter press conference from the Volvo Group. Today we will listen to our president Martin Lundstedt and to our CFO Mats Backman and then we'll follow up with a Q&A session. So with that short introduction I hand over to you Martin.

Thank you, Johan, for that. And also from my side, welcome, everyone. It is encouraging to see, by the way, the new VNL here. You did see that. Maybe you did see Johan most here in the studio, by the way. But for everyone listening into the web, I think you did see the VNL. Now when it's a little bit turmoil situation in North America, it's encouraging to know that we have a great product range coming out when the market is turning back, basically. But coming to this quarter then, we are in a period, as you know, with weaker demand in our key regions anticipated to some extent, but also, of course, some other factors. And especially then for North America, with a high level of uncertainty and wait-and-see mode among our customers. But I have to say, despite the many moving parameters that we see right now, the group had a solid performance with an adjusted operating margin of 10.6%, showing a good earnings resilience also with these moving parameters. Here and now, we focus on what we really can impact in the group. We have adjusted and will continue to adjust our operation utilizing the toolbox that we have for volume flexibility. We have applied strict and effective cost control, have remained firm on commercial conditions and continue to drive our service business that showed positive development during the quarter with underlying growth of 5% adjusted for currency and the divestment of SDLG. That is showing that our customers around the world continue to utilize their vehicles and machines, which means also that the fleet will also need to be replaced eventually also in North America. We have generally good traction also to adapt cost across the board, selling, admin, industrial, while we at the same time are maintaining a high priority on innovation and technology. But also in these areas, we are continuing to gradually adjust given the situation, for example, for the transformation with slower demand in, for example, electrification, and thereby we are time-facing some of our activities. Specifically also for volume flexibility, we are in good balance for almost all markets and business areas. The only exception is group trucks, North America, and partly, I have to say, during the quarter, also South America, where we continue to have more cost in relation to the current demand. Firstly, then, if you go to North America, there is a wait-and-see mood, as I said, amongst customers to place orders given the current uncertainties. We are therefore continuing to adjust production levels in addition to what has already been done during spring and summer here, but also other costs to minimize the under-absorption going forward. And secondly, of course, even if that is a good timing from another perspective, we still have some effects from the continuous ramp-up of the all-new on-road ranges for both Volvo and Mack, where extra resources still are needed. But I think it's important also in the period that we are into now to reiterate that even in the situation in group trucks, North America affected and rather heavily than the global group trucks margin negatively yet another quarter. We have high ambitions for North America. We have a strong platform to maneuver from now. And the continuous ramp up of the new range is important so we are even stronger, both from a capacity and a product range standpoint when the market comes back. And it will come back. So don't worry about that. Leverage from volume in that particular market will then be crucial, obviously. Moving forward in these turbulent times for global trade, we focus, as I already said, on activities that we can influence ourselves. We continue to build on our strong regional value chains that in today's landscape is, of course, a strength, combined with global capabilities and also then that combination to mitigate the effects from tariffs and other type of uncertainties. So as we conclude the third quarter with a solid group margin and resilience, I also would like to say a big thanks to customers and business partners and colleagues. So if we summarize the quarter in figures, net sales declined to 1,100 billion SEK on the back of the lower track volumes. It was a year-over-year drop of 5%, but actually an increase of 1% when adjusting for currency. We delivered a solid result in these turbulent times, adjusted operating income of 11.7 billion and operating margin of 10.6%. Cash flow was negative at 1.7 billion, which resulted in a net cash position in industrial operations of 45.4 billion. Return on capital employed at 25.2% and EPS was at 3.71 krona per share. Moving over then to the volume development, truck deliveries declined by 4% in the quarter with lower volumes in North and South America while deliveries in Europe improved. As you know, we've had a very strong order intake and we needed also to push that through now, so good work in Europe here. And for construction equipment, deliveries decreased by 4%. But when adjusting for the divestment of STLG, machine deliveries increased by 14%. In electrification, with the different uncertainties, both as regards cycle, but also the enabling conditions and the rollout of them, underlying demand continues to be slow in the field of electrification. Orders for fully electric vehicles decreased with 4% and adjusting for SDLG again, order intake declined by 13%. Deliveries increased with 27% when you have adjusted for SDLG, and the new Renault Master had a significant positive impact in the truck segment. So in summary, despite the slowdown, we continue to push here, obviously, which is, for example, reflected still in our high market shares for medium and heavy duty trucks with more than 50% in Europe, even that we see now PSA coming in also with different type of products. But however, as we and the industry have the products and solutions ready, as you have seen for quite some quarters now, it is more than overdue for policymakers and other key stakeholders to push for the enabling conditions such as charging infrastructure and actions to stimulate demand in these sectors. When it comes to the top line for vehicle sales development, the overall figure for vehicles and machines declined 1% adjusted for currency. Truck vehicle sales were down 3% on the minus 4% truck volumes, which is, even if it's an average proof point, but still a proof point of our price discipline also in this software market environment. Construction equipment did grow with 9%, and when adjusting for SDLG again, the growth was 17%, which was supported by sales of Volvo-branded machines in mainly Europe. Volvo Penta's 11% sales growth was supported by North American Europe in both the industrial and the marine commercial segments. Service sales, as I alluded to in the beginning, positive development and continues to develop well, as I said, with the growth of 4% adjusted for FX in Q3, with positive development in all business areas. But if we also adjust then for SDLG, growth was underlying 5%. And these are two points of our push for more services per unit, of course, installed unit, but also that our customers continue to utilize their vehicles and machines and, as I said also, before the installed fleet needs to be renewed sooner or later. Penta was particularly strong with 17% growth on the back of increased service penetration in the industrial segment. As you know that we have been growing the industrial segment over the last quite some years now and of course now the installed population starts to be rather material. But also strong sales to OEMs for Volvo Penta. The group's service business is pacing at 126 billion 12-month ruling and represented over 25.5% revenues 12-month ruling, actually 28% in the quarter, which adds stability and earnings resilience. As per September 1st and also the SDLG divestment was concluded and finalized and I would also like to take the opportunity to say it was done in good faith between the two partners. It has been a successful journey and now we wish the Lingon Group and SDLG a continuous good success with their business also in the future. When it comes to truck news, Euro NCAP's first ever safety test for heavy-duty commercial trucks took place late 2024, we reported that here, where Volvo scored five stars and Renault scored four stars and took the podium. In September 25, we did it again, I can say, and both Volvo and Renault kept their scores, and Renault also earned the city safety label. And this is important to us. Safety is a key priority for our customers and we stay committed to our core values here, quality, safety and environmental care. And that's why it feels very encouraging whether an external panel such as Euro NCAP recognize our focus in these areas and rate the group's brand at the top. In September also, Volvo Trucks passed the landmark of having one million connected trucks on roads, with further opportunities then in our service journey to serve our customers with advanced digital solutions. Mack Trucks started production for the all-new Mack Pioneer at its Lehigh Valley operation facility in McKenzie, Pennsylvania, United States. And that is, of course, also a very important milestone for Mack Trucks since we have not had for quite many decades now a real, so to speak, proposition for the long haul segment. So very promising start of that as well. Market environment, of course, early days, we are now guiding for 26 for the first time in a market that has a lot of uncertainties. But if we start in North America, as I've already been in, two customers are currently in. sort of wait and see mode we have trimmed our 25 forecast to 265 000 units and that is minus 10 000 in relation to previous forecast and for now we forecast the 2026 retail sales levels around 250 000 heavy duty trucks That is of course subject to a high level of uncertainty, given that there are quite a number of parameters in flux as we speak. In Europe, registrations continue to pace towards 290,000 heavy-duty market in 2025. That is a forecast that is unchanged in relation to last time. And we expect the European market to move slightly up to 295,000 level 426. In Brazil, the market is continuing to correct. We have kept our 25 forecast unchanged at 85,000 units on the back of sales from dealer inventories while production levels are gradually taken down. But we see the current cooling off will continue into new year. And for now, at least, we estimate the Brazilian market to be at 75,000 heavy-duty trucks in 2026. But also here with the recent development, of course, contains quite a high level of uncertainty. In India, we keep our forecast of 360,000 for this year. And we believe that the recent momentum also in the Indian market will continue through 26 and thereby forecast a slight increase to 380,000 for next year. And in China, the market has increased mainly on the back of the trade-in incentive program in the market for all propulsion technologies, diesel, natural gas and battery electric vehicles. Forecast for 2025 has been lifted to 760,000 medium and heavy-duty trucks for this year, and we now expect the market to remain flat in relation to 2025 or 2026. Book-to-bill. amounted to 80% in the quarter globally, and a good balance of 98% 12 months rolling. For the quarter, we had two regions that significantly impacted overall order intake, and thereby the book-to-bill, and that was Asia at the book-to-bill level of 48%, and South America at the book-to-bill level of 33%. And for certain countries in these two regions, we have been very restrictive with order slotting into us, given that we want to keep a healthy balance between order book inventory levels and production output, since we are working with also dealers and market or distributors in many of these markets with block orders. And it is important in this time now to keep the pipeline in trim. So have that in mind also for these two regions when you look at the overall order intake. For Europe, the book-to-bill reached 91% with a strong production push in quarter three to cope with the good order levels in previous quarters. European demand is currently stable with 2025 largely sold out and for 12 months ruling the European book-to-bill is at 105%. And in North America, the book-to-bill was in balance on the back of capacity adjustments made during spring and summer. Further adjustments might be needed given the high uncertainty. however with our strong u.s manufacturing footprint for the north american markets adjustment can also be on the positive side but it's too early to say right now so flexibility is the key word now as we move forward not at least in north america on market shares Volvo and Renault continue to deliver strong market shares in Europe. Year-to-date September with Volvo at 19.3% and Renault at 10.5%, giving a total share of almost 30%. On the battery electric side, despite that more OEMs are now delivering battery electric vehicles, Volvo and Renault combined delivered a 53% market share. In North America, Mack Trucks continue to deliver market share gains on their improved supply chain, and they are now at 7.5% year-to-date. Volvo Trucks have stabilized their changeover process that affected, of course, the market share during the beginning of the year and reached 7.9% year-to-date August. However, Volvo is also affected by the segment mix where the on-highway segment are under pressure, as you are aware of. Nevertheless, we see that Q3 was better and we are now around 9% in the quarter here. And in Brazil, Volvo remains solid and market leader in Brazil with 23.1% heavy duty market share. Australia is transitioning from Euro 5 to Euro 6 this year. And for now, Volvo and Mac are at 21.5% combined. We have seen that other actors have been selling Euro 5 from inventory, but expect an improvement of market share when the whole market has transitioned now during the later part of the year into Euro 6. So by that I leave trucks moving into construction equipment. CE also continues their global product renewal. We started last year and in Q3 the latest hauler models were launched into the important markets in Asia, not at least for mining. Market forecast here, of course, also here uncertainty is elevated. But for Europe, South America and Asia, excluding China, we continue then to forecast a flat development 25 to 24 unchanged forecast and also flat development as midpoint for 26 in relation to 25 for these three regions. For North America, we guide now for minus 5% as midpoint for 2025 versus 2024. That is an improvement of 5 percentage points in relation to last forecast. And then 2026 to 2025, also a minus 5%, so a somewhat further correction of the market also anticipated for next year. China plus 10% as midpoint versus 24%. That is an unchanged forecast and 26% in relation to 25% flat development. Book-to-bill overall, book-to-bill is in good balance or rather good balance when it comes to Volvo CE. 94% in Q3 and 102% 12-month rolling. North American book-to-bill reached 80% in the quarter and 95% 12-month rolling. The North American sentiment is stabilizing somewhat on the back of healthy new equipment, inventory levels, as well as rental equipment rates and improvement of utilization levels. The European book-to-bill reached 90% in the quarter, as the dealers are gradually stocking up their inventories based on a somewhat better sentiment, and especially excavators, and that gives, of course, a push in deliveries. But orders also in Europe was plus 34% in Q3 and the rolling 12 book to bill at 113% for Europe. South America, Africa, Oceania and Asia maintained a healthy balance. Buses, positive momentum when it comes to product launches and continues to build on the success of their electric BZR chassis platform, which they now have launched with industry leading battery capacity of 720 kilowatt hours designed for the coach segment. And also when it comes to the European bus strategy with partnerships, has also during the quarter formed a strategic partnership with Marco Polo, one of the world's leading bodybuilders, to broaden its product portfolio and strengthen the position in the European coach market. So, as I said, an important step in the execution of the European turnaround strategy with partnerships together with strong bodybuilding partners. Book-to-build 94% in the quarter as well as 12-month rolling. Customers are somewhat more hesitant in Mexico and in Brazil while demand is stable in other regions. Volvo Penta. Great momentum here. Also some product news here. Volvo Penta's autopilot takes... Seamless boating to a new level and the autopilot is now also available for all Penta propulsion packages with electric steering as well. Also when it comes to energy storage, energy segment, energy transition, Taiwan-based CTEL New Energy has selected Volvo Penta for their energy storage solutions in Asia-Pacific. and then for use cases in industrial mining, remote medical support, roadside electromobility assistance, etc. For Penta, book to bill 88% in the quarter and 108% for 12-month ruling. Then as a last point here, and we had a discussion where to put it because it is in segment group trucks normally, but that is Volvo Energy, that is one of our latest additions. But I wanted to connect it also here because it's also in the energy sector. Volvo Energy launched their Volvo Power Unit 2000 based on our vehicle technology when it comes to batteries. And the PU2000 is a high-performance energy storage solution with a battery capacity of 2,000 kilowatt hours with versatile use cases including peak shaving, load shifting, energy cost optimization, etc. But what is important to remember, there are many players in this area, but we have world-class cybersecurity. And remember me saying that because you will see a lot of use cases where that will be a key driver if you're getting the deal or not. Because everything is getting connected, as you know. But very promising start also in this with high customer interest. Finally, VFS, Volvo Financial Services, maintained solid earnings in Q3 and delivered over a billion second adjusted operating income for the third quarter. Portfolio continued to grow and was up 4% currency adjusted. But also, of course, very important now where we are in the cycle, demonstrated a solid portfolio performance. although somewhat increased delinquencies and write-offs have been visible in some markets and business segments, but are on a normal level at this point of the cycle. And there I have to say it's great that VFS is working so closely with the other business areas, but also, of course, with other customers. So by that, that concludes the business update. I will leave the floor to our CFO, Mats Backman, for the financial update.

Thank you, Martin. So looking into the financial stamp for the third quarter and starting off with the group net sales. So net sales increased by 1% on a currency adjusted basis compared to last year. Vehicle sales dropped by 1% mainly due to lower volumes on trucks, while service sales increased by 4% currency adjusted with contribution from all business areas. European volumes increased, which led to an increase in sales by 7% currency adjusted, driven mainly by trucks and construction equipment. In North America, sales decreased by 6% currency adjusted, driven entirely by trucks, while sales were higher for buses, penta, and construction equipment. In South America, net sales decreased by 9% effects adjusted compared to last year, and this was mainly driven by trucks. In Asia, performance was positive and the net sales increased by 5% adjusted for currency, mainly driven by trucks and construction equipment. Other regions experienced slightly increased sales, mainly driven by trucks. Overall FX effect was negative with about 7 billion due to a general appreciation of the Swedish krona against other currencies. And the main driver was the US dollar depreciating 9% versus SEC, with a negative FX impact on sales of about 3 billion. The Brazilian real and the euro depreciation also had a negative impact on the net sales. If we're looking at the adjusted... Operating income then. Adjusted operating income for the group was 11.7 billion, with an adjusted operating margin of 10.6%. In the third quarter, earnings were supported by the positive development of a service business and lower R&D expenses. The financial performance in the quarter was impacted by higher material costs and some additional manufacturing costs for trucks, mainly related to lower volumes and overcapacity in North and South America. The tariff cost increased in the third quarter, and that was as expected, with a net impact for a group of 500 million. In the fourth quarter, we expect the tariff net cost to reach close to 1 billion. The net R&D capitalization effect in the quarter was positive at 1.2 billion, with a year-over-year effect of 1.3 billion SEK. Guidance on net R&D capitalization for the full year 2025 is positive at approximately 4 billion, with a year-over-year effect of about 3 billion SEK. FX had a negative impact of 1.6 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. In the third quarter, cash flow amounted to negative 1.7 billion. Cash flow continued to be affected by the increased level of investments and the seasonal buildup of working capital that we always see in the third quarter. Return on capital employed trend declined to 25.2% on a rolling 12-month basis. The net financial position amounted to 45.4 billion, which is slightly higher than the last quarter with a positive net contribution from divested operations. The net sales for group trucks decreased by 2% currency adjusted, driven by lower volumes, partly offset by positive development of a service business. 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 costs continued to build in the quarter, and the currency had a negative impact of 1.1 billion in the quarter. and then over to construction equipment. Net sales increased by 14% adjusted for currencies and the divestment of STLG. Adjusted operating income reached 2.2 billion with an operating margin of 14.4%, which was an increase in both income and margin comparing to last year. Product mix with less STLG and positive development of the service business were the main drivers behind the improved performance. In the quarter, target costs were building up and had a negative impact on the financial performance. The volume were lower versus the same quarter last year, however, completely driven by the SDLG divestment. Currency had a negative impact of about 300 million in the quarter. And then over to buses. FX adjusted net sales increased by 4% driven by price realization of vehicles and positive development of our service business. Buses delivered a strong adjusted operating income of 755 million and 12.6 in margin, and this was despite lower volumes. The result was supported by a divestment of property, continued price realization of both vehicles and parts, as well as a good cost control in operating expenses. Currency had a negative impact of 159 million in the quarter. And Penta delivered another record quarter with the best third quarter ever result, actually. FX adjusted net sales increased by 13% to 5 billion. Adjusted operating income amounted to 934 million, with an operating margin of 18.6%. And this was on the back of a strong volume development for both engines and services, and despite unfavorable product mix. Currents had a negative impact of about 185 million in the quarter. And then, last but not least, financial services. Adjusted for currency, the credit portfolio increased to $259 billion with a rolling 12-month return on equity at 11.3%. Portfolio performance continued to be good, with delinquencies and RITOs under control. The adjusted operating income amounted to $1 billion, impacted by increased credit provisions but supported by the portfolio growth. Currency had a negative impact of $79 million compared to the same quarter last year. So with that, I'm leaving for Martin to summarize.

Thank you, Mats, for that walkthrough. Here we have the summary slide. I will be short so we can open up the Q&A. But of course, I would like to summarize where we started. It has been a quarter with solid earnings despite the high uncertainty that we currently are facing in many markets. If we look across our business areas, good results. Penta, as Mats was into VFS, very important, of course, that we have the situation under good control together with our customers and dealers. Construction equipment, despite also, of course, the situation that we have in North America there as well. buses etc and also trucks it's important to remember that if you look to the effects that we see on the truck side it is of course very much affected by the fact that we have a north american situation that is of course in flux to a big extent obviously we're talking about the tariffs we're talking about i mean the push also from our suppliers, rightly so, since they are also affected by different types of effects. And at the same time, we have a wait-and-see mode amongst our customers, and thereby a lower demand level. But having said that, I think in quarters like that, continue to focus on what you can affect, and really work hard on that. And the pillars that we are building in North America will serve us well. And when we look across the other regions, the quality in our truck business is still on a very good and solid level. Services is worthwhile mentioning in times like that. We have been reiterating that this will continue and 28% now in the quarter is showing that it's getting to a material proportion obviously for all different business areas and we still have headroom for more. But it's also a sign that the vehicles and equipment are utilized in the marketplace and that is of course a sign for the situation moving forward. So, and finally maybe a comment on the order intake. I understand it will be questions on that, rightly so. But I think it is important also in this time to say, okay, what are we guiding for when it comes to the total markets and not taking, when you have this type of situation, a quarter and look and try to triangulate the trend based on that. When you look at our key regions, rather expected levels, Asia, Latin America also impacted by a further correction when it comes to the order slotting, which is absolutely the right decision to take in a situation like that, so you're not ending up with balances in your working capital, and more importantly, in your inventory levels. So, looking forward to the Q&A. But before that, I have also an announcement to make, and that is the following. That we have the capital mortgage day also planned now. And that will be on June 10th, next year, in sunny Eskilstuna, Sweden. It will be in conjunction with the Volvo Days. It might be so that some of you have visited the Volvo Days. That is a very popular activity amongst our customers when we are showcasing the latest and the greatest. Of course for VCE, but also for some of the other business areas, not at least trucks. So we found that to be a good timing opportunity. and formal invitation etc will follow obviously but make a note in the calendar so you're not missing this fantastic event so by that Johan I think I leave you to guide us through the Q&A thank you thank you Martin

Yeah, so make a note about June 10. We look forward to that. So we have many people on the line waiting. So we do as always, we stick to one question. We start in the room with a couple of questions first. And we start with Erik. Erik.

Thank you, Eric. One question is always tricky, but the balance sheet, just a couple of questions there. We're approaching year-end, and people are trying to figure out where you will propose your dividend for this year. For the fourth quarter here, is there any reason to assume anything different than normal seasonality in working capital this week on acquisition? Is that expected still to close in the fourth quarter? And any other guides as to how we should think about dividends for the year?

No, we have the normal seasonality. And I mean, it's difficult to say exactly when a transaction will close, but it will likely be after the fourth quarter. So looking at more of a kind of a normal seasonality and a normal fourth quarter. And as you all know, we have the bulk of the cash flow throughout the year is actually coming in the fourth quarter. So I think the dividend discussion might be a little bit premature from that perspective. But maybe a couple of things to add when it comes to the balance sheet and connected to the cash as well. Just to remind you of a couple of things that we have done structurally throughout this year then i mean first of all looking at the sdlg transaction and you saw that in the in the kind of the increase sequentially on the on the net cash then so we have some some kind of proceeds coming in but also as important is actually a reduction of trapped cash because if you're looking at the annual report, I think we have the, it's about, if you're looking at end 24, about 10 billion in trapped cash, and that's reduced with 5 billion now when it comes to as a kind of a consequence or a good outcome of the STLE transactions. We have reduced trapped cash. Secondly, also the equity increase we have at VFS. I mean, that's a little bit kind of moving around money internally, so to speak. We have increased equity on on VFS from 8 to 10%. And I mean, from a risk perspective, kind of taking down the risk with higher equity. And that is also 5 billion that we have kind of reallocated internally. And lastly, if we're looking structurally on the maybe more on the working capital side, and we have had a conscious discussion or a conscious decision where we have decreased the payment days also on the payable side. And I think that is probably an effect of one to two billion or something like that. So a couple of things that has, from a kind of a structural point of view, changed a little bit on the balance sheet and more importantly on the cash situation.

As we go on closing Q4?

Difficult to say, but I would probably forecast that one to be after the end of this year.

Good. Agnieszka from Nordea.

Thank you. So just looking at your margin trajectory from here, it seems like there will be some headwinds that you will meet in the coming quarters. One is tariffs, obviously, and you indicate that the net impact will constitute almost one percentage point of a headwind to the margin when I calculate it. And then also you expect rather flattish or even contracting markets in 26. So in that environment, would you still expect your margin to improve or what kind of actions are you taking to protect margins?

Thank you, Agnieszka. I mean, obviously, we are not guiding for that, but I think more importantly, as we have said, if you look at, so to speak, the margin quality and try to be as clear as I could, I mean, but when you look, for example, and I start with on the truck segment, it is, of course, most pressure right now in North America for the reasons that I alluded to. And as we move forward, obviously, depending on how stable, so to speak, the different type of announcements will be, because it's a question of stability also. And as I also said, it can move in either direction, to be frank. In one way, for example, The uncertainty regarding the mission legislations have brought less pre-buy than expected. In the long run, or even in the mid-term run, I should argue that there is something good about that because we know always when we have pre-buys, we will have a hangover, etc. But it's more the uncertainty factor that is important. So the more clarity, the more in line with, so to speak, the the demand in every single point we can be because that has been a little bit of a tricky parameter during this year that it has been coming in in different phases different type of and we feel that i've been over quite a lot now in united states talking to customers and and other partners it's and it is clearly that people are waiting and see a little bit and that is also the reason why we are very clear and say okay we are guiding now for the first time for 26 42 50 but we are we are also clearly saying it's an elevated risk in that guidance in relation to normal situation so i think when i look at the quality of our commercial excellence or how we are commercially doing how we are doing when it comes to our operations and when i look at the key regions take latin america for example even if we have a drop in volume we are following through in a good way, etc. So we have the ability internally, but when the external factors are a little bit too many and too many moving, you're lagging a bit. But otherwise, I don't feel, so to speak, any type of uncertainty about our own capability to manage it once we know what parameters that will be in place for maybe a little bit more than one or two weeks.

Good. We turn to the telephone line and a chat from JP Morgan. Please go ahead.

Thank you. Good morning. One question on North America. A couple of parts to that, please. The first is section 232. If you could just share some insights into your ongoing discussions with the U.S. administration as we wait for an update in the next two weeks. I think that would be very helpful. And the second one is if you could just touch upon your overall investments in Mexico and what could that mean for the business going forward. Thank you.

Thank you for that. 2.3.2, I think it's fair to say that let's see. So we are, of course, preparing for the two scenarios there. I mean, depending on if it will be implemented. I mean, it has been now announced... in some in some channels that it will be from first november we have a government lockdown and set up so let's see what will happen here we are well prepared for for either or scenario basically then if that is coming into play It's well known that we have a 100% US footprint for our North American trucks. But having said that, we are also prepared for other scenarios. Then when it comes to Mexico, we have a structural landing capacity in North America for normal markets and also for up markets. We cannot live with that. To add that capacity for our North and South American markets for Volvo and Mack is necessary. And obviously we can balance that capacity for markets depending on how different type of trade deals will look like. So we continue to invest and anticipate to have a starting point of around 10,000 units and then with the ability to move North when that is needed.

Hampus, Anders Bankan.

Thank you very much. One question for me. Could you maybe talk about your thinking on EPA 2027? Some of your competitors are looking to roll out the equipment, maybe not tuned for EPA 2027 and not including the guarantee. And if that's the case, have you had clients already testing this equipment and are you expecting to roll out the 2027?

But again, I think obviously the further it gets without exact clarity around this, I mean, the more you need to prepare, obviously, for that it will be put in place. Because if you're not prepared, we are prepared for that. So we have our engine range in place. in good order for the current, of course, emissions, but also for the coming. Of course, we have been testing it with the customers. We have had field tests and that will continue to roll because I'm reading it will happen sooner or later, basically, or moving in that direction when it comes to this type of close by emission legislations. So then it's more time-facing. Then let's see, and I will not exactly disclose how we are thinking about, I mean, if that will be postponed. Obviously, there is an interest both from less... It's always less complexity the lower you get, technology-wise, and also coming with certain costs, etc. So we will fine-tune depending on how it will look like. But we are in good shape for... for that. But we are trying to have a conversation to say, tell us something, so we get clarity.

Thank you. We turn to Claes Berglind from Citigroup. Please go ahead, Claes.

Hi, Martin and Mats. Claes at Citi. So, first I just want to come back to the trucks margin. Yes, the tariff impact will increase from here, but earnings are also benefiting from capitalized R&D, which is a tough comp into 26 as you now have passed the launch phase of the new trucks. And the way you guide here for volumes don't suggest much growth. So will you start to take out more cost? Will you announce restructuring to get the margin higher? Because if volumes don't come back, the outlook for the truck modern, as I see it, the next couple of quarters look quite weak. And then very quickly on the European outlook, quite a big slowdown here looking at orders. Just trying to understand what happened here through the quarter. particularly in September, if there was an incremental weakness beyond normal seasonality.

Thank you. So number one there on the track margin, as I said, I mean, the name of the game here, Claes, is obviously to get the stability in North America, regardless of the volumes. That is impacting now, and it's weighing heavily on the track margin. That is clear for us. And exactly as Mats said also, when you look at the different parameters here. And of course, when we are getting, I mean, better line of sight there, and we have... gradually got that also and we have had our changeover etc that is the key area because if we look for the truck margins in other regions it looks as expected and it looks good so but having said that depending on the volume development now we're guiding for Europe coming to your 1.5 then or the follow up comment there. We are guiding for 295,000 on the back of what we see in our order board and what we see in activity level also including quarter three. So if we say 290 and 295, then that is what we are guiding for. And we have no ambitions to lose out on market share if I put it like that. So I think by that you can triangulate what our belief is.

Maybe one comment on the tariff. First of all, when it comes to cost, we're always addressing the cost. And I mean, looking at the kind of the volumes and adjusting, I would say.

That is visible also.

Yeah, it is. So that is addressed continuously. But maybe a clarification when it comes to tariffs and being a little bit more granular, but it's also in the report. If you're looking at the 500, I mean, we are clear that more than 50% of the majority of the tariffs are actually related to construction equipment and not trucks. And we have the net impact we see now in the third quarter, the 500 million. There we also have a kind of one component coming from, if we're looking at mitigations of gross impact from tariffs, we have two mitigating items, so to speak. I mean, first of all, price mitigation, but secondly, also the kind of accounting when the tariffs are flowing through the inventories and inventory valuations. We are helped by that in the third quarter. Looking into the fourth quarter, the only kind of mitigation when it comes to tariff will be on price then. So meaning that the billion and the net impact, that's with price mitigation. And again, the majority of the tariffs related to construction equipment. And then, I mean, this is then based on the information we have right now. And it is changing, as you know, kind of constantly. But if we would have a kind of a Section 232 in place, that might be kind of giving further opportunities when it comes to price mitigation also on the truck side, on the tariff side. And so I think that is also worthwhile to remember when you're looking at the sequential development going forward.

Thank you for that. Björn from Danske Bank.

One question. 25 is quite messy, and it's not always about the volumes, etc. But can we get some color on, if you can quantify how much of a headwind this volatility has been, especially then in North America?

I don't know if we will or can quantify, but as I said, I think if you look to, so to speak, where we are in the cycle and our expectations on our improved resilience, to be frank, I think we have been working very... clearly and diligently with that, I mean, service, better volume flexibility, better ability to actually mitigate different parts of the cycle. I should argue that at this very point in time, of course, what is weighing very heavily for us is the North American turmoil and the ability to be at the curve So even if I think we started quite early with our adjustments in spring and summer, mainly then for Volvo Trucks and also in the midst of the changeover, we have been a little bit behind the curve because we didn't see it come with that magnitude and maybe also the wait and see mood depending on some of the unclarities. So I have to say that when I look at the year, Because we have had corrections in Europe. We have had, and that is coming now also gradually, corrections in Latin America. But that is, so to speak, the more the normal pattern of correction of the cycle. There we are following with margin quality as expected. It is more the North American case that is weighing heavily for us. I don't know if you would like to add something.

No, I think most important is that we're taking down the underabsorption sequentially now. I mean, with activities we initiated in the second quarter, we saw impact in the third quarter, but still some kind of underabsorption impacts in South America and North America. But it's gradually getting better with the activities we have now. So we're all addressing that kind of overcapacity.

And then you all know, of course, with the North American market, it is like that since we do not have any captive distribution in North America. You're even more, so to speak, dependent on being time-phased correctly when markets going both up and down because, so to speak, the volume leverage on the new equipment both up and down if i put like that is relatively higher than in other markets so when you have turmoil from uncertainty in north america it's a little bit more burdensome temporarily. But I think it's also important in a situation that we are in now, as I said also in the introduction, to take a step back and say, okay, will logistics be needed? Will transport be needed? Will infrastructure be needed in North America? Are we rather bullish about what is happening there when it comes to digital energy built out, etc.? ? stability will come back. Have we built the pillars? So we are not coming too much into here and now. I think when we look at the period, we know what it is. We know how to work with it short term. And more importantly, we have built a very strong, so to speak, platform for the future in North America. I think it is also important to have in mind when it is quite a lot of moving parameters short term.

Good. We return to the telephone line. Daniela Costas from Goldman Sachs.

Hi, good morning. I have a question actually about Penta. You mentioned data centers in the report as part of your strong result. Can you help us size the business and the growth of data centers within Penta right now? And what is the opportunity set going forward from you from this?

I mean, we don't kind of guide and give that kind of granularity to Penta. I mean, it is a very, very important growth driver within Pentaland, but we are not that kind of granular when it comes to the different business lines.

What I think about Penta that is very exciting is that we have talked about that for quite many years now, that we have been building up the second vertical, main vertical, I should say, of industrials. But industrials, you need more and more now to separate into several industrials in Penta with growth trajectory. One, of course, being industrial all-speed. That is our deliveries into many of the... industrial equipment manufacturers, obviously, in mining and in forestry and in ports and material handling, what have you, has been growing really well. Also part of the long-term growth that we see now also in services for Penta, because there, in relation to some of the marine segments the machinery is used, heavily and thereby it's a good service business the other sector that we have been into for a long time but it has been more on the standby side is power generation obviously but power generation is growing broadly for us and that's the reason why we also included Volvo Energy because It is the traditional power generation, standby opportunities, not at least now for data center, build house, et cetera, where we are good in North America. But it's also the general situation about, I mean, grid capacity, resilience, et cetera. And thereby, it's a more broad landscape of the traditional hardcore power generation that we provide through Gensets, but also an environment A broader architecture of solutions, including better storage, et cetera, steering, cyber capabilities, et cetera, as I alluded to. So exciting. Put it like that.

Thank you for the opportunity.

I would like to ask a question about North America with your market share ambition and also looking at the two launches of the VNL and the Mac Pioneer, which I understand are quite central to reaching that ambition. How is the strategy for those two models impacted by the currently very weak market environment? Is that creating opportunities for you? Are you still seeing the intended market share trajectory that you were looking for? I know it's still early days, but could you talk a bit about sort of how the timing with the launches coinciding with a very weak market is impacting that strategy, if at all?

No, it's a great question. And I mean, of course, it is like that on one side, you can say that it is not bad to do maybe, you know, or not maybe, for sure, the biggest product overhaul that we've done for three, four decades in North America in a market that is slower. That is good because when you do that and you're not doing a full clear cut also. We were over actually last week and I was in LVO with Mac. And we are running mixed production, mixed model production, etc. And then when you're introducing new models, then I have to say that when you're in the cycle you are now. And knowing also that historically we have always been losing out when the market has been coming back and been at peak, etc. Now we are building out capacity as well. That is good. It's also good that we can trim and we can... Then, obviously, you don't need to be overly nervous about your volumes right now because the market is what the market is. And since these products are creating substantial customer value in terms not at least of fuel economy, that we see clearly from customers is about 10%. And I mean, 10% is 5,000, 6,000 U.S. dollars yearly fuel bill, it's very important that you are not pricing away the value that you have been creating with building this up. And for Mack in particular, this is more or less like reentering into almost like a greenfield situation when it comes to the long haulage, the heavy long haulage. And excitement is big, but we will take it step by step. with the right type of commercial quality as well because the product is great. So I think the name of the game, don't be overly nervous because the cycle is what the cycle is. And it goes up and it goes down. Now it's a little bit down. It's a number of other complexities added that we have alluded to. But these two products and what is about to come around the quarter is just great.

Maybe one comment on the kind of the note that we are working what we can effect or impact really. If you're looking at the MAC and the kind of the market share, development and just looking at the quarter. It's not effective, but pioneer. It isn't. I mean, the thing is that we are working with the supplier and we see the improvement standard we talked quite a lot about last year that is kind of giving the MAC the ability to kind of deliver on the demand. So that's one kind of self-help in that respect that is also very important to recognize.

So on that note, and we're coming up to the hour, so please make a note about June 10. And with that, I say thank you for coming today, and we'll see you at Q4. Thank you very much. Thank you.