AB Volvo

Good morning and welcome to the Volvo Group second quarter press conference. Today we do as we always do. We listen to our president and CEO, Martin Lundstedt, and then follow up with Matt Sparkman, our CFO, and then finalize with the Q&A. With that, I leave it over to you, Martin.

Thank you very much for that, Johan, and also welcome from my side. Even if it was a short introduction, I have to say it's always a little bit emotional to see our fantastic products in action. So second quarter 2026, and I would like to start by saying that the group and in reality, of course, all colleagues and business partners delivered very strong and solid results in the quarter with Just an operating income of 14.8 billion and a margin that expanded to 11.7%, demonstrating strong earnings resilience and growth despite the many moving parameters such as continuous geopolitical turmoil, tariffs as well as higher freight and material costs. Performance was good across business areas with high customer confidence in our products and services reflected in a strong order intake and low cancellations throughout the quarter. The group also launched several new business offerings as well as portfolio moves to further improve our competitive set. And I will get back to that during the course of this presentation. Quarterly order intake developed also positively with an increase year over year of 33% for group trucks as one example. And when it comes to the market forecast for the full year, we are for trucks continuing to revise slightly upwards Europe. while reiterating the forecast for North America, given that the first half year was relatively weak when it comes to deliveries into the market in North America and a catch-up will be needed there. But order intake has been strong as you have seen. Another example is the rapidly growing demand for power solutions. not at least linked to data center and AI infrastructure, resulting in an impressive 21% of Volvo Penta's order book value now is related to data center built out. Looking ahead, we continue to focus on what we as a group together with our partners can impact by staying close to our customers, thereby driving growth and resilience. And we remain responsive to geopolitical developments, trade policy shifts and the speed of transition into zero emission transport. Operationally, here and now, our flexibility toolbox serves us well to execute on the strong order book, but also maintaining balance between demand and supply and keeping inventories at the right level. The ramp up for trucks in North America is currently a key priority. Our focus also remains regarding effective cost control and we actively pursue commercial efforts to mitigate the increases in freight and material cost. The priority of the service business is giving good results, and services did grow with 7% organically, showing that our customers have a good utilization in their fleets. All in all, our flexible business model creates maneuverability to leverage the current environment to grab the opportunities and to continue to create value for customers, for employees, and for shareholders. And there is a continuous and growing structural demand in the world for efficient and effective transport infrastructure and not at least energy solutions. And the group is well positioned to move ahead and to grab these opportunities. Looking then at the figures, the first quarter net sales amounted to 126 billion SEK with an organic sales growth of 7%. We continue to focus on earnings quality and the adjusted operating income amounted to 14.8 billion with an expanded margin to 11.7% in the quarter. Operating cash flow amounted to 5.8 billion, mainly driven by higher earnings, and the industrial operation net financial position at the end of quarter one amounted to 34.7 billion. Return on capital employed reached almost 27%, and earnings per share amounted to 5.1 krona per share. So we can conclude another strong quarter, and I would like to take the opportunity also to thank all colleagues and business partners for great effort during this quarter. Coming into group news then, in the quarter, Volvo Financial Services and Eicher Motors Limited intend to form a joint venture, tapping into both Volvo and Eicher branded commercial vehicles. And the intended joint venture will provide financing, leasing and other financial services for customers of, as I said, Volvo and Eicher branded commercial vehicles in the Indian market. And that is a great opportunity. The closing of this deal is expected during the first half of 27, pending approvals from authorities. But it is a very important next step in a market that is expanding rapidly and where we have a strong position. On June 10th, we held the Volvo Group's Capital Markets Day in Eskilstuna, Sweden, built for resilience and growth. Well attended day with a lot of good interaction with our investor base, but also other key stakeholders and a lot of good interaction and feedback on that. Also Volvo Group and Renault Group together with CMA CGM has completed the strategic change for the joint venture Flexis and the transaction meaning that Flexis is moving into Renault Group was closed in June. And Volvo Group also reached a settlement with the California Air Resources Board during the quarter. When it comes to volume developments, truck deliveries increased by 6% to 55,700 vehicles with higher volumes in Europe and South America, but with lower volumes still in North America from a delivery standpoint and also in Asia. Volvo Construction Equipment's Volvo-branded volume did grow 14% in the quarter, driven mainly by North America, but also to some extent by Europe. When it comes to electrification progress, orders of electrical vehicles increased 39% to 5,500 units 12 months' ruling. The increase was primarily driven by Renault light commercial vehicles, but also that Volvo trucks took more orders for their heavy-duty electric trucks year over year, and that is also coming with the introduction of the new long-range and versatile platforms for Volvo. Deliveries were largely flat on a minus 2% level. Sales development, vehicle and machine organic sales growth was 6% in the quarter. Trucks did grow also with 6% fixed adjusted driven by sales in Europe and South America. Volvo CE had sales growth at 14% in the quarter driven by good sales across Europe, North and South America. And bus net sales were down 2%, mainly caused by somewhat softer sales in Europe. And Penta net sales were down 4%, mainly caused by lower sales to the Middle East, where some of the deliveries of power generation equipment has been temporarily paused due to the conflict situation that is happening for the time being in the region, unfortunately. But we are expecting that to come back, so that is temporarily paused. Service sales development, organic service growth amounted to an impressive 7% in the quarter. And what was very positive, it was broad-based positive development across business areas. The 12-month rolling service sales increased to 126 billion. And this is also showing that what we discussed during the Capital Markets Day, that our work with the total offer for every customer is really paying off here. Services is a very important focus area, and our efforts are paying off when it comes to not at least our service contract portfolio. We see that when we have service contracts, also it gives higher retention with our customer base, but also higher resilience and less volatility for the group. Moving into trucks then, in May Volvo Trucks showcased their brand new high performing 13 liter combustion engine platform, which will be implemented now step by step globally. The platform is also alongside with diesel fuel. Ready for renewables and alternative fuels such as biodiesel, HVO, biogas and green hydrogen. And sales will begin during the third quarter 2026. In June, Renault Trucks followed also Volvo, showed their next generation of battery electric heavy duty, the Renault Trucks E-Tech T, which has an impressive range of up to 660 kilometers and with maybe in that sense a leading payload reaching up to 27 ton. Sales started for Renault here end of June. And Mack Trucks, and you can see that on the image here, celebrated America's 250th anniversary with the debut of a limited-edition America 250 tribute truck. A custom-designed Mack Pioneer, as you can see here, honoring the company's deep American roots and its long-standing role in helping move the country forward. Then when we move into the market forecast for trucks in North America, we repeat our market outlook at 265,000 units in retail sales. That is sales out from dealers to customers. Orders levels have been elevated in recent months, while retail sales pace or the deliveries then is expected to gain momentum in the second half of the year. And any EPA 27 pre-buy is included in our current view. But it means that we need really now to get deliveries out during the last part of the year here. And for Europe, the forecast for 2026 is increased by 5,000 units to 350,000 on the back of continued strong underlying demand in the market. Brazilian market continues to hold up on the back of the Finame financing support package, and we repeat our market forecast of 80,000. Demand in India has continued to grow, supported by steady freight activity, continued investments in infrastructure and supportive government policies and healthy replacement need. Repeat our Indian market forecast of 400,000 medium and heavy duty trucks. And the total market forecast for China had been lifted with 120,000 units up to 880,000 on the back of extended trade-in program aimed to modernize the fleet. And that is really to continue to decouple the transport sector from fossil fuel dependence in China and continue to boost battery electric vehicle sales. Book to Bill, of course, very positive picture here. Recent order momentum across region supports a continued positive Book to Bill. And for globally, the book to build was at 170% in the quarter and 106% 12-month rolling. And we have gradually been ramping up and are well balanced on the industrial side to meet the customer demand. But as I said already, focus will be on a continuous ramp up in North America during the second half of the year here. North America itself has been strong with 150% in Q2 and 133% 12-month rolling. Europe in balance, but should be remembered that that is on really good and solid levels. And South America strong given Finami programs. On the truck market share side, in Europe, to start with, Volvo and Renault trucks continue to deliver strong market shares through May. Volvo at 19.6 and Renault at 9.3, giving a total share of almost 29%. And on the battery electric side, more OEMs are now delivering. Battery electric solutions, Volvo and Renault trucks delivered a 24% combined market share for the quarter. But to be remembered is that our recent launches of the next generation long-range and versatile electric trucks will regain momentum both for Volvo and Renault. And we proceed with our three-pronged approach with diesel, electric and hydrogen to drive both decarbonization and to meet the demands from the customers. In North America, we had a combined share of 17%. Mack Trucks is at 8.4% and Volvo at 8.6%. Volvo Trucks are back on the right track and regain gradually their position. And further support from over the road or the sleeper segments is expected for Volvo. In Brazil, remains at good level and reached a market share of 23.2%. And in Australia, the combined Volvo and Mac market share reached 21.4%. Moving then into construction equipment, Volvo Construction Equipment had, first and foremost, the Volvo Days 2026, a big customer event that was held in Eskilstuna. Focus was on, of course, a lot of our new products and services, productivity, sustainability, and long-term customer competitiveness. Over 8,000 guests participated over the course of four weeks, of course, including mainly customers from all over the world, but also retail partners and employees, but also representatives from society at large, policymakers, investors and suppliers. And in mid-June, we held also the groundbreaking ceremony for the new excavator factory in Eskilstuna. together with Sweden's prime minister and deputy prime minister. And this 700 million investment reinforces Volvo construction equipment, competitiveness, industrial footprint and proximity to customers in the important European market for excavators. And the new factory is set for completion in 2028. And in the quarter, Volvo CE also delivered the world's first electric articulated hauler, the Volvo A30 electric. And that is, of course, also fit for good operation, given the more confined nature, as you can see on the picture here. And we see an increasing customer interest around this and showcased not at least during the Volvo days here. Market forecast, no drama at all. On the other side, we are lifting, if we start with North America, we are lifting North America with five percentage points. We guided flat as midpoint previously, but now we guide plus five percent in relation to previous year, supported by investments in data centers, energy infrastructure and manufacturing on shoring. Europe, we had already plus 5% as midpoint in relation to last year, and we keep that at the same level as previous quarterly report on the back of continued infrastructure development, good machine utilization. South America also keeping unchanged, but in this case on a flat development in relation to last year. We are a little bit taking down and decreasing Asia from flat to minus 5% as midpoint on the back of the softer markets in Turkey and Middle East and somewhat in India as well. And China, we are lifting from plus 5% midpoint to plus 10%. And here we see growth supported by government policies to stimulate the real estate market and export industries. When it comes to the book-to-bill, they reached 92% in the quarter and 102% 12-month rolling. And here it's important to mention that orders were up 8% and deliveries up 14% for the Volvo brand. So we have a good order coverage for both Europe and North America. In Asia, the lower book to build is driven by somewhat decreasing markets in Turkey, Middle East and India, as I previously mentioned. Buses. First and foremost, the airport coaches operating between main cities in Sweden and the airports placed an order of new 25 coaches. and also complete the gold service contracts to be used for as I said then for between the cities and the airports. We also introduced the Volvo buses new electric coach into operations and start on the route between Gothenburg and Landvetter airport. Book-to-bill was 62%. Someone's seasonality in this from a loader order intake in the quarter. But Volvo buses have a balanced fill rate for the year and book-to-bill 12-month rolling at 92%. Volvo Penta continued to introduce new versions of the IPS hybrid platform, expanding its hybrid electric marine offering into the professional vessels segment with a strong customer interest given the performance of this execution. Volvo Penta also strengthened its position in the growing data center segment and expanded its strategic collaboration with Utility Innovation Group, Data centers, as I said, now represent 21% of Volvo Penta's total order book value. And the image on the screen here is from the switch data center in Las Vegas, produced by Volvo Penta's partner Central Power and powered by Volvo Penta D16 gensets. Volvo Pentas book to bill at good balance with 96% in quarter two and 97% 12 month rolling. Moving then into financial services, continued to profitably grow their portfolio on a currency adjusted basis through solid new retail financing. And the 12-month rolling penetration rate was sustained at 30%. Portfolio performance continued to be good with maintained earnings resilience. And, of course, we are now continuing to focus on the total offer, as again described during the capital market stay, where VFS, together with our business areas, are playing a very important role, both for customer finance, but also in the growing insuring segment.

So by that, Johan, I leave the word back to you. Thank you, Martin. Thank you for the business update. Now we're turning to Mats to take us through the financial numbers for the second quarter.

Thank you, Johan. Then looking into the financial stand and starting off with the group net sales. Organic net sales increased by 7% comparing to last year. Vehicle sales increased by 6%, driven by trucks and construction equipment. Service sales increased by 7%, with contribution from all business areas. Looking at the organic net sales development in the different geographical regions, European volumes increased, which led to an increased sales of 13%, driven mainly by group trucks and construction equipment. In North America, sales were slightly higher by 4%, driven by construction equipment and buses, but this was partly offset by trucks. In South America, net sales increased by 9% versus last year, supported by all business areas. And in Asia, net sales decreased by 3% in the quarter. Overall FX effect was negative with about 1 billion in the quarter. The adjusted operating income for the group was 14.8 billion with an adjusted operating margin of 11.7%. In Q2, earnings were again supported by the positive development of a service business, a positive brand and market mix, and R&D net. The U.S. tariff net cost was on the expected level of about 1.2 billion, with a negative year-over-year effect of 1 billion. In the second quarter, we continue to see higher freight costs and increased material costs related to inflation and the current geopolitical situation. The year-over-year increase in selling costs is mainly due to selling costs from acquired businesses. The net R&D capitalization effect in the quarter was positive at 1.3 billion, with a year-over-year effect of 600 million. And FX had a positive impact of 500 million in the quarter. The second quarter cash flow amounted to 5.8 billion. The positive cash flow contribution in the quarter was mainly driven by higher operating income and a lower build-up of working capital. Return on capital employed trend improved to 26.8% on a rolling 12-month basis. Net cash in industrial operations amounted to 35 billion, and the decrease versus first quarter is mainly related to the 26 billion of paid-out dividends. Groove Trucks' organic net sales increased by 7%, and this was driven by higher volumes and positive development of our service business. Adjusted operating income amounted to 9.7 billion, with an operating margin of 11.2%. Higher volumes in Europe and South America, good development of the service business, and lower R&D net were partly offset by increased freight and material costs. Currency had a positive impact of 300 million in the quarter. Construction equipment net sales increased by 13% versus last year. And this was driven by higher volumes and positive development of the service business. Adjusted operating income reached 3.1 billion with an operating margin of 14.4%. Positive development of our service business and brand and market mix were the main drivers behind the improved performance. In the quarter, US tariff and material cost had a negative impact on the financial performance. And currency had a positive impact of 180 million in the quarter. Then looking into buses. Organic net sales were stable versus last year. Buses delivered another strong quarter with adjusted operating income of 498 million and 8.2% in operating margin. The result was supported by price realisation and positive brand and product mix. In the second quarter, material cost and US tariff costs were building up and had a negative impact. Currency had a positive impact of 18 million in the quarter. Penta organic net sales were on the same level as last year. Adjusted operating income amounted to $908 million with an operating margin of 16.7%. Price realisation and strong development for the service business were offset by lower volumes, higher R&D and US tariff costs. Currency had a negative impact of $37 million in the quarter. And then looking into financial services. The credit portfolio increased to 274 billion, with a rolling 12-month return on equity at 10%. Portfolio performance continued to be good, with delinquencies and write-offs under control. The adjusted operating income amounted to 1 billion, supported by good portfolio growth, but partly offset by an increase in credit provisions. Currency had a positive impact of 26 million compared to the same quarter last year. And then finally looking into the forward-looking guidances and starting off with the FX. We expect a positive currency impact of approximately 500 million year-over-year in the third quarter. The underlying net impact from tariffs in the third quarter is estimated to 1.1 billion, but expected to be fully offset by AIPA refunds, giving a total net tariff effect of around zero in the third quarter. We expect an R&D net capitalization effect of 3.5 billion for the full year 26, with a year-over-year negative effect of about 500 million. Finally, we reiterate the guidance from last quarter for a tax rate of 24% for the full year 2026. And with that, I'm leaving for Martin to summarize.

Thank you very much for that, Mads, that really good walkthrough when it comes to the financials. I will do the summary very brief, obviously. First and foremost, again, would like to thank all colleagues and business partners for very strong quarter and great work performed here and we see that also when it comes to the top line development organic development of seven percent up to 126 billions especially i would like to mention the service development also organically growing with seven percent of course continue to support the business here but also the order intake, not at least when it comes to group trucks. So now moving forward here, it is full focus of executing on the order book that we have and also to make sure that we are having a good level of adaptability when it comes also to the commercial conditions moving forward in order to mitigate the freight and material costs for the company as we have been doing in this quarter. So that is the summary. I think you won, and let's get started with the Q&A.

Yeah, thank you, Martin. So we move into the Q&A session, and we have a number of banks on the line. We will start with Shaquille from Morgan Stanley. Please go ahead, Shaquille.

Hey, good morning. Shaquille from Morgan Stanley. So, Martin, there still seems to be quite a gap between North America orders and deliveries. Obviously, we started to see freight activity pick up somewhat, but it's not quite booming. The latest EPA proposal seems to indicate that the incremental cost of compliance is also relatively low. So what's your sense of customer sentiment from there? You know, is there any concern with those later deliveries, or are you quite confident in the sustainability of the upturn?

Thank you, Shaquille, for that question. I think that is one of the, of course, the key topics now moving forward for us. I think that there is an underlying support for this figure, knowing that we have been into a freight recession, not at least when it comes to the long haul for quite some time. And that is also reflected in the age of the fleet, etc. we should also remember between the order intake and the actual deliveries of what we are calling retail sales out from our dealers there is so to speak a process to get this out and since the year started relatively weak as you remember we had stop days in quarter one and and also we were not fully in balance up to mid-may The second half of the year now is of course a delivery semester for us and for the industry in order also to reach, because from time to time we get the question, why don't you change? the 265,000 guidance, but we should remember that during the first six months, it has been considerably lower than 50% of the 265,000, so that implies an uptick here. Then, of course, there is still now discussions ongoing how will exactly the EPA 27 so to speak, transition look like. But again, I think the underlying fundamental is important. It is important then to manage, so to speak, in a good way quarter one next year. But at the end of the day, that is normal business for us. What we have in the order book and the order coverage we feel is solid both for Mac and for Volvo.

Very good. We continue in London with UBS and we turn to Hemal. Please go ahead, Hemal.

Hi, good morning, Martin, Matt and Johan. I'm from UBS. Just in terms of the higher costs from freight and raw materials, is this across the group or is there certain regions or divisions where you're seeing these great cost headwinds and is pricing the only option you have or can you pull on other levers such as negotiating with suppliers?

I would say it's across all the business areas. It's more kind of a general inflation. And as we said in the report, I mean, what we're doing is we're kind of gradually increasing prices. We see a gradual price realization coming there so that we are on top of it, so to speak. But it's definitely cost inflation out there. It is. And it's more general, I would say, than specific inflation. And if you're looking specifically like Martin said now in the quarter, more kind of pronounced what we saw at Penta with delays on deliveries and thereby lower volume. So that's a kind of a concrete difference if you're comparing the different business areas, but otherwise more of a kind of a general cost inflation, I would say.

And I think that's very important to reiterate what Mats is saying. It's not reflected to Volvo or not even to our industry. It's more the general, so to speak, pattern, given that you have had disturbances, etc. But having said that, I think you have seen that during a number of years now, different type of events like that. And we have also been showing that we are... really good in working then with the compensation both when it comes to operational efficiency when it comes to working with the supply base as as you alluded to but also when it comes to the commercial conditions obviously so that will continue that work yeah good uh we continue with the Goldman Sachs and Daniela Costas please go ahead Daniela

Hi, good morning. Thank you for taking the question. I wanted to ask on your EU truck guidance upgrade and to just, like, can you elaborate a little bit on what you see underlying? Because we have been seeing the European market okay for a while, while macro headwinds continue. And exactly sort of where we are on that replacement cycle, do you think this can continue into the coming year? Or is there anything a bit more structural that is driving this?

Thank you, Daniela, for that question. We have continued to see in the different European regions continuous good activity, both when it comes to deliveries, low levels of cancellations and good order activity, but also when it comes to the utilization of the fleet. And now it's not a dramatic, so to speak, revision. It's a plus 5000. But still, it shows that it's holding up well. But I also would like to say that even though we are talking about solid levels, I mean, 310, 315 that we are now guiding for, or of course good levels but they are not extraordinary good levels also because if you look at four or five years back in time also we have been considerably higher so if you think about replacements we are not concerned that we are replacing too quick in relation to the rolling fleet So then when it comes to the structural opportunities that are ahead of us, I think they are a little bit yet to be seen. Somewhat we have seen that when it comes to e-commerce, etc., not only in Europe. But I think when it comes to defense, energy infrastructure and other type of more structural opportunities moving ahead, they are yet to be seen. But there is an underlying demand that we think is solid here.

Good. We continue with the Citibank and Claes Berghelen. Please go ahead, Claes.

Thank you, Johan. Hi, Martin and Mats. I just want to ask on tariffs, Mats. First on Section 232 and the offsets here. Obviously, IPA will impact positively in the third quarter, but what are you hearing on the Section 232 offsets? I mean, on my calculations, the MSRP offsets in trucks can almost offset your annual tariff bill in trucks, which could come on top of the EPA. Do you think this can come through this side of the year or more next year? Thank you.

And without kind of guessing, but taking one step back and looking at the total picture, because I mean, it's a lot of different moving parts right now when it comes to tariffs. So what we said then for the second quarter was we guided for 1.2 and that's what we saw as well then in the in the quarter then. And we talked when we reported the first quarter and gave the guidance for the second quarter, we talked a little bit about the extended scope when it comes to the Section 232 for construction equipment and including excavators and wheel loaders as well on top of the previous kind of ones included in Section 232. And that have now changed during the quarter. So now they are back on the original scope again. So if you're looking at the guidance we are giving for the third quarter, we are slightly lower than on the total net impact of 1.1 as an underlying. And then on top of that, we have the AIPA refunds that will be a washdown for the full net impact for tariffs. So saying zero then for the third quarter, including the AIPA refunds then. But we have an underlying run rate when it comes to the terrorists in the third quarter of 1.1. And you are right, when it comes to the Section 232 credits, we have nothing included from that in the quarter. And we are not kind of guessing either. So if you're looking at the third quarter guidance, it's nothing included. And let's see if it will happen in fourth quarter or not. But what we need is guidance for how to file those kind of claims and so forth. And that's not there yet. So we are kind of prudent when it comes to making accruals on that side. It's not included anywhere. And it's difficult to guess if that will impact the fourth quarter or not. where we are.

But I can just add to that also, I mean, that Mats and the team and our entire team, we are working very closely with the related authorities on this. So exactly when it will happen, I think, let's see. But the process is ongoing.

And we will be there when it happens.

Yeah, we will be there when it happens. Thank you. We turn to Bernstein and Harry Martin. Please go ahead, Harry.

Hi, Al. Good morning, everyone. I wanted to ask about the production ramp in North America in the second half of the year, clearly a significant ramp up to close to peak run rate. It looks like on the data we have industry deliveries or production disappointed a little bit in June. Have you seen any supplier delays or any other – issues ramping capacity in the nearer term? And then is there any risk to the outlook for the second half of the year? And then a final sort of related thought or question, will you use the new plant in Mexico to ease any of these constraints and put some volume into the U.S. market this year as well?

Thank you, Harry, for a very important and relevant question. So far, the ramp-up is going according to plan, but you are right. It has been a rather long period, not only for us as OEMs, but also for our supply base with rather low figures. Now the whole value chain needs to come together in order to really do this ramp-up. So far, so good. But as we will continue to ramp up, because that is what will happen now during the later part of the last semester here, of course, this will be one of the key focus areas, as I alluded to in the presentation. So full focus on that, obviously. Then when it comes to Mexico as such, I think where we are right now, we can cope with it with the two main facilities that we have in Virginia and in Pennsylvania, then for Volvo and Mac, respectively. But as we go along, And the market will continue, not only for North America, but also for other markets here. Mexico will continue. We have started, so to speak, the test production there with very good results as well. And we are then planning to gradually, softly ramp up during the later part of this year. But that is going according to plan. That will not be the limiting factor when it comes to final assembly as we urge it now for the remainder of this year. It's rather, to your point, that we are keeping the whole system together. So far, so good. But there is a lot of work to be done now to make that happen.

Thank you for that answer. Returning to Bank of America next and Alexander Jones. Please go ahead, Alexander.

Great. Thanks. Good morning. Just on EPA 27, the proposed final rules came out last week and included an option of not complying and paying a penalty instead. Does that change your plan at all on how you think about the engines for U.S. trucks into 2027 and how you expect others to react to? And have you seen any impact on customer sentiment or order trends as a result? Thank you.

Thank you, Alexander. And I think that is obviously a question that is a little bit early out from a customer perspective since it's still in the making. And as you said, I mean, the final, so to speak, proposal is out there. But I mean, if I start from a Volvo standpoint, we will make sure that we are offering what the customers want to buy. And that means that with this opportunity of providing both the current still really high performing technology in both when it comes to emissions and fuel efficiency will continue to be there. with this proposal, as well, of course, as the continuous certification of the next level. Then it's up to the customers to judge whether you want to have that, you can say, offset, you can call it penalty, but I should almost call it as a trading parameter, since that will be paid to the government, as we see in the proposal. i think the most important is that we will keep the optionality for our customers to to choose the solution that they prefer with a framework that has been decided by epa here and and there we have of course a strong structure with our with our regional value chain in place in primarily in the united states stand for for north america

Good, thank you. We're continuing with Jose Acemendi from J.P. Morgan. Please go ahead, Jose.

Thank you very much. Good morning. Martin, just a question on the U.S. and U.S. drug market. Do you think there may be any signals of free-buy effect in the U.S. in the light of maybe potentially drugs becoming more expensive in the U.S. in the second half of the year in comparison to the first half of the year? more, you know, color on the data center. That proportion of the backlog is very interesting. It's growing very quickly. Can you give us a bit more sense of how quickly data center in terms of orders is growing within Penta by region, geographically, where are you seeing the biggest orders coming from? And I guess this business, this division within Penta will be margin accretive, right?

absolutely but then if we start with um the first question when it comes to uh that was on the on the track market i i should say that i think already when we look at the order book now when the order coverage is is rather full and for us given that there are the weak start and to get to the 265 000 total market and our market share ambitions uh i think we are where we are basically so as we said the EPA 27 possible pre-buy. Now, as was also discussed in the previous question, there are sort of a new framework that possibly partly can ease also a little bit that type of mitigation activity, but that is yet to be seen. But underlying, I think it's important also to remember that there's been a rather long period now of freight recession and there is a need of starting to replace. And I think it's a very important step also for the customers to be able to choose also from technologies that is well known for them, even if that will then come with a higher cost as from next year. But again, underlying, there is a strong momentum here. Then, if I may start a little bit with Volvo Penta as well, to your point, very strong growth when it comes to the order board, 21% now for Volvo Penta. And that is in light of the fact that the other segments in Penta is also strong. But what we see is really that with the Rapid built out and also for... Both the data center operators, but also the final customers, understanding how they can utilize our type of solutions that we are working with, key partners, mainly now in the United States, gives also for the backup power solutions a very efficient way of ramping up both when it comes to the capex but also when it comes to the lead times and capacity but also when it comes to resilience because you're utilizing our big boards but that are of course small boards in remember in relation to some other alternatives but for backup that is a perfect solution and i think we have really understood how to work within these ecosystems with key partners currently is mainly related to North America and United States. But this will eventually play out in all regions in the world, given the importance. And there, of course, the Volvo Penta reach and network through the Volvo system will play a very important role. So we remain very bullish about our own role in this growing segment.

I think you summarized it well. And it's a good profitability on top of that. Yeah.

Brilliant. We're turning to Nundea and Agnieszka. Please go ahead, Agnieszka.

Thank you and good morning, Martin, Mats and Johan. I have a question on the kind of profitability that you've seen right now improving in the quarter by 70 bps year on year and even more so for trucks. So could you please talk about what you see into H2? Can you keep that kind of improvement trajectory running given stronger volumes benefits from FX and tariffs and so forth, or will the higher input costs offset that benefit?

Maybe to summarize the information we have in the report, and especially coming to the sequential development, coming from second quarter into the third quarter. On the positive side, from a sequential point of view, I would highlight three areas. First of all, we have a balanced production system now, and we are ramping as well. In the second quarter, we still have parts of the quarter with an underabsorption than in North America, but now we are kind of balanced into the third quarter. Secondly, as we clearly stated, the AIPA recovery or refunds, that is also having an impact on the third quarter. And then also that we have a gradual price realization now going forward. So three items on the kind of the positive side when it comes to the sequential development. Turning to looking at more of the, if you can call it challenges, then into the third quarter. I mean, first of all, we always have a seasonality into the third quarter. I think that is important to remember that because I mean, we have lower volumes in Europe due to the vacation or the holiday season. period in Europe. And it is a normal seasonality also this year. So to remember that. Secondly, as we clearly guided, if you're looking at R&D capitalization, we have had the bulk of that in the first half of the year. And if you add first quarter and second quarter together, we have had a year-over-year positive impact of about 1.4 billion for the first half. We are guiding for a full year negative 500 million when it comes to the R&D capitalization effect. So that will also turn a little bit on... as a headwind than in the second half of the year. And then finally, I mean, as you said, I mean, we have the cost inflation, but we are working actively with pricing and the price realization in order to mitigate that. But you can always see kind of timing effects in that as we have an order book as well then. But we are kind of mitigating that effect. So that's in a nutshell, looking at the sequential development into the third quarter and also into the fourth quarter.

And I think on top of it, I mean, it's also that we are very, I mean, positive and focused also on the service business. Absolutely. And then always, I mean, sequentially, but I still think that, I mean, the plus 7% underlying that we have now is, of course, giving good support for us.

And also, if you're looking at the fundamentals, I mean, we have, it's a good utilization both on the truck side and the machine side. So that is continuing to drive the service business. You're right, Martin.

Good. Returning to Danske Banken, Björn Enarsson. Please go ahead, Björn.

Yeah, thank you. Talking a little bit about the same topic here, but on the production ramp, can you give us some color on where you are in terms of production planning for upcoming quarters for trucks and perhaps also CE?

Yeah, thank you, Björn. As we said, I mean, we have been already on... on solid and rather high levels in the European production system, obviously, even if we have also been doing certain adjustments there with a continuous underlying strong so to speak, demand. The other big topic for us, somewhat also in South America, given also that we have seen that with the Finami financing program, et cetera, and good balance in these two systems, and they are, so to speak, also very solid in doing this type of flexibility moves. Now the full focus, or not full focus, but a very high focus is, of course, on the ramp up in North America. And if you do the math and you have also the figures, obviously, what is the retail deliveries up to June? And if you're thinking about the 265,000 market in total, that requires a rather big effort now of ramping up in the United States for us. And that is what we are working on, obviously, and doing that in a number of steps, both for Mac and for Volvo. Then when it comes to construction equipment, generally speaking, we had a positive development there also on the order intake. We have, so to speak, the right balance and good capacity to cope with that. I think it was plus 8% when we look at the overall figure, so to speak. And sequentially, we have that opportunity. So we are in good balance there.

Very good. Thank you for that. With all these good questions, we let Hampus Engel wrap up this second quarter Q&A with his questions. We turn to you, Hampus.

Thank you very much. Two questions from me. I guess they're linked. Firstly, with the EPA 2027 truck and engine out from you guys, can you maybe tell us something more on pricing here versus customer feedback on performance, how the are feedbacking on this. And then I'm a bit puzzled on production here. To sell the 2026 truck in next year, it needs to have an engine produced by December 20. And how are you balancing it? Are you building more engine inventorying in the autumn to bridge this, given that you have a higher customer demand for 2026 models, or are 2027 models, from my previous questions, sufficient to be competitive at current levels? So if you could maybe talk us through this a bit to understand here. Thank you.

Thank you, Hambus. And I think also that is, of course, related now to the recent developments that has been announced by EPA that it looks like now that they will allow, so to speak, this bridge solution for the coming two to three years by utilizing, so to speak, the existing technology, but that will come with an add-on then, a fee. And Ultimately, that will be a customer choice, obviously, because both the technologies and we sit on both of the technologies are high performing. Then it comes with the pros and cons, depending on what type of applications you have. And as we see it as an early judgment now, it's very important that we will continue to have, so to speak, the offerings of the current platform that is really performing for us also with the latest technology. with the latest introductions that we have done, both on the 13-liter but also on the 11-liter platform. But you are right, at one point in time, you need, so to speak, to absorb the new system, regardless if you are talking about the new technology. that was the EPA 27 type of execution or continue with the existing technology than with the offset cost that has been announced. And we are of course looking into what exactly that means. But regardless of that, at one point in time, you need to mitigate into the new. And that will go for the whole industry and for all customers. So it will, of course, be planning around how to do this now between quarter four and quarter one. But I think with our regional value chain that we are having in the United States for North America, we can be very close in working with these companies. fine tuning but but let's see exactly how it will play out now because it has been a very recent development as you're aware of but but we are on to the subject and more importantly that we have the portfolio both for the current and also for what is about to come and and that is what we will work on moving forward here

Thank you for that. And thank you for all the good questions. All the materials is posting on our website. So with that, we thank you for today and we see you next time. Have a nice summer.

Thank you very much. Good to see you guys.