Volvo Car AB (VOLCAR-B) Q2 2026 Earnings Call Transcript

Good morning and a very warm welcome to the presentation of Bulbuk, our second quarter financial results. We're coming to you from our new headquarters here in Gothenburg. My name is Ron. Those images that you saw up front were, of course, the first Bulbuk customers getting behind the EX60. The focus now is, of course, to ramp up the car to meet the strong customer demand. We'll talk more about this on this earnings call. As always, in the morning I'm joined by our President and Chief Executive, Håkan Samuelsson, our CFO, Frederick Hansen, and our Chief Commercial Officer, Eric Severinson. At the top of this earnings call, we'll have Håkan, Eric, and Cedric walk us through our performance during the second quarter, and thereafter we'll throw it open for a question and answer. Either you participate by simply typing in your questions, you should be able to see the chat window at the bottom of your screen, or simply use the phone lines, then we can hear you in the room. I'll come back with more details closer to the Q&A, but for now, Hakan, I'll give you the word.

Thank you, Ron. So let me frame this quarter, and welcome to all of you listening and watching. We had a very challenging business environment, and I mean low consumer confidence worldwide. of course, all the conflicts in the Middle East and so on, and we saw then for the volume a very sharp decline in China, which I think is severe than we thought a quarter ago. And that has, of course, also an impact on our financial results, which where we then report a very modest one percent EBIT margin. In this situation of course what we can do is to focus on what we can influence and what we can control and then we have had a very good development on the cost side as one example I come back to that but also following through on our electrification strategy that has been the core element of this company we We don't see electrification as a threat, we see it as an opportunity, and therefore we are very glad to see the figures here in the quarter, 40% up, bed sales, and they're reaching now a share of 25%, so a quarter of all our sold cars are all electric, and also very impressive, 52% of all cars sold, and this is the first time we are above, so the majority of our cars are now electrified, that is, they are chargeable. And this is, of course, a foundation for growth. And as you can see, with the market share multiplier, we have a 2.5% higher market share in electrified cars combined with combustion cars. And that's, of course a very good factor for growth as the market transforms and independently of how fast it goes it's still an underlying growth factor so very positive and that was before we launched our new EX60 which is of course targeting the main part of the BEV market this is a mid-sized SUV That's where the majority of the cars are sold. And our EX-60 is here again changing car deliveries to customers started this week. And we are now ramping up production in the second half to really meet the strong demand, which is coming in from Sweden, Germany, and Belgium as leading market, but also a lot of other markets. Other key highlights during the quarter, we were granted approval from the U.S. Commerce Department regarding the ICTS requirements, data handling, securing data integrity with connected cars. We have demonstrated how we will do that, and we were given the approval here some time ago. Another very important thing is we signed an MOU with the Belgian government some days ago regarding support to the Ghent factory to really make that factory competitive, which secures the future of that plant. We can build the Volvo cars we plan to build in that plant, but we are also open to assemble other car brands in that plant. XC70 is a good example of what will happen in China. Products in China need to be much more regional to comply also with all customer requirements of software and other features. and this car is really the first one which we developed with Yili and it's demonstrating really the way forward. We will have an all-regional program some years in the future for China. I think we will have a unique opportunity to really have to have a strong product offering, securing our presence in China looking forward. Last but not least, we are also pioneering AI control, voice control, and assistance into the car. And we are introducing Gemini from Google, a standard in all our cars. They are now standard equipment in new cars. But we also rolled out retroactively to 2 million old cars, also this AI assistant. And that is also, of course, a good example on how we can upgrade cars also after delivery, which is something new which can be done with the software-defined cars. As I said, cost saving is a good example of what we have been working with, something you can control independently of the external factors. We had the target of $5 billion cost saving for the full year. and I'm very glad to see that we achieved $8 billion already in the first six months. And that, of course, encouraged us to continue setting new targets and focusing on further cost reductions in the second half year. Last charts, I would like to invite you to a strategy update in Stockholm on September 17th. Around a year ago, we invited you to a similar event where we laid out our strategy looking forward. And I would like to come back to you and report this is what we have done. How are we now taking the next step to make Volvo a winner in this very tough competitive market with electrification and new competition from China? We will report about the most ambitious rollout of products in our history with really regionalized adapted cars for China, regionally adapted for U.S. and regionally adapted electrification in Europe. So a very strong offering is being developed and being rolled out. We will also have a much more regional structure, not just organization and governance, but also to product offering and marketing, as I just said. And we will talk about our very unique synergies, which are offered through our collaboration with Yili, helping us to create this regional approach, helping us to bring down the material costs on the hardware side in Europe and U.S. And we will talk about we are not just a factory building hardware cars. The product from Volvo in the future is going to be much more than a hardware car. So join us on September 70th. we will give you more information on our challenging and interesting, exciting future. With that, I will leave it over to Erik to talk a bit about what has happened on the market.

Hello, everyone. So I'm going to take you through a little bit more details on where we are in terms of sales and what the market looks like and a slight update on our commercial turnaround plan and strategy. Looking at the world right now, it's a quite mixed basket. If I start in Europe, we have a very resilient sales performance in a highly competitive market in Europe. We're seeing a lot of competitors coming back into Europe after decreases in China, trying to build momentum to offset some of the tough times that you're seeing in China, which brings competitive pressure to the market. We are maintaining a strong order increase with the stable pricing in this very competitive market, And that is only driven, I would say, that is primarily driven by our full electric cars, where we can see that the bed sales are up 23%, driven by the EX30 and the EX40. And this is before any effect of the EX60, which we see on the order side, is bringing up a very strong momentum. And currently, actually, also, it's the most profitable car we're selling in Europe. And a proof point that the electrification strategy works. Moving over to the States, we do see some positive signs of recovery in May and June. Now, that is in a very difficult market as well. The market is heavily impacted by tariffs, as well as the changes in regulations around electrified cars. We have managed to increase our premium share by end of June to 4.95%, up almost 1 percentage point, versus last year. and we rose our sales by 9% in Q2 in an otherwise contracting market. So there are some positive signs in the U.S. and we are very deliberately on how we are competing in the U.S. right now in terms of price, in terms of models, and also looking into the future, bringing more local production into the United States with the XC60 production coming online at the end of this year, early next year. It would be very important for that market. Now, going to China. China is right now the most difficult region, I would say, in the whole automotive industry, but also for us. We are seeing that our sales are heavily affected by the severe market downturn. The overall market is down 20%. We are deploying and continuing to deploy a strategy to protect our premium price position, not going into the discount wars, if you put it that way, and trying to really maintain our premium pricing on our products, which, of course, does have a negative impact on our volume. At the same time, we are tapping into the potential we have with the GD group, trying to really get access to that lower cost space that the Chinese automotive industry has. A positive sign in China is the increased premium PHAV share, which is driven by the new product, XC70. And we do think that P-Heads is a growth segment in this market. And we see we have a very good product to compete with. Let me give you a little bit more detail on the commercial strategy and where we are in terms of transformation. And also, one of the pillars of Volvo Cars growth is to grow profitably with electrification. And what we're seeing in Europe right now is exactly that. We're seeing that we have record sales on the EX30, Double-digit increase in deliveries as well as in retail orders. And also maintaining margins on that car with the help of cost to introduce with EV. The EX60, Håkan talked about the first customer deliveries have already happened. And we are outperforming our very ambitious target in terms of sales and orders on the EX60. we are very positively surprised by the fantastic reception among our customers on that car. And it's also now, as I said before, not only one of our most ordered cars in Europe, it's also the most profitable car we're selling, proving the point that electrification does work with profitable growth. Another encouraging fact is that we have doubled the order pace on the X90. that comes on the back end of an updated hardware and software in the latest model year. The car now has 800 volts, for example, and the latest software also deployed in the X60, which we see is making an impact in the market. But it's not only about the product. It's also about the commercial machine. And we are running a commercial turnaround or commercial strategy we call perform and transform. And I'll give you a few nuggets from that one. And one thing we have talked a lot about as a pillar in this is regionalization. We talked before about China and U.S., but we also regionalized Europe in a completely different way, taking away layers, creating five very independent and very mandated subregions. And this is supporting what the positive development around electrification and around growth we're seeing in Europe right now. But it's also very much giving the customer a different experience when they have the car. It's not only about selling the car the first time. We are actually selling an experience on how to live and be with your car. And that is the care offer, which we now have put in place with Sweden, giving customers that peace of mind, have some free way of using your car. And we're seeing great interest in that from our customers. And we're now working to scale that in other markets. in an efficient and asset-like way, together with our retailer partners in each market. On top of that, we're also running now a commercial performance program, starting in some of the key markets, where we are addressing all the pillars within the commercial machine, marketing, retailers, offerings, and sales company structures. And starting that in Germany now, we think we'll have a very big impact on our future performance in that market. and we will continue to build this in a structured way in other major markets where we see we can improve our performance. So overall, we feel well on track in terms of our commercial strategy and our roll-up and that we have a strong growth on the next vacation. And with that, I'd like to hand over to Fredrik.

Thanks, Eric. So let's go into the financials. And summarizing, it was a tough quarter, and as indicated by the others, this is a lot driven by China. So we see that retail sales is down 6%, pretty much all driven by China. Retail sales is also in line with the wholesale drop, but revenues is further down. And I will double-click on this, but in part this is due to the one-off we had last year where we sold off the UK subscription portfolio. On profit, we had a very negative quarter last year due to the impairment. The underlying yield is there was 3.1%, excluding the impairment. This quarter we are down to 1.1%. It's a tough quarter, and on cash we had a strong cash flow last year, in part helped by this runoff subscription portfolio sales. This year negative, but also as expected and planned. We have increased inventory as we're trying to optimize the total factory output as we're launching the EX-16, the Tourstrander plant, alongside the EX-16 and EX-90s, which are of course very critical models for our sales. So, double-clicking on revenue, this was impacted by volumes and also some one-offs. So, we started the last year at $93 billion. $3.3 billion of those $93 was a one-off sale of a subscription car portfolio in the UK. The volume drop, especially in China, is, of course, taking revenues down as well with $5 billion. We see sales mix and pricing taking it down, largely driven by car line mix and lower P-head sales in the US due to the 45W and ripple effects of the consumer subsidies going away. And in Europe due to reduced demand as we not yet have a 50-gram version of the P-head. FX continues to be a headwind, we do see a slight turn towards the end of the quarter and also going into this month. And then other is down, and a big part of other there is that last year we sold CO2 credits to a higher amount, and we also did revenue recognition of CO2 credit sales for both Q1 and Q2 in last year's second quarter. That's not happening again. This year we take it quarter by quarter, so a bit of a bigger hit on the other buckets. On EBIT, we last year had this very negative result due to the platform impairment and also the restructuring cost that came together with the big cost and cash action plan that we launched in the second quarter. Adjusting to that, we started at 2.9 billion. We see this year in comparison that volume is taking it down 1.1 billion, sales mix and pricing is taking it down 2.9 and this is on the back of a very challenging development in China. I think the positive though is that we have managed to control what we can. So we see a strong year-on-year improvement in variable cost and also on indirect spend where we are significantly down and this actually more than offsets the market headwinds. However, the indirect spend is a cash item so taking that back to EBIT means we need to look at how much of that we capitalized as well. And we see that we capitalized significantly less this year than we did last, so that takes the result down. We also have slightly higher depreciation and amortization. FX is still weighing down the result. And then in the other bucket there, we had 1.2 billion less of CO2 credit sales this year as compared to last year. So it takes us to the result of 0.8 billion or 1.1%. Double-clicking a bit on the cost savings, This is now showing the year-to-date walk, and as we started the year, we said we're going to achieve at least $5 billion cost savings as compared to 2025, and what you see here is really that we have achieved that in terms of real cash-out cost savings. So summarizing the variable cost and the indirect spend, we have achieved over $8 billion in cost savings thus far. looking to cash it was impacted by the planned inventory build-up we started the quarter at 46 billion in cash liquidity ebta brought it up another 7 billion investments 8 billion noting here that we're now starting to approach affordable levels on on investments this is significantly down versus last year we will have 14 billion in the quarter as a reference Other working capitals like your positive and the net working capital weighing it down, largely explained by inventory and, as I said, the very planned and communicated build-up of XC60, XC90 inventory to protect full-year outputs as we're ramping the X60. We end the quarter still with very sound liquidity. Looking ahead then a bit, we see that we had a very tough first half of the year. We knew that and we've been talking about it, but it also became even tougher I think than expected due to the China developments that we did not fully foresee in the second quarter. We've also been clear that the second half will be better and we still see this and we expect a recovery in the second half. But in light of this and the China development, we've also adjusted our forward-looking statements. So what we see ahead now is that we will have significantly stronger sales in the second half of the year versus the first half of the year. And what that means is basically we will have 10% stronger growth in the second half than we had in the sales in the first half, plus minus probably 5% depending on how China develops as there is uncertainty. That's on the back of growth led by Europe, a continued recovery in China, and then a very challenging China environment to a large extent pricing. We also have stronger headwinds, so costs are increasing, especially from raw material and oil prices, and this is really starting to kick through in the second half. We continue to focus on cost, as Håkan said. We continue to reduce indirect spend beyond what we have planned and delivered. But that said, the variable cost will be challenging, especially in the third quarter, both as raw material prices are increasing and flowing through further into the result. But in the second half, the year-on-year comparison is also harder, right? Because if you remember last year, we executed well ahead of time on our cost and cash program, which means that the comparison half-year is a tougher one to compare with. If we look at cash, we see that we will have very strong positive cash flow in the late second half. And that is really from the inventory build-up that we had in the first half due to EX60, but also from seasonality, which we are now emptying in the second half towards the end of the year. And that means that we expect to end the year approximately after break-even full-year cash flow. So with that, let me hand over to Q&A.

All right. Thanks, Patrick. Thank you all. All right. We're all geared up now for the Q&A session. For those of you who want to use the phone lines, remember, to be able to ask a question, you need to press star 1-1, then we'll be able to hear you in the room. But let's get this started. A lot of questions coming in. Let me take a few coming in from the media that's come on chat. Maybe I'll turn to you for this one, Hakan. You talked about strong BEV performance in Q2. How do you see BEV performance for the remainder of the year, especially since you talk about strong growth in H2? Will that come from BEVs primarily?

Absolutely. It will come through BEVs because I think Eric showed here both are existing. cars also have a positive development and the very impressive growth we reported came really from those two cars and that's really not the biggest share of the market available for webcars i mean mid-size suvs has been a blind spot for us so far and that's where the ex-60 will come in So, of course, when we now have EX30, 40, 60, and 90 well-performing, I think we have a very good foundation to really follow through on our strategy, which is we should grow, this company should grow by leading the transformation to electric cars. So, absolutely, that's a very strong factor for us.

Right. Maybe the next question is for you then, Frederick. In your slide on cash flow, you talked about lower investments, lower than $8 billion. Should one extrapolate that for the rest of the year as well?

As I said, actually, we're starting to approach affordable levels, and that is around the level we should be at, hopefully slightly lower, but...

Okay. Let's take the first caller then, and that's Jose Acumundi from JPMorgan. Good morning, Jose, and please go ahead with your question.

Good morning. Two questions, please. Which actions do you think you foresee will generate these cost savings in the second half? Are they different versus the cost savings you generated in the first half? And then second, when it comes to the cost savings with GD Group, I was wondering, is there a change in mindset, or in other words, what has that not been achieved before, or planned before, and what do you think is the opportunity with generating cost savings with GD Group in terms of purchasing, and will this be mainly then related to maybe potentially building cars together in Europe?

So I think we've achieved great cost savings in the first half. If we look at the full year, that will not double, so to say. So a big chunk of the full year savings you already see realize now. We expect indirect expense to continue to go down slightly, but on the year-on-year comparison we had a big decrease in the second half already last year. On variable cost, as I stated, I think especially in Q3, we have strong headwinds from raw materials that will kick through to the result. We see underlying savings still on variable cost. We see more results of the work we're doing together with Julie in terms of negotiating together with suppliers that will help us underlying, but the raw material headwinds will be very strong. So, the bulk of the cost savings for the full year, you've seen now in the first half.

And looking forward, the synergies with Yili, of course, so far it's been mainly procurement savings together. But looking forward, we'll be much more developing a regional product offering for China. we will be able to do including software then we will be able to do to a much lower cost of course in cooperation with them but we will also see increased usage of the common hardware parts in in europe in the platforms we have been developing and but the building cars together of course our Volvo cars will be built mainly in Volvo factories also in the future but there some of them might be built with the platform technology from Yilin especially in China and then that is what's going to happen and then including then of course again factory which we announced the other day there of course one option is to assemble other brands and of course that could also be dealer brands but then it's a contract assembly and then of course totally fulfilling all regulatory requirements for an icts approved plant which again is all right thank you uh we're actually getting some more questions on the you know on the ghent announcement yesterday question from jonas

from Dagens Niheter, you know, from also the Belgian press, you know, is dialing in. Maybe if you can give some more color again on the contract manufacturing piece, I mean, you know, do you mean brands within Gili, but also could that be optioned with other brands?

I think the first thing is, of course, the Gili, the plant then needs to be competitive. So I think that's really glad to have now a possibility to really have a world-class competitive plant. And that, of course, opens up a lot of opportunities. First is we will feel very comfortable building the cars. We want to build there, and we don't need to think about alternative scenarios. But, of course, if there is access capacity, we are open to look into other options. I mean, realistically, of course, the most realistic is probably assembling other yearly brand products in this factory. but that is still a process where you really have to look in how that will be done and how you can do it with complying with all regulatory requirements. But we will come back to that when we have an agreement in the future.

Yeah. Good. And staying in Belgium, this is Bas Kucins from Belgian Local News. On the future of Ghent again, will Volvo produce new EV models in the plant Will you be investing in mega-casting and the concept manufacturing you've answered? But will you be investing in mega-casting? Will you be producing new EVs?

No, I will not reveal any details about what cars and exactly what type of process, but I think the important thing is for Valium and the factory that if we have a competitive price level, there is a lot of opportunities of course building the cars we want to build there. And, of course, there will be a new generation of the cars that we are building in Ghent, which is planned. And now we can plan that first priority to continue building them in Ghent.

A question from Auto Express, Alice Hyde. In your Q2 report, how can you mention Volvo will reveal two new exciting models later this year? What can we expect? Is there any possibility for a new Volvo estate based on Spa 3?

Oh, that's an interesting opportunity, but probably not during the autumn this year. We are indicating something different and I mean there are of course requirements in Europe for emissions and so on that we would like to fulfill. So, let us wait with revealing those cars, but I think they will be two very exciting cars for the market.

And also, maybe you can add that Spotry is a very capable architecture to do big cars, small cars, and high and low cars, which is a prerequisite for any estate discussion. Okay.

Very good. Let's take the next caller. That's Harry Martin from Bernstein. Good morning, Harry, and please go ahead.

Yeah, good morning everyone, thanks for taking my question So the first one is just on the China market The downturn, the level of discounting this year took Almost by surprise Compared to where we were at the beginning of the year I just wanted to understand How tough a second half of the year is in your planning Are you assuming some improvement in that situation or is your internal planning now that that market stays tough for a matter of months. And then secondly, on the EX60, you mentioned previously that you expect this vehicle to be margin-equative. I wondered, what is the run rate volume that is needed to fulfill that margin-equation, and do we get to that level of production, given that would be really helpful?

Even with the China question, I've heard if you can chime in on the EX60. So, I mean, right now where the Chinese market is going, we are not expecting any immediate strengthening of the underlying in the market. What you can see is that it is a massive competitive landscape in a contracting market. I mean, TIBs were down 20% the last few months with multiple new car launches happening after the auto show. So, we are continuing, we're seeing a continued commercial pressure in that market. And as Håkan alluded to and I said before also, our remedy to that is to protect our price position because they have a premium price position, a strong brand, and a legacy is an asset in that market, while tapping into the synergies with Ely, making local cars for that market at the cost levels, which is needed to have a decent margin. so it will be a continued difficult market do you want to comment on the margin and we're gradually rolling out ramping up production and currently as we speak I guess as always in summer shutdown you're reshifting the plant and

then we will over over the course of the year step by step increase production in terms of where this turns fully positives into margin that's towards the end end of the year and then scale up continues given the high demand so we can see that we're building a quite strong order book on the effect right now which i think is a prerequisite for any margin improvement in uh in the coming time period even this year or next year all right um you know staying with the x60 and you you get some color on the on the production but this is from Agnieszka Viela from Nordea.

Do you still expect volumes of production of 40,000 EX-60s in 26? What is the planning for 2027? Is it fair to assume next year that it's 27, you will double the volumes produced in 26? There's one more. I'll come back to you for that, Eric, but yeah, go ahead.

We are keeping our ambition of producing up to 40,000 cars of that vehicle this year. Now you should always say that the ramp-up is called ramp-up for a reason. It's always a period in time where you're trying to hone in the industrial system and it takes some time to get the production going. But we are seeing an underlying very strong momentum, which gives us confidence also for next year. I will not comment on the absolute numbers, of course, for next year, but I can say that we are overperforming on our orders on the year 60 and we will get the ramp-up done and then we will have a very solid business case for that car.

It would be very strange if it was not twice the volume we achieved this year as we are only producing half a year with the ramp-up this year so it would be a very modest fork.

You can say that the safe space is considerably higher than the production space during the ramp-up.

And one question, I'll turn to you again for that. Do you expect EX60 to cannibalize EX60 volumes?

No, we're actually looking at that quite diligently now. So, of course, there is some cannibalization. We have not had enough for us, all can said, in that segment. But actually, we can see that the net water intake of those two cars is very positive still. So, at least 50-60% of that is pure growth.

All right, let's go to the next caller, and that's Stephen Wilmot from Wall Street Journal. Good morning, Stephen, and please go ahead.

Good morning, can you hear me? Good morning. Can you hear me?

We can hear you, Stephen. Can you hear us in the room?

Yes, I can hear you. So, just two questions. One, interesting to hear your comments on the competitive situation in China just now, in response to Harry Martin's question. But could you, a whole convention that the competitive situation in Europe is also So being affected by what's happening in China. And can you just give a bit more of a sense of how that's affecting the premium segment in Europe? Are you seeing the competition from Chinese brands in that premium segment or is the concern that you have more around or the pressure you're seeing more around the other European in premium brands that are becoming sharper in Europe in their pricing because of what's happening in China. So if you can perhaps just mention that. And then second question about region migration in the US, you talked about this before, but But beyond the localization of the XC60 in South Carolina, do you have any further plans or can you talk a bit more about what you're doing to regionalize the U.S. business?

So let's start with the first. I think yes, both factors as you indicated. I mean, despite the new tariffs limiting entrance to Europe, we still see a growth of Chinese electric cars in Europe. So, I mean, that is one factor. But I think even though it may be difficult to have exact examples, but I mean, if European players are losing volume in China, it's very likely to assume that they will try a bit extra to sell more cars in Europe. So, I mean, that is definitely also something that will heat up competition in Europe. The downturn in China will influence Europe. I'm absolutely sure about that. Turning then to U.S. and the more regional offer, which we will have, I mean, in China, you will have a very special offer, very much developed together with Yili. In U.S. you will also have a regionalized focused program. The cars will of course also be sold in Europe, but I mean in U.S. we will see more multi-fuel cars, electrification a bit slower, and of course a preference for SUVs will stay in the U.S. So, first step is the introduction of the XC60, and after that we have also said that there will be more investments in Charleston into a very attractive, bigger car for the U.S. market. And to give you some idea, a more attractive car for the U.S. market would probably be something similar to an SUV. is probably maybe also something which could offer a bit more flexibility on the fueling side and not just being all electric. But I think I'll stay there in giving more details. But yes, there will be an attractive second car coming to Charleston. Very good.

Let's take another question from Dagens Nieheter. Will Gili use the Spa 3 platform?

No, they will not do that according to plans and decision today but it's of course not to rule out we would like to promote common platforms in the group and we will use some of their platforms for cars now we will build in china and then of course we would discuss if they would use the spot platform in the future we will be open for that but no no news no i think maybe you can add also it's not only about platform sharing.

It's also about components within a platform where we're collaborating a lot to find common key components. Could be everything from battery cells to e-motor. So sometimes this platform question is a bit misdirected. It's more about finding the synergies on the component level as well.

This question is from Nardi and I'll probably turn to you for this, Hakan. What is your ownership strategy in relation to Polestar? With the stake close to 20%, would you consider any capital investments for equity or debt if the compound needs it and other owners are participating no i think you should not speculate about in the future i think we have a 20 percent close to 20 percent share right now frederick and i i think we have no ambition to change that no yeah very good uh let's take another caller then and that is uh pushker Pendulkar from HSBC. Good morning, Pushkar, and please go ahead.

Hello. Hi. Thank you. Thanks for taking my questions. Good morning, everyone. My first one is just on the sequential development. What gets better in Q3? Because we'll only be seeing the initial sort of volumes of the X60. So does it actually get worse in Q3 before it gets better in future in terms of profitability on a sequential second one is on your cost and cash program it's seeing environments so if there are school and this program giving also the announcements by some of your your and then the last one on the event announcement if my understanding is correct the support from the Belgian government that should be in the form of grant when does that is that milestone driven or it's a one-time payment and when does that with your P&L and cash flow and just related to that if you talked about having sort of contract manufacturing at Kent are you also open to sharing your capacity at the Slovakia plant with with other car makers, because I believe that plant would have a better cost structure. So are you open to doing that? Thanks.

Lots of questions, Akushka. Maybe I'll take one by one, and if I can read my own notes, but I guess maybe... I can do the first one. On the Q3.

Your question was basically what would be better in Q3 versus Q2 in terms of sales and So, I mean, it's important to remember, as you stated correctly, the EX60 will have a more meaningful effect in Q4 than in Q3, but it's also important to see that we have an underlying momentum in Europe on the other electrified cars. We are having a double-digit order pace increase on the EX30, the same with the EX90, while protecting a strong position on the legacy cars, the XC60s and the XC90s. The other piece in Q3 which we are seeing some positive indications around is the trend u.s where we saw both may and june coming in slightly stronger than we expected and we can also see that we have a good market equation between pricing and offer to u.s so that would hopefully also continue into q3 those will be the key points between q3 and q2 and then on cost and cash so i mean as you said the we see a lot of positives and we've we've done a lot of great progress on getting costs down.

We have market headwinds that is offsetting that, but we're still focusing and continuing on this path, right? On indirect spend, there are some more steps we will take. That said, as compared to others, as you mentioned, I mean, we started quite forcefully and, you know, reduced 3,000 positions. Was it 10% or 15% of white-collar employees already last year? So we have been quite proactive, and I'm very glad that we have done that, right, because this is really helping us now. I think the big longer-term kicker is really on variable cost and the GVC in it. So we've started working together in terms of sourcing. As Eric alluded to, there are part sharing, there's more component and platform sharing in China. So there's a lot of mid-term variable cost opportunities which we are pursuing. So we're far from done on that. Maybe I'll stop there, actually.

I think on Ghent, maybe cash flow effect, like what sort of a support? When do we see the real effects of that financially?

We will come back with details as this unfolds. We now have an MOU and I think what's important with that MOU is that we have very clear backing from the Belgian government to make sure that we together can build a plant for the future at extremely competitive cost levels.

And maybe on Slovakia then, Hakan, would there be potential contract manufacturing there Good potential, but right now there are no further plans to do that.

And that factory will build only spa-free cars. And I think we would like to keep it like that, to really keep down complexity in the plant to have it very efficient. But of course, if there would be spa-free cars used by other brands, we could discuss that. But very hypothetical right now, no decisions taken.

Good. Maybe I'll turn to you, Eric, for this one. Auto Express again. You've talked about big growth in your EV sales in Europe. However, pH sales have also increased considerably. What advancements are you making with your hybrid technology to satisfy customers not ready to go electric?

Well, maybe the short answer is there's more to come. We have, without revealing any details about the future product factories, we have said that we will continue to invest in our PL technology. We have been very, very successful in terms of market share, both on the XC60 and the XC90, I would argue, in all markets. So that is obviously a position which we will continue to protect, and there will be more news coming very soon, at the end of the summer, I would say. So, there will be more to come, and we're seeing the potential. Okay, good.

Sting with products, this is from AutoCar. Retail sales of EX90 has fallen 24% in H126 versus H125, and it represents a very small portion of your overall sales, particularly when you compare that to the EX90. Why is that the case? What are you doing to stimulate sales?

Well, I think, I mean, one thing which we have done, which I talked about as well, we have done a major upgrade of the car in the late small years. so both on hardware and software the car now has an 800 volt system for example which we know is very important for the fast charging and then it's important to see that the bed segment in that size of car is still quite small but we have a very high market share in that segment of seven seater premium esuvs and we have right now double the order pace on the ex-night in europe That's on the back end, and combined with us lowering the costs of the vehicle as well, I have big hopes for us having much better numbers on that course in the coming months and the coming years.

Okay, good. One more question then, and I'll come back to Slovakia. With Slovakia factory, your global production will be close to 1.5 million. With your volumes running at 700,000, you have a lot of excess capacity. Do you see the risks of unabsorbed costs in your factories once Slovakia comes online?

I think you also have to keep in mind that, of course, the capacity you also have to include, of course, if the factory is manned or not. But, of course, the investments are done there. They are there. So we need to, of course, utilize the factories. And I think the best way for us to utilize the factories we have is to increase the number of the electric cars. Because we showed we have two and a half times better market share with electrified cars than with others. So I think it would be very difficult to fill those factories with conventional cars. it has to be electric and if we can't continue having a two and a half percent higher market share i see no problem with filling those cap that capacity it will be highly appreciated good uh let's go to another caller then uh and that is nikita papaccio from deutsche bank Good morning, Nikita.

Please go ahead.

Good morning. Thanks for taking my questions. A lot were asked already, but I will have two remaining. The first one on pricing. You mentioned you will safeguard your pricing, although volumes are declining. To what extent you can do that, and how do you see the rest of the year? So should we expect further what I said with pricing, and how do you adjust here? And my second question on China specifically. I mean, you have localized products, but this is more affordable, right? So what can you do?

Good question. I mean, it's very difficult to answer the first question to Bronis. To what extent can you protect pricing and sacrificing volume? I think that is always the balance we need to do every day in the commercial system, being very close to the market. But we also recognize, especially then in China, which is where we have this value, that the power of having a very well-recognized brand and strong heritage actually also helps in the pricing discussion to a large extent because customers are asking for Volvo products with the world-renowned for safety and whatnot. So we are constantly balancing that. But what I can say is that it will be more and more important for us to look at the cost side, the variable cost side of the vehicles in China as the price will continue to be under pressure for everyone in that market. And that's where we have a unique strength with Chile. So I think that would be the enabler for us, protecting our current strategy. And in China, what short-term efficiencies can we have by partnering with Chile? Well, we can comment on the cost side. Again, if there are short-term wins to do there, if we can combine purchasing contracts and whatnot. But also in the commercial system, we can look into coverage in the commercial network, for example. Can we collaborate with the GD branch to increase coverage addressing a bigger size of the market? And also we're seeing products such as the long-range XC70 is actually taking a very strong market share, way beyond our other Western competition in the growing PHAB segment. And that, I think, would probably be the key in enabling the short term, to do more with that part.

All right. I think we have a few minutes left. Maybe we'll take a last couple of questions. Maybe probably the last caller then. That's you then, Ross McDonald from Citi. Go ahead, Ross.

Thank you very much. Just one question from me, but it is quite a big, let's say, existential, long-term question. So just be curious, you know, if we look across the regions, Obviously, the Europeans are losing share in perpetuity in China, difficult to call when that stops. The U.S., now you have tariffs, so free trade obviously starting to disappear in that region. And then we have in Europe, you know, continued hope that free trade will come back and, you know, massive competition from the Chinese in the European market to the pressure on that profit toll. So my question is, What role do you think the European Commission should play here to protect the local European industry? Obviously, we've seen the Volkswagen capacity cut. We could understand the threat to the industry, some Chinese said, be enough at this point to... But I think it's an important one.

A difficult one. In principle, I mean, we are of course always in for free competition and leveled field competition. You could, of course, question if we have that today. So I think you can understand and have to accept that there will be tariffs into Europe in the years to come. And I think going back to Volvo, our position as a premium carmaker in Europe, I think we have a unique opportunity, and that is, of course, transforming our premium combustion cars into premium electric cars because that is an area where it will be much tougher for newcomers to penetrate. I could assume that first there will be more in mass markets, lower-priced cars that will have problems with Chinese newcomers. but if we follow up and continue our strategy and transform faster and offer our Volvo customers a Volvo delivering everything they expect from a Volvo but also being electric, I mean that is our future in Europe and I think we see signs already that that strategy is working and I think maybe a year ago there were more doubts about electrification So I think we are very happy today to see that there is a solid transformation going on, which really will help Volvo being stronger in the future. And that's exactly what we will talk more about then on this special event that we are planning in September, where we will reveal more of that. But all of those products, of course, that we will then develop to meet this more regional approach which will still be done within the normal investment levels that you talked about, Fredrik. So, not making anybody nervous of us going back into big spending again.

I will maybe add as well, I think especially in premium in Europe, it's a big asset to have a strong network, to have a good customer base, a loyal base, a service business for retailers. and also looking at the ownership side or the usage side of the product it's not just shipping method we can do a lot in premium by different offerings that more simplistic hassle-free peace-of-mind offerings like the care offer I think that would be a differentiator to Chinese competition other competition as well to be honest difficult for newcomers yes so Volvo should definitely be more than a hardware tower all right maybe this is a good

question perhaps to end the earnings call maybe i'll turn to you for this one hakan uh the first half has been tough for volvo cars what gives you confidence that you will end 2026 with a stronger performance in h2 it's really first that we have been using the time taking down our cost structure and taking down our costs i think that's always a good part going ahead then you see momentum in the form of picking up electrification transformation, picking up in Europe, a comeback in the US after the market went down with the end of the incentives, you see that signs, and then of course in Europe we will have a car for the mid-sized electric SUV segment. So that together make me confident about that But the second half year will definitely be better than the first half year. And, of course, also our cash earnings will also improve. So I think the second half will be, you will see a turnover with this company moving into the right direction.

All right, Akar, Eric, Frederick, thank you. And thank you, everybody, for tuning in this morning from all of us here at Volvo Cars. Have a great day and have a great summer ahead.