VLVOF (VLVOF) Q3 2026 Earnings Report, Transcript and Summary

Good morning and a very warm welcome to the presentation of Volvo Cars' Third Quarter financial results. I am Ron in communications, and as always, this morning I am joined by our President and Chief Executive, Håkan Samuelsson, our CFO, Fredrik Hansson, and our Chief Commercial Officer, Erik Severinson. Like we do, it should be quite familiar to you by now, Håkan, Erik, and Fredrik will walk up and take us through our performance during the third quarter and the road ahead. Thereafter, we will open it up for a question-and-answer round. How you participate, I will come back on the other side. But for now, I give the word to you, Håkan. Håkan Samuelsson: Thank you. Good morning and welcome to this quarterly report. We start, this was of course, a very negative result of quarter three. I think the conclusion is the business environment have turned worse than we anticipated. I think that is really a conclusion you could draw now. Compare with what we thought 12 or maybe 6 months ago, it has gone faster and has affected us more. In China, the market is rapidly declining, and especially for the Western premium manufacturers. Our revenues are more or less down with 50%, and that is, of course, the major reason for our result in the quarter. The United States is also, of course, very challenging. We were strong in electrified cars, and then the incentive systems was discontinued and that has, of course, influenced our possibility to sell our plug-in hybrids. The profitability was also impacted by the tariffs, and that is, of course, especially serious for us, which import basically all our cars and have a very limited production locally. Here is also not to expect any tailwind in the near term, very low consumer sentiment. Europe is now where we still contribute to profitability. It is a relative stable market, and we also see something very positive is that electrification is now really speeding up, and we are in the lead here in the premium segment, and we already have a BEV share of 45% in the quarter, and that is class-leading. That is very positive for us. We, of course, also will bring out more electric cars on the market, and we see also a strong order intake for our BEV cars in Europe. Europe is now holding the business up for us. In this critical situation, what should you do? I think the only thing we can do is to do things which you can control and influence. That means we need to look at the cost side again. We will be reinforcing our turnaround plan, which we are successfully implementing, and we need additional cost actions of over SEK 5 billion on the direct and indirect cost side. This will also mean 2,500 reduction of number of jobs. This we will do in the overhead side. I mean, we have two things really driving this. One is the empowering of our regions, which means that we, of course, need to do in the same time a reduction and have a more leaner corporate structure here in Sweden. On the R&D side, we are now through a very intense development project with development of the SPA3 platform, the HuginCore central compute that we will not do in the future. That means also we need to reduce to come down to affordable levels here on the corporate overhead. On variable cost, I think there is further possibilities to bring down the BOM cost of our car by utilizing Geely synergies. We can use more common hardware components in our car with our Chinese colleagues. That will also help us as part of the program, the SEK 5 billion. We also need to concentrate our production. We have had seven plants globally. I think that is too much for us. We really need five plants, two in Europe, one in U.S., two in China, which will be 100% Volvo dedicated. Then we have the plant in Ghent and Chengdu, where we are looking into solutions where we could use those plants together with Geely and other brands. This means a reduction of 2,500 people, as I said. We will take out temporary jobs as what we call consultants. We really need to use natural attrition and not backfill those positions as we might normally do. Really be creative, look into job rotations and really get the reduction from the natural attrition. We will also have directed exit packages to some people. We believe we can reach this 2,500 around mid next year. We can today also not exclude that we might need to take additional actions here in February if this does not work according to the plan we are now saying. I am relatively hopeful that it should work with these measures I just said. Of course, we will also have to adapt our blue-collar workforce to the current volumes. That is, of course, maybe basically more in China than in Europe. But of course, we always do that. All of this, the package, is to lower our break-even volumes and to improve cash flows. In this situation, I think it is also important to believe there will be no short-term tailwind from the market. We do not believe that. So the improvement of the company in the midterm, near term, has to come from this cost package and improvements internally. But of course, the company will never be successful long term, only with cost-cutting. So we need also a future-oriented strategy, which is really how we will make the company successful long term. That was something that we presented some months ago, and I think we now all see that it is really good that we have this now. So what we not only have to talk about cost-cutting. Now it is to wait for this strategy really to take effect and then give contribution to better performance. The strategy is really a regional strategy. We need to have regional products. Global products will not work in China anymore, and we need to localize more products to U.S., and we need absolutely a complete all-electric product offering for Europe. So one-size-fits-all will not work in the future. We need much more regional approach. The second part of the strategy is mainly grow through electrification. Electrification will help us grow, and that is, of course, obvious when you see already today, we are leaders. 45% of the cars are all electric already today in Europe, and the total market is now really going electric, going in our way, I would say. We will also have now our second-generation PHEVs that will start this year, and then we will also have a long-range plug-in hybrid fulfilling all requirements on the market. That will help us. We will localize to Charleston the very first car now already in the beginning of next year. In China, we will have two China-tailored cars. I will say absolutely fully competitive cars for China, including Chinese software, Chinese ADAS solutions, and of course, a cost level that is also fully competitive on the market. In Europe and globally, we will also have the next BEV on the SPA3 platform, with, of course, helping us to lower our production and product cost, and the first deliveries will happen here after summer next year. So keep our strategy on track in parallel is very important as we do the short-term cost-cutting. Next chart I see is for you, Erik.

It is. Thank you. Håkan Samuelsson: Thank you.

Hello, everyone, and let me talk through a little bit on what we're doing on the commercial side. As Håkan talked about, it is a very difficult market out there. If I start in China, total market is down around 20%. Premium Western market is down more than that, and so are we. So the focus for us in China now is to stabilize and rebuild the competitiveness at the level we are right now. That means reducing inventory, commercial costs, and adapting to a lower demand. We are working very actively in China now to improve profitability for our retailers because they are also suffering, as we are doing, and also trying to find that balance at a lower volume. It is important in China right now to protect your margins and not get drawn into too aggressive price wars. The strategy in China, as Håkan talked about, is to localize with a local product offer. We have one product, which is the XC70, which is already built on that strategy. We are seeing market share-wise, that is performing very well in its segment, plug-in hybrid for premiums. We are now seeing how we can expand that product into specific cities, especially with the new variant, which is the front-wheel drive variant, which is important to address a bigger part of the market in the lower price segment. But also adding two new cars as a first part now of the strategy to come, and this will be hugely important on how we win in China over time. So right now, China is about stabilization. It is about improving the retailer network and preparing for the new cars coming where we are capitalizing on our strategy. Now U.S., we saw positive trends in U.S. in Q2 in terms of volume. U.S. has proven to be a difficult market to find profitability on. The consumer sentiment in U.S. right now is at a 50-year low, which impacts, of course, the car business as well. On top of that, you have tariffs. On top of that, you also have changes in regulations on electrification. We are seeing now that we will need to focus our strategy in U.S. around profitability rather than volume and growth. So we are targeting now specific regions with the updated portfolio, which is very important for U.S., of our plug-in hybrids and our XC90 and XC60 mild hybrids. New technology, new face on the XC60, which will be very important. We are also changing the way we are steering U.S., segmenting it into four very independent and mandated regions closer to the local markets and running a focus strategy within those regions. For example, a boost plan around California, which is a part of U.S., which is actually quite highly electrified and fits very well to our electrification strategy. Optimizing our sales channels, of course, part of protecting our margins. That is very important. We are hit by tariffs, so we need to be very selective where we compete and compete only where we have a healthy underlying business. Then we are localizing early next year, the XC60, which will be very important because that is the big seller in U.S. right now, and then we are getting inside the tariff barrier of U.S. Now, as we talked about before, Europe is right now holding the fort when it comes to profitability of the company. Europe is doing what we want Europe to do, if you put it that way. It's electrifying. For us, it's very much now in Europe, how do we capitalize on that electrification momentum? It's not only about BEVs, we're also adding long-range plug-in hybrids with emissions well below 50 g, which is very important in certain markets with certain taxation rules where electrifications are slower. We're expanding our BEV lineup early next year or deliveries after summer with a new car based on SPA3. We're then also, of course, building on the EX60. Let me talk a bit about the EX60. Now, the EX60 is a great success in the market. We have now, and we're not even selling it in all markets in Europe yet, but in the markets we're selling it, we have achieved over 50,000 orders. It is a fantastic car, which is appreciated by our customers and our retailers already now. It is also a car with a lot of innovations. In today's industry, our way to compete is to have the better product. Those innovations are, to some extent, difficult for us to start the production as we want. If I take the example of the battery in the car, it's a unique battery concept, gives the car unique capabilities in terms of weight, cost, drivability, silence in the cabin. But that process is slightly more difficult for us to start the production ramp-up. We now roughly have around 5,000 cars, which are either at the retailers or customers or on their way to our customers. We're seeing improvements every week in the battery plant, and we are learning how to produce these great cars. But most importantly, we're seeing great reception of those cars at the retailers and our customers. So we're very confident about the product. It takes longer time for us to ramp it up because it has innovations, which makes the car great. That is something we're working very focused on right now. How do we get this car out at pace to our customers? With that, Fredrik, I'll hand over to you.

Thanks, Erik. Let's go into our financials. In Q3, I think it's easy to see that this was a very challenging quarter, both operationally but also from external events. It's also important to note that when we compare it to last Q3, that was also a record high. But retail sales were down 11%. Wholesale was actually down even more. That's largely due to China and us trying to help dealers manage inventory, not pushing wholesales. Revenue further down 23%. We end up with a core result, if you will, at SEK -3.7 billion. The full group result, if we include JV and Associates and income items affecting comparability, was at a full SEK 5.6 billion loss. There's really two big drags on the group level. Firstly, it's a SEK 900 million accounting effect from our share of Polestar's Q2 losses that we take in. Secondly, it is a SEK 1.1 billion write-down linked to CAFE emission credits. Here, CAFE credits in the U.S. is something where the regulation has recently changed, and there was a regulation change enacted late September. This includes a retroactive change basically reducing CO2 emission requirements all the way back to model year 2022, which reduces the need for credits for all OEMs. We have already contracted to sell our surplus credits. We have very sustainable cars. Given the lower need with our counterparties, we cannot fully defend the value of this. So that hits us in the accounting result. Cash flow is also negative, in part due to seasonality. Production is closed four weeks over summer, and we had very high production before summer, which we now have paid off. Of course, the underlying result is contributing to the cash flow. Going into some of the details and starting with revenue. As you can see, volumes is, of course, severely taking down revenue with SEK 10.7 billion. Sales mix and pricing, a 1/3 or SEK 3.5 billion. Then we have a very large other category. This is a year-on-year walk. To keep in mind there is that last year we had large positives, we had high used car sales, we had a big one-off sale in terms of licenses. This year we instead have negatives. Here, especially the CAFE write-down impacts revenue. So net, it becomes a big year-on-year swing. If we then turn to EBIT development and focus, excluding JVs and items affecting comparability, we had a very strong and tough comparison quarter last year with SEK 5.8 billion in EBIT. That was also elevated by positive one-offs last year. This year it is the opposite. It is negative with a loss of SEK 3.7 billion. Volumes, of course, had a negative impact, SEK 1.9 billion, reflecting especially lower sales in China, which had a drastic decrease. Sales mix and pricing is hitting us SEK 2.5 billion, primarily driven by less favorable mix and a continued price pressure, especially in China, but also U.S. Variable cost, negative, which is new, and this is due to the known raw material increases that are now coming in. So we are seeing raw material cost increases more than offsetting the cost reductions we are achieving. Indirect spend is still contributing positively. Last year, we were well on the way with our cost program. We see that we have further progressed here with a SEK 1.9 billion contribution, but it is not enough to offset the headwinds. We have lower capitalization, we have higher D&A, combined impact of SEK 1.1 billion. FX is hitting us negatively, SEK 1.2 billion, driven largely by a stronger Chinese Yuan. Finally, we have a very big other category of SEK 4 billion, and this is again, a big swing from a year-on-year perspective. So last year this was very positive, including large license fee profits. This year instead negative, in part driven by accounting effects on our lithium hedges, where lithium has moved quite a lot, which is hitting down on the number. So all in all, SEK -3.7 billion or 5.6%. Maybe putting this a bit in perspective, if we compare to the second quarter, we are really seeing a sort of sequential deterioration in volumes and margins in China. We see the raw material cost increases and then this adverse effect on FX. So it puts a lot of pressure on our profitability. Despite the cost reductions we are doing, we are very far from where we want to be profit-wise, of course. Turning to cash flow and liquidity. We had a weak cash flow performance. Worth noting, though, is underlying operations is still cash contributing, despite quite heavy accounting EBIT losses. EBITDA is positive. Investments come in at a relatively low level of SEK 5 billion. We have other items, tax payments, et cetera, of SEK -4 billion and the net working capital of SEK -1 billion, so largely flat. We are reducing inventories, but we are also paying off a big production we had just before summer. In total, free cash flow of SEK -8.9 billion. Despite that, liquidity is very, very solid, SEK 32 billion in cash and SEK 55 billion total liquidity. But we need to improve. I think to improve cash flow, we are working to both improve margins and lower the break-even point. As Håkan mentioned, a part of this is reinforcing our ongoing turnaround plan with an additional SEK 5 billion. We really do this by both finding structural efficiencies and further automations in reducing SG&A by lowering R&D spend. We have now set the technology base for the future in the Western world with SPA3 and HuginCore. That means we can take down investment levels. In China, it is really about weathering the storm. We see that the global products need to become regional. That is our strategy, and we have the right direction and the leverage of Geely in that. But awaiting those products, we need to really focus on cost efficiency. The good news is mid-next year, two of the six products announced will come. We are also working harder to get more commonalities on individual parts together with Geely. These actions we talk about, they will be implemented before summer. That is the ambition. It means reducing 2,500 jobs, and that means at suppliers and at Volvo Cars. This is both what services, consultants, and for the Volvo employees, we expect to do this from natural attrition and voluntary exits. The financial benefit of the SEK 5 billion we measure on the full year, and we will incur a restructuring cost of about SEK 600 million that will be recognized in Q4 due to this. If we then look ahead, we see that these external challenges are likely to continue, as Håkan said. The short-term volumes will be severely challenged. The very tough market environment remains, and we see a China where we continue to see weakness or even further deterioration. We have talked about the EX60, hugely in-demand car, very profitable car. The financial contribution of that will, of course, be delayed as we are not ramping up according to fully the plan we had before. U.S. recovery is also coming in slower than expected. For cash flow, and in the very near term, that means we will have support from normal seasonality if you look at the fourth quarter. But it is also, of course, impacted by the volume challenge we see. Restructuring costs are coming in the financials. We have quite low visibility. But I think the good thing is, if there is a good thing, that the headwinds we are seeing now from tariffs, from regionalized products providing tough competition, those are exactly the points we are addressing with the strategy we have set. As Erik and Håkan alluded to, we have some of the stepping stones on this strategy coming online mid-next year, which should provide contribution into the second half. With that, Håkan, do you want to summarize? Håkan Samuelsson: Yes. To conclude, the business environment has turned much tougher than expected and planned. I think that has to be one conclusion. Then, of course, what do you do in a situation like that? You need to do what you can influence. You cannot complain about the external environment, it doesn't help us. Also very important because hoping for a really short-term improvement from outside, I think is also not realistic. So short-term performance improvement must come from our turnaround plan, which we can steer. That is, we need to lower our break-even volumes, and we need to secure a positive cash flow as fast as possible. That is really what's the purpose of this action package. But I think it's also very important to remember that will not make our company successful. So now we really need a long-term answer. How will we meet the challenges our industry is now facing? So de-globalization, the climate change, and the hyper competition from the Chinese, what is our answer? I think we're very good now to have a very clear and solid answer to those challenges. We will have a regional structure, and we will grow with electrification. We will, of course, utilize synergies to bring down our cost. Stay on course with that strategy is also very important to do now, and I think I'm very glad to see that we are delivering on that also in the short term. First two regionalized car already next year, and next car on this SPA3 platform also next year. All of this, of course, should be very dangerous to do if we could not do it at the same time as we keep investments on an affordable level. These new cars will not jeopardize our cash flow. They will be done in a smart way, utilizing synergies, utilizing investments already done. So we will also secure here where we are down now on a CapEx investment level that is affordable, and that is around 30% down compared to 2024, when I think it was very high in the midst of this investment phase. To conclude, we are working hard to get performance from our turnaround program, and we are securing a long-term success with the company with our strategy. With that, I think we are ready to go into questions-and-answers, and that's Ron, you will lead us.

Yes. Thank you very much, Håkan. Let me just again walk through how you can participate in the Q&A round. Either you simply use the phone lines. To be able to ask a question, press star one one, then we will be able to hear you inside the studio. You can also send in your questions via the chat window that you should be able to see at the bottom of your screen. Simply type in your question, and then I can read that out. Let's get started then. Let's take the first question that is coming in via the chat. Håkan, maybe I will turn to you for this one. Given the deep decline in China, what is Volvo Cars planning to reverse the China performance? Håkan Samuelsson: It is basically, we will not be successful in China. I think nobody will be successful with the old recipe where you had global cars developed in Europe and sold them to a premium price. That is gone. Those times are gone. Now you need to regionalize. You need to have a low-cost hardware platform, number one, and that we have, of course, utilizing common platform with Geely. You also need totally adapted localized software, including ADAS tools, which is coming very fast, and that we are doing. If you would not do that, I think it would not be possible to stay in China. Anybody will have huge problem. We have a solid strategy to maintain a strong global brand by being really regional in China, and that will happen. It will be a tough couple of years, but then we will have a totally regionalized approach with an empowered regional and fully competitive cars.

Right. The next question coming in from a journalist. Could you please again explain the 2,500 jobs reduction? Will this be mostly Volvo full-time employees we are talking about, or is it mostly consultants? Anything we can again clarify? Håkan Samuelsson: No, I think there, of course, is easy part is the temporary consultants. That is a big part, but it will also influence our own employees, and especially on corporate overhead size. We need to be leaner on the corporate central side when we empower regions. R&D, of course, very natural after these huge investments. Of course, we need to come to a more normal level, and that we are doing. Natural attrition is another possibility, and really not backfilling immediately with rehiring. We have a hiring freeze to really trigger internal solutions. Then also last tool we have are targeted voluntary packages for some people to leave. We see now that that should bring us this reduction, 2,500 till mid-year. But I think it is too early to also exclude that we maybe need to take other actions here in the beginning of next year if this does not work as we now see it. I really hope we can avoid that. But we need to reach 2,500 in reduction.

Okay. All right. Clear. Next question is from Matthias Schmidt. Maybe I will turn to you for this one, Erik. Can you provide some more clarity on the EX60 production ramp-up, and when do you expect this to be rectified?

But as I said, it is of course a concept, especially around the battery, which takes more time for us to learn how to produce or not. We know that the cars when they are reaching the market are very well appreciated by the dealers and the retailers. I will not comment on an exact number, but I can say that we have now produced around 5,000 cars. We are constantly increasing production week by week in the batteries, and we are getting better of fixing the problems we find faster in the battery plant. So I expect it to have an impact in the short term. But over time, over the course of next year, we will get to the invested production pace.

Okay. All right. Let's get in a few callers then who have been patiently waiting for us. So maybe I give you the first word then, Pushkar from HSBC. Good morning, Pushkar, and please go ahead with your question.

Hi. Thanks for taking my question. Hope I am audible. My first one is just on the profitability and the restructuring that you are putting through. It is SEK 5 billion by year-end 2027 sort of run rate. That will probably, if I look at what Q3 was, SEK 4 billion of losses, it will put you just above breakeven, that sort of restructuring. There is more pain to come in terms of raw material cost. So what happens in between what you can do to improve the profitability from the current levels in Q4 and in 2027? That is my first question. The second one is on the liquidity side. It is now the net cash is at just SEK 1 billion. What sort of minimum liquidity do you require, and how are you going to bridge that gap? Thank you.

Yes. Fredrik, if you take the first one on.

Yes. I think in the near term, as stated, we see a very heavy volume challenge, right? We are, as Erik is saying, improving the EX60 ramp up, but previously we have communicated strong financial contributions coming from Q4. In Q4, we are seeing that that is delayed. Of course, as we ramp up EX60, we will support more and more. Then towards next year, we have low visibility. We know that some of the stepping stones on our very clear strategy will happen in terms of localization in the U.S., in terms of two new cars in China. That will, of course, support. But it is a tough market, and we are, with the actions we are taking today, aiming to reduce the breakeven point and not bet on the market returning. I think on cash, we have SEK 32 billion in cash on our accounts, SEK 55 billion total liquidity, and that is well above the liquidity ratios we need.

Good. Thanks. A question here now is, we keep talking about weathering the storm in China. What do we mean by that? Håkan Samuelsson: It means really what I try to explain. You need to have a regional developed product program to be successful with Chinese software. Until we have that out on the market, the first two will come out, but of the 13 cars we said we will launch, six of them are Chinese cars to really have this full program regionally, and that is in the pipeline. Before you have that, I really don't see any realistic possibility to improve in China. You need to work on the cost side and bring down and see what you can do. Can you do more together with Geely and so on? Then the long-term success will come from our strategy, which I think is really important because if you don't have this strong, credible strategy, I think you would have a very weak future perspective in China. I think it's relatively in the business, I think we have one of the absolute best answers to the challenges everybody's seeing now in China.

Mm-hmm. Good. Another question. With the SEK 3.7 billion adjusted operating loss and another 2,500 job reduction, how much of this crisis is caused by Volvo's own decisions versus how much is caused by market conditions? Could we have done something differently, I guess, apart from the market perspective? Håkan Samuelsson: Yeah, you could. Of course, I think it would be not correct to blame external factors only. Of course, you could say that we should maybe have realized earlier that we need to be more regional in China. Maybe we should also have realized earlier that tariffs might come, so we need to localize more in the U.S. That is a weakness right now, which we are addressing. Of course, I think it is our decisions that is why we are where we are. The big external thing, I think everybody underestimated the impact from the Chinese car industry expanding very rapidly.

Yeah. Håkan Samuelsson: Taking over the Chinese market and, of course, now ready to expand further into the world.

Yeah. Mm. Håkan Samuelsson: That is new.

Let's take a few more callers then. This is José Asumendi from JPMorgan. Good morning, José, and go ahead. José Asumendi: Thank you, Ron. Very good morning to all. Thanks very much. José from JPMorgan. Håkan, just a couple of questions. You came back into the group, from my perspective, to stabilize earnings momentum and the balance sheet, which I have a lot of respect for that. It shows the strong track record you have. Having said this, you are facing, obviously, more difficulties in the market. What I am trying to understand, as you think about 2027, before you hand over the company to the next CEO, and obviously the great reinforcements you are bringing on the board as well. From here, how much do you think you need to take fixed costs down? So end of 2026, what is the fixed cost reduction big picture you are thinking about on fixed costs, on unit sales, and on CapEx 2027 versus 2026 to stabilize the cash flow momentum? On the EX60, I do not want to dwell into what needs to change and so on, and I take the point of very, I think, honest assessment that you are learning to produce the vehicle. We could potentially argue that this should have been done before, right? The changes in technology you have done there, mega casting, software, et cetera, have complicated probably the final assembly of the car. What are a little bit the lessons learned for the future car generations? Because we have seen this with EX90, we are seeing it with the EX60. At some point, this learning curve will come through for the rest of the cars, and we will have more stable production schedules for the company. Thank you. Håkan Samuelsson: No, I think you need to, of course, realize if you want to have class-leading new technology, it means a higher risk to implement than continuing with the more conventional technology. In this new car, its mega casting has caused us no headaches. It is really the assembly of batteries directly into the underbody of the car, which is a highly automated process. It is not a really new technology. It is, of course, putting in how many cells do we have, close to 100. That cannot be done manually. It has to be done in an automated line. So it is a highly complex mechanical assembly line, which I am quite confident we will, of course, master. It is not anything new, but it is a new assembly line which does not exist anywhere else in the world. We will master that. We were maybe too optimistic in the ramp-up, but we are improving, as Erik said. So the learning is, I will still say, not to avoid really breakthrough technology. We need to do that, but it is a higher risk. You can take the central compute. We have had a lot of problems with introducing a central compute, but I think we are very glad now that we have that because now we are future ready to really make a software-defined car. It would be more challenging if you would have the intelligence spread in 150 boxes bought from suppliers. Now we have the means to really control software development, which is absolutely a fundamental step, which is not easy, but we did it, and I am still convinced also the battery. Long answer to a good question. You cannot avoid new technology. We can always, of course, learn and master it and do it better next time, and that I think is the learning. But once you have introduced central compute, when you introduce cell to body, then that will work in future cars as well. When it comes to the cost level or maybe, Erik, you want to add.

If I just can chime in, and you are absolutely right. Because your question was also about learnings from SPA2, EX90, and EX60, and for me, it is two very different problems. As you are saying, Håkan, the EX90 was the first step into the software-defined car. We learned a lot about that, and that also impacted the car once it was built. EX60 problem is a mechanical production problem. The cars out in the market are received in a great way and have very good quality. So we are seeing a very stable product once it is built, but it taking a little bit longer time to build it. Håkan Samuelsson: Mm-hmm. It's good. The cost levels, I think, Fredrik, you are better.

Yes, I think on cost, we're launching this SEK 5 billion program. Of course, a big part of that is indirect spend, which ties to fixed cost. Not going into a detailed breakdown of it, but on the highest level, you can say in the end of 2027, we're targeting a level which is roughly 25% lower than what we had in 2024. So it's quite massive steps we've taken already and continue to take as we become more efficient. Håkan Samuelsson: CapEx, we already said that it's down 30% compared with 2024.

Yes. Håkan Samuelsson: So-

Yeah Håkan Samuelsson: Big reductions on both cost and-

On both Håkan Samuelsson: CapEx. José Asumendi: Thank you very much.

Okay. Thanks. I also hope that answers your questions. Next caller then, and that's Nikita Papaccio from Deutsche Bank. Good morning, Nikita.

Yeah, good morning. Thank you for taking my questions. The first one is on Europe. It's clearly the one region which is stabilizing and supporting your business. China and Chinese OEMs are not only active in China, but more and more in Europe. What are you seeing here? Should we see any threat to your solid European development in 2027 going forward? My second question, you mentioned you want to lower the break-even point on volumes in your production network. Any figures or any glimpse you can give us here, what it is now or what you're targeting, even percentages and shares in absolute figures would be super helpful. Thank you. Håkan Samuelsson: Okay. Maybe Fredrik, you could take the first bit. First maybe you could fill in Erik. The Chinese, they are of course severe competitors in Europe, and they do good cars. I think it is also important that we get leveled field competition in Europe looking forward. I think Chinese players are accepting already that they need to come to Europe and invest in Europe, in production, in supply chain, also in product development. I think it is no surprise for the Chinese. They require exactly the same for us. I think the car industry does not need protection in Europe. We have a very strong car industry, but we need a level field competition with the Chinese. That will now come with measures from Brussels. I think we are absolutely capable to meeting competition from the Chinese.

Yeah. Håkan Samuelsson: When it is on a level field.

We have a few proof points on that also. We are seeing in markets where we are not having tariff protection like U.K. and Norway, for example. We are managing to compete very well with the portfolio that we have. Also, if you take the EX60 as a product now, we are well above our commercial targets for that car. We are selling that car at a more profitable level than the equivalent PHEV in a market which is already today highly influenced by Chinese. In my learning, it is only one way to compete, and that is to have a better product and a better customer offer. That is also what we are working a lot on, how do we strengthen our whole customer offer? That is not only about the hardware, it is also about the other attributes. There, I think we have a unique opportunity versus the Chinese. Håkan Samuelsson: Yes.

Fredrik, any color we can give on lower break-even volumes?

I think it is actually hard to talk about volumes given the market we are in because, as we see, we have very high tariffs in the U.S., which is of course weighing down the profitability on those cars. Talking about a company volume number actually does not make much sense. I am not going to give much flavor to it beyond saying we are reducing fixed cost, and of course, that means we need to have less sales to make a profit.

Mm-hmm. Right. Hope that answers your question, Nikita. Let me take one more online. Is the long-term direction to increasingly adopt Geely-developed hardware across Volvo Cars? If so, what will be the impact on your own hardware development activities and engineering? Håkan Samuelsson: It might be an influence, but this company have never developed and produced all our mechanical components in the car. We have had suppliers, so it is really nothing new. If we see that we, together with Geely, have higher volumes and lower cost on mechanical components, why shouldn't we share that? I think there is still more potential, which we will really tap now. It is not just purchasing together, it is also using the same part. A Chinese supplier is going to come to Europe, but there is also a lot of parts that you can bring in very competitive from China in the short term. We are looking into both of that, but it will not in any way change the fundamentals that Volvo Cars based on SPA3 platforms are developed and built here in Torslanda, Sweden.

Yeah. Let me take a question from a journalist now. He is asking that, do these results have any impact on your 13 new products that you have announced during strategy update? Can you tell us a bit more about the two specific China-tailored cars that you talked about? Why will they be different from what you have today? Håkan Samuelsson: Now, of the 13 cars, I think six of them is to really have the right cars for China. And one we already have, the XC70, and then there will be two coming out here. What is different is then, of course, they are locally produced, they are locally developed by utilizing a common platform with a very competitive hardware cost level. Maybe most importantly, really decisive now have a really shiny software package. So in-car infotainment, voice control, absolutely fully competitive, and also ADAS systems. So Pilot Assist or automated systems, which is coming very rapidly in China, that we will have as well.

Right. Håkan Samuelsson: Which would be more or less impossible with the Swedish-developed software.

Let's take another caller now. That is Ross MacDonald from Citi. Good morning, Ross.

Yes, thank you for taking my questions. I guess the first one, just a short-term financial question. Obviously noting the wholesales are lagging retail quite substantially, should we expect that trend to continue into the fourth quarter as you de-stock further? I guess some high-level color on whether this can be a margin trough now for the group in the full year would be helpful, given the extent of the losses. Second question on China. I know you don't report profits regionally, but it's interesting, some of your premium peers in China claim their China business is at breakeven. With the variable costs in China and operating leverage in China, they can keep it at breakeven levels. Could you maybe give some color on how big a driver of the losses we see this quarter is China related? It would just be really interesting to understand if this is mainly a China story in terms of the losses this quarter. A final question just on the EX60 battery challenges. Have you provisioned any extra warranty costs for that, or do you plan to take extra warranty for those issues? Thank you. Håkan Samuelsson: The last one I think is easy. It is not related to car quality and so on. It is just the pace. It is really the uptime of the automated assembly system. There is no influence on warranty cost.

Yeah. Håkan Samuelsson: No. I think it is Fredrik on that one.

I think on wholesale lagging retail, I would expect it to be slightly more balanced, but I guess there is still a China uncertainty. As Erik alluded to, we are also trying to protect the dealer profitability as we are weathering the storm. That may play in, and exactly how that plays out in Q4, let us see. In terms of China profit, we do not disclose the exact profit, but what we are saying is that China is not really contributing to, if you will, the fixed cost of the company. We are seeing a very challenging contribution from it. From a year-on-year perspective, that is of course worse than last year. Looking at the revenue numbers, I guess you can infer we are 50% down in revenues. That is quite substantial, right?

Mm-hmm. While you are on that, Fredrik, a question coming in on to explain a little bit on the CAFE credit effect. Could you just maybe walk us through again on that and how that impacted our Q3 earnings?

Yes. We basically make very sustainable cars. That is good. Which means that we produce a surplus of CAFE credits. In 2024, we had contracted to sell those. By doing so, we did a revenue recognition of that. What has happened since then is basically that there has been a series of changes in the regulation, not impacting our contracts, except for a change that was done now, basically late September, where U.S. is now retroactively changing the fleet emission requirements all the way back from model year 2022. That basically means that NHTSA's assessment is that most OEMs will now not have a credit deficit or a need to buy credit. Then if we are prudent and look at the values we have on the balance sheet, we then need to do a write-down, which amounts to SEK 1.1 billion.

All right. Mm. We will probably take the last caller for the day. I guess, Pushkar, you wanted to come back in again with a question. Please go ahead.

Yeah. I have a follow-up. Yes, thank you. I have a follow-up, and this is about the XC60 localization in the U.S. And the initial indication was that it would happen in Q4 2026. Now it looks like it's been pushed into 2027. So what's driving that? Given the tariffs, I would have expected that you would like to advance this, but this has now got again pushed further ahead. So what's the reason? Håkan Samuelsson: Now when you measure it in quarter, it sounds more dramatic than it is, I would say. As I remember, we planned to do it before Christmas, somewhere beginning December. Now it's after New Year, sometime in January. So not a big thing, and there is no major reason for that that I know of. So it's normal fine-tuning in the work being done there. We're doing it as fast as possible, of course. And our big deficit in U.S. that we have too low local production. So this is a good start, but then the really big move will be later during this decade when we bring in a really whole new car, absolutely attractive for the U.S. market, including also various variability options, powertrains. Because the U.S. is electrifying slower than the rest of the world. So we need to have a new car that is also flexible in that respect with all electric or plug-in or hybrid.

Right. Maybe I'll take this as one of the last few questions. Maybe I'll turn to you for this, Fredrik. This is from Agnieszka Vilela on cash flow. What cash flow development do you expect for Q4 and starting 2027? And what is the lowest liquidity level are you comfortable with?

We don't guide on cash flow, but as I stated, seasonally Q4 is stronger. We build a lot of inventory over the year, and that is reduced in the fourth quarter. That said, we see very large challenges on volumes, and we're really shifting production accordingly, which will also impact cash flows. In terms of liquidity, we're very well above our liquidity thresholds. And SEK 55 billion in liquidity.

Yeah. Good. Maybe I'll ask you the final question to bring this to a close then, Håkan. Given how challenging Q3 has been in the short term, remaining weak as well, how do you push the company towards 8% EBIT, as you've indicated during strategy update? Håkan Samuelsson: No, that can only come through a very solid strategy addressing really the challenges everybody's seeing. Globalization will not come back as we see it. We need a regional approach, need regional products. But electrification is coming fast, and then we need to grow with electrification, and we need to face a hyper competition from the Chinese car industry, where we have unique possibilities with our connection with Geely. So our strategy or addressing this, I think, in a very credible way, and the value of that strategy, if you sum it up, is around 8%. Now we are starting from a lower level, and we have to fix that with the short-term actions. But the short answer is the success of this company will be brought not short term with cost cutting. It will be short mid-term with the strategy.

Håkan, Fredrik, Erik, thank you so much, and thank you everyone for your time this morning. You can always reach out to our press office and the Investor Relations team. They'll be available throughout the day to take more questions. But for now, we wrap up for the day. Goodbye.

Thank you. Håkan Samuelsson: Thank you.