Good morning and a warm welcome to the presentation of Volvo Cars' second quarter financial results, coming to you live from the Volvo Cars headquarters in Gothenburg. I am Ron, and joining me this morning is our President and Chief Executive, Jim Rowan, and our Acting Chief Financial Officer, Johan Ekdahl. At the start, Jim and Johan will walk us through our performance during the second quarter. After that, we will throw it open for questions. If you want to participate in the Q&A round, you can do so in two ways. Either you can send in your questions via chat, and you should be able to see it at the bottom of your screen, or else you can simply call us in. You would have different numbers displaying on your screen, depending on which part of the world you are in. If you want to ask a question, please remember to press star and one, and the operator will guide you right into this live stream, and you can ask your question directly to Jim and Johan. With that, I leave the floor to you, Jim. Okay. Thank you. Good morning and welcome to Volvo second quarter annual results. Let's start with a summary. Overarching EBIT at 15% with an underlying EBIT of 6.5%, and that excludes JVs and associates. All in all, I think we can say that it's been a stable result in a very turbulent second quarter environment. Revenue's down 2%, mainly supply constrained coming really from the pandemic lockdowns in China and that policy that was driving some shortages, not just into the factories within China, but also within some of our other factories around the world, and in particular affected some of our BEV production. Demand continues to be very strong, especially in the U.S.. We're starting to see that bounce back also now in China as it opens up post-pandemic. Europe has remained very stable throughout, which is another great proof point for us as it's our biggest market. Raw material prices, of course, have started to impact earnings, and we've seen that Polestar this quarter became a listed company on Nasdaq. I think a fantastic achievement given all of the turbulence that surrounds the financial markets at this particular point in time. Johan will speak more to the Polestar de-SPAC in a few minutes. Moving on to the key financials. Although demand remains strong, it was really supply constrained by those lockdowns in China. If you remember when we spoke to you the last time, those lockdowns in China had only just started, and little were we to know that that was going to manifest itself into more than two months of lockdowns in the Shanghai area. Revenue has been helped by strong price increases, so the brand strength is strong. It's allowed us to push price increases through to offset those increases in raw materials by and large, as well as mix and some FX headwinds have also helped us to drive revenue to only 2% despite the 27% retail reduction. EBIT margin, as we said earlier, underlying at 6.5% when you discount the JVs and associates. Now, 6.5% is not where we want to be long-term, of course, but I think it's a great signal for us to look at upon the foundations that we can build as we push forward and we have full supply back into the supply chain. We remain dedicated to a long-term strategy of 50% BEV sales by mid-decade, 50% online sales, 8%-10% margin, and a 40% reduction in CO2 emissions when we take that baseline of 2018. Of course, 1.2 million cars sold. Despite a flat year this year for volumes, we are confident that we can still reach that 1.2 million units sold. The reason for that is because by then, by mid-year, we will have more new products, BEV products in play, and also we're starting to see much more consumer sentiment move towards BEV purchasing. That combination of factors gives us confidence. It's really more about driving BEV and revenue than it is about driving absolute numbers of volume. We're positioned well for those mid-decade ambitions. If we move then to the Recharge sales, strong demand for Recharge, especially in BEV. Again, this is a great signal for us in our company that we're taking the company in the right direction, which is towards BEV and Recharge technology. Of course, that would be higher than the 7% you see here in BEV, but for those supply constraints that we saw coming from the pandemic in China. As well, just to point out that the BEV supply was disproportionately affected by those lockdowns in China. Otherwise, we'd have seen that to be considerably higher. In fact, we're on target to see double-digit BEV percentages of sales for the whole year in 2022. We'll see that acceleration through the last half of the year on BEV sales. Moving to Polestar. Tremendous achievement by Polestar and the Polestar team to get out in the capital markets in a listing in the current environment with such a low redemption rate and a high valuation, I think, bodes well for two things. One, the strength of the Polestar brand. Two, and perhaps more importantly for Volvo Cars, this is a validation that BEV and BEV technology is a future choice for car purchasers, going forward. The combination of that strong brand with Polestar, but also a nod towards the demand for electric vehicles, I think bodes well for us in Volvo Cars as well. Big numbers here, of course, we're gonna see them in 30 markets by next year. We're gonna see three new premium launches by 2024, and then they hope to 10x their 2021 volumes, and by the end of 2025. That'll be a 10x increase in volumes in only a four-year period, which again points to how strong the BEV sector is starting to become globally. Maybe a wrap-up as we look towards our transformation journey, if you will. A surge in demand for Recharge, 31% in total, 7% of that obviously coming from BEV. CO₂ reduction of 10%. Again, we're on track to meet those mid-decade ambitions of 40% by 2025. The strategic choices that the customers are making in favor of BEV cars now is accelerating all of that. Of course, we're starting to see now some online sales that we have pushed deliberately towards retail because of the lack of supply. Despite that, at 9.5%, it is still double where we were last year on those online sales. We've had the green bond, which has gone out, EUR 500 million, and of course, again, another great validation of Volvo Cars as an ESG investment, over 3x subscribed in that green bond. Of course, the Polestar de-SPAC, which Johan will talk to in more detail. That's basically the summary of where we are, and to summarize just once more, I think stable results in a very turbulent and unstable world at this particular point in time. It bodes well for an acceleration into the second half of 2022 and beyond. With that, I shall hand over to Johan. Thank you, Jim, and good morning. Let's look into the financials then a little bit more in detail. As Jim said, we have a decrease of 27% on retail sales, which is then, of course, on the back of the supply and production constraints. What's good is that we have maintained revenue almost on par with last year, 2% down due to price increases, good mixes, and also some FX tailwind. We will come back more to that a little bit later. EBIT margin high at 15%, SEK 10.8 billion, of course, then heavily positively affected by the Polestar listing effect. Excluding JVs and associates, SEK 4.6 billion at 6.5%, which considering the turbulent environment and the supply and production constraints, we still believe that is a quite good number. Cash flow operating and investing in the period, -SEK 6 billion, which is also considering the production situation quite good. We have some effects, of course, on payables due to the production. We have a slight buildup of inventory in June due to the turning point in the production. Further, we have also invested SEK 6 billion in preference shares in Polestar affecting this number. All in all, quite a decent cash flow. In June, we also saw a turning point with a positive cash flow for the June isolated. If you look a little bit further into revenue, we see, of course, a negative volume effect, but we have been able to mitigate that through pricing actions, through a good sales mix, and also with the tailwind on foreign exchange rate and on top of that, some effect, of course, then on the contract manufacturing for Polestar. Meaning that in total, we get more or less the same revenue out as we did last year, despite the lower volumes, only 2% down. If we then look more into the EBIT, if we concentrate to start with on the Volvo core, excluding JVs and associates, we see a negative volume effect, of course, due to the production constraints, which has then been more than mitigated actually by pricing actions and a good sales mix. On top of that, on a net basis in EBIT, we also have a positive foreign exchange rate effect of SEK 1.8 billion. We have no items affecting comparability in the period. Despite the JVs and associates listing effect in Polestar, but for the Volvo core part. Then we have some other effects, negative, which is a combination you could say of raw materials started flowing through in the second quarter. We also have some increased cost for especially R&D on future car models and development that has not yet reached the capitalization phase. Also to some extent, the effects of the contract manufacturing with slightly lower volume margins than, let's say, normal wholesaling. All in all, SEK 4.6 billion, 6.5% EBIT for Volvo core in this environment and under these volumes, I think that's a very decent number. On top of that, of course, we have then the high amount from JVs and associates, more than SEK 6 billion, of which the largest part is then the listing effect from Polestar, which we will go through now a little bit more in detail. As you know, Polestar started trading on June 24, raising around $890 million in gross proceeds. We invested a small part of that. Following the listing, we also invested $600 million in convertible preference shares that has also now been converted to common shares, which means that after these transactions, we've seen a dilution of our ownership, just a small dilution from 49.5% to just above 48%. The Q2 effects in Volvo Cars, you could summarize it's three effects mainly. One is the so-called dilution effects, which is based on our own share of the external proceeds coming in the listing. The other two is the allocated earn-out rights that we have received that all previous owners of Polestar received, that can be converted to common shares in the future in different thresholds based on the share price. In addition to that, we have a negative catch-up effect of previously non-recognized operational losses from Polestar since we've had a zero book value since quarter one. The net of all these transactions are at SEK 5.9 billion, and all effects from the listing has been accounted for in the quarter two. What's also important, I think, to bear in mind is that Polestar will remain an associated company accounted for according to the equity method, so we will not have any volatility due to the Polestar share price. It's still accounted for at investment cost. These effects only sort of have a one-time effect on the book value of this investment. You could also say the current book value is at approximately 6 billion SEK. About the market cap for our 48.3%, I think looking at the current market price for Polestar is between 90-100 billion SEK, you could say. Considering that after the listing Polestar share price had stood up very well and is still around the $10 per share, that was the listing price. All in all, these effects based on the very successful Polestar listing and, as a one-time in Q2, there is a lot more information in the interim report if you want to go through that more, step by step from a more technical point of view. Looking at the EBIT development over time, we see that excluding JVs and associates, we are quite stable over time, somewhat lower in Q2, based on the low production due to the supply constraints. If we look at including JVs and associates, historically typically been lower due to operational losses coming from Polestar, but now of course, peaking in Q2 due to this one-time effect of the listing transaction as such. On the BEV, we see a continuous high demand for our BEV products, which is very positive, of course. We also see an increase in the margins, both for BEV and non-BEV cars in the quarter, both compared to Q1 and 2021. The development you could say is two. One, we have an increase in raw material cost, which we have been able to mitigate and more than offset with especially price increases and lower discounts, and to some extent also due to FX, especially U.S. dollar and a small part due to subsidies in certain jurisdictions. All in all, healthy BEV margins on the back of the good demand. Liquidity, we are also, I would say, considering the turbulence in the market, on a very healthy liquidity level at SEK 71 billion, including SEK 14 billion of undrawn credit facilities at the end of the quarter. If we look a little bit further into the cash flow, we see the positive EBITDA of SEK 15 billion, including then of course the non-cash effect of Polestar de-SPAC. We have a positive net working capital, mainly driven by receivables, and especially that we have received quite substantial payments on Polestar receivables during this quarter, partly offset by payables on the back of the lower production and also somewhat increased inventory towards the end of the quarter due to the turning point in the production where we have increased during June. Other working capital, mix of things, timing of different payables, some tax payments, etc., nothing out of the ordinary. If you look at the investment amount, SEK 13 billion in the quarter, it's a little bit higher than the previous quarters, but that then includes the Polestar preference share investment of around SEK 6 billion, which means that the underlying sort of investments in intangible and tangible assets are roughly in line with previous quarters. Financing, finally, it's of course the effect of the green bond issuance of around SEK 5 billion, offset by just normal scheduled repayments of financial debt. All in all, a healthy liquidity situation. If we look on the current trading, the order book remains robust. We see good demand. The overall semiconductor situation is improving, but we, as you know, had these specific shortages as well as the COVID-19 related shutdowns, which impacted both the first and especially the second quarter of the year, down 38,000 in production year-over-year. However, we saw a turning point in June, 60,000 in production, which is the best month for the year so far, and also actually an increase year-over-year, which is very positive. We also see that raw material have had and starting to have an impact in the earnings in Q2. Some raw material prices have come down from their peak, but there is a certain time lag on that. We will see a flow-through of increased raw material in the second half of the year, and especially also on the batteries, the electrified cars since battery raw materials such as lithium are still at the high price point. We do take pricing actions and have done so in order to largely offset the raw material increases, and we expect to be able to continue to do so on the back of the good demand. The deliveries of electrified cars, we were at 7.3% in the quarter. We will be at double digit, definitely still our goal for the full year. However, since we have had these supply constraints in Q2, we will see a decline in volumes of BEVs in the third quarter, which is, you could say, almost mechanical due to the things that already happened in Q2. But then we will see a strong growth in Q4 also on the back of the now installed increased production capacity, and then we will be on double digit for the full year, but it will be first a decline in the third quarter and then a vast increase in the fourth quarter. All in all, we see that we will have a strong growth of both production, wholesale, and retail in H2, which means that the lost volumes in the first half will be to the largest extent caught up in Q4. On retail sales, we see a flat or slightly lower volumes for the full year. We will have a good increase in wholesale for the full year, but since there is the lockdowns, especially in China, were persisting for somewhat longer, and then there is just a normal lead time between, say, production until retail sales, which means that we will be an increase in wholesale, and flat or slightly decrease in retail sales for the full year. But of course, there are still uncertainties in both macroeconomic environment, of course, the COVID situation in China, et cetera. But for the time being, at this point in time, we see a continuous high demand and a strongly improved production situation. With that, in summary, that was what I had to share. Ron, please, and if you will come up again and facilitate the Q&A session. Well, thanks very much, Johan. I guess you take your seat. For the Q&A session, maybe we can also invite Björn Annwall, our Deputy CEO and Chief Commercial Officer. Thank you. I think good reminder for everyone. You can send in your questions either using the chat window at the bottom of your screen, or you should also be able to see the call-in details. Use those lines, and the operator will guide you straight into where we are, and you can ask your questions directly. Maybe we can start with some questions that have already come in via chat, and we have quite a few callers waiting in line. This comes in from Steve Fowler from Auto Express. Did you expect the issues with component shortages to have eased by Q2? When do you expect a level of normality now? We signaled that, actually we signaled it in Q1 and we signaled it just at the start of Q2, that we had a specific semiconductor issue with one component, that we knew would hamper us through the back end of Q1 and for most of Q2. Our analysis was that we would be through the back end of that by the end of Q2. By and large, that's exactly where we are. We now have semiconductor supply, as we would expect, to accelerate us through the back end of 2022. The supply constraints really are in relation to the pandemic lockdowns in China. Remember, Shanghai was locked down for over two months, and that had an effect on some of the suppliers who are located in those regions that supply components for us across the world, not just in our China factories, but they actually supply components to our other factories around the world. Specifically and disproportionately, that affected our BEV and PHEV production. Now with the lockdowns completed in China, hopefully, all of those factories are back to full-scale production, and we're starting to see that flow through into the factories. A great signal to that is the June volumes were incredibly satisfying because we saw those to be the highest of this year and in actual fact, even higher than compared to the same time last year. By and large, provided that we don't head back into a lockdown situation in China, we're well set up for a strong end to the 2022 year. Okay. All right, let's take our first caller then. This is George Galliers from Goldman Sachs. George, good morning. Good morning, and thank you for taking my questions. Jim, I wanted to ask you about Polestar because obviously the investment in Polestar is something that you came into as CEO. I think 20 days before you joined, Volvo did announce its intent to support Polestar with its funding needs. How do you as CEO think about the future of your investment in Polestar? What parameters or metrics would you want to see from Polestar in order for Volvo to potentially contribute incremental equity or funds to Polestar over the course of coming years? The second question I had, which also relates to Polestar, is do you see Polestar as a competitor? Certainly, if I look at the Volvo C40 and the Polestar 2 in key markets such as Germany and the U.K., these products seem to be offered at very similar price points and have a very similar proposition for the customer. Aren't they ultimately competing against one another? What are your thoughts around that? Thank you. Sure. Let me take the first part. I think Polestar, you know, was incredibly successful in the de-SPAC. When you look at a 20% redemption rate and the current economic climate, and the valuation that Polestar achieved in the capital markets, bodes well, as I said at the open, and bodes well for both electrification as a technology choice for consumers, but also bodes well for them as a company and as a brand. We have said that if Polestar, in terms of the funding, if Polestar want to go and back into the capital markets to raise that, then we would in order to avoid dilution on the Volvo Cars front, that we would lean in on that as well. Johan can speak more to the details on that in a second. That's really the Polestar piece. In terms of the competition, I think it's different audiences and it's different demographics that the Polestar let's say target audience or target customer is aiming for. I think we can. Yes, there'll be a level where there's probably an overlap of some competition. That's not necessarily a bad thing, because I think competition keeps everybody sharp and honest. I think there's enough bandwidth and enough room within the swim lanes that allows us to target our target audience and allows Polestar to target theirs as well. I don't see that as a major concern for us at this particular point in time. I don't know if you want to add some more on the Polestar de-SPAC. No, I think you're right. The SPAC was quite successful with a very low redemption compared to others this year, which means that they received quite large amount of proceeds. We cannot comment specifically on Polestar's funding plans per se. They are a standalone company. As Jim said, what we have said is that if that would include an additional capital raise, we will, as we have communicated, be willing to join that on a pro rata basis to protect our shareholding and limit the dilution. There is no such decisions or firm plans in the near future. It's more a soft commitment that we have already communicated. Good. This question comes in from William Boston at The Wall Street Journal. Could you give us more granular details on the raw material inflation, your efforts to mitigate it, and the overall impact, including on pricing? Perhaps. Should I start? Mm-hmm. Well, this is really a question on timing on many things here. Clearly, after the invasion of Ukraine, you saw a quite steep raw material inflation across most of the relevant raw materials for Volvo Cars. The way that plays out and affect our financials is typically with a timeline between three and six months before you start to see it. As Johan said, you saw a bit of that now in quarter two, you're gonna see even more in quarter three. What we have to do to mitigate that is of course continue to work with our product mix, continue to work with pricing actions, which we have done. Also there you have a time lag, and right now that time lag is longer than normal, especially in Europe, where you have kind of long waiting times to get your car. It could be nine months, could be 12 months, could be even longer. It takes some time before that plays. Playing that balance of the time lag on where the raw material prices hit you and the pricing actions to take is something we're monitoring very, very closely. Now over the last two months, you have seen raw material prices starting to normalize. On the more base materials, kind of aluminum, steel, and so forth, you kind of have much more normalization, whereas the battery raw materials, lithium and cobalt and so forth, are still quite high, especially lithium. You start to see it trending downwards as well. We continue to work with price and mix. It's important to find the balance of the time lag between those effects, and that's something that we continue to work on. I think the encouraging thing, Bill, is that we have the brand strength within the product line-up that we can by and large offset those material prices, those raw material prices with the prices of the final product. That's an encouraging sign for us as well. You know, that's across the range, you know, and pretty much across each geography. I think we should also add that we haven't seen a tempering or hampering of our order pace due to those pricing actions that we have taken. We still have a steady order inflow as of today. It's true across the world. As of now, we get that question a lot, aren't you seeing consumer demand weakening and so forth? As of now, we're not seeing it. On the contrary, the demand for especially electrified vehicles, the full electric and the PHEV is very strong. Good. We can go to our next caller then, and this is Daniel Roeska from Bernstein. Hey, good morning. This is Daniel from Bernstein. Two questions, if I may. Number one, could you comment a little bit on the performance in the used car market? It seems to have weighed a little bit on your results in Q2. Revenues seem to be down 31%. Quite, you know, quite a stark contrast sequentially and year-on-year. Any insights what happened in the used car market? I guess also the subscription declined sequentially. It's probably more due to the availability. Longer term, could you give us an outlook on kind of the platform benefits that are coming up? Maybe also the example of the XC90 coming in later this year. We're kind of wondering, right, between where we are today and your 10% EBIT margin, how much of that is op leverage of you being a bigger company and spreading the overhead and R&D a little bit more, and how much of that is actually GP improvement? I have to assume that the new platform gives you some advantages on COGS in the cars and so any way to think about that improvement in the platform costs will be helpful. Sure. Let me take the first one, Daniel. In terms of the used car market, yeah, we're seeing obviously the used car globally, and I'll just take a broader view on that, is being depleted, and of course, the prices are higher than we've seen in the past. That, you know, we've benefited from that, I think, to some extent because rather than pay excessive prices in the used car market, people are prepared to wait or seem to be prepared to wait for the car of their choice, and buy a new car. The other thing on that is we're seeing a huge amount of growth within the BEV and PHEV range. When people are waiting and buying those new cars, they tend to be buying a Recharge or an electric car, of some description. I think we benefit on both those sides. That dynamic I think will be around for a while just because of the shortage of supply across the automotive industry. If we move to the platform question. The platform question I think is really interesting because the benefits that we get when we move to a next generation born electric and designed electric cars are huge in terms of the cost basis. These are cars which are built specifically for BEV. It's not an old ICE design that you've repurposed to be able to also include BEV technology. We get everything in there, not just from the cost benefits, but also from the performance benefits as well. You'll see that new platform where we've got core compute technology, where we've got full connectivity, where, of course, we've got our own motors, our inverters, our own battery packs, the BMS that runs all of that. We pour all of that in together. We control much bigger parts of that supply chain than in the past, and therefore we take out cost, but we also add benefit and take more control of the design of the product. That's really what you're gonna see when we start to release and launch some of those new BEVs, starting of course, with the electric replacement for the XC90, which we'll launch Q4 this year. Maybe just on your first- Well,- Recent financials lower used cars, purely a volume thing. We don't have used cars to sell. It has a volume effect. Yeah, that's helpful. Maybe Jim, if I could follow up on the cost benefits and performance benefits. Are you able to put some kind of range around that, right? Are the cost benefits of a new platform on a like-for-like basis? Is that 5%, 15%, 50% better COGS on a like-for-like car? In performance, how far do you get on electric performance, right? What's your kWh per 100 km you're targeting with these new cars? Yeah. In terms of the performance benefits, the design that we've put in place allows us to, and we've said this pretty openly before, allows us to get to cost parity between ICE and BEV. We feel we need to be there by the half decade, because at some point in time, the subsidies will run out, and you don't want to be relying on subsidies. We need to get to price parity between ICE and BEV as quickly as possible. There's a few things which help us get there. One is the design of the vehicles themselves. Two, a large proportion of that are the big units that drive the BOM costs. The motors, the inverters, and of course the batteries. We used to buy in the motors, we're now making them ourselves, the same with the inverters. Of course, we've done this JV with Northvolt that allows us to really understand battery technology and battery production. That's gonna help us take out cost, and drive some efficiencies as well as logistics and CO2 efficiencies, rather than bringing in batteries from the Far East. We're bringing them in from next door when we build that factory here in Europe. When you combine all of those factors together, then you start to get price parity with ICE, and that's where we need to be. The technology. There's basically three other things which are maybe worth mentioning at the same time. If you look at the technology around batteries and charging technology, then of course we're moving to an 800-volt system that's gonna allow us to charge much quicker. We're moving to our own battery technology as well. Charging infrastructure is becoming more prevalent in most parts of the world as well. All of this is pushing towards BEV adoption. Therefore, as you get more BEVs, you get more leverage, and of course, that helps us reduce cost as well. That's really the dynamics that we see from our side, Daniel. Okay. Great. Thanks for those questions, Daniel. Next one comes in from Autocar in the U.K.. What will Slovakia's contribution be to overall volumes? What- From a manufacturing perspective, we announced the Slovakia plant. How much will that plant contribute to Volvo Cars' overall volumes going forward? Yeah. Maybe let's just start with the purpose of the Slovakia plant. That it will be 100% EV. This factory has been designed and purposed for 100% EV. That means you can design it very differently from car factories which are repurposed to do EV. Again, we're gonna wring out the efficiencies on that. Not only will it be purpose-built for EV, it will also incorporate all of the latest Industry 4.0 technologies, which allow it to be extremely efficient. It will be carbon neutral from the get-go. Those are three key elements to that investment in itself. We also have enough land there that should we choose to do so, we can actually put a battery factory on the same piece of land, so that again, that can drive efficiencies. We haven't made the decision to do that yet, but we are future-proofed, let's say, should we decide to go in that direction. The scale of the factory will be able to produce 250,000 cars in its initial footprint. We have the option with a parcel of land that we have to double that production should we choose to do so as well. That's a big investment for us in the future. I think it bodes well for the confidence that we have, both in terms of our growth potential, but also BEV and the potential of BEV, not just in Europe, but globally. Good. Thanks. Next, question comes in from Barclays. Given the increased threats of gas supply disruption in Europe, and primarily in Germany, where some of your large suppliers are located, what contingency plan does Volvo Cars have? Have you been looking to increase inventories of parts? You want me to take it? Yeah. Okay. There's actually two questions actually within that question. First of all, the gas supply. Our factories are biogas, so we're not dependent on Russian gas supply. Having said that, we do have a lot of suppliers who are not in that position. We have one eye on that, and that could potentially cause disruption within our supply chain. If you look at the bigger supply chain architecture, we have said for a number of years now that we are becoming more distributed in terms of our supply chain architecture, which means that we say, "Make where you sell, source where you make." We've been continually bringing in more and more sub-assemblies closer to the manufacturing facilities where that makes sense. It doesn't make sense for every single component, but where that makes sense, we've had that strategy of make where you sell and source where you make, and we'll continue to accelerate that. A good example, of course, is the Northvolt investment and bringing batteries right on the doorstep of the factory itself. Supply chain architecture in general is changing. This just-in-time process that we've enjoyed for decades now, when there was frictionless trade across the world, that time has gone and people are now re-architecturing the supply chains to make it more resilient. We are doing that. It won't happen overnight. It will be a journey. We've already started that. Again, the Slovakian piece is a good point to that, as well as the battery factory that we've already announced. Mm-hmm. All right, we have another caller then. Let's take Agnieszka Vilela from Nordea. Go ahead with your question, please. Thank you. Thank you for providing the detailed EBIT bridge for Q2. I just wonder what you think about the profitability drivers for H2. I wonder in what direction will your margin move from the current 6.5%. If you could comment on your expectations for the kind of volumes impact, mixed impact, also impacts from FX on the current spot rates, and then the net impact from the raw material prices and your pricing. Thanks. Yes, thank you. As we said, we expect volumes in terms of both production and wholesale and retail sales to have a strong growth during the second half. We will see also a continuous effect of the increased raw material prices that we have seen starting coming through in Q2. Now will continue into Q3 and Q4. We will also continue work with pricing actions. As we said, we do not specifically guide on profitability for the second half of the year. That's my maybe short answer. Maybe just on the FX, assuming current spot rates, if you could guide us for any hedge impact or the contribution to EBIT coming from the spot rates. Thanks. The FX effect that we showed in the numbers are including hedges. Without quantifying, of course, with the current U.S. dollar rate, for instance, the FX is a positive thing for us. We do not guide on quantifications. Okay, thanks. We have another caller, José Asumendi from JP Morgan. Good morning, José. Good morning, everyone. Morning, Jim. Just a couple of questions. Can you just remind us again, please, of the overall investment for the Slovakia plant and the figures I think you disclosed? Does this include also the battery investments? That'll be the first one. Second, can you comment please on direct sales to customers? Where do we stand there as of first half 2022, and how is that progressing? I remember this was one of your, I think, you know, abilities to transform the business quicker. So I'd love to hear that on direct sales. Three, please. In terms of CapEx, how do we think about this metric? There was a. You know, we were starting to see it rising on a quarterly basis. Is the Q2 figure maybe a good number to think about the quarterly progression to Q3, Q4? That would be great. Thank you. Okay, let me just clarify on the Slovakia, then I'll hand over to Björn on the direct sales. Slovakia factory, I think I've understood the question correctly, José. It was around, does the SEK 1.2 billion investment that we've c ommunicated include a battery factory. The answer to that is no. We haven't made the decision on whether we will put a battery factory in that facility or not. We'll make that decision probably sometime or sometime in 2023. We don't need to do that right now, but the SEK 1.2 billion investment that we've signaled so far is only for the car production. Good. On direct sales? On direct sales, yes, right. That is an important part to our strategy going forward, and I think, to put a bit context around it, what we're really after here is to deliver a much better consumer experience per cost it takes us to deliver it for us and our retail partners. When we talk about online, we should also be very, very clear what we're after is an omnichannel experience that's being delivered by us and our retail partners together. That's really what we talk about. In order to do that in a great way, we need to invest in the right digital systems, and we also need to work with our retail partner to make sure we work in slightly different roles, but, you know, together to deliver that consumer experience. That's progressing quite well. We have now implemented, as you know, the Care by Volvo solution, which is more targeted as a kind of B2C offering, and we started now in U.K. and Sweden and Germany and so forth, to sell also not just a subscription, but, you know, cash and other offers at direct to consumers in those countries. What we have implemented during the last quarter now is also a solution to handle the B2B, the fleet sales, which is a big and important sector in Europe. We handle the small medium enterprises now with a solution that's implemented in Sweden and in the U.K., and we're building out now the solutions to also handle larger fleet customers as we speak. I spent last week in the U.K. with some of our retail partners there. For U.K., we're planning to make this full transformation into a quite different setup during next year, when we then have the right digital solution in place and we're agreeing with our retail partners how we're gonna play this well together. It's progressing well according to plan. On your questions on investments, as you saw in Q2, we had the additional investment in Polestar in preference shares in the second half of the year. We will have some effect of the previously communicated so-called pre-IPO transactions that will require some investments during the second half of the year, which then will increase that amount somewhat. Other than that, we do not guide specifically on it, but there will be slight increase, I would say, due to the fact that we have these some of the investments, so-called pre-IPO transactions previously communicated during the second half of 2022. Thanks. Another question from Steve Fowler once again, that Volvo has an impressive share of the subscription market, but is the overall subscription market growing at a level you expected? Our readers tell us that it looks like an expensive way to own a car. Our consumers say it's a very convenient way to access mobility, and we see it has a very strong demand. We also see that it to some degree attracts a different demographic. The average age on our subscription customers is 10 years younger than our other customers. Clearly it's a signal that the way consumers want to access mobility is changing. We see it as a core part to our offering going forward, but clearly when some want subscription, some want to buy the car outright. Some want loan structures to finance the car and leasing structures, and we'll be able to provide all of those different structures. Flexibility is something we see a need for and continue to focus on. Good. Let's take another caller then. This is Daniel Schwarz from Stifel. Daniel, go ahead. Yes. Thank you for taking my question. First one is on R&D capitalization. It seems high compared to previous quarters and compared to peers. Could you say how this will develop in coming quarters? Was it a peak in Q2, and what would you consider a normal rate over the development or production cycle? Second question would be on Polestar. Just from my understanding, you explained the one-off effect from the de-SPAC transaction. What are also positive or negative contribution from Polestar's operating business to your Q2 results? My third question would be you mentioned that third-party manufacturing had a negative impact on the gross margin. Could you quantify that? How will this develop over time? Will there be more dilution due to higher volumes produced or less due to, scale effects that you generate? Well- Thank you. I can start. On the capitalization rate, we have seen that. I mean, it does vary over time. It's hard to say that it's something that is at an exact point that is normal because there are projects in different phases and there are also spend on different projects vary a little bit between the quarters. If there is a higher rate or a lower rate, it's hard to say that you should probably see that a little bit more over time rather than at an individual quarter to say what is a normalized level because it does vary. It can vary quite a lot between quarters. That's sort of my answer on that one. On the Polestar operational result, it's actually the case that we have not shown that explicitly in this one-time effect. We show it on a net basis, which is simply that Polestar is a listed entity, and they have not yet released their half-year numbers, which they will do later. We cannot say that due to the Polestar being listed and not have released the numbers themselves yet. That we will have to wait for until they do in August, I think. Yep. The volumes are not that big. It's not a very big deterioration of the margins. Of course, there is a contract manufacturing agreement between us and Polestar with a certain margin. We do not comment on that margin specifically, but there is a deterioration and with higher volumes, it might increase a little bit. On the other hand, you get synergies from higher volumes as well. It's yeah. What one can say then. Yeah. The thing is that Polestar is a related party. Of course, this is a contract that's arm's length at market terms. Yeah. I would say it's quite normal terms for contract manufacturing within the industry. That's the guidance we can give. Absolutely. In the current high price environment, it's still somewhat lower than, let's say, normal wholesale. Of course, it's on arm's length and so on. Good. Thanks for this question, Daniel. Next is from Michael Knauer, a reporter at Automobilwoche in Germany. Seeing the strong efforts of the EU to establish a fuel cell economy, will Volvo Cars reconsider its strategy and eventually offer a fuel cell-based electric car? Yeah. For us to comment on that at this stage would be too early. We're constantly looking at new technologies. Some of that new technologies is very far into the future, you know, some of it is much more immediate. We tend to get very focused on certain technologies that will deliver, we think, differentiated benefits to Volvo Cars. By this particular point in time, we don't have any comment on that specific type of technology. Good. Next question from Rob Merton, from Long-Term Capital Management. To what extent do you expect increases in labor costs following high levels of inflation to weigh in on your results? And when will you see the first impact? Johan, you wanna start? Well, to start, we have a very large part of our total employees in Sweden, where the salaries are set based on central negotiations. Compared to other jurisdictions where there have been demands for, I don't know, 8%-10% salary increases, that's not what we foresee in Sweden. Further, even if it would be an increase, I'd say compared to raw material or some other parts, I think it's still less of a problem for us than having increased raw material just as a hypothetical example, I would say. Of course, we will follow this, but we are not particularly worried about salary cost per se. I think just to pivot on that, if you look at the raw material prices that we came out, which were much more considerable, I guess, than the salary increases. By and large, if it's driven by underlying inflation, the costs are driven by underlying inflation. By and large, we've managed to offset those additional costs by price and the final product. Felix Page from Autocar. When will output be back to pre-COVID levels? How are you mitigating the impact of the war in Ukraine? I can take that. I think we believe peak pain in the supply chain. We were beyond that in beginning June. I think we are back- Mm-hmm. -to pre-pandemic production levels. We were back in June, we are now in July, and we see that as the base case for the remainder of this year. The underlying semiconductor problems has been eased to a high degree. The lockdowns in China has been eased. Clearly, there is lots of bottlenecks and constraints still there, but we are back to pre-pandemic production. If you're looking for a proof point on that, June production output was the highest this year and actually higher than last year when you compare it to year-over-year. That I think indicates that we've hit that inflection point and that we're now back into pre-COVID. Whenever you started to measure COVID from, I guess, from pre-COVID levels. Mm-hmm. I think it's an important one 'cause it's always about growth. I mean, we were growing double-digit for five years consecutively up until the pandemic. Now we have been flat since the pandemic. That's not what our ambition is. Our ambition is to come back to growth quickly. This is an important point for us. Yeah. Maybe to add then that we saw, as you say, the turning point in production was really in June. Mm-hmm. The real turning point in retail volumes will be, let's say, in August then and forward because there is a certain time phasing between production and retail sales. From a production perspective, June was the turning point. Perhaps the second part of the question, maybe we've touched upon it already, but how are you mitigating the impact of the war in Ukraine? I would imagine this is more on the- Yeah. Yeah, I think. I got it. We talked about that. The humanitarian total tragedy, what's happening in Ukraine. From a business perspective, Volvo isn't directly affected to such a big degree. We are affected by that it accelerated raw material prices that we already talked about, but our business in Russia and Ukraine is very limited. We froze the business to Russia immediately, as the war broke out. That has had a very limited effect on our business. I think we had just over 1% of our sales in Russia and Ukraine last year, and we have not had any material financial effects from those markets so far. Another caller, Dorothee Cresswell from BNP Exane. Dorothee, go ahead with your question. Yeah, hi there, and thanks for taking my question. I wondered whether you had any further details around how you're going to monetize the SPA2 platform's Level 3 autonomous capability. Is that gonna be via a subscription model, or is it like the case at Mercedes-Benz with an upfront charge? Is there any update you can share in terms of regulatory sign-off for Level 3 for Volvo? Thank you. Björn? I think the short answer is stay tuned. Of course, as we unveil the cars and launch the cars, we will give you a lot of answers to those interesting questions. Let's stay tuned, and we will reveal that as part of the car reveal. This question comes in from Eric Lowe. Do you have any plans to take actions in China regarding lockdowns to decrease the problems there? I guess perhaps question more about de-risking our business in China and supply. Yeah. -means. As we touched on slightly earlier, we'd already started the strategy of make where you sell, source where you make, and that's, you know, we're two years into that already. We've already looked at supply chain resilience in a pretty deep and meaningful way and what makes sense to have closer to the factories in a regionalized basis and what makes sense to have more of a global supply chain feeding all of the factories. That work will continue obviously as we bring out new models, as we bring out new technologies, as we bring on new suppliers. You need to constantly look at that supply chain architecture and how those new suppliers fit into that satellite network. It's something which is very much top of mind. I think we've done a pretty decent job. As we said, from a semiconductor standpoint, we were caught by one semiconductor, which actually wasn't so much supply related. It was more in terms of the management of that particular supplier by one of our sub-suppliers. I think we're in reasonably good shape. I'd love to be more proactive in that. We're working with the teams to see how we can accelerate that further. Mm. It's about supply chain architecture. All right. Maybe we have a few minutes, maybe a couple of one or two last questions then. This comes in from Alan. Maybe we've addressed parts of it, but let's maybe re-clarify. Given the importance of the Slovakia plant in your EV strategy. Mm-hmm. Can you provide some sense for the CapEx plan and the funding strategy for the manufacturing plant? I'll start with the factory, then I'll hand it off to Johan. Mm. Again, just to reiterate, this factory, in fact, we've already increased our BEV production, which is coming online right now as we speak. We had signaled early in the second quarter that we would bring on 150,000 units of BEV production at an annualized run rate from around now. Mm. I'm pleased to report that investment and that capacity is now online. We've increased our BEV supply as it stands today. That's which is great news 'cause we're seeing a huge demand in that side of the business. Then from a Slovakia point of view, of course, that gives us a another booster on BEV production. That'll take a couple of years before it comes online. Did you want to talk a little bit more about the CapEx investment? Yeah. I think the total investment is around SEK 12 billion, of which I think SEK 3 billion is funded or in different grants and subsidies. Then of course this is a part of our long-term funding plan, including, for instance, issuance of green bonds, etc., for these investments in electrification and this new plant as well. So yeah, that's... Good, perhaps we can end with this final question then from Felix Page. Will the entry point to Volvo's range ever come back below GBP 30,000? We've signaled already. We have the new electric version of our current XC90 product, which we'll launch in the fourth quarter of this year. We've also signaled that we will be launching a smaller SUV next year, so in 2023. That's a really important part of our product lineup because that gives us then the smaller SUV, the XC40, the C40, then obviously the XC90, and then of course eventually the fully electric replacement for the XC60 as well. That's a really nice lineup for us. Back to one of the points which Johan made earlier, which I think is a key part of our overall strategy. When you offer subscription-based ownership on a lower priced but still premium product, and you can reach a much younger demographic. Remember, Gen Z is coming in now to own the buy box. They're coming into first-time buyers. We think with that combination of a lower priced premium product, which we'll release next year, as well as consumer base, where we know that we're lower that age, then we'll bring in that new demographic maybe for the first time in a long time to Volvo as a customer. Then hopefully, if we treat those customers right, we can satisfy those customers for life as they trade up, as they need a second car and so on. That entry point car on subscription-based ownership probably bought online. 'Cause think about it. If you're buying a car on subscription, let's say three, six months subscription, and you're buying a more affordable price, then and we have a strong brand, so we're known in the marketplace. There's much more confidence in the market than for people to say, "I'll buy online," because I'm signing up to a much lesser commitment in a lower-priced vehicle. I think that's a big pivot point which we are well-positioned. I think I don't know if you want to do. No, I think we can have. To build. The dynamics of selling call it smaller cars at a lower price point in premium automotive. I think that's changing a lot. It used to be about pumping out a lot of volumes on these lower cars with the belief that by getting young customers to buy this car, I get them into the brand forever. By the way, by selling all these small car, I get a lower CO2 fleet average, so I can sell the big cars and make some money on them. We're not in it for that logic. It's a totally different logic. We, I mean, our CO2 fleet average with our full electric car is gonna be fine, so that's not any reason why we do this. We're still gonna sell a premium offer, and we still want to take care of these customers, not just by selling the car, but having a much deeper relationship with them. It's a very different, we can call it smaller car, lower price point premium play that we intend to play than how premium automotive has played it in the past. Good. Hope, Felix, that answers your question. With that, we need to wrap this, Jim, Johan, Björn, thanks for your time. Thanks everyone for tuning in. Have a great day ahead. Goodbye.