Dear ladies and gentlemen, welcome to the Analyst and Investor Conference Call of TRATON SE. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulty hearing the conference, please press the star key followed by zero on your telephone for operator assistance. One final request, please note the disclaimer that you will find at the beginning of the presentation. If you are only connected by phone, please access the online tool to display the disclaimer. May I now hand you over to Lars Korinth, Head of IR at TRATON, who will now start the meeting.
Thank you, Emma. Dear investors and analysts, welcome to TRATON's third quarter 2022 conference call. Thank you for joining us today. Together with me are Christian Levin, our CEO, and Annette Danielski, our CFO. Before Annette provides some insights into the drivers of the group's financial results in the third quarter, Christian will comment on the main developments and the overall performance. Finally, we will discuss our outlook for the full year 2022. As always, after the presentation, we will look forward to answering your questions. Before Christian starts, let me remind you that you can find all relevant documents on our website, www.traton.com/ir. Finally, let me make you aware of the disclaimer on page two of our presentation. With that, I hand it over to Christian.
Wonderful. Thank you very much, Lars. Good morning, good day, good afternoon to everyone in the call as well from my side. We shift slide, right. I would like to start with a few highlights from this quarter. Starting with Navistar. Navistar just launched its brand-new International S13 Integrated Powertrain at a live event in August in Las Vegas. The new powertrain offers up to 15%, which in our industry is huge. 15% gain in fuel efficiency, benefit for our customers, and a game-changer for Navistar and the International brand. Importantly, it is based on our Common Base Engine, the CBE, and was designed using the modular system approach. The TRATON Modular System enables efficient cross-brand development and production while still allowing for regional and brand adaptations.
In what is a first for Europe, Scania and HAVI Logistics are piloting the use of fully autonomous vehicles to transport commercial goods in regular traffic conditions between different logistic hubs. The pilot will see the autonomous truck drive between Södertälje and Jönköping in the southern part of Sweden, a three-hour journey of around 300 km . The first and the last mile are still being handled manually. From Scania to Volkswagen and Volkswagen Truck & Bus that are also entering into the era of autonomous vehicles, and it's currently testing its first vehicle. It will be used by harvesters in fields and sugarcane crops in the area of São Paulo, providing greater productivity and efficiency in real operations. Staying with Volkswagen, in addition, Volkswagen Truck & Bus started exporting the e-Delivery vehicle, the first electric truck 100% developed and produced in Latin America.
In Mexico, 5 units of the vehicle have been delivered to operate in the beverage distribution of the Grupo Modelo, which is an affiliate of the Anheuser-Busch InBev group. MAN celebrated the exhibition premiere of the near-series prototype of the new MAN e-Truck at the IAA Transportation in September in Hanover. The MAN e-Truck will be delivered to customers from 2024 and is, due to its high charging capabilities, suitable for heavy, long-haulage transport with daily ranges of between 600 km up to 800 km per day. Last but not least, Scania has announced far-reaching measures to decarbonize its supply chain by 2030. Together with Scania suppliers, we have outlined an ambitious industry-leading strategy to eliminate the largest carbon emission sources from the most common production materials and batteries.
The 2030 target is 100% green batteries, 100% green steel, 100% green aluminum, and 100% green cast iron in production. This will have a significant impact since all put together, these materials represent more than 80% of the carbon emissions from our vehicle production materials. As you can see, we're moving ahead despite an extremely challenging geopolitical and economic environment. That brings me into page number five. The war in Ukraine, unfortunately, is continuing with severe effects on the global economy. Meanwhile, it is common understanding that key economies are entering into recession, which is posing high risk for the industrial outlook. In Europe, energy security and gas supply risks remain the key area of concern and the center of the political debate. At the same time, truck demand remains robust. Demand for transportation capacity remains high.
We continue to see strong replacement needs with an elevated average fleet age, and customers are waiting for new trucks up to one year. As a result, also the demand for used trucks and their pricing levels continues to be on the high side. Supply chain bottlenecks remain everyday reality in the entire industry. While the situation in semiconductor supplies has gradually eased, supply chains for imported raw materials and pre-products remain tight and are partially disrupted. Especially logistics capacity bottlenecks have further intensified throughout the third quarter for both inbound and outbound transport. Prices for input materials, pre-products, and energy continue to rise, resulting in unprecedented inflationary pressures. As a result, companies across sectors face significant wage demands. This surging inflation is putting consumers, industrial goods, and governments under strong pressure. As one consequence, we see fast increase of interest rates.
Rest assured that our TRATON team and all our brands continue to work hard to offset these effects with our strong product offerings, our improved pricing, and our better product mix. The third quarter is a strong evidence that we are successfully doing so. Moving into slide number six and the key facts of our performance in the third quarter. By the way, the first quarter where we are clean of the consolidation effects from the acquisition of Navistar in the summer of 2021. Incoming orders, as you can see, at almost 92,000 vehicles in the quarter, is on a relatively high level. However, they are 6% below the very strong third quarter of 2021. Our unit sales improved significantly by 16%, coming up to almost 80,000 vehicles.
Sales revenue increased more sharply by almost. Alongside the higher volumes, we benefited from our pricing initiatives and our product mix, as well as a strongly growing vehicle service business across all brands. Adjusted operating results came in at EUR 549 million, corresponding to an adjusted return on sales of 5.2%. It's a strong improvement compared to the second quarter this year and last year's third quarter, and a good achievement given the highly challenging environment that we are currently operating in. Finally, the net cash flow for TRATON operations in the third quarter amounted to + EUR 61 million. Annette will provide more background on the cash flow, but all the other figures in just a few minutes.
On to slide seven, where you can see there is some development in incoming orders and unit sales in comparison to the medium-term trend. Following a low second quarter, we experienced a strong comeback of incoming orders. MAN recorded exceptionally high order intake, catching up from the production stops in the spring. At the same time, our brands continued to be restrictive in accepting orders, in particular Scania, because of already high order backlog and long delivery times well into next year, and in order to limit risks from volatile and rising product costs. Our book-to-bill was clearly above 1, reaching 1.2 in the individual quarter. Momentum is also positive in our unit sales. Supported by easing headwinds in the supply chain, production levels improved.
Nevertheless, unit sales were still held back by the shortage of semiconductors and other supplied components, and especially by constraints in outbound logistics capacity. Most importantly, the market outlook for the remaining quarter in 2022 and the year ahead remains robust. We continue to see strong demand from our customer, which are placing orders despite the up to 12 months long lead time. Why is that? Despite a macro environment that is characterized by geopolitical turbulence, high inflation, and a looming recession. Well, there are a number of reasons. The industry is still heavily supply-driven as the continued shortages in raw materials and pre-products prevent high deliveries. The elevated fleet ages, with significant needs to replace rundown fleets in many markets, create a high demand not only for new vehicles, but also for the vehicle service business. Further, freight demand is far ahead of available transport capacity.
As a result, freight rates continue on a high level. Our connected vehicles in the streets are showing high utilization of our equipment, except for markets bordering Russia. Of course, that doesn't mean that the transport industry will not be affected by the global economic downturn. For sure it will, but it's not foreseeable for our business so far. Despite the challenging environment, we're not losing focus when it comes to the first of our four strategic pillars, to be the responsible company and the sustainable transport of the future. This was evidenced by TRATON's appearance at the IAA Transportation Fair in Hanover a few weeks ago. Our European brands, Scania and MAN, showed their way forward and presented their latest next-level battery-electric trucks for regional long-haul.
For the first time, MAN revealed its all-electric large series truck and opened the order book for the vehicles that will be delivered to customers as from 2024 onwards. Not to forget, electrification is also playing an increasing important role in the bus sector, and today with stronger momentum compared to trucks. All our brands have a very competitive product offering already in the market today. For example, the MAN Lion's City E, the winner of the prestigious Bus of the Year award this year, where the prize was handed over to MAN during the IAA fair. The MAN electric bus went into serial production already in 2020, and a total of over 1,000 orders have been received to date. A success story that moves, and it's far from over. Which brings me into slide number nine.
We continue to expand our already broad and competitive electric product portfolio across a wide range of different applications. Already today, we make a difference in the. In the third quarter alone, we delivered more than 400 fully electric vehicles, bringing the number close to 1,300 in the first part of the year. Yes, figures are still relatively low, and we're just starting the race towards fully sustainable transport. When we talk to customers, they are really interested because we can help them to achieve their sustainability ambitions, and especially because battery electric vehicles are becoming, and in some applications already are, a more cost-efficient alternative to ICE. Demand is growing among customers. In total, we received orders for 526 electric vehicles in the third quarter and 1,622 in the first nine months.
Meaning the book-to-bill ratio in the third quarter continued to be well above one, and our customers' interest in battery electric trucks at the IAA was huge, giving us confidence that we will continue to grow this momentum. Moving into slide number 10, and this is my final slide. As most of you already know, we have added a new component to our TRATON Way Forward strategy called strategy execution. A crucial part is the introduction of a group-wide implementation of the TRATON Modular System. Also here, we are making strong progress. The start was made with introduction of the extremely efficient group-wide powertrain, the CBE, presented by Scania last year. It is the world's most sustainable powertrain with a 13 ltr common base engine offering up to 8% long haulage fuel savings compared to the already very economical former predecessor engine.
Later on, in August this year, Navistar launched the International S13, which is its version of the Common Base Engine, with amazing results and up to 15% less fuel consumption compared to its predecessor. It also offers better efficiency, better reliability and sustainability, as well as increased service and solution offerings, and therefore represents what is a major milestone for Navistar's future, which triggered very positive feedback from customers and the specialized press, and most importantly, strong interest in already now placing orders. The International S13 will be delivered to customers from late summer next year. The next member of the TRATON family will follow in the coming years. In 2024, MAN is planning to launch the CBE, and later followed by Volkswagen Truck and Bus in 2028. With that, let me hand over to Annette. Annette, the floor is yours.
Thanks, Christian, and a very warm welcome to everyone on the call from my side as well. I'm now on slide 12, which shows incoming orders and unit sales development for the third quarter. With -6% incoming orders were slightly below the high comparison base in the prior year quarter. As already mentioned from Christian, MAN orders bounced back to more than 34,000 units, more than twice the level in the second quarter, which had suffered from the production stops. Besides, MAN and Navistar, and especially Scania, continued to be restrictive in accepting orders. Order intake at Volkswagen Truck & Bus was robust. Still, the development of order intake is more driven by supply and the ability to produce and deliver rather than by demand. Our unit sales were significantly up by 16%.
This was supported by a gradual easing of supply chain shortages and improved production levels. Nevertheless, persisting pressure on the supply chain and temporary disruption continuing to affect production levels. In addition, we are facing constraints in outbound logistics capacity, holding back deliveries to customers. Moving to slide 13 and our sales revenue development with a separate vehicle service business contribution. Sales revenue increased by nearly one-third, clearly exceeding unit sales growth. On a side note, TRATON's revenue exceeds the EUR 10 billion mark for the first time on a quarterly level. Besides the higher unit sales, this was especially due to very strong pricing and mix. In addition, sales revenue from vehicle service business again delivered double-digit percentage increase across all brands. With a 21% share of total sales revenue, the vehicle service business makes a major contribution to the company's success.
We continue to invest and now further expand our service business to drive growth, as well as taking advantage of a stabilizing effect on TRATON sales revenue and earnings. Moving to slide 14 and to our operating profit and profitability. Also here, we have seen a positive momentum in the third quarter. The adjusted operating profit came in at EUR 549 million, a strong improvement of EUR 354 million compared to the third quarter last year. This corresponds to an adjusted return on sales of 5.2%. The increase was mainly driven by a higher volume and the cost-per-unit improvement in the capacity utilization.
In addition, and importantly, with the successful execution of our pricing initiatives, we were able to compensate for the significantly increased higher costs for raw materials, energy, and bought-in components, as well as for logistic services, in the quarter as well in the first nine months of the year. As announced in September, we recorded significant one-time impairments related to the disposal of business activities of MAN Truck & Bus and Scania AB in Russia. In total, operating result were impacted by one-time effects of about EUR 600 million. As a result, the operating result as booked declined by EUR 238 million year-on-year to minus EUR 52 million in the third quarter. Let us have a look at the brand's performance on slide 15.
Sales revenue at Scania Vehicle Service improved strongly by 24% year-on-year, mainly benefiting from higher volumes, price mix effects, and significant growth in the vehicle service business. Scania's adjusted return on sales, nevertheless, was 0.1 percentage point lower at 7.6%. Volumes and the margin were still held back by supply shortages and tight logistics capacities. In addition, material price inflation, higher costs for project introduction, logistics, and R&D had a counteracting effect. Now move to MAN. Thanks to the positive price effects and strong growth in the vehicle service business, MAN was able to increase sales revenue by 9% to EUR 2.8 billion, even though unit sales were below last year's level.
However, the adjusted return on sales decreased by 1.1 percentage points to 1.5%, mainly driven by lower production utilization and higher material and energy prices. This was partly offset by improved margin in the used vehicle and vehicle service business, and continued benefiting from the execution of the realignment program, as well as a strict cost management. Navistar showed a very compelling third quarter performance with an increase in sales revenue by 77% year-on-year, and improved return on sales by 3.4 percentage points to a level of 5.9%. The development was mainly driven by a strong increase in unit sales, leading to a better fixed cost absorption through higher production utilization, as well as strong implementation of pricing initiatives. Despite slightly lower unit sales year-on-year, Volkswagen Truck & Bus achieved a 42% increase in sales revenue.
Improved pricing was a major factor. The brand also benefiting from favorable exchange rate movements. Overall, Volkswagen Truck & Bus was able to more than compensate the strong increase in material prices and recorded an impressive 11.6% return on sales in the third quarter. This corresponds to an increase of 2.4 percentage points year-on-year. Let us have a quick look at the segment performance in the third quarter on the next page. In total, TRATON operations with some of our brands recorded sales revenue of EUR 10.4 billion, up by 31% year-on-year. Adjusted return on sales came at 5.8% corresponding to an improvement of 80 basis points. Financial Services continued its strong underlying performance and increased sales revenue by 23%.
The segment recorded an adjusted operating result of EUR 71 million, a similar level as in the first and the second quarter. Adjusted return on sales at 22% was on a good level. However, the margin was 7.7 percentage points below the exceptionally strong prior year quarter. Corporate items reduced the group's adjusted operating results by EUR 128 million. Please bear in mind that this number includes the effects of the purchase price allocation, which totaled EUR 85 million in the third quarter. Excluding the purchase price allocation, TRATON's adjusted operating results would have totaled EUR 634 million and an adjusted return on sales of 6%. On slide 17 and the net cash flow, now again referring to TRATON operations.
Operating cash flow at EUR 1 billion in the third quarter improved versus prior year level and the second quarter, mainly as a result of a better operating performance. The movement remained a significant headroom. We recorded a further buildup of inventories related to the ongoing supply bottlenecks for boarding components and logistics shortages, as well as higher trade receivables. In total, net cash flow for TRATON operation was slightly positive at EUR 61 million. This leads me to the net debt bridge on slide 18. Compared to the second quarter of 2022, the net debt position of TRATON operation increased by around EUR 350 million to EUR 3.3 billion. With a slightly positive net cash flow, the increase was mainly due to exchange rate effects.
We included the net debt position for corporate items to provide a full picture of TRATON Group's net debt position, excluding the financial services business. Corporate items added EUR 4.1 billion, which brings me to a total net debt of a level of EUR 7.4 billion at the end of the third quarter and slightly up compared to the second quarter. Our ambition for the final quarter of the year and the priority for next year is clear, to release a significant part of the cash tied in working capital and to improve the net debt position of the group. Moving on to the full year outlook, starting with the truck market. As already discussed, our markets continue to be robust. It is expected that our core market will continue to grow in 2022, with expansion rates varying from region to region.
Most market forecasts have seen an increase of the truck market in Europe in the range between 0 % up to 10% for the year 2022. For the South American market, current estimation range between -5 % to up to +5%. For North America, market participants continue to be more optimistic. Truck market growth within the region is forecasted between 5% and 15%. Let me remind you that there are still a high degree of uncertainty and significant geopolitical economic risks. This leads me to this next slide, the financial outlook for the TRATON Group in 2022. As ordered, our financial outlook is based on our latest internal planning, the market expectations and our performance to date. We confirm our expectations for unit sales and project a substantial year-on-year increase.
At the same time, we continue to expect a very sharp increase in sales revenue in the fiscal year 2022. Further, we confirm the benefits of our expected range of adjusted operating return on sales of 5% -6%. However, in a still highly uncertain, volatile environment and given the ongoing supply chain challenges and taking into account the performance in the first nine months, we anticipate ending the year more towards the lower end of this range. Our guidance is including the effects from the purchase price allocation, which is expected to range between EUR 300 million-EUR 320 million. This is above our prior expectation due to changes in the U.S dollar to euro exchange rate. We confirm that our net cash flow of the trading operation is expected to range between EUR 700 million and EUR 1 billion.
Please note that this does not include the mentioned cash out in connection with the EU antitrust proceedings. Now, let me hand back to Christian for his final remarks.
Thank you very much, Annette. Before we enter into the Q&A session, let me summarize the key takeaways of today's investor call. In the third quarter, in a continued highly challenging environment, TRATON delivered a robust financial performance and continued the stringent execution of the strategic agenda. We recorded a high level of incoming orders, improved unit sales, and strongly increased sales revenue, backed by a gradually improved supply chain. The momentum in adjusted operating results and profitability is positive, even though it has still been held back by supply constraints and relatively low production utilization throughout the quarter. Our net cash flow returned to positive territory despite further significant build-up of working capital. Net debt remained stable at a high level.
While we continue to see high risks in our environment, we confirm our outlook for the full year and expect improved earnings momentum and net cash flow in the final quarter of 2022.
Thank you, Christian and Annette. Let us now open the floor for the Q&A. Emma, can you take over from here?
Thank you. We will now begin our question-and-answer session. If you have a question for our speakers, please press star followed by one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask your question. If you find your question is answered before it's your turn to speak, you can dial star and two to cancel your question. One moment for the first question, please. First question is from the line of Daniela Costa with Goldman Sachs. Please go ahead.
Hi, good morning. It's actually Daniela. If I may ask three questions. Thanks for taking them. So first, I just wanted to check on your slide where you had the EV orders, and helpful to hear you talking about the launches, but the order seems to have started to go down. Can you comment on, like, is there anything specific there and you see the strong reversal of that? Just a little bit surprised to not see sort of more of an upwards momentum there. I know it's small numbers, but just any color there would be interesting. Second question, just wanted to check in terms of, like, when we think about next year wage negotiations, where are those, in your view, coming out to?
Contrast that maybe with pricing ability to still price further up next year given the market outlook you just flagged. The third one is I know you don't guide on 2023, but to the extent that you, like some of your peers have put numbers out there, it sounds like Europe and the U.S broadly similar-ish to 2022. Are there any observations on why you think that could be materially different for those scenarios? If you can elaborate, as we look into 2023. Thank you.
Okay. Thanks. Three good questions. Let me see. I'm gonna start, Christian here with the orders. We have, as we say here in this reporting, we have been a little bit restrictive in taking on orders, and that's particularly in the Scania brand. We introduced this strategy or tactics rather around last summer. In the comparable figures from last year, you don't have that way of working. The way we work now is that we basically only accept orders that are within 12 months, and then we open up month by month. Whereas in the other brands, we work more with a completely open order book.
You see the very good bounce back of MIM, for instance, orders in coming into the order book after the complete stop in production, where we of course also had to stop order intake. Why are we doing that in Scania? On top of the general complications we all live in with difficulty to predict product cost and therefore difficulty to get the pricing exactly right, we also are introducing the completely new driveline. That is, I mean, that might not sound big, but that is changing more than half of all the components on the vehicle, changing both engine, gearbox, rear axle, aftertreatment, and a lot of software and in control systems. With that, we're also changing a number of suppliers.
We have an additional complication on the Scania arm that makes us additionally restrictive when it comes to taking on orders. What I can say is that demand is still there, and when we open up a new month, we get a very fast response from our importers and dealers and quickly fill up these orders. When it comes to the demand, as we say, it continues to be strong.
Apologies, I might not have been clear maybe on my question. I was asking about slide nine on your EV orders. It's fairly small numbers, so I take the point on Scania.
Okay.
On, uh-
Sorry for that.
Yeah, no worries. It's helpful anyways to know about Scania.
Yeah, sorry. Thanks for clarifying that. I didn't get the EV part. Yeah, when it comes to EVs, we are clearly at the beginning of an S-curve, and we are further or sooner gonna see a rapid increase as the TCO parity is coming closer in more and more applications. What we of course see is an effect in Europe for Scania of the ongoing energy crisis because of the war in Ukraine, where many customers are today hesitating because they don't see where electricity prices are going to end up. Of course, they also suffer price increases that we had to introduce because of the very high raw material prices affecting batteries. There is a little bit short-term cool down on electric vehicles.
We see, on the other hand, higher demand for the hybrid solutions. My best estimation is that this is just gonna be a short-term effect. I think as Europe especially realizes that the dependency on fossil fuels from markets outside Europe is not sustainable in any way, we're gonna see political initiatives in order to make it even more attractive to change over. There might be a short delay to the catch-up effect is really hitting this market, but we are absolutely sure it's coming, and we continue to invest in both R&D and production equipment to be ready when the effect is coming. I would like to hand over also to Annette to complete.
And, and-
I hope this is the answer.
Yeah. Thank you very much. Because another thing is really when you go with the bus, this is mainly tender. You should remember, we have this big program in the U.S. from the government, that they have a EUR 5 billion program for electrified buses. We had a lot of costs applying for this program. These incoming orders will come later. We have also here not always a swing after all of the buses, more tender-driven business. You will see also there a little bit up and down as the tender come in or not. We are really hopeful that we see increasing rates in the next month.
Okay. I think the second question was on wages development. Maybe, Annette, you take that one.
Yes. As we mentioned, we are very able to price the increases in the inflation. Yeah. Now it's upcoming the new contracts on wages. We're also working on this with our union colleagues in close discussion. We believe that we are able to price it, but it could be a gap, you know, when the inflation hits in and then we can really realize the prices with the full order book. As we mentioned the last quarter, we scheduled order, we have the surcharge, so we did a lot of instruments. The gap could open a little bit and could be delayed, that we can pass it through, but I'm still positive that we can do this.
Thanks. Then, on the third part of your question, which was around the total markets, we also see a stable outlook, for Europe and for North America. Where we do see the market coming down is in Latin America, where we have a new legislation coming into Brazil, the PROCONVE P-8, which is basically Euro 6. There we see a slight downturn. We're not guiding on specific numbers, but I think that is the tendency that we see. Of course, North America and Europe are also based on the very strong order books that we see.
Very helpful. Thank you.
Ladies and gentlemen, in the interest of time, we kindly ask you to limit your questions to two only. The next question is from the line of Miguel Borrega with BNP Paribas. Please go ahead.
Hi. Good morning, everyone. Thanks for taking my questions. The first one just on Navistar. Can you provide us the FX tailwind on adjusted EBIT for Q3? And then also a little bit more color on what is really driving the surge in volumes over recent months. I mean, 8,000-9,000 units a month, we haven't seen that since 2019. Is this the new normal in terms of production rates? Can it go higher, or will it normalize a little bit from here? That's question number one. The second question, I was quite interested in the autonomous, where you mentioned some pilots in Scania. Are you testing to effectively removing the driver entirely? And if so, how soon? And how different would this partnership be from the one that you have with TuSimple?
I know they are mostly in the U.S, but apart from that, any differences in the software, the partnership? If I can squeeze in one more question, just with regards with your majority shareholder, have you had any recent conversations about their position? How are they seeing the execution of the plan, and any other more comments? Thank you very much.
I can start with the Navistar side, Miguel. As all, sure, we have positive translation effect due to Europe and euro to U.S dollar. This is positive impact, but it's not so high as mentioned. We think that the production level now at Navistar goes up, and we see a little bit better supply chain. They have still missing parts, but we see that it's really improving and that they have higher production rate. As you see, if they have a decent sales volume, they can make a good result. I think this they proved in the Q3, and this is positive sign for us and a very good sign on the Navistar stuff.
The talks with our majority shareholders are ongoing and very positive, but ongoing talks, as I mentioned already in the half year closing. We're on good track and good communication with them and working on possible solutions.
Okay. To add on the autonomous technologies and in Scania in particular. Yes, you're right. We're aiming on full driver out. Of course, this is a promising technology that, as someone said, remains promising. We can't really say when we have all the conditions in place to really take the driver out. We're learning fast. We're learning every day. The example I gave you, where they have a logistics experience that we're doing now in Europe as the first one of all brands in the market, it's giving us more and more learnings. We're absoutely aiming also in real traffic conditions, driver out. We are already operating, as you know, in mining, so in closed areas without the driver. That's where we're aiming. Thanks.
The next question is from the line of Michael Jackstein with Bank of America. Please go ahead.
Hi. Good morning, Christian and Annette, Lars. Thanks for the presentation. My first question is just on order intake in North America. Given the 12-month lead times, and I'm referring more to the market here rather than Navistar specifically, do you think that order intake levels reflect some pre-buy positioning ahead of CARB 2024 regulations, potentially? That's my first question. My second question is on financial services. Can you please just comment on the impact of rising interest rates on monthly lease payments for customers and whether or not you think this could become a restrictive factor in the months ahead? Then maybe just one small add-on to that, as to whether or not there are any indications that you may need to tighten up on lending standards there. Thank you.
For the order intake in the U.S, I think you've seen there are already some orders for CARB 2024 pre-buy, but this demand is very high when you follow the market outlook and coming in. High demand still on transportation and also the fleet is in the U.S, very old. There's also replacement needs. It's a mix, I think, of everything, demand, high replacement needs and CARB 2024 ahead of us. Both, I think the fleet drives the incoming orders in the U.S, from my point of view.
If I can add also that we see that transport rates, even if they came down from the most extreme levels, remain on a historically very, very high level. We see also the earnings from transport companies continue to be on a good level. That is also not restricting order intake. Let me see. The second, Annette, there was on financial services.
Yeah. I did not get 100% the question on financial services, too.
I think it was on whether the higher interest rates are restrictive in the financial service business and whether we would give up a part of our, yeah, cushion, to push that. Okay. Yeah.
The second part of that is just whether or not you would need to tighten up on lending standards there because overall conditions in the marketplace are tightening up.
No, I wouldn't say that we see any of that. Of course, we see that the interest rates are rising. We are passing that on to customers. We see that competition is still fierce, and there is still capital available. No such sign, Michael.
Okay.
Thank you, Michael.
Maybe just on the first one. Sorry, Lars, just coming back on that. Just in terms of the impact of rising interest rates on monthly lease payments for customers, is that significant? Is there also a financing portion on other services that get bundled into those monthly repayments, or is it just on the selling price of the truck?
It's not bundled in. It's more on the price from my point of view.
Okay, understood. Thank you very much.
I think, yeah. As you know, I mean, if you sell an operating lease, you have the whole package in, and there, of course, it has an impact. But, given the price increases that we are already pushing through on the basic vehicle, this is a very small proportion that is coming on from the financing costs, as part of that operating lease. Annette is right.
Okay. Thank you very much.
Thank you.
The next question is from the line of Klas Bergelind with Citigroup. Please go ahead.
Thank you. Hi, Christian Levin, Annette Danielski, Lars Korinth, Klas Bergelind at Citigroup. First on Scania, deliveries in line with what I thought, but the margin is again on the weak side. I thought the margin would be up more quarter-over-quarter with the higher deliveries. To what extent, Christian, is this driven by extra cost inflation from supplier compensation linked to energy, as we've seen at some of your peers? Or is it wages? Looks like more cost inflation, quote, unquote, in my bridge. Keen to understand what the drivers are. I'll start here.
Thanks, Klas. What's happening in Scania is that we're working really hard to continue to increase our production output. We have the third quarter, a good run, but we couldn't invoice all of it as it got stuck in outbound stock. A lot of restrictions there to actually push the vehicle through the system and of course further harmed by the fact that we own the majority of the dealers. That was not. We expected better, to be honest. We continue to struggle with supply chain bottlenecks. September was very good and we are not out of the semiconductor shortages, but we have other shortages that are hitting us as we gradually increase production.
I think we'll have to unfortunately live with further restrictions. I doubt that we're gonna see the 10,000 mark per month throughout the fourth quarter, but probably have to wait until next year. That's what we see. When it comes to order intake, I mean, it is continued deliberate action not to fill up the complete order book for next year. We first want to finalize the ramp up of the new so-called Scania Super, the common base engine with a complete driveline, because the changeover of supplier base between the two programs. It's just one complication too many to have both the ramp up, the changeover of suppliers and the very long order book to handle at the same time.
Therefore, we have taken this drastic decision to only open up for a month at a time. Then your last question is, of course, what we're working very hard on and which is what is making me most frustrated, and that is the margins. I mean, we see very good price increases. We see very good mix effects by prioritizing the high price markets, and we still don't see the vehicle margins where they should be. On one hand, it's of course the effect of not utilizing the capacity that we have with full manning and full investments in our factories. On the other, it is of course cost increases as we're into. It's partly on the product where we have cost increases.
We have the energy that is very sharply increased, but we also have component cost increases from suppliers, partly based on energy costs, but also raw material costs, which we're trying of course to fend off, but don't completely manage. Then of course, we have a general cost situation in Scania, which we are addressing now, where we say that okay, if we can't get out the volume, then we have also to address the general fixed cost level, which we're also working in order to get the performance back where it should be. I think that's just a few-
Yeah.
I mean, there's more to it, but to give you a flavor of what we're fighting with in Scania.
Yeah. No, I get it. My second and final one is on Navistar and the underlying margin. Looks pretty solid, no major FX boost. Volumes are higher, but could still be higher if it wasn't for the bottlenecks. What level do you think Navistar would have delivered at this quarter on the more normalized volumes? The backlog is still quite big. I'm trying to understand how much the margin drag was because of bottlenecks. Because if you think about this, your target is 9%. I mean, are we underlying almost there? I don't know if this is possible to quantify, Christian, but.
Yeah. I mean, as you know, we are investing in a new production facility in San Antonio, Texas, which is perhaps Navistar's additional complication that is partly influencing the ability to ramp up. Of course, we're aiming to do about 10,000 per month. With that kind of volumes, we are definitely gonna see a much higher EBIT figure. Yes, we had a taste here in the third quarter, and particularly in September, where we had a really good run and a really strong EBIT performance in the individual months. You're right. We're expecting more on those.
Thank you.
Thank you, Klas. We have to cut back to one question per question at least, because we're running already out of time. I'm really sorry for that. We got a hard cut today. Yeah. Emma, please.
Your next question is from the line of Nicolai Kempf with Deutsche Bank. Please go ahead.
Yeah. Good afternoon. Nicolai Kempf here from Deutsche Bank. Thank you for taking my question. Well, if I have to limit down to one, I would just ask about the suppliers that you may have supported in the third quarter. You know that one of your Swedish competitors had some, well, troubles on the margin side because they supported one supplier, supported suppliers here. Have you done something similar?
No. So we really watch very closely and work closely together with our suppliers. Starting already with the COVID, you know, we have really good connection with the supplier, watch the health of the supplier, and we don't see this as a major impact. It's normal that we have, with increasing prices, our supplier always struggle, but we find ways together how to source it. I think this is on our watch list. We are not blinded there, but we work together in the branch and find the best solution together. I think this is very one topic. The other thing is really how much we then also can pass on to the pricing. This is also discussions on this. This is ongoing and we are close there.
Okay. Thank you.
The next question is from the line of Anthony Dick with ODDO BHF. Please go ahead.
Yes. Hi. I had a question on Scania. My question was, you mentioned the order book extending out to 12 months, which seems a bit longer than most of what your peers are doing right now. You know, with costs still fluctuating quite a lot, how do you manage the pricing on that order book to manage that with volatility looking out to 12 months out? In terms of the production, you mentioned the issues with the ramp-up of the Scania Super. Could you give us an indication when you expect these issues to dissipate? Could you share with us what the Scania Super represents of your Scania sales today? Thank you.
Okay. Let me start from the end there. You asked the question on how much the Scania Super represents right now or in this quarter, rather. It's a 14% of the sales. We are right now building more than 100 per day, so it's increasing rapidly. Yes, we are behind the plan. And that's, as I said, that's one reason why we are limiting the number of orders to make sure that we can. We're not making customers disappointed because, of course, there is a high pressure on us to deliver the Scania Super with the fuel saving. That's where we are. That's sharing. I mean, the complications are many. We're ramping up a new foundry, brand new. We're ramping up new suppliers.
For instance, when it comes to the famous engine control system that has been limiting us in the current series, if you remember throughout the spring, we're changing some of the key suppliers there. Okay, I think I stop there with respect to time. Erik?
In the interest of time, I hand back to Lars for any closing.
Oh, we can take another one or two questions, of course.
Okay. We will move on with Erik Golrang with SEB, please.
Thank you. My question would be on battery cells. You had a competitor saying they'll start to become a high volume battery cell manufacturer by the end of the decade. Given your electrification plans, what's your thinking on that topic right now? If you're going there, do you think that you have the balance sheet to manage it? Thank you.
Yeah. Thanks, Erik. Well, it has nothing to do with the balance sheet, even if that might have been a restriction. No, we have not classified the battery cell as a core component that we need to manufacture in-house. We have classified it as a strategic component. It means that we wanna have full control of the design and the chemistry in it, but we are perfectly happy with having supplier partners delivering the component into our own module and pack production, which we have then classified as core. No question.
Very clear. Thank you.
question. Thank you.
Final question is from the line of Hemal Bhundia with UBS. Please go ahead.
Hi, good afternoon, Christian, Annette, and Lars. Thank you for your time. Just a very quick question. On the Scania backlog, how many of these have you actually managed to convert into the new V8 Super line orders? When you have done so, I imagine you've been able to negotiate a higher price. Thank you.
I think that is the point. What do you mean? Whether we get higher prices for the-
For convert.
For the new product. Sorry.
From converting any, like, existing older Scania model orders into the new V8 orders, if you've managed to convert them. If so, have you managed to increase the price, so negotiate a higher price for that V8 engine?
Yeah, if I get you right, of course, we get the higher price for the 8% fuel saving. We're turning around somewhere around 5%-6% price increase on the Scania Super. But when you say conversion, of course, since we launched this drive line already last year, the majority of our customers would like to have it. The restriction is rather our ability to supply. In many cases we have had them to finalize on the current drive line instead. The penetration rate, as I said earlier on the new one, was 14% in the quarter. But we are throughout the first half of next year planning to come to 100%. That's the plan. By mid-next year we should be done with the introduction. Thanks.
Thank you.
This concludes the Q&A, and I hand back to Lars Korinth for closing comments.
All right. Yeah. Thank you, Emma. Thank you for everyone in the call and of course also for you, Christian and Annette, for answering all the questions. Thanks for the interest and the good discussion, and I'm pretty sure that there are still remaining questions because we were running out of time, and I apologize that it's getting close in the end. Please reach out to us in the investor relations team in case of any questions or remarks. I wish you all a very nice remaining day and a nice weekend, because it's starting today. Thank you for joining us today, and stay safe. Bye-bye.
Ladies and gentlemen, thank you for your attendance. The call has been concluded. You may now disconnect.