Good morning everyone, and welcome to TRATON's Q3 and Nine Months 2026 Results Call. My name is Ursula Querette, and I am Head of Investor Relations at TRATON SE. With me on this call are Christian Levin, our CEO, and Dr. Michael Jackstein, our CFO and CHRO. Christian will start today's presentation with the key results and highlights of the third quarter and cumulative nine months period. Michael will then guide you through our financial performance in more detail. As always, we will conclude the call with a Q&A session open to financial analysts, investors, and media representatives. To register for questions, please click the blue Q&A button on the webcast and follow the instructions. If you want to enter the queue via phone, please dial one of the country-specific numbers and enter your individual PIN, followed by the hash key.
To register your question, you need to press zero one on your keypad. To cancel the question, press zero one again. Please note that this call, including the Q&A session, will be recorded, and the replay will be made available on our website later today. You can find our 2026 nine-month report, which we published this morning, and the slides to this call on our website. Before we start, let me remind you of the disclaimer with respect to forward-looking statements on page three of our presentation. With that, I am handing it over to Christian.
Thank you, Ursula. Welcome also from my side. After a kind of slow, sorry, slow start of the year and a moderate year-over-year growth in the second quarter, our sales momentum accelerated significantly during the third quarter. This was in particularly supported by a much stronger customer demand in the U.S., which gave us a year-over-year unit sale growth of 48% at our International brand in Q3. This momentum is well reflected in the key figures that you can see here on our first slide. TRATON Group overall deliveries in Q3 increased by 10% to close to 79,000 vehicles, and sales revenue rose by 9% to EUR 11.3 billion. The higher volumes improved our fixed cost absorption and supported our overall profitability.
At the same time, and particularly at the International, the production ramp-up came with incremental costs and higher commodity prices as a result of the Iran war added also some margin pressure. Against this backdrop, our adjusted return on sales of 6.8% represents a solid result. Net cash flow for trading operations turned positive in the quarter, with an inflow of EUR 304 million despite high working capital coming from our ramp-ups. Separately, our reported Q3 earnings per share increased more than fivefold, mainly coming from an accounting effect related to Sinotruk share sales, which Michael will explain more in detail later on. The last KPI on this slide, our incoming orders, up 14% to 71,000 units year- over- year. At the same time, unit sales exceeded order intake as we convert the strong backlog into deliveries.
Let's move on and have a look at our development more in detail on the next page. Our book-to-bill ratio fell below one in the third quarter. This reflects both the acceleration in deliveries and a moderation in order momentum following an exceptionally strong second quarter. Starting in Europe, orders were seasonally softer during the summer, but improved again in September, particularly in Germany and particularly in and around the IAA exhibition. This brought third quarter European truck order intake broadly in line with last year's quarter. Germany stood out positively with Q3 orders up 9%, driven by a 15% growth at MAN in Germany. This improvement is not yet fully reflected in our deliveries. Combined, MAN and Scania's European truck deliveries were slightly down year- over- year in Q3. In North America, our order intake also moderated from the very strong levels recorded in Q2.
Besides normal seasonal effects, the truck industry is still working through the pricing implications of the EPA 2027, which made commercial discussions a bit more challenging during the quarter. Nevertheless, truck orders remained strong and increased by 35% year- over- year in Q3. At the same time, International increased production across its truck and engine plants, driving our North American truck deliveries up 65% year- over- year and 24% quarter- over- quarter. In South America, truck order intake increased by 10% year- over- year. Sequentially, however, orders softened as the benefits from this Move Brasil program faded along the quarter. Scania and Volkswagen Truck & Bus continued to deliver vehicles from this program's backlog. So truck deliveries in South America also did increase with 10% year- over- year.
Outside our core regions, let me also manage Scania's production ramp-up in China, which is providing additional support to the group's delivery figures. But overall, the developments are broadly in line with our expectations. Deliveries gained momentum in Q3, and we continue to expect this year's strongest volumes in Q4. However, the ramp-up is also creating some additional supply chain challenges. At International in particular, the supplier base is not yet fully keeping pace with the rapid increase in production. Next slide, please. With only a few months remaining of the year, we have greater visibility across our key truck regions for the full year 2026. We have refined our regional outlooks to reflect the latest market developments. Starting in Europe, our overall view is now more positive, despite the softer order intake we saw in Q3.
Our increased midpoint of 5% implies around 311,000 registrations in the 16 ton and above segment. While Germany has remained hesitant year- to- date, many other European markets such as Poland, Spain, and Italy continued to perform well. Looking into 2027, initial customer discussions at the IAA suggest a more constructive outlook for Germany. After a longer wait, it seems like infrastructure and defense investments could finally feed through, and at the same time, some of this year's stronger markets might slow down. In North America, the market should accelerate towards year-end. Improving freight rates and replacement demand also provide a constructive starting point for discussions with customers for deliveries in 2027. However, retail sales remain below prior- year levels year- to- date, and it is still difficult to assess how much of the increase in OEM deliveries that will ultimately reach end customers.
As our North American outlook is based on retail sales, we are therefore maintaining a somewhat wider range but increase the midpoint to 6.25% to reflect the more constructive market development. The midpoint, we still see Class Eight retail sales at around 276,000 units in 2026. In South America, deliveries continued to benefit from the Move Brasil. While the program expired in July, demand across the region has so far remained more resilient than expected. This supports raising the midpoint in our outlook up to a ± 0%. Looking into 2027, the post-election environment in Brazil could provide continued support for investment activity and customer demand. Registrations in China have also developed more strongly than expected. This was partly supported by measures promoting battery electric vehicles. BEVs already accounted for 36% of sales year- to- date August, which is already then close to the government's target of 40% towards 2030.
While we still expect some moderation towards year-end, we now see a +5% midpoint as the most appropriate. Let's move into the next page. Let me now turn from the market developments to a few operational highlights from this third quarter. As our industry continues to evolve, more and more value is created beyond the vehicle itself. Services, financing, and software are becoming increasingly important for our customers and help us to stand out in an even more competitive market. At the IAA, Scania introduced Scania Dynamic, a product designed to improve both energy efficiency and the driver environment, and this across both our battery electric vehicle range and our ICE vehicle range. This reflects well what has always been at the core of Scania, staying close to our customers and helping them to improve their productivity, their operating economy, and the driver's experience.
Turning to MAN, during the quarter, MAN, together with its partners, announced investments of around EUR 700 million into the European sales and service network through 2030. While this strengthens customers' uptime today, it also prepares the network for a growing fleet of battery electric vehicles across Europe tomorrow. At International, we launched the so-called Fleetrite.com, giving customers now digital and direct access to the entire parts portfolio. This creates additional aftermarket opportunities for International as the installed base of S13 engines continues to grow. Volkswagen Truck & Bus recently announced their entry into the light commercial vehicle segment through a partnership with SAIC. Similar to MAN's success with the TGE, this broadens the product portfolio and addresses a wider range of customer transport needs.
As financing becomes increasingly important, TRATON Financial Services continues to expand its footprint, this time with MAN Financial Services represented now in 19 countries. Just two years after the launch, MAN Financial Services already finances almost every third MAN vehicle in the market it serves. For E-trucks, the penetration was even as high as 50% in the first half of this year. Finally, during the quarter, TRATON also announced a partnership with Red Hat, opening our TRATON ONE OS, or one operating system, to a broader technology ecosystem. This helps us bring new software functions to customers faster while creating a scalable software foundation across all of our brands. What all these examples have in common is a strong focus on solving customer needs in this very rapidly changing industry that we are operating in. Sorry. Let's move on to —excuse me one second. I lost my script.
Here we are. Let's move on to the demand for battery electric vehicles. Let me conclude with an update from the IAA, where battery electric vehicle stood as the major focal point. Our BEV order intake grew by 57% in the third quarter and 49% in the first nine months of the year. Deliveries, however, declined. A small decline, 6%, reflecting lower BEV volumes at International in North America, but did, however, increase 29% year-to-date. At the IAA, Scania and MAN presented both their next generation long-haulage electric trucks with ranges of up to 720 km. With this broader e-mobility portfolio, we can cover more transport applications and meet a wider range of customer use cases as the models become available according to each brand's individual timeline.
But attractive vehicles alone will not be enough, especially as competition from Chinese manufacturers in Europe is starting to show. Our response is clear. Besides competitive BEV products, we provide comprehensive financing and service solutions, including charging solutions, all backed up by a strong service network. This is how we support our customers as they make the challenging transition into e-mobility. Yet, this only addresses part of the challenge. The so-called enabling conditions fall far short of what is currently needed. This is why we joined in as all the CEOs of Europe's leading truck manufacturers and went on stage at the IAA, calling for the CO2 targets to be postponed by three years. To make this crystal clear, this is not about slowing down decarbonization. It is about making sure that it can succeed. The vehicles and customers' demands are there.
Now, support for our customers' business cases for BEVs, infrastructure, and grid connections urgently need to catch up. Summing it all up, the truck market develops in our favor and business continues to gain good momentum. The conversion of our strong order book into deliveries is supporting revenues and supporting profitability. At the same time, we're ramping up production, especially at International, while managing supply chain challenges and higher input costs. Last, but certainly not least, we continue to invest in customer offerings across products, services, financing, and software with a very high focus on electrification. With that, let me hand it over to you, Michael, for the financials.
Yeah. Thanks very much, Christian, and of course, a warm welcome from my side as well. As we expected, the stronger order momentum from previous quarters is now increasingly translating into deliveries. In the third quarter, group unit sales increased by 10% year-over-year, driven by a 48% increase at International and supported by 4% growth in South America. As Scania's production in China is ramping up, we delivered incremental 1,300 units there. Europe was softer, with unit sales down 3% year-over-year, mainly reflecting lower bus deliveries, while truck unit sales declined only by 1%. This translates into a 9% increase in sales revenue. Higher new vehicle sales were the main driver, supported by positive price and mix effects. TRATON Financial Services also made a strong contribution, with revenue up 25%. Vehicle services delivered solid growth of 6%, underlining the continued strengths of this important business.
If we compare this with the second quarter, however, sales revenue declined, mainly reflecting a seasonal slowdown in the European new vehicle business. Vehicle services and TRATON Financial Services continued to grow and provided some offset. Looking at the nine-month development, the figures still reflect the slower start to the year. But the clear year-over-year improvement in the third quarter shows that our business momentum is accelerating. This gives us confidence for a stronger finish to the year on the top line. As expected, higher unit sales improved fixed cost absorption and supported profitability. Adjusted operating profit increased by 16% year- over- year, while adjusted return on sales improved by 40 basis points to 6.8%. Positive price mix effects and good growth in the higher margin vehicle services and financial services business provided additional support. Tariffs, however, were a meaningful headwind.
The Q3 tariff costs were largely driven by Section 232 tariffs, partly offset by credits recorded during the quarter. On a net basis, the impact amounted to around EUR 80 million in the third quarter. For reference, when we look at Q3 last year, there we carried U.S. tariff costs of around EUR 40 million. For the fourth quarter, the tariff burden could increase to around EUR 160 million, reflecting higher sales volumes with fewer expected offsetting credits. This estimate does not reflect any agreement with the U.S. administration that may be reached during the quarter. As a reminder, our tariff expense is currently based on a minimum expected U.S. content of around half of the import value. Any recognition of a higher share due to credit for U.S. production-related activities would reduce the expense accordingly and result in corresponding additional cash reimbursement.
In addition, profitability was impacted by costs related to the production ramp-up in the U.S. and some foreign currency headwinds. We also identified around EUR 100 million of additional input costs in the first nine months, mainly related to Iran-driven commodity price increases. R&D spending is increasing as we invest into our TRATON Modular System and step up our e-mobility developments. However, the year-over-year earnings impact in the third quarter was mitigated by higher capitalization. The key takeaway is that despite these significant cost headwinds, positive volume effects prevailed and drove a clear year-over-year improvement in profitability. Let's now look one level deeper and see what drove the top and bottom line performance across our brands and financial services. Scania's revenue increased by 5%, driven by a 7% growth of its vehicle services business and by higher unit sales in China and Brazil.
Together with a positive price mix, the strong service contribution supported an overproportionate increase in adjusted operating profit. Adjusted return on sales improved to 12.3%. At the same time, currency headwinds and increased fixed costs from the China operations weighed on the margin. At MAN, sales revenue was broadly stable, with higher truck sales offset by lower bus volumes. Growth in vehicle services and ongoing cost management supported profitability, while Iran-related input costs weighed on the result. Adjusted return on sales came in at 4.6%. Separately, a supply issue at a component supplier emerged late in the third quarter. While the impact in the third quarter was limited, some production effects are expected in the fourth quarter, with corresponding cost implications. At International, the recovery in volumes is now clearly visible. Sales revenue increased by 36%, especially driven by 71% growth in truck revenues.
These volume and positive price mix effects lifted the adjusted return on sales by 1.77 percentage points to 2.5%. Importantly, without the roughly EUR 80 million in tariff costs, the margin would have been more than twice as high, despite significant production ramp-up expenses. At Volkswagen Truck & Bus, Move Brasil continued to support the top line, with sales revenue increasing by 11%. Adjusted return on sales was 10.1%. Profitability was impacted by the revised accounting treatment for floor plan financing and higher production costs. Finally, Financial Services continued to scale. Sales revenue increased by 25%, driven by higher portfolio volumes, particularly at MAN and Volkswagen Truck & Bus. Profitability in the core financing business also improved, resulting in a return on equity of 10%. This despite ongoing ramp-up expenses and elevated risk costs. Overall, growth broadened across the brands and TRATON Financial Services.
While adjusted operating profit at TRATON Operations increased by 12% in the third quarter year-over-year, the strong contribution from Financial Services helped lift the adjusted operating profit at group level by 16%, as I mentioned before. Turning now to cash flow. Net cash flow at TRATON Operations was slightly positive in the first nine months. The improved operating performance was nearly offset by the working capital build-up and continued high investment activity. Nevertheless, including the cash flow from corporate items, net debt decreased by EUR 95 million compared with year-end 2025. This was mainly supported by the proceeds from three Sinotruk share placements, which more than offset the dividend payment. The reduction in net debt is fully consistent with our capital allocation priorities. Bringing net debt at TRATON Operations, including corporate items to zero, remains a high priority for us and management.
Separately, Sinotruk share placements also had a significant impact on reported earnings. Following the latest tranche in the third quarter, our stake declined to around 18%, and we now no longer exercise significant influence. As a result, the remaining stake was reclassified from an equity accounted investment to an other equity investment measured at fair value. This reclassification resulted in a non-cash valuation gain of around EUR 1.3 billion. Together with the gains from the share placements, the total Sinotruk related P&L effect amounted to around EUR 1.7 billion before tax for the nine-month period. The resulting after-tax effect on earnings per share is around EUR 3 per share. It is important to emphasize that this is a non-operational effect and does not reflect the underlying performance of our business. In line with our financial policy, we therefore intend to exclude these effects when determining the dividend proposal.
Let me conclude with our full year outlook. Based on the strong momentum in the third quarter and the expected further ramp-up towards year-end, we confirm our guidance for 2026. All guidance ranges remain unchanged. The key ones are 0%-7% growth for both unit sales and sales revenue, and an adjusted return on sales of 6.3%-7.3% for the group. We expect to deliver within these ranges despite the mentioned supply challenges and their associated volume and cost implications, while geopolitical developments remain an overarching uncertainty. We also confirm our net cash flow guidance for TRATON Operations of EUR 900 million-EUR 1.7 billion. As usual, we expect positive working capital effects towards year-end to support cash generation in the fourth quarter. Just to be clear, our cash flow guidance does not include any Sinotruk effects, as those are reported under corporate items.
What it does include, however, are the tariff cash reimbursements we currently expect based on our minimum U.S. content assumption. Any additional refunds from the recognition of a higher U.S. content share would provide further upside. Overall, the strong business momentum gives us confidence in our full year outlook, and this despite ongoing margin and cash flow pressure from tariffs, higher R&D spending, ramp-up and supply chain costs, and input cost headwinds. With that, I hand it back to you, Ursula, for the Q&A session.
Thank you, Michael. Thank you, Christian. Before we start with the Q&A session, let me remind you that you need to click the blue Q&A button in the webcast and follow the instructions if you want to ask a question. If you wish to remove yourself from the queue, please press Cancel. If you're dialed in via phone, you need to tap zero one. To cancel the question, press zero one again. Please ask your question once I announce your name and activated your session. In respect of the time, please limit yourself to two questions. Now, the first question I see in the line is from Lewis Merrick from BNP Paribas. Lewis, you should be live now.
Yeah. Good morning. Thank you for taking my questions. I'd just like to start on margins. It looks like in the quarter, Scania was particularly strong, whilst MAN was on the softer side. Can you just explain what drove the strength of Scania? On the softness of MAN, I know you mentioned the supplier issue earlier on, but to be clear, would the impact be less significant or worse in Q4 relative to Q3?
Yeah. Maybe I can start kicking it off and then, as always, Christian, you can complement. Maybe let me start with MAN. Obviously, we have seen quite a good performance. With regards to the margin in the first half, finishing the year at the first half with 7%. We saw quite good order intake momentum started in Q4 last year, which then translated here into the good margin development. We see, as you were into now, a drop here in the third quarter. This is, I can say, as expected internally, which is linked on the one hand side to higher input costs. That was the topic that we mentioned when the Iran war started, that based on the supplier contracts, will take couple of months, threer to six months, typically, until we see the effects. So that was, in a way, factored in.
That's one aspect that is here to some extent hitting MAN. Another aspect is the typical also seasonal pattern, that Q3 is not as strong as here the first half. But clearly we expect a stronger Q4 for MAN going forward. Despite the supply chain topics that we mentioned, there is also one hitting MAN. So we are expecting some effect here also in Q4, but it should not be, let's say, super strong or significant effect, so we are still on the path to see a stronger Q4. That's the MAN story. When I turn to Scania, a little bit different exposure between MAN and Scania. Scania, of course, has Europe, but Scania also has South America. Then we can come back to the couple of time mentioned Move Brasil program that certainly also supported Scania in South America. So it's a mix.
Here we saw quite a good margin development based on that for Scania, which is then, in this case, slightly stronger than what we have seen at MAN. But looking in your direction, Christian, if you'd like.
I can, of course, and especially in Scania, where I have detailed insights. No, I think Scania performed very well on the margin based on particularly good development in the service business. With a growth of 7% in local currencies, you get an immediate bottom-line effect. That's really good to see. It signals that the customer base keeps the rolling fleet up and running despite some of it starting to be pretty old, and also that we managed to capture at least a good part of that business. We also see very good cost discipline and a very positive continued development in Scania, just like we saw in the first two quarters. That further helps. So what we need to see now going forward is higher volumes to further expand margins.
We did increase prices twice already this year, and that is, of course, also supporting the margin, but you also see on the order intake, that has a negative effect. This is always a balancing act. We stay premium with Scania. We want to be the brand on top of the price ladder. Of course, that sometimes means that you take a hit on the volumes. But as long as we're in the 16%-18% range, I sleep well at night. So it's not a big issue. But that's a few words around the strong margin in Scania and on top of what you mentioned with the geographical mix there, Michael.
Hey. Thank you. Lewis, did you have a second one?
Yeah, just one more, if I may. Just on the EPA 2027, you will be offering customers the option to choose between the model year 20 26 and model year 2027 engine. It is still clearly early days, but based on the conversations you have had with customers and the two months' worth of order intake you have seen at International, is there a clear engine preference emerging with your customers?
Christian?
No. Yeah. It is a very good question, and I am asking the same. Yeah. We have chosen the two-path strategy to keep the EPA 2024 engine also available. And then we are gradually introducing the EPA 2027. We have a couple of hiccups with the ramp-up, so I guess the first customers will get their EPA 2027 compliant engines in the second quarter. But the EPA 2024, you can get all along. Now, all in all, the discussions with customers are generally good for next year. I think that is the first point. So everyone is now getting the support from better pricing in the U.S.. The replacement need is clearly there. So I think we can expect a continued strong market in the U.S. Secondly, the EPA27 is not finally closed with the legislator, which is extremely frustrating.
There is still some kind of uncertainty, and unfortunately, that especially goes around the non-conformity penalty, so the amount that you will have to pay them if you choose to go with the older emission levels. This creates, of course, quite some uncertainty and quite some buzz in the customer base. So I wish I could say it is one ahead of the other, but currently it is raw hesitation. And I really, really hope that we get a clarity on EPA 2027 so that we can, again, ramp up our order collection here into next year, because now is the moment. We were quickly sold out for 2026, and now we are starting to sell 2027, but there is clearly hesitation, and specifically on Class Eight, where this is most prominent.
So I do not know if you have any latest, Michael, from your discussion with the team yesterday evening.
No, I had a discussion, as you mentioned, but you were spot on. There is nothing to add. Perfectly described the situation. Yep.
Thanks.
Yeah. Thank you. Then we take-
Thank you.
Yeah. Thanks, Lewis. Next question then comes from [Matthias Tollenberg]. Yes, you should be live now.
Great. Can you hear me?
Yes.
Wonderful. Regarding Scania's order intake, I thought that going into today's results, that you had been quite clear on the dynamics with Move Brasil fading and also the softer July and August order dynamic in Europe. Even so, the orders for Scania came in at least somewhat below what we, and I think others, had expected. So I am curious to hear if you were surprised at all by Scania's order intake, and also if you perhaps could elaborate a bit on the September level for Scania, specifically if that came back to normal levels. And finally, if Scania is still prioritizing price over volume, and if you at all would be willing, if needed, to accept lower pricing to rebuild order momentum there. Thank you.
Yeah. Thanks, Matthias Tollenberg. I guess this is on me, Ursula. Yeah, to be honest, I was a little bit surprised that the summer months were as weak as they were. They are always weak, so that was not a surprise in itself, but if we look over the last 10 years, it was amongst the weakest months we have seen. So I had a lot of conversations with our business units, particularly in Europe, to understand if this was on us or if it was a lower market activity. Pricing plays a role. We have, on some of the bigger fleet deals, decided to step out, which of course has an impact on the order intake and later on registrations. But said that, the underlying demand remains strong, and the number of offers out there and discussions with customers remains strong.
We saw that in September, particularly after IAA, and I think there was a waiting effect also, wanting to know what was all the fuss around the new Scania Dynamic all about. As we revealed that, there was, first of all, very good feedback from customers, both on the improved aerodynamics and the looks of the new cabs, but also what we have been doing for the drivers. So from there, order intake has been particularly good. That has continued into October. So I am not worried that we have taken out too much on price, to be honest, and I think we should see Q3 just as a mere blip in the curve of increased order intake for Scania. As you see, year- to- date, we are still strong.
Your last question was really would we be prepared to move down on pricing if we see that we're losing too much market share? Of course, we would do that. We need to fuel the rolling population where we make such good results on the service business. Should we move below 16%? That's kind of where the alarm bell goes off. But I think we're currently standing quite confident at 16.5% with a very strong order book, and we're sold out for the year in Europe. I think with our assumption on the total market that we're going to see a recovery in market shares and strong delivery volumes here in the last quarter for Scania. Nothing to worry about currently.
That's a good answer, thank you. A quick follow-up, if I may. It sounds like the customer discussions are quite supportive, but I'm curious, as diesel prices have surged again recently, are you seeing it affecting your customers at all in terms of purchase timing, order cancellation, et cetera.
No. It's a good question. You could have expected that there was hesitation in the market because of this. I think no. Strangely enough, there was a very short hesitation around when the war broke out early spring, but since then, confidence is back. I would say, speaking then for the Scania brand, with such good fuel performance, what typically helps us is higher diesel prices. Because then the saving is worth more money in relative terms. Then there's, of course, a limit when this starts to harm the total market, and that's really your question, and I don't see that. I guess there is somewhere a limit, but we have not reached that limit yet. Partly because there is compensation done from governments to soften the increase in the prices that our customers are paying. But no. So far it looks surprisingly good, I must say.
Thank you.
Thank you.
Thank you, Matthias. Next question then comes from Klas Bergelind from Citi. Klas, can you hear us?
Yep. Thank you, Ursula. Hi, Christian and Michael. Klas at Citi. I just want to come back to the likely unit sales and margin development into year-end. When I look at consensus, the implied margin to reach full-year expectations is now 7.5% for the fourth quarter. Unit sales up 14% quarter-on-quarter. You obviously have backlog cover, and Christian, you say that you are fully sold out. Turning to the margin, you talk about ramp-up cost that should continue at International and now also at MAN. It seems like cost inflation could get worse. Also, there is a doubling of the tariff cost fourth quarter over third quarter. I noted, Michael, that you said we expect a strong finish into year-end at top line, but you didn't mention the margin. How should we think about the margin into the fourth quarter and then also on the unit sales? Thank you.
Thank you, Klas. No, that's a super fair question. As I indicated a little bit, that's hard to predict. When I say it's hard to predict, let me make one comment crystal clear and come back to what we said during the presentation. We clearly confirm our guidance range for the full year, with regards to the margin between 6.3% and 7.3%. This is basically what we said since the start of the year. Also what we said last year, we finished on a level of 6.3%. Ambition this year is to achieve at least that. That's consistent messaging since March, and this is what we confirmed for a good reason. To be also here as clear, yes, we see the order intake momentum coming through, translating into unit sales in Q4.
We expect good unit sales, strong unit sales, and also potentially strong sales revenues in Q4. There are clearly risks, some risks that we mentioned during the presentation, and you talked about some of them. Obviously, we have input costs. When the Iran war started, we indicated that we expect a low triple-digit million number in the second half of this year. We said during the presentation that we recorded already EUR 100 million, and there is a fourth quarter to come. There is going to be additional input cost headwinds that we foresee. I was into some supply chain constraints, and as I mentioned also during the presentation, they are quite new. They came up pretty much at the end of the third quarter, so we are looking into them at this point in time.
Of course, doing our utmost to mitigate them, looking here and there for alternative suppliers, figuring out the logistics, and so on. There is clearly a risk from that side as well. Another question mark is linked to FX effects. After we had short tailwinds in the second quarter, we have now headwinds one more time. This is affecting Scania the most, and maybe to be a little bit more crisp here, to give you a better understanding, we have a negative effect on the Scania margin between 0.5 Percentage point and 1 percentage point here after the nine months. We also have to see how this continues, and this is why, cut the long story short, taking into account these risks, and how they turn out, I cannot rule out that we see a fourth quarter that could be also below the third quarter.
That is possible, or that is something that I cannot rule out. There are certainly also, of course, chances, because volume is going to be better and stronger in Q4, but we also see the headwinds. Where we end, this is really too soon to tell. If we are more towards the upper end, the lower end, or around the midpoint, that I cannot say at this point in time. Coming to the key messages, Q4 margin could be below Q3. It is possible, depending on how the risks materialize. Super clear, we confirm our guidance range between 6.3% and 7.3% RoS for the full year.
Very clear. My second one is on Europe. I want to come back here, Christian. First on Scania, it seems like when I caught up with Ursula in the morning, that October in Europe, looking to orders, was flat year-over-year, and it looks like expectations out there is for mid-single-digit order growth for Scania into the fourth quarter. You have some slowdown also in Brazil because of the Move Brasil leveling off. That will require an acceleration in November and December to see that. My question really is, outside Germany, I get what is going on with MAN, but if we zoom in on Scania, any reason why November, December should improve, or should we stay at this level, or maybe could we see orders declining November, December? Thank you.
That is a crystal ball question. Again, I see the numbers in October quite positive. Actually, we are still not closing the month, so there is a bit to go. Looking that the good momentum from after IAA in September is continuing, then I do not see the hesitation in the market to bring down my expectation on November, December. I rather think that we will continue to see good business and good order intake coming through in Scania. It is more of a stomach feeling, of course, as we talk about orders. Really nothing much to say on Europe than a stomach feeling—
Okay.
—is that we continue close to, and maybe that is mostly based on really good development here in October for Europe. Brazil is a fact, that if we do not see a new Move Brasil coming through, then I am afraid we are going to see a rather hesitant market in Brazil. Let us see if this was just Lula tactics to try to win the election, or if this is something he will continue to do. There is speculation around that. We are doing our part, of course, to lobby and say, on this super high interest rate we are operating in Brazil, they need to support the markets. Otherwise, investments will come down, and we will have to lay off people in our factories all throughout the industry. Hopefully he is listening to that. Then, of course, we have—
Okay.
Yeah, come again.
No, October, was that combined Europe and combined MAN and Scania?
No, I'm sorry.
Order for MAN
Yeah, I was talking for Scania now. If we take MAN—
Okay.
—we also had a very good IAA effect in September. I do not have the figures for October, so I cannot comment on MAN. I do not know if you have maybe
Yeah. I can quickly support. Also there, we see a better development in October again. Christian was into, there is a little bit to go in October, so we have to see the October results and then see how it continues. Also just quickly complementing, we started to see a good order intake momentum in Q4 last year, as you know. We saw quite a good momentum in Q1 and Q2 seasonally, and Christian was into the other effects in Q3. Let's really see how Q4 continues. Based on October, both for Scania and MAN, at least with regards to order intake, there are clearly some positive signs. Yeah.
Thank you.
Thank you, Klas. Next question comes from Alexander Jones from Bank of America. Alex.
Thank you. First one just on the European end market. I think in prepared remarks you talked about markets outside Germany perhaps getting a bit weaker into next year, particularly those that were strong this year. Can you just expand on that in terms of what end markets or countries you are talking about, what the drivers are, and what the customer feedback has been from those geographies? Thank you.
Christian, probably for you.
Yeah, I think to be honest, we shouldn't draw too much on that comment, but of course there are markets. Europe is such a vast area with different economical developments. We see some markets have been strong. I mentioned a few. Now we expect Germany to come back. I think we see markets like France, for instance, where the development might not be as strong going forward, based both on the unrest and tough situation for transporters. I think, on the other hand, U.K. is moving up nicely. I think all in all, we look rather positively on Europe in 2027. Would then a miracle happen, and we see an end to either of the two wars, I think we would get a really nice boost. Do not draw too much on that comment.
There is no specific market in Europe where we really see the markets are slowing down. On the opposite, it's moving quite neatly along.
Okay, that's really helpful. Then maybe secondly, on MAN and the input cost inflation that's impacting margins, can you just talk through how you're thinking about compensating for that over time in terms of pricing actions, other cost actions you're taking in the business, and whether at this stage, particularly as you see slightly improved momentum in Germany, you have a timeline in mind for when the brand might get to price cost neutral, or whether that's too far out at this stage? Thank you.
Yeah. Maybe to start here, with regards to pricing, I can say that we have seen also two pricing steps at MAN for this year to, let's say, at least partly offset here the input costs. When I go back to the cost dimension, then you know we talked about this intensively pretty much in all the calls, that we are doing intense cost work in the entire TRATON Group. Christian was into that also with regards to the Scania margin, where the cost work certainly has a positive effect. That's also the case for MAN. Also, MAN has a clear focus on cost work. We are doing that within the brands. We also do that cross-brand. There is a clear focus on the cost side here. This will certainly also continue.
If you were done, Michael, I can add.
Yeah.
Because you asked also on the business side and what we do operationally. There is a journey for MAN to go, as you can see. No one is happy with the outcome of Q3, of course, and working on costs, they are doing in a good way, and they have to do. But there is also revenues to be catched, and there is margins to be gained in the commercial side of the business. Here, MAN is doing, I must say, an outstanding job to build up a much better dealer structure, stronger tools for the sales organization, much more focus on contracts. Now that they have TRATON Financial Services with the same capabilities as Scania Financial Services, we also see a higher uptake of contracts, which is then gradually going to come through in services revenues.
One really big difference between Scania and MAN is that Scania is making much more money on services. So there are lots of basic things where MAN needs to improve, which goes beyond pure cost work, which was typically their focus in the past, and you cannot starve yourself to success. You also have to improve your performance towards customers and in your commercial side, and that's going on. You could always ask for faster speed. But we need to get MAN even more resilient, and that's also part of the work, and that work is ongoing. Of course, there are learnings shared in the group, even if we are competing in the front line. So, we need to see, and I think we will see better performance from MAN here in the coming quarters already.
Thank you.
Thank you. Then we turn to Harry Martin from Bernstein. Harry?
Morning, everyone. A couple of questions left. The first one, could you talk about how you will do production planning in International? If we have a few weaker months of orders, say, before the EPA ruling comes out, how would you smooth deliveries and the slots through next year? Would there be any plans to offer discounts for Q1 or Q2 deliveries if the shape of the year looked a little bit back end loaded? The second question I have, maybe slightly devil's advocate on charging infrastructure. I hear your calls for the policies and the infrastructure build-out to move forwards. Should you either TRATON alone or a consortium among the European truck makers build the charging infrastructure yourself and get ahead of competition? Clearly, we've seen Tesla do that in the U.S. in the auto industry.
I think BYD is talking about building a flash charging network in Europe as well. Any thoughts that you have on maybe needing to use more of your balance sheet there? Thank you.
Christian, can you take the production planning International question?
Yeah. On a high level, I can. We are doing in all our brands a rolling 12 planning, and we of course then adjust every month, typically in the outer months, but also short term if we have really big swings in demand. No one likes these pre-buy effects that change our planning too much because flexibility has its limits, let's put it like that. The paradox with the U.S. is that that is where we have the biggest swing in market demand, and we can talk about the reasons for that, but I will not do that. At the same time, we have the lowest capability to adapt to these swings. That is both internal work we have at International, but it is also the supplier base.
We have mentioned now a couple of times that supplier base is not able to follow us when we ramp up. Then you have to, as you indicated in your question, when the demand goes up or down beyond what we can cope with, then you have to smoothen that out with either pre-production or losing business. Losing business, in our case, is not a good option as we need to grow to cover our fixed cost. Therefore, what you are doing is, apart from, of course, negotiating with customers about other delivery dates than what they want, is to work with the dealer to take or not take stocks, because that is kind of the buffer you have in the system, and that is what we are doing.
I will stop there because I will not go more into detail, but we do have a challenge with International to improve their capabilities, not in planning, but in actually taking on the swings up and down that will always be there in the U.S. for one reason or the other. Regardless if it is presidents that is bringing out a new law or whether it is the market that moves, we have to be more flexible and we have to be able to cope with customer demands going up and down in a better way. I think that is part of rebuilding International to its former strengths. That is also where the TRATON Group can help International a lot with competencies from the other brands and with people from the other brands to continue to climb up the premium ladder in the United States.
I stop there with the production planning question. I hope I, at least to some extent, answered your question, Harry.
Yeah, I think so. And maybe to make one thing clear, the demand is trending upwards, right? Because this was a bit unclear—
Oh, yeah.
—in the area.
Yeah, exactly. You asked on a general level how we do it, but yes, demand is good. And as we indicated, we foresee a continued strong market in the U.S. also next year.
Yeah.
Yeah. You wanted to talk about charging as well.
Charging infrastructure and if you want to invest. Yeah.
Yeah. The simple answer is yes, and actually we already do so. Quite some years ago now, we took an initiative together with Volvo and Daimler groups to start to build out specific truck high power charging infrastructure along Europe's main highways. We started a joint venture, it's called Milence. You can check their site and read up on them, where we have contributed largely to on-highway charging, and we are today by far Europe's biggest supplier of truck charging away from the home premises of our customers. So far, we have put in EUR 500 million into that, and we have, of course, also external funding. But we have somewhat had to slow down the build-out because of the lack of trucks, because there has to be some kind of balance. First, infrastructure needs to come first, there's no doubt.
If there's no infrastructure, there will be no trucks. But you also have to get some kind of returns, and you need a certain number of charging locations on your stations in order for them to have at least a profitability outlook. So we have adjusted somewhat. But this is a venture that will continue. We will continue to take our responsibility to the extent and to the amount we think are reasonable by doing what, as you indicated, what Tesla, for instance, have started to do now in the U.S. I think it's both to support the sales of electric vehicles, but I think it's long term going to be a very, very profitable business also. So I think it's a double gain to be there. Again, despite that, we still see far too low uptake of electric vehicles in Europe.
We're still hovering around 3% of the heavy vehicles being electric 2026, and we're approaching the legal limit 2030, where we will have to start to pay fines, not being at 35%-45%, which feels very much out of reach now. Charging infrastructure, yes, that will be part of our portfolio.
Thank you.
Thank you. That's very helpful.
We now have three questions of three analysts in the line. Maybe we can be a bit faster now. [José], you are the next one to be fast. Hello?
Hi. Hey, can you hear me?
Yes.
Thank you. Just one question, please, Christian. If you can further elaborate a bit more on North America and orders that you are seeing in Q4, Q3. How much visibility do you have into 2027? What do you think will get your clients or customers to place orders with more confidence? I hear you are optimistic about 2027 in North America, momentum, and will continue to grow.
Mm.
What do you think will get your customers to place orders with more confidence?
Yeah, I think, thanks, [José]. A good question. What I hear from the sales organization at International in the U.S. is that there is a good sentiment among customers that is mainly based on that pricing is good. Both spot prices and contract prices are good and improving. Volumes are coming, especially in some sectors, of course, and specifically the vocational, thanks to all the infrastructure investments into data centers and others. But what is creating a bit of hesitation is the situation around EPA 2027. Clearly it did not create a huge pre-buy, and then you would expect that orders just continue to flow in, and that is not really happening. That is around different messages from different OEMs, different pricing strategies from different OEMs.
I think it's just a matter of time before this has stabilized, first from the government about what actually is the price for nonconformity, then there is a clear pricing and delivery time from each OEM to customers for them to be able to compare, us to compete, and then the market to move forward. So that's where we stand right now. From a macro, micro point of view, the market looks strong and we expect it to be at least on this year's level, but probably higher.
Well, thank you.
Thank you. Next one, Nicolai Kempf from Deutsche Bank.
Hey, good morning. It's Nicolai from Deutsche. Hope you can hear me. One question on Germany. We do believe that we expected a bit of stronger recovery of German market, and that would be probably helpful for MAN. Did not yet materialize. Do you see signs of Germany picking up so far? Thank you.
Yeah, just quickly, I can say, as we mentioned also in the presentation, that we see positive signs now in Germany, especially with regards to order intake there in September. It could be, let's see, that this is also, to some extent, an extraordinary effect. We have to monitor this, but as we were into during the presentation, yes, we have seen positive signs from Germany now. This goes, of course, hand in hand with the hope that the so-called German stimulus that we talked about since quite some time is then finally coming through with regards to investments into the infrastructure and also partly the defense side. There are positive signs, and let's see if the trend continues.
Thank you.
Then let's turn to [Mahan], last analyst in the line.
Hi.
We live now.
Hi, it's [Daniela] actually over here. Thank you for taking the question. Just two points. They're mainly actually clarifications, and sorry if you said it early because it's quite hard to get into the call. On your comments on Q4 margin and the potential for that to be lower than Q3 and tariffs and the supplier issue. Can you just clarify, so the U.S. content negotiation discussion, so you do not expect to see that resolved this year? That would be if there is some upside from that fully into next year? Then I have a second one.
Yeah, I can start commenting on that one. What I can say at this point in time that our team there from International is in constructive discussions with the U.S. administration. We believe that there is a good chance to come to a conclusion this year. That's what we see. Nevertheless, there are also some headwinds, but this is maybe then your second question linked to the margin in Q4. That's the answer to the negotiations with the administration.
Mm-hmm. Thank you. Then on the second question was actually on the commentary around EPA that you've given, and just to clarify, in terms of the old engine and whatever the penalties are when they are set, you will 100% pass those penalties through to your customers? Or you would consider taking a different pricing strategy?
Christian, do you want to take it?
Yeah. Sorry, I was muted. I tried to take it. Yes, the strategy is to pass it on to customers in any case, as we will have the alternative available, which of course also comes with an additional pricing. Yes, we are intending to do that. In the Class Six and Seven, where the majority of the industry is supplied through Cummins, we will also follow through, and we expect the rest of the industry to do the same.
What is your new engine price? The EPA compliance engine?
Yeah, I cannot tell you that, to be honest. I should be, but I do not know. I will not talk pricing. But, of course, we will. No, I will not go into that.
Sure. No worries. Thank you.
Thank you.
Okay. Thank you. With that, there is no one in the line anymore. As I said in the beginning, we are happy to take any further questions from analysts or investors later on. With that, I just wish you enjoy the rest of the day, and goodbye.