Welcome to this presentation of Volvo Cars financial results for the full-year and the fourth quarter of 2021. My name is Christina Sander, and with me here today to walk you through the numbers, I have Håkan Samuelsson, our Chief Executive, and Björn Annwall, our Chief Financial Officer. Following the presentation, there will be an opportunity to ask questions, and if you would like to dial in and ask your question over the phone, please remember to press star one. There will also be an opportunity to type in your question in the chat function online. With that, I will leave the floor to Håkan.
Okay. Thank you, Christina, and welcome to all of you to this, for me, very important and presentation of what we did last year. It's also sort of my last time I have this opportunity to report. It's also, of course, a good result of the transformation done during the years I have had the privilege to lead this company. That's why we say 2021 was a real year to be proud of, and I'm very proud of the result. We had actually an all-time high in revenue, SEK 282 million turnover, highest ever. Market share is also almost double what we had 10 years ago, also an all-time high. Profitability is 7.2%, the best ever.
In that respect, I think it's definitely was a good year and a year to be proud of. We saw a strong demand on sales and I mean but have problems with the semiconductors, which has limited the volumes. Without that, I would be very sure that we could have had also a volume all-time high. We are on our way really to transform the company. 2030 is our commitment. We should be full electric. On that course, we had the second car launched, the C40. It's also the first Volvo that is only available as a full electric version. The XC40, our very first car, is also still available as a plug-in, as a conventional car. We saw a growth in Recharge sales, that is chargeable cars.
That's really our step into electrification. We had around 27% of all cars were chargeable last year. That's really. I think it's the highest in the business. We are really on our way now. The plug-ins will probably remain on that level, and now the numbers of full electric cars will really pick up. Very important also on the electrification transformation is Aurobay. We have formed now all our conventional motors engines combustion engines are transferred into a new company, Aurobay, and it's not part of Volvo Cars group anymore. We have now established a joint venture with Northvolt, both for R&D and production. That's really the new area, our new core competence, batteries, and that will be made here in the western Sweden, close to Gothenburg.
Of course, also, we are very proud of our IPO, where we got around 200 new shareholders, and I think that's really good for the structure and the future of the company to be scrutinized by investors every quarter. That I think was a very important change during the year as well. With that, we are also ready maybe to give some tip and advice to Polestar, our affiliated company, who is preparing for a similar listing during the first half year. The idea is that Polestar will be a listed company on the Nasdaq in New York during the first half year.
Last but not least, our family bond, very proud of that the values we have in this company, we also can show that we make that into some concrete routines and that we are offering parental leave to all our employees globally. That I think is a very important sign making us the employer of choice for future generations. We are on our way. Where are we targeting? Mid-decade. I think you know our targets continue growing. 1.2 million cars is the target. Half of them should be all electric, and the other half will then be hybrids, mild hybrid, plug-in hybrids. We are also then targeting a profitability in line with the benchmark in the premium segment, 8%-10%. That's our midterm goal and transformation on track.
We have now Recharge sales 34%. That is in the fourth quarter, so it's increasing. I just said 27% is average for the year, fourth quarter 24%. Of those 34%, 6% were all electric, and that's where we will see the growth in future. We are also seeing growth in online sales. Now it's close to 10% on the market where it's introduced, and that's our Care by Volvo subscription, and it's also all our BEV vehicles sold online. In the U.K. is now our pilot market for taking this to the next step, and there we also now started with online business-to-business, the fleet sale, which is such an important part for the European car market. Now we are also bringing that online with the U.K. as the pilot.
We also introduced the Ride Pilot in Las Vegas with our new central compute, with our software developed in Zenseact and with the lidar from Luminar. We are ready to really develop the premium car to the next level, safety for everyday use. You can have a comfortable ride on highways with the remaining Volvo safety, thanks to new technology, lidars and software. Last point is CO2 reduction, where we want to reduce to 40%. During last year, we reduced with another 9.5%. We are really on track to reach our target of 40% till mid-decade. With that, which is a sort of summary of the year, I leave it to you, Björn, to give us more information what happened.
Thank you, Håkan.
Thank you.
A quick rundown on the numbers then for the full-year and for quarter four and a little bit on how we see the business going forward. Starting with the full-year, as Håkan had already said, it was a year where we had growth on volumes, but less so than we had hoped for, and we were supply constrained. We grow revenue to SEK 282 billion, which is a record high revenue for Volvo Cars. The EBIT margin improved to 7.2%. That's the bottom line of Volvo Cars or SEK 20.3 billion of EBIT. Worth noting is these days, Volvo Cars, we have Volvo Cars, the Volvo brand, and then we have our very important JVs and affiliates. Polestar is an important shareholding we have. Lynk & Co is another.
Volvo Finance Bank is a third. We have a number of those. Those JVs and associates are also affecting our results and clearly part of those 7.2%. If you isolated Volvo Cars, Volvo Cars for the full-year had a profit of SEK 21.2 billion with 7.5% EBIT margin, putting those important shareholdings aside. That's the financials, how they came out for the full-year. Talking a bit about the recharge sales, as Håkan already did, where we ended up quarter four at 34% of our cars being rechargeable, six percentage points of that being fully electric cars, which is then a quite impressive growth if you look over the last two to three years.
Worth noting is if you go back then to beginning of 2019, we were at some 6%. In two to three years, we have gone from those 6% to 34%. Now, the focus is not on the plug-in hybrids. Now the focus shifts to the fully electric cars. What we need to do now in the next two to three years is exactly the same journey, go from this 6% we have right now to a number around 34% in two to three years on the way to more than 50% by mid-decade and becoming fully electric towards the end of this decade. It's gonna be hard, of course, but we have a full organization determined to make this happen. That's the journey ahead.
That journey is also needed if we are to meet our CO2 commitment to reduce the CO2 footprint from a car end-to-end with 40% up until mid-decade. We are, as Håkan said, right now the reduction we have delivered so far is -9.5%. That number should be -40% when we come to 2025. We are tracking according to plan there. Looking at some of the moving pieces during the year, where did the result and the good result come from? If you start with last year's result, where we had SEK 8.5 billion in EBIT, we then took aside what we got in contribution from the JVs and associate, which was a negative effect of SEK 0.4 billion. The Volvo brand had an EBIT of SEK 8.9 billion.
If you look at where we are right now, you can see that the big driving force has not been volume. Volume have been flattish. The strong contribution in profit comes from an increased price realization of our cars and a strong mix where we, in the supply shortage we had, of course, we have taken a premium price for our premium cars, and we have shifted volumes to the more profitable models and prioritized those along with our clearly profitable plug-in hybrids and the full electric, as you can see here. You have a bit of an effect from the JVs and associates that are coming to the final results.
I should also say that we have had a year where also the raw material prices have increased, you have an increased freight cost, more premium freight than you normally have. It's so strong to see that we have fully compensated all of that with pricing and mix. That's the full-year picture. As I said, a year we are proud of and can be very proud of. If you then zoom in on quarter four, a quarter where we clearly continued to see extremely strong demand for our cars, and our order book is now at an absolute record level and continued to grow. It was a quarter characterized by the supply constraints. We had an even harder supply constraint in quarter three.
We see the production capacity or the supply capacity, I should rather say, of components is improving gradually but slowly. This led to a lower volume, and as I will show in a second, it's quite impressive that we fully were able to compensate for the lower volume and the price pressure from raw material and freight and energy and so forth with a strong mix and strong pricing. The absolute EBIT margin ended up at being at 4.6% or the bottom line. As you can see in this particular quarter, we had quite a negative effect from our JVs and associates.
The numbers without the JVs and associates, the numbers for Volvo Cars is 7.1% EBIT, which is exactly the same number as we had in quarter three. Despite all this turbulence, a very stable margin performance for Volvo Cars. The effect, the 4.6% in total, we had a normal kind of dilution from the JVs and associates that has to do primarily with Polestar, which is in this kind of growth phase where we are investing into scaling up Polestar, which of course has costs. In quarter four in particular, one technical thing that happened is that Polestar changed their accounting treatment of deferred tax assets.
That has to do with as they are, you know, filing for the listing in the U.S., they looked through some of those aspects and changed, or the accounting treatment of deferred tax asset was changed, and that hit came fully in quarter four. That's why you see a more negative than normal impact from JVs and associates on our numbers in the quarter. The underlying operations in the sum of those JVs and associates with Lynk & Co, Polestar, Volvo Car Financial Services, that was actually not very different. It's that one-time deferred tax thing that really had a hit in quarter four in particular.
The operating cash flow was very strong, which it should be as production has started to come back, and then you see the working capital going in the right direction for the company. A very strong cash flow in quarter four. Growth of electric cars as we already talked about. I think it's important also, we have closed the acquisition of the Taizhou plant that we now fully own. We have kind of operated it in the past, but now we're also fully owning it, and that's the plant that produced XC40 BEVs, Polestar two. It's a plant that is already now focused on fully electric cars to a high degree. That acquisition has been closed during quarter four.
The numbers, retail sales negative and also revenue negative, but less so. As I already said, the EBIT margin for the quarter were 4.6%. The EBIT margin for Volvo Cars, excluding associates and JVs, was 7.1%. The key ups and downs is contrary to the full-year, for the quarter, we had a negative impact from volume but fully compensated with strong mix and strong price realization. On the negative side, primarily, in addition to JVs, you have this effect from volumes, you have this effect from JVs and associates. That's the quarter in a nutshell.
Looking at the current trading now in January, you already saw our sales report for January, and you can see that the production is continuing to gradually improve, but this gradual is quite slow, and it's really still very much constrained by the semiconductor shortages. Therefore, also the retail deliveries were lower in January this year than January last year. We also saw a continued strong sales of our rechargeable cars. That was January.
If we then look at what do we see going forward for the remainder of this year then, first stating the obvious, uncertainty is still very high, and the real defining factor on how fast we will grow and also the dynamics of the whole industry will be based on the supply chain situation and to what degree that will ease. What we are seeing is, as I said, a gradual easing, but slow now in the beginning, and it will definitely remain a strong restraining factor for H1. What will happen in H2 is too early to tell, but I think over the year, we're hoping this to be easing. That together with the strong consumer demand that we have and the record order book we have should let us grow this year in volume.
We will also continue to accelerate full electric cars, so that will more than double if you look at the full-year of 2022 versus the full-year of 2021 to more than 10%, for the full-year. Clearly, it's gonna be a gradual increase there as well as we are upgrading or adding the capacity. We will have a capacity of more than 150,000 cars, fully electric, after summer. You're gonna see a gradual increase over the year, and the full-year will be more than 10%. We continue to see cost pressure. We have cost pressures on freight, we have raw material, and we are also taking actions on pricing. We have, as we always do with the model year shift, we update prices.
This year we have been even more ambitious in how we work with pricing. The ambition with those price increases are to fully offset the negative effect from cost pressures on raw material and freight. That's the ambition, then it's hard to kind of forecast exactly how what the cost pressure will be and fully how those price increases will bite in the market. The ambition here and now is that we will fully offset the cost increases with those pricing actions that we have taken. Last but not least, I just wanted to remind that a big dynamics for Volvo Cars during this years and even more in the years to come will of course be our fully electric cars, 'cause that's where we focus now.
We will, starting in quarter one, give transparency on the BEVs versus the non-BEVs in terms of the gross margin, the volumes, and also what share our investments that goes into BEV versus non-BEV. That sums up how we see 2022. With that, I guess I hand it back to you, Christina.
Thank you, Björn. With that we open up for questions. I would just like to remind everyone, if you want to call in and ask a question over the phone, please remember to dial star one. You can also type in your questions in the chat function online. We have actually already received a number of questions, so we can jump right in. The first question here is from Rafaella Lindeberg at Bloomberg, and she says, "Hi. Any updates on when you expect the company to be ready to start paying dividends? How far off?
Mm-hmm.
I can answer that. What we said as part of the IPO and in the prospects, we were very clear that the focus here and now is to make sure we succeed with this transformation. Given that there's so many different dimensions go into it, we wanna go into that period with a strong balance sheet. That was one of the reasons behind the equity injection we took to be able to fund the investment you're seeing right now in electrification and so forth. We also said, as we see through this transformation, we are a strong cash generative company also now, and we will in the future. We will then go back to a more normal kind of automotive type of dividend policy as we see more security that we manage through this transformation.
The fact that we're not paying dividend now should be no surprise to anybody 'cause that's fully in line with what we communicated in the prospectus.
Correct. We also have a question from Felix Page from Haymarket, and he's wondering, "Pure EV market share remains relatively low compared to PHEV and ICE. Are you really on track to be all electric in 2030?
Yes. Because the percentage is now all electric is limited to our production capacity. We have sold every all electric cars we have built. The strategy has always been first step into electrification is to offer a plug-in hybrid because we still see problems with the charging networks. That has worked. We are on a very high percentage, 27%, but now we are ready to go also up in the all electric segments, starting with the 40 series car, higher production capacity in our factories, and that's why we will reach, going from 6% I think it was quarter four now. Then for the full-year 2022, we will be above 10%.
Our new flagship all-electric car, there will be a smaller car, even smaller than the 40 coming, will be a big seller. We definitely have the cars in the pipeline to be able to reach that. A simple answer to the question is, yes, we are on track.
Great.
The shorter version.
We have a follow-up question here from Felix as well.
Mm-hmm.
What impact will the new partnership with Northvolt have on 2023 results?
No major results given that, I mean, the R&D starts and then the investments into the production facility, that starts in 2023. That's more in investments where we talk-
Mm-hmm
2023, 2024, and 2025. The real production starts in 2025, 2026.
It will be non-consolidated.
Yes.
We really, you could say, of course, if we would do these massive investments of our own, then we would have had impact on our bottom line. Now with this more joint venture, we have it outside and of course we have a much better, more muscles to really be powerful in batteries and battery know-how.
Mm-hmm.
I think it's important also to say that when it comes to R&D, as Håkan talked about, Aurobay, we have shifted out our combustion production, but also our combustion research unit. That is now out. Instead of that, we're spending more time-
Mm-hmm
together with Northvolt to develop the right battery cell chemistry.
Mm-hmm
... to develop the right electric motor, the battery management system, how we integrate that into the architecture in a smart way. That's where we focus instead.
Mm-hmm.
Mm-hmm.
We have a caller on the line as well. We have a call from Valdemar Lönnroth at Göteborgs-Posten.
Mm-hmm.
Please go ahead.
Thank you. I'll try and ask it in English because that seems to be the language we prefer. I have two questions. Being the last report for you, Håkan Samuelsson, what are the most important company decisions that you have made under your tenure as CEO, would you say, this 10 years? Secondly, we revealed before Christmas. In the Geely companies where there are 80 companies that are co-owned with the Chinese state, what risks as a publicly traded car brand are associated with this fact that your majority owner has these connections, would you say? That is for Håkan as well. Thank you.
Mm-hmm.
Okay.
In my last report, what has been of course the first one is probably that we decided to electrify our company and really decided to be a premium electric car company. I think you cannot underestimate. That's, I think a very important, something I'm very proud of. Number two, that we have taken decisions and step making the company a global company. It was producing in Belgium and Gothenburg and then selling all over the world. Now we have factories in China, and I'm especially proud that we also have a factory in the U.S. after 40 years of discussion that decision was taken. That is also on my list.
Third one on the list would then be that we also made our company a public company listed in Sweden, utilizing the strong heritage we have as a Swedish company. Volvo is a Swedish company registered in Sweden, headquartered in Gothenburg, listed in Stockholm, with a very supporting and strong main owner, which is Geely Holding or Eric Li Shufu. That is a strong private company who is the main shareholder of our company. Volvo has no interaction with any state-owned Chinese companies. We have a Chinese private company as our shareholder. I see absolutely no problem for Volvo as a listed company to have a Chinese main owner.
Okay. Thank you very much. We have another question coming in from Karin Olander at Dagens Industri, and she wants to know how production in the plants will be affected by the lack of components in coming months.
We will make less cars. We will build one car for every semiconductor is a simple answer. I mean, this came in in third quarter last year. We lost around 50,000 cars in production. Fourth quarter, I think we lost about half of that, 25, and now in January it continues, but gradually better. Of course, we could have sold more cars, we could have built more cars if we would have more semiconductors. That is the simple answer, and I think nobody now is ready to make a forecast on this. This will continue gradually improving, maybe a bit slower than we thought, Björn, but still improving, and I think it would be a bit premature now saying a date when this will normalize. Let's see. You probably have to come back, Björn.
Yes
in first quarter when you close that.
With an update, exactly.
Mm-hmm. Mm-hmm.
We have a question from an anonymous person here.
Okay
... it's a very good question. You have said that the electric cars you launch mid-decade will get the same technologies as Tesla, next generation battery cells, mega casting, and batteries in the body structure. How will you accelerate your shift to fully electric and secure that you are competitive?
Yeah. By developing the new generation cars. I mean, very first electric cars is based on the CMA platform or XC40, still of a sort of car available, both electric or plug-in. Okay? Came the C40. We took it one step further and use the CMA, but it's that car is available only electric. Of course comes the first car which will be born electric. It has no there are no compromises done, and that will be our new flagship SUV. There will be a smaller one also born electric, and that's the new era. The really from start electric will then have new names symbolizing the new generation of Volvo. That is absolutely happening.
Of course it's important to really build up new core competencies really to make this car efficient, cost-efficient, and all-electric batteries we talked about.
Mm-hmm
making that a core competence. Also of course building cars on an aluminum underbody instead of welded, and then you assemble the batteries directly into that underbody. Sort of natural steps making really the car sort of born electric, optimized for electrification only. That is happening. I think we have a very good position. Look into the percentage chargeable cars is highest in the business. Of course, Tesla is higher. They have 100% because they started only with electric, and that would in many respects be easier. We have millions of customers out there with the conventional cars, and we want to bring them along. 2030, we will be all electric.
We're on plan.
Mm-hmm.
We have another question from Felix. "Hey, Market. Hello. Will Volvo's battery production eventually be as important as the cars themselves?
Yeah, right now our focus is securing we have really competitive great batteries so that we can sell great fully electric cars. We will not produce more batteries than we produce cars. They are intended for being in Volvos or in Polestars. That's the plan right here and right now, and now we have a solution for Europe. We also need to look into how we, together with partners, potentially we have CATL and LG Chem today, or, you know, use the infrastructure we're building up in Northvolt to also build out production in Asia and in the U.S. Right here and right now, the focus is to make sure we make great fully electric cars. That's the reason why we build this up as a core competence.
Just as we've had in the past, great combustion engines, but we didn't sell too many combustion engines to others. They were focused to kind of be the heart of the car.
Yeah. I think you are right. There were really no premium car builders that didn't have their own combustion engine.
No.
I think also looking forward, there will be very few real premium electric that does not have batteries as their own core competence. That's our conclusion. That's why we build a factory very close to our plant, almost totally integrated. That I think will be the standard for the future, let's say, for the car business, the ones who really wants to be leading in electrification.
Mm-hmm. We have a couple of more questions online, but I would just like to remind everyone who's calling in that if you would like to ask a question over the phone, remember to press star one.
Mm-hmm.
Let's see. We have quite a batch of questions here from the chat function. One is, how did Lynk & Co affiliate impact results?
Of course, I understand the interest and understanding exactly how much did Lynk & Co, Polestar, and Volvo Car Financial Services, and so forth contribute. When it comes to Polestar has to talk about results of Polestar, and Lynk & Co has to talk about results of Lynk & Co. What I can say is that the aggregate of the contribution from Geely and associates, if you look at quarter two and quarter three, it was quite stable. Operationally, it was also quite stable going into quarter four. The delta you see there has more to do with us changing accounting treatments.
Another question here from Felix Page is, how are the margins on the electric cars you sell compared to the ICE cars?
That's an answer that we are gonna give you a fully disclosed answer for in quarter one. What I've said before, and that's still true, is that on a percentage point, the gross margins are slightly lower for the fully electric than for the ICE cars currently. That's because we have the first generation fully electric cars. But they're still having strong margins. We will give you all the detail in full flesh in quarter one.
We have an anonymous question here. Given that the mix was so strong in the operating profit walk, why was gross margin not even stronger?
It partly has to do with mix, mixes and so forth, but I think gross margin was slightly lower in quarter four than in quarter three. I would say a more underlying thing there is probably somewhere in between, maybe closer to quarter four than quarter three, but it's you also have other kind of time-phasing effects on it.
We have a question from Auto Express, John McElroy. We've seen the C40 now, but that is still a CMA car. Can you give us an idea of when we will see the first SPA car, the one that we've spoken about before? I know you told me it's an SUV, but will you play around with the body styles even more in the EVs?
Yeah. We will soon, during this year, come back and show everybody what I just called it, I think, the new flagship SUV or the electric XC90, which then will have another name. It's an electric car. Of course, body styles will generally be more streamlined for electric cars. There are also some people who still really like the easy step in, step out of the higher built cars. I think we will see variants of body styles in the future. The very first one, I think, is for the really best-selling market where people really love the high seating position. Our concept cars also maybe give an idea of what could come on the same platform in the years to come.
I mean, there will be more variants on the big car platform, the ninety size, but then there will be something in size more twenty coming as addition, and that will be a big volume contribution to our lineup.
When it comes to exactly how that will look and feel, you have to stay tuned.
Mm-hmm.
Exciting. Another question here from Felix Page is that some competitors are investing in battery swap as a complement to fast charging.
Mm-hmm.
Is that something that Volvo is looking into as well?
We are looking into a lot of things, but we don't think that is a realistic alternative because number one, even for our own car line, I think it would be very difficult to find a cartridge that would be the same for a small 20 size as a 90 size. That means theoretically, you swap very fast, but the time you need to find a suitable swapping station, I think will be very long. I think it's the right way to go for batteries that are installed permanently in the car, lighter weight, better, and then fast charging with the new technology to charge a car in 20 minutes. I think if it's five minutes swapping or 20, it's no big thing. There will be 100 times more charging stations than swapping stations.
I think it's really important here to really decide something and be patient and stay there and not introduce a lot of concepts. For us, it will be charging.
We have another question from Felix Page. He's very active here on the chat. He wants to know, how big is Volvo's order book?
Mm.
We are not giving exact numbers here because we don't want to have too many numbers we publish all the time. What I can say, it's the biggest it has ever been. Primarily in Europe, where you work more with order book than in other continents, and we have extremely strong demand. Which also means, to some degree, that price increases that we do now, they can fully come into some of the numbers more after the summer, clearly, because we already sold a lot of cars on the previous prices.
Tomas Augustsson from Svenska Dagbladet is asking, can you give us any more information about the price development that you see for 2022? You just did a little bit, but.
No, as I said, we are unfortunately quite limited in supply, but we have huge demand. We also see cost increases, raw material, freight, and so forth. In order to compensate for those foreseeable cost increases, we have taken those pricing actions that are aimed at offsetting it.
Mm.
We do see that, consumers are willing to pay a premium price for a premium product like Volvo.
Mm.
That's what we're going for.
We have quite a good improvement in 2021. As you were talking, I made one of my calculations. You show there we have SEK 10 billion in EBIT improvement during the year.
Price, it's price and mix.
Coming from price and mix, and I mean, divided that with, that's well 3% improvement.
Mm.
coming from top line.
Yes.
I mean, that's probably what you could expect.
Do you think profits will grow in 2022 compared to 2021?
Profit very difficult because it's uncertain. I mean, profit comes from volume. Right now we see a gradual improvement, so it's of course our ambition. To grow the volumes as we close the whole year, that I think is possible and likely. Profitability, you have a lot of factors, the pricing, cost, and so on. I think you're right. Now you could say we will have stable profitability for 2022.
We have one more question left on the chat. I would just like to remind everyone that are dialing in, if you would like to ask a question, now is the time. Press star one. Otherwise, we will wrap up this press conference after this final question.
Mm.
Why electrify the XC40 and XC90 successor before the XC60, your best-selling model?
Um.
I can give two clear answers. One answer, of course, we launched the XC90 prior to the XC60. As you then look at upgrading the XC90, we then concluded let's make that fully electric, just as we've concluded let's make the successor of the XC60 fully electric. That's, I think, the first answer. I think it's also quite good because then there's continuous improvement on the technologies that we're using for each of the cars. I think it's even more important to have a fully cost-competitive situation when we come to the XC40, 60. It's clearly easier to do that if that's a little bit later.
Mm.
That, that's the short answer.
The life of the car lines. XC90 was the first one out in 2015. The XC60 came a couple years later. If you look at how they are aging, it would also be the right sequence, yeah.
Great. Thank you.
Thank you.
That concludes this press conference. Thanks everyone for watching. Thank you Håkan and Björn.
Thank you.
Thank you.