Warm welcome to Volvo Cars in our studio here in Stockholm. Before we kick off today, I just wanted to share some practicalities. First of all, we have the emergency exits behind you. We have restrooms right over here in the corner, on this floor, and then we have restrooms on the second floor as well. This meeting is live streamed. Those online, you have a little chat box just below the stream. You can start posting questions. I've seen some of you have already started. That's great. You can do that throughout the whole session today. Jumping into the agenda for today, in just a short bit, you'll hear some introduction remarks from our CEO, Håkan Samuelsson. Thereafter, we'll dive into the commercial approach. We'll do a quick look into the product strategy as well as cost savings and synergies. After that, we'll take a short break.
There will be some coffee downstairs. We'll get back into the room and we'll dive into the EX60 and learn more about the tech behind. We'll then end with a session together with Fredrik, our CFO, on the pathway to higher profitability. After that, Håkan will do some ending remarks and then we'll head into the Q & A. Make sure you have all your questions ready for the end of the session. As a final treat, we have a lunch downstairs after the session and you'll be able to mingle together with the executive management team. With that, warm welcome, and I'll hand over to our CEO, Håkan Samuelsson.
Thank you, Jenny. Good morning to all of you and welcome. This is a bit classic, room for Volvo because Maria and I, we were talking a bit here before. Almost exactly four years ago, we were standing here and I remember we rang the bell for listing the company. My reaction was, "Was that only four years ago?" That is probably because a lot of things have happened. It is a good time to give you a bit new insight into where we are going, and I will return to that. Before I do that, I think I should introduce the team who is here with me, because we have some new people in the team. They are really the people who will now lead the way putting this company back on track. Who do we have?
We have, okay, do not, this is no special order. So, but Erik Severinsson, he is now Head of the Commercial Operations. Michael Fleiss. He is, Product Strategy, a nd Product Planning. And, CFO, Fredrik Hansson. I think he is well known to you. Where do we have the other guys? Have the, where is Anders Bell? There he is. Hiding behind Fredrik. R&D and CTO, sitting beside Francesca Gamboni, Industrial Operations Procurement. She will talk today about how we will save cost. Then we have two members also who will only be here to answer potential questions, but will not today, will not present. It is Hanna Fager, People, People Officer, and, Helen Hu, who is legal but also. Will now head up Communication, Public Affairs, and, and, Corporate, Corporate Affairs, I think we will call it. Okay. We will have an expanded responsibility in the team. Did I forget somebody? No.
That's the team. That's the team that will now put Volvo back on track because I think you could say that without sounding too cocky. And what did we do? We started in April, then we presented a turnaround program. We need to rapidly combat back to better performance. We presented the SEK 18 billion cost and cash program, which you saw already in quarter three is now starting to deliver a bit faster than we thought, to be honest. We, after summer, then changed a bit course and say, now it's time to start focusing on top line growth and sales. We reorganized our commercial operations. Erik then came in leading that. Erik, you will, of course, today tell us your ideas how to revitalize and turn around our commercial operations. That's very important. Today we come then to the third step, which is updating our strategy.
We will, I mean, say first. The reason for all of this is really to define a steady course forward for the company because in these very turbulent times, I think it is very important to have a steady course. What do we want to do with the company? Also, securing continuity when it comes to succession. We need now a strong team. That is one of my missions, really, to build a team that knows exactly the course and can do that without getting nervous and losing traction in the future. We will also do this in a bit different way than a conventional business plan type of report with very clear targets and quantified performance per year. I think it is really important to define what we want to do.
You will, of course, decide if it is the right thing to do or not. That is up for people investing in our company to decide. I think it is really important to define this is what we want to do and that you are right on that. I think we should also give you indication what could the value be of these different blocks that we are going to talk about. I think it is wrong to just focus on giving exact targets, quantified. We will not do that in time. It will just, this is the value of the block. It will materialize in the years to come. I think that is much better instead of focusing on target and then going out doing more of the same that will not deliver anything.
We need to be clear on that we want to do something differently and better. That is how we will work. We will then build this strategy on three external challenges coming to our industry. I think it is really important for us all in this industry, if we want to stay in business, we need to have an answer to these challenges. The first one is really CO2 reduction climate, which boils down to electrification. That is the best way to solve that. Secondly, globalization. Yeah, was nice when we had it. Right now we will get something else. The world will regionalize. There will be trade restrictions, tech restrictions, and then barriers, tariffs. We read every day about that. You need to have an answer on that. The third is hyper competition. Okay.
We always say that it's a really bloody competition going on, but it will be worse. They're very easy to understand because the car industry was dominated by Western players, European and Americans. Now, and Japanese, sorry, and Koreans, but Western. Now there is a new big player knocking on the door and really taking already half of the Chinese market. That's already causing big problems for the people in China, the Westerners, especially the Germans. Now they will, of course, use this capacity also outside. Realistically, they will take a big chunk of the market and then it gets crowded for everybody else in the remaining part. I think expect hyper competition. How do we now react to that? That's the question. You're going to get the answer from the speakers here as they go into it.
I believe we, from Volvo, have a unique possibility to have good answers on these three challenges. The first then is electrification. I mean, that's really one of the absolute best ways of reducing CO2 because it's good for the climate, but even more important, if it's really going to have an impact, it's also good for customers. It's really a better car. Everybody knows that has driven an electric car. It's only one thing that has to be fixed. Why are people not buying EVs? No, you need longer range. It has to be, you have to drive as long as with a normal car, and you should be able to charge it in the same time it takes to fill up and go into the bathroom for a normal car. That will also happen. Most importantly, it should have the same price.
We will talk about that today. When that has happened, I think we will have a totally different growth in this sector, which is already growing. If you believe electrification will come and we are absolutely convinced it's an opportunity for the company, don't try to slow it down. Rather stupid. If something is changing, you should accelerate. Good luck for those who want to lobby about slower legislation and so on. We are not doing that. We will be ready 2030 with electric cars for all, but we are also not blue eyed. We will, of course, also need some, back, we'll say bridge solutions for, for countries, regions, and customers who really still cannot charge. I mean, a pragmatic approach, but we will be ready. If the industry wants to survive, we should pick up, we should accelerate, not, not slow down.
Another really important thing, which really is not directly connected to electrification but is developed now in parallel, we need to have a core compute system. If we're going to have new features in the car fast, you cannot have that in a hundred different boxes and relying on suppliers. You need to be able to have one software you can run on your own platform. A really painful step to change a car into that direction. I can only be good that we are through that now. Of course, maybe you could think we could have done it a bit faster, but okay, I don't, it's a really big step and it took us a couple of years, but now we have a good foundation to be a really core compute one software car. It is a good investment.
We will then have these all electric cars and the smart bridge cars to a very good total investment by having a good cooperation with Geely and utilizing parts from their platforms to do this faster. End of globalization. We need to go into regions. If we want to stay, and that is absolutely our target, Volvo should continue being a global brand because a strong brand needs to be global. We cannot be a local brand. You need to regionalize. You need to have strong, empowered, more autonomous regions, China, U.S., and then the rest, which is easier because it is closer to us. We will start having America and China more autonomous. Do the marketing, do the sales in a way that is suitable to your market. We will also produce the cars locally.
We need more regional adaptations to really fulfill the expectations of the customers. With the regionalization, something else is really important. We need to modernize the way we sell cars. We need to listen to customers' expectations. Erik will talk about that also. They have really three rather simple expectations. What does the product look like? All of you who have tried to understand that in a configurator know that we are not too good at that today. It has to be much more simple and easy. Second question, what is the price? All of us know also that is not the easiest question to get a good answer on. Depends, they say. The third question, when can I get the car? Normally, it is not a very accurate answer when it comes, more or less. Let's see. Could take longer or shorter.
We need to be also with the regionalization, come closer to customer. The exact answer is not the same in all regions. A strong global brand. Volvo will remain in all regions. When other brands are getting nervous and pulling back, which is happening, a lot of Americans are leaving China. A lot of Europeans have trouble. We will stay and we will do that with the unique connection we have with China and through Geely. Third, hyper competition. Yeah, it will be tough. We need to be smart when it comes to lower our investments, still having the program we need. Michael will talk about that, how we then can create and build these bridge cars for customers who are still not ready for all electric. How can we bring down the material hardware cost? Francesca will tell us about that.
I mean, getting access to the absolutely lowest cost structure in the world, which is a supply net in China, it's not that easy. You have to go there and knock on the door. Through our connection with Geely, we have, of course, an absolutely unique opportunity to get benefit from this very low cost supply network. Very important, I mean, we will have a lot of modularity, common parts on the hardware. When it comes to software and critical semiconductor components, it's a no-no, of course. There we have to live with a totally regionalized setup. China for China, software and semiconductors will not be the same, very different. In the West, we will have a totally different software and components.
To summarize this, other people think that now the Chinese is now the enemy is coming in, will make life difficult for us. We are, of course, not in that situation at all. We could, with our connection with Geely, this, I think, will be seen and we realize that also. I think from outside it will be seen more and more as a strength for Volvo to have this unique relationship with the new very tough competition coming in. For us, it's not just a competitor coming in, it's also our partners. That is really where I wanted to lay the foundation for the discussions. How are we going to answer these three challenges? What is our answer? For that, we should go a bit deeper. The first stop in the journey is with Erik and the commercial organization. Please, Erik, take over.
Thank you, Håkan. I'm going to talk a bit about our commercial turnaround, our commercial transformation. The headline is to win customers that stay. That is really what our task is when you look at our commercial system right now. The automotive industry is a messy place at this point in time. We talked about the hyper competition and the regionalization. In order to have a commercial discussion with you today, and in general, actually, you need to start with who are you? To be a hundred years old in an industry of more and more infants coming in is a great superpower. We will need to build on that. Volvo, our brand, is something that we can capitalize on in this time of transformation.
We have a very strong brand, which stands for Freedom to Move by Sweden for Life. Always, Volvo has been founded around the main principle of being human centric. That was why we, from the early days, focused so much about safety. That is why we are leading on electrification. That is also why we're using technology to improve people's lives and not just putting in technology for the sake of technology. Our Scandinavian design is wrapping all that up. When we go out in the world, Volvo is a global brand. That is a great asset to have when we want to drive this transformation. The messier the automotive industry will be from a commercial perspective, from a brand perspective, the more important the brand values and the brand recognition will be. That is our foundation for our commercial turnaround going forward.
When you talk about how we want to drive this company going forward, there are really two things which we are building our strategic change on right now. That is to have two thoughts at the same time in our heads all the time. We need to perform here and now, drive profitable growth, focusing on the next day, the next week, the next month, the next quarter, the next year. If we do not do that, from a volume perspective, from a cash generation perspective, from a profitability perspective, everything else is basically semantics. At the same time, we also need to have a transformational agenda. We talked, Håkan mentioned, about electrification and also finding new ways of reaching our customers, offering them modern ways of buying a car.
If we don't manage to have both these things at the same time in our, in our heads, we will not succeed in the future. Our future strategy is very much now built on these two words: perform and transform. Let me talk a bit about growth. The path for growth will be for Volvo Cars through electrification. That has been debated or being discussed. Is electrification really happening? Is this really the right strategy? No matter which type of data you look at, and you probably look at more data than I do, the only thing that is growing within the automotive industry is electrification. This graph shows the premium market, is the latest S&P numbers divided by region, showing the forecast from 2025 to 2035. I could have taken any other forecast institute data. It will show the same thing.
It's divided on BEVs and non-BEVs. What you can see here, and the forecast is always a guess, but what you can see, of course, is that the only thing that is growing is BEV and the rest is shrinking. This is actually even including PHEVs on the bottom half, which is an electrified car, which up until 2030 also will have some growth, which we're also betting on. For a 1% car brand like us, with a strong brand global recognition, the path to growth is to bet on the growing segment, not on the shrinking segment. Yes, electrification is the right path to growth for Volvo Cars. If you take that then, and how, how do we then materialize that into our product portfolio? Our brand is a promise given. Our product is a promise kept, we say.
We need to have an offer for every Volvo customer. This is in a transition period. I am showing the SUV lineup on the large SUVs in Europe. This graph basically shows our current offering we have in the market here and now, and the XC90 petrol, for example, has an 18% market share in the large SUV segment. It is number one in that segment among the petrol cars. The PHEV version of the same car, 22% market share, also number one when it comes to PHEVs in that segment. The EX90, which we have maybe talked about all the problems for so many years about it, is currently already number two in its segment at the 23% market share with the strong retail order growth right now in Europe.
When we succeed having an offer for every customer in a segment where we're trustworthy with the brand that everyone believes in, we have a fantastic track record of being successful. Our way to growth going forward and succeeding here and now is to replicate this from a product perspective in more segments. We have one issue, right? We lack a car. If you look at this page, it's showing our total portfolio of SUVs. You know about the 30 cluster. EX30 is doing very well in its segment. We have the 40, both ICE and BEV, the 90 I talked about. We have a gap. The biggest car segment in the world is mid-size SUVs. The biggest electric car segment in the world is mid-size SUVs. We haven't had an offer. From 21st of January, we will.
Anders will tell you about just how good that offer is. That is the EX60. By adding the EX60, we will increase the addressable BEV market for this company by 200%. Today, we are addressing roughly 25% of the market. We will address 75% of the market by just adding this car. This is massively important for us. Also, complementing this portfolio with bridge products such as the XC70 going forward, which is electric cars with a backup plan, will also help driving growth in this company. This is not me talking about something that might happen in 2029, three, four years out. No, this will happen nine weeks out here in Stockholm in Artipelag on the 21st of January. This is coming. Investments for this have been done. Harvest time is now. I am very confident that we will have the right lineup.
Is there a demand for BEVs right now? If I look at the market here and now and look at the numbers, does the customer buy better electric vehicles? This graph is showing our year-over-year retail order pace growth, meaning how much more orders we're taking versus last month for BEVs and for the total company. The blue line is our total year-on-year order growth right now. In Europe, this is year to date. The red line is the BEV order growth. As you can see, there has been a shift from, I would have loved to say from September and onwards, but it's actually happened before my time. It's already in June. We see a momentum in Europe on electrified cars, electric cars right now, on BEVs especially. There is a growing market.
Very much growing market for our products, fully electric in Europe right now. That momentum we will continue to fuel with the launch of a car such as the EX60. We are having successes on the EX30 as well. We are seeing pickup pace also in the order pace on the EX90 in Europe. The customer demand is here right now. When we come with the right offering, we will have a fantastic opportunity to drive electric growth in Europe, that is. For the customers that are not there, as Håkan also said, we will continue to invest in the product plug-in hybrid products, which is a good bridge technology. Why are customers not buying a BEV? Because there is some hesitation still. Now, I would love to say objectively a BEV is a better car, but you might say I'm biased.
I am, but I still think a BEV is a better car. If you look at the running cost of a battery electric vehicle, it's lower. It's lower than what you will ever achieve on a combustion engine car. The performance is better. It's more silent. Acceleration is better. The interior space of an electric vehicle is equivalent to a normal combustion engine car one size bigger. It is more sustainable. It is a better car, but we need to solve three things. We need to solve the range excitement among our customers. We need to solve the charging time. We need to find a price point that is equivalent to today's cars. When it comes to the first two, we need to have electric vehicles that will go as far as a combustion engine car.
We need to charge as fast as your average stop of a vehicle is. I mean, what we will launch now in nine weeks from now, you will have a car where you will need to go to the toilet long before the battery runs out. When you're back from the toilet, the car has charged. When we reach that point, there is no hassle of having a fully electric car on that 1% journey you're making two times per year to the mountains, et cetera. It will be as convenient as driving a combustion engine vehicle or a plug-in hybrid for that matter as well. In many markets, when they get the product like that, they will convert. Sweden, I think, is a fantastic opportunity now. Us coming with some of our competition, we will convert that market. Even more importantly.
People will not get more money to buy cars just because we want to sell them electric vehicles. We need to find price points that are equivalent to where we are buying cars today. This car will be priced as a PHEV. Most sold variant for Volvo Cars in Europe right now is an XC60 T6 PHEV. We know there is a customer demand at those price points. We will price this vehicle at parity where we are pricing our current best-sold cars. We will do that with a better margin. Anders will explain to you how we will achieve that and how we will achieve the cost benefits of our new electric vehicles. When we have these three problems solved, I do not see much reason, to be honest, why I should not drive an electric car.
We are ready to go electric when the customer are, from a product perspective. If when the customer hesitates, we will also have a good bridge, which we will hear more about later. That is about what we will sell. We also need to talk about how we will sell it. It's so funny when you come into this industry, and I've been here for long, it's so conservative, and it takes so long, so long time to change. Sometimes when we drive change in this industry, we look at it from a company perspective. What would we want to do? How do we think is the smartest way of selling a car to our customers, to you? We need to think about how do you want to buy a car.
That should be the starting point for our discussion around how we want to sell vehicles, for example. You're buying a car in the same way as your parents bought a car, more or less. That might be good. Some customers want that, and they should have that opportunity. Some of you will want to have a different purchase experience. That's what I want to talk about. Now Håkan stole my thunder a bit because he said, what is it that the customer really wants to understand when they're buying a vehicle or in anything, actually? You want to know what is included. What do I get? What will it cost? When will I get it? Actually, I would add, can I get it now?
What we will have, and I will talk you through it in the coming two slides, is a simple offering, fewer variants, where you can have an all-inclusive offer, including energy, including wall boxes, including insurances, et cetera. You have that hassle-free car ownership. That is something that we will have. Transparency, online purchase option, sign up, this is your monthly fee. That is very much appreciated by customers. We know that. And delivery precision. It is not only about precision. You are in a lease contract or in your company car. You are returning it in three months. You order now. You want to get the new car in three months from now. You might also come in looking for a second car for the household. Your daughter just turned 18 yesterday, and I need the car tomorrow. We should have a solution for those customers as well. Instant delivery.
How will we do it? Now you're all thinking about how will they put that on the balance sheet and all that. I'll get to that. If we solve these things, three things, we know the customer will appreciate this. We have talked about flipping markets and changing our system, our commercial system for many years now. That has been maybe a little bit of an introvert discussion. We have done many good things. The markets where we come the furthest on this is probably the U.K. U.K. now, we have record market share, almost 4% market share, having record sales. We're also getting our best earnings that we ever have had in that market.
Now, there are good learnings from the U.K., but we need to take that to the next level and take the good things from what we've learned and putting that into a new way of offering cars, which I will talk about in the next slide. The important thing, what you need to remember as well, I will not stand here and say we will flip all the markets of Europe within the coming six months. It's not about flipping a market. It's about finding the right customer offer. When you find the right customer offer, we will have a smart way of scaling it. What we will do is that as a next step in Sweden, starting in Q1 next year, we will extend and have a new offering, basically. Clear consumer-friendly monthly price for our electric cars with all-inclusive option, including energy.
We know we can include energy in this because we can control the charging of the vehicle, smart charging. We can charge the car when the prices are low. We can offer the customer bidirectionality. We can do this in a very profitable way from our side. It also gives a lot of hassle-free thinking for the customer. At the same time, having an instant delivery option in our offering without building a massive stock, as well as a tailor-made option. We're not taking that away for you that want to go to the car salesman and sit down and go through all the specs and the roof rates and the size of the wheels and the color of the seats and all that. That option will, of course, be there.
For you that comes in the day after your daughter's 18-year birthday and want that yellow EX30 that she's talked about for so long and you want it now, we should be able to serve you as well. Continuous implementation of AI-supported online shopping. I mean, today, when you come into a car showroom, someone helps you. A salesman comes and asks you, how can I help you? What can I do? What do you want? When you come into a car configurator, you get exposed to 50 different choices. You need to pick. If I choose that choice, that changes. That choice, that changes. We can do that much smarter in a much more.
We're using AI or an AI assistant agent to have a more conversational car configurator engine and also simplify the amount of choices that the customers need to make online, helping them get to the right product much faster. This will be continuous rollout as well. When we combine all this, then we have something that we know the customer wants. We have today, currently in Sweden, 7,000 current Care by Volvo customers, which Care by Volvo is like the first iteration of this. We know the demand is there. Those customers come to me now and say, "I like this product so much. Please, please don't discontinue Care by Volvo. Continue with that because I like it as a customer." There are tons of discussions internally on how to do it. We have learned how not to do it in many ways.
The customer demand for this kind of product is there. We know that. We talked about what we will sell. We talked about how we will sell it. Now I'm going to talk a little about how do we tell our customers who we are and what we can offer them in a new way. One way, of course, in a commercial transformation is also to reach our customers. We need to do that at a lower cost than we're spending today. We need to find more efficiency in our marketing, basically. One way of thinking differently about this is to, instead of having a.
Budget-based marketing spent equally across the product portfolio, each country gets their own share based on the revenue, and then they do use central assets to go into market and use billboards and TV ads. There is a much more targeted way of doing this. We have some examples already now where we will change our strategy, targeting specific consumer groups, which we're not so present in today. For example, maybe the Latino community in the U.S., in Miami, for example. That's an interesting community for us. Being family-oriented, we are not very strong in that one. How can we work towards those? How can we work towards certain halo locations? If I'm successful in Miami, I will be successful in Florida. I don't need to spend all my money evenly across Florida. I can focus on that part of Miami.
Also putting our marketing behind our products in a different way. Instead of spending as much money on an XC60 as on an EX60, I can focus it around the EX60 and get the traction across the portfolio by focusing my resources on one car. The example to the right here is Adam Scott. I do not know if you know, he is an American actor. Sitting in an EX90. The tagline is the family car, but it is always the best-kept secret. Adam Scott is a big Volvo fan. We are putting him in the EX90. We are reaching a new kind of audience with him because we are using him as a person towards an influencer community. He has a wide following base, of course. We are using it behind one car. Customers see that. They come in and they buy an XC90 maybe.
It is much more efficient to come with this targeted approach for the U.S. with the person that is relevant for that market on a product that people are interested in to drive traffic to the showrooms. Maybe the most important thing on changing our marketing is to have a much more digitalized way of looking at marketing, to have signal-based optimization, meaning that I can see what works. I can see where I get traffic. I can steer ads to certain channels. I know if I find traction in a certain channel in Miami for Hispanic people with a certain model, I can steer more efforts there. When you enter through one of those ads, so through one of those channels, you end immediately up in an online buying journey. To connect a digitalized marketing approach with an online offering is massively efficient.
We have seen examples now in Sweden where we're running it. We have a lead to offer a conversion rate, which is more than 70% up versus what we've had before. We think this will give up to 20% reduction of marketing spend per car going forward. To sum it all up, what will this then mean in terms of numbers? Or what are our ambitions that we think we should try to achieve with this? First of all, growth. Growth will drive profitability. That might be between two to three percentage points. That will happen through electrification, through a diversified product lineup, and through 100 years of heritage and a strong global brand. Commercial excellence. There's so much to do in this conservative industry. It's about giving the customer a better option to buy cars.
That will inherently drive efficiency on our end as well. 1% discount maybe. Lower commercial cost per sold car, less top line leakage, reduced marketing spend, simplified car offer, and improved customer delivery precision. The last one there, improved customer delivery precision and simplified car offer, will also allow us to reduce inventory. We can reduce inventory by having a central stock. We can use that in an off-balance setup with the parties we have in the market today. That is enabled by having much fewer offers, fewer variants. If I have 50 variants instead of 500,000, it is much easier for me to predict what cars I need to build to get into a customer even before the customer has ordered the car. Basically, ordering cars from pipeline by a drastic reduction of variants. That will enable that as well.
Also a complete change on how we are driving our order-to-delivery process using much more digitalized tools, predictability assessed through AI. This is our ambitions. This is what Håkan has signed me up for. This is what we are looking forward to. Deliver now under our perform and transform strategy. I think that was my last slide. By that, I'll hand over to Michael. He will talk about the future.
Yeah. Good morning also from my side. I'm Michael. I'm heading the product and strategy team in Håkan's management team. I started two months ago after Håkan called me and wanted me to come back because I was at Volvo before, but I was sometimes away. Now I'm back, and I'm so happy to be back in this team. I will talk about our five pillars for our strategy.
The first one is fully electric is our future. It has been and it will be even more right now because we have now products which are even more profitable than our plug-in hybrids. We need to cater for our customers who are not ready yet for transforming into a BEV. We will increase our bridge to electrification. To become more profitable, we will work even closer with our colleagues at Geely and harvest on the low-cost supply chain and on the speed to market with our colleagues from Geely. Fourth pillar is regionalization. Håkan talked about it. We will separate our markets into Americas, China, and then Europe. The last point is core computing. A really strong software-defined vehicle which Anders has created on the EX90, but even better now on the EX60. Starting with electrification.
Electrification is there, and it's the fastest-growing market in the industry. We will be on it more than our competition. This is a great opportunity for us, and we will be very successful in that. We are transforming faster than any of our legacy competition. On this graph, I show you competitor A, B, and N. You see on the dark blue, that's the BEV car share. In the light blue, it's the PHEV car share. You can see clearly Volvo has in the past, based on registered cars, outperformed this competition. We will grow even further and even stronger in this market. We will grow in this market profitably. Electrification has slowed down a little bit. This graph is demonstrating that. We call it tipping points.
So when. The BEV curve is intersecting with the ICE curve, and the dotted lines are forecast two years ago, and the solid lines is the current forecast from S&P. You can see that the tipping points are changing. As Erik said, it's the strongest-growing segment is the BEVs. To summarize this one here, BEVs are growing the strongest. ICE is decreasing. Tipping points have changed by two to three years. We need to find a solution for our customers who are not ready yet to buy a BEV. How do we do that? First of all, we have a fantastic lineup of electric cars. You see the EX30, EX40, ES90, and EX90. You see a preview of our EX60 here. The taillights, you can see how it looks like. On 21st of January, you will see the full car and see the full potential.
As Erik said, Anders will talk more about this fantastic car. We have a fantastic lineup in the biggest profitable market in the world. With the EX60, we will increase even more market share because that is the biggest selling car in the world, the DSUV segment. With our EX60 priced on a PF, we will make even more money than with a PF. We have customers who are not ready yet. Our transition to BEVs from 20% to 100% will probably take a little bit longer. For our customers who are not ready yet, we need to find a solution. Our solution is to, first of all, sensibly invest into our SPA1 and CMA products. We will have s ignificant design changes and hardware changes for all of these cars in the next 12 months to refresh our best-selling products on SPA1 and CMA.
The bridge to electrification. How does it look right now? We have started in the very past with pure ICE cars, then mild hybrids, plug-in hybrids, and then BEVs. This bridge is not long enough. What we will do now. We will first upgrade our PHEV cars, as I said earlier, with these CMA and SPA1 cars. The big news is we will create the second generation of PHEV cars. These cars will be like a BEV. They will drive like a BEV. They will have the infotainment like a BEV. They will feel like a BEV.
You have a backup engine for customers who are living in an area which is not ready yet with the infrastructure, and they cannot charge, or for customers who do not want a BEV yet. I cluster our customers in three clusters. One, customers who are transformed. They are already here. Customers who will be transformed. They might buy this car here, drive it, enjoy the BEV feeling of that car, and probably fill the car up once or twice a year. Next car will be a BEV because they enjoy so much a BEV. The third group of customers is the ones who are transitioning later. They will probably stay a little bit longer on that car. We have a solution for all of our customer segments. The second segment to be transformed, I am pretty sure they will buy this car.
The next car will be a BEV. We will do all of that, as I said, like strengthening our margins. As Erik said, we will price our EX60 BEV on the PF. We will have more margins with the BEVs. We are also on a good way to have price parity between a BEV and an ICE car. Anders will talk more about how we have created such a fantastic low-cost EX60. I am sure you will be convinced about that car when you see it in January. Next pillar, as I said in the beginning, we reinforce our collaboration with Geely because we want to make more cost-effective products and bring them faster to the market. How will we do that? We have done it in the past. First column, XC40, EX40, one of our most selling products built on a CMA platform.
Together developed with Geely and a JV. Super successful product. EX30. Small platform from Geely. Volvo haven't had it. We participated on Geely's small platform and built an EX30 on that platform. With that, we created a premium B segment, which was not existing. Super successful in the market. The XC70. Our first. Second-generation plug-in hybrid where we say it's a battery car with a backup plan. That's not enough. We need to further increase our collaboration with Geely to really go down in costs. How we do that? We divide our cars in modules. These modules will be standardized. Together with Geely in a so-called CBP, Commodity Business Plan. This is something which Volvo has done for decades. The news is now that we do that together with Geely.
We work together with our colleagues of Geely, look into each module, and think about how can we make this module common. Take a climate compressor. We have a lot of climate compressors in our group. If you modify them so that they are common, all of a sudden, we can use all the same climate compressor. By that, we increase the volume of that product. We reduce the amount of investment. We reduce the price by the higher volume. It is a fantastic opportunity to improve our costs on the hardware by not changing our high-quality and safety standards. We will improve our profitability without changing our brand. The next item is the regionalization. The world is going for electrification for sure. As Håkan said, the globalization is over. We have separated our markets in China, Europe, and U.S.
We have done that to make sure that we have a car for each market. We need to listen more to our customers in these regions, create a car for these customers with the features the customer wants in that market to avoid logistic costs and tariff costs. We have two examples of that already. We recently launched in the U.S. that we will bring a new hybrid into that market, tailored for that market, tailored for the customer, produced in the US. Another example is the XC70, which we have already launched in China, tailored for the market, built on China technology with China software in super fast speed and at very low cost. This car is targeting the new energy vehicle market, which is a clearly growing segment.
Without our superpower with Geely, we wouldn't have been able to do it in that fast time and at that low cost. This car was launched recently. We have really good sales volumes on that one. A success story in China, and we may bring it to Europe. That car is a BEV car with a backup engine, as I said. 1,200 km driving without recharging or refueling, 200 km electric range. Due to our component sharing with Geely, we have lower costs, and we are quicker to the market. This product is made for our Chinese customers with China technology. The last point from our presentation, core computing. As I said, I came back to Volvo two years ago. In the last few years, which I have not been at Volvo, I have been probably watching Volvo like you.
My heart was bleeding to see how difficult it was for Volvo to go through the painful story of SPA2. Delays and high investment. Anders has changed that. He has fixed the SPA2, especially now after the latest quality improvement with the new software. The car is ready. What has given us this painful journey? We have a truly software-defined car. We are one of the few OEMs in the world who have such a technology. Others have tried. They have failed. Others are still trying, and they're investing much, much more money in Germany. They invest even more money in the U.S. to get where we are. You could say it was a bad time. Overall, we have created a fantastic product. This software-defined vehicle we are now rolling out not only to our BEV cars.
The EX90, the ES90, and the EX60 will have it. We will also roll it out to our hybrid cars, the most important hybrid cars. By that, we create a customer feeling with the software. In our hybrid cars, like our BEV customers enjoy it. Even more important, we increase our volume on the core computing. By that, we reduce the cost. We reduce our internal cost because Anders has to take care of fewer software variants. It is only one software variant for all of our cars in the future. Painful journey, but super successful technology. We will build on that in the future. With that technology, we will grow profitable. To summarize, again, the world is going electric. We are ready to go electric with the world when our customers are.
With our new products, we will grow profitable in this biggest growing segment in the world. Our bridge to electrification will be longer. We have fantastic plug-in hybrids, which we call a BEV car with a backup engine. We increase our synergies with Geely to participate on low cost and fast time to market and have solutions for the Chinese market to grow profitable there. Our regional approach is targeting our customers even better in the markets, Americas and China. We will avoid logistic costs and tariff costs. Again, the core computing system with one software track really reduces the cost of the software internally and creates a better product for our customers, not only for BEVs, also for hybrids. With that, I hand over to my colleague Francesca. She will talk more about how we do the cost reductions.
Yes. Good morning. I am Francesca Gamboni, Chief Industrial Operations Officer at Volvo Cars. Basically, I oversee procurement, manufacturing, and supply chain. In a nutshell, I oversee all the variable product cost. This is exactly what I'm going to talk to you about today, is our variable product cost. I hope I'll manage to transfer to you how we are confident that on the product cost, we will do a step change in our cost competitiveness this year and in the following years by leveraging our superpower, what we call in procurement our superpower, which is being part of the Geely Group. As I said, I will explain to you the ways we will do it. I think you'll understand that it's a concrete way of working that is going to bring value to the way we are working.
I will start by saying how we are going to do it. Basically, we have five levers that we use in order to leverage this step change in cost competitiveness. We go through leveraging scale. I'll go through each one of them. You will see that it is absolutely concrete and that there are real ways of doing. The benefit is enormous, is really huge. Especially, the benefit is unique because we are the unique car maker which is capable of accessing this great opportunity, which is the Geely Group. Starting with the first areas, the first way, leveraging scale. What do I mean with leveraging scale? It goes by itself that if you go in front of a supplier with 700,000 volumes or with 3,700,000, it changes.
You enter from a different door, and you have a red carpet instead of entering from the back door. That obviously goes by itself and is obvious. Also, in the BEV world, we are going together. We are playing together with the third BEV biggest producer in the world. That also changes the relation that we have and changes how important we are in front of the supplier. That obviously does not need any explanation. That is not the only advantage that we have. By also putting together the supplier panel, we access innovation and technology and a network and an ecosystem and a Chinese ecosystem, which we would never be able to access on our own because we do not have the contact and we do not have the capability of accessing.
This opens doors also to a lot of innovation and technology, which obviously gives us a competitive advantage versus other OEMs. Of course, to do this, what do we need? We need to have a common supplier panel. That is obviously the basis, the beginning. Good news, we have 130 common suppliers today together with Geely. 130 common suppliers represent 75% of our spend. That is good news because it is the majority. Now, if you would ask how many suppliers do we have, we have 500. But 130 represents 75% because, obviously, we go first for the biggest spend because that is where we can gain the biggest value. Our plan is to increase this share of common suppliers and get to 200 common suppliers in the next couple of years, so increasing 50%. This will bring our spend with common suppliers up to 90%.
Basically, we will have the totality of the spend, the great majority of the spend on common suppliers. How do we get to commonalize the suppliers? Basically, at each RFQ, for the ones who are not familiar with requests for quotations that we have, we obviously open up to the supplier of the other company. That's how you get in more suppliers in our supplier panel. That's basically the way that we are increasing the supplier panel. We have started harvesting already these last six months. You have seen the result, the good results in our challenge, in our SEK 18 billion challenge, where you have seen that part of it was variable cost reduction. That was going in the right direction. We have seen that we get cost savings when we have a joint negotiation and a joint approach.
We get cost savings up to 8%. This is quite encouraging. It's quite good. We are just at the beginning, but it's extremely encouraging. We have started with semiconductors, with batteries, with wheels, with steel. We are going all in also in displays, cameras, sensors. There are all the commodities. One by one, we are entering in all the commodities where we have joint supplier panel, common suppliers with joint negotiation. Doing joint negotiation is, and again, for the people who know procurement, is not only advantageous because you have a bigger role in front of the supplier, but also because you can share should cost. Now, I'll explain what a should cost is. When you go, people think that procurement is just going out for dinner with the supplier and coming back with a discount. It's a bit more complex than that.
Basically, you need to be prepared. When you go to a supplier, you prepare and you do, and you come with a should cost, meaning what would be the cost that you think the supplier can reduce by introducing a number of improvements. Because you are competent in manufacturing, in procurement, in supply chain, you study what are the areas that you are going to challenge your supplier with. Of course, every car maker does the same. If we can share together with Geely the should cost, challenge the should cost, they have other ideas, other bases, other references, other ways of doing things. It would help us have a more complete should cost, having a should cost which will allow us to challenge even further the productivity and the competitiveness of our supplier. That is the second advantage.
That is the first area, the first lever. We have five. Maybe I will take less for the other ones. Still, I hope I will manage to transfer how important these are and what is the opportunity behind it. Cost benchmarking, what does it mean? We have tiered down our XC40, XC60, ES90. We have looked at and compared costs and looked at what are the opportunities. As my colleagues also have repeated, we will never, as we will never compromise on safety, sustainability, and quality, never, ever. There are still some very good opportunities that we can identify by comparing solutions, by comparing costs. Of course, you could say we could also tier down a car of one of the BMW competitors that we have. Again, you can tier down. You can compare.
You do not have ideas of what the cost is and where the opportunities are. Of course, you can find opportunities, but not as much as if you can really deep dive on what the solutions are and where the opportunities are. That is another great opportunity. I am at the second one. Third one, culture and best practice sharing. We are, as was mentioned also by Michael in terms of time to market, not comparing only the product, but we are comparing together with Geely also processes, so how they are doing things compared to us. Again, it is a fact. I mean, it is not only a legend. It is a fact that the Chinese speed, it is a reality. The Chinese are faster than we are. They are faster because in some ways. They are faster.
Sorry, I think it's my phone. I thought that's why I thought, no, no. I'm not going to answer. Bad moment. OK. Again, coming back. We are comparing processes. We are comparing processes to find best practices. They are faster. Again, repeat again, without compromising quality, sustainability, and safety, still, there is some learning. For example, on average, they have 12 months quicker time to market than we have. Why? Because they have an agile industrialization and ramp up, which we can learn a lot of things from, where we can learn. It's a best practice that we can look into. We are looking into it. Of course, we don't compromise with our steps and with the way the focus we put on quality, sustainability, and safety. Still, in our decision-making process, we see that we can improve.
We can really be faster in taking decisions and recouping some time to market. Again, the third pillar is the best practice sharing and the culture where there is a lot of learning from both sides, to be honest. The fourth pillar is the increased commonality. Michael has mentioned this. CBP, what is it? When you source a strategy, when you source a commodity, you are in the execution. You source. We also build strategies on our commodities. This is normal. Every car maker has commodity strategies. We have not invented them. The CBP is, maybe they are called differently, but it is the strategy of a commodity. By commodity, you decide what is the technological roadmap that you have, what is the sourcing strategy that you have.
You look a bit further on what is the evolution of that commodity and how you're going to go for it. You decide, for example, if you're on the sourcing, you regionalize, you double source, how you cover risks, what kind of players you want to play with, how, where, what kind of technology you want to follow. That is just a long-term strategy. The CBP is the long-term strategy. What is different is that now we do it together with Geely. We do the strategy together with Geely, which means that we include in our strategy also elements like commonality. How do we commonalize? Scalability, for example, reduction of complexity. We introduce these elements that we look together into, together with Geely. Now, what is the advantage?
Now, from a procurement perspective, I explained to you why it is an advantage to go to the supplier with a bigger volume, but maybe different parts. I'm a more important customer because I have a bigger volume. If I then can also have a bigger volume on the same component, then I have a second layer of cost reduction because obviously, the fixed costs are spread on a bigger volume. Obviously, I have a second level of cost reduction, which is driven by the commonality. Last but not least, resilience. This is a very important topic because, again, we know disruption is the new normal. I mean, being supply chain in the past, nobody knew who supply chain managers were. Now today, they are raising at CEOs' levels because everybody realized, oops, it's important. It's an important job.
I mean, a supply chain manager, I had the question down at the coffee. A supply chain manager wakes up every morning and says, what's going to fall on my head today? Because every day there is a disruption. Every day there is something somewhere. There is a war. There is a ship which gets blocked in the sea. There are geopolitical tensions and trade and shortages, you name it. Of course, resilience is very important within the operations. Resilience is all about finding alternative solutions. It's all about agility. If I want to resume it in a nutshell, it's all about when shit hits the fan, it's all about what kind of alternative solution you can find in order to continue your operations. That's about the rule of the game in the last decade because, again, disruption is the new normal.
If you can count on solutions coming also from another, a different side, obviously, you're more resilient because you have alternative solutions, the ones you can think on, the ones you can access, but also the ones Geely can think of and can access. Also in terms of reserving capacity, if we, for example, mention semiconductor crisis, which I think everybody has been affected, if you can reserve capacity together with another player, obviously, you lower your risk, you lower your tied-up capital and risk. Again, resilience being part of the Geely Group is quite important. To resume, again, we are working on three pillars. The first one is with Geely is on the strategy. Again, I spoke about the CBPs. I spoke about the fact of building a common strategy by commodity. The second one is about execution.
I spoke about joint negotiations, joint supplier panels. This is how we go for it the day to day. I'll say a few words on the steering framework, on the management framework, because this is also important. Again, synergies, and this is, I mean, I have long experience on it, should not be at call, should not be a one-off. I arrive, I do big task forces, big synergies, harvest, and then that's it. Then the companies continue. They go back as they were before. Synergies means getting at the best cost competitive position and then staying there. Staying there means that all the best cost positions are at birth. They are not at call. It means that we conceive them at the best cost competitive position.
To do that, we need to have a management framework, a governance that allows us to do that. In a nutshell, we have now a governance and a management structure that allows us to do this. A few examples, for example, we have matched pairs, means that at every level of procurement, we have a matched pair who works hand in hand, Geely and Volvo. Second example, we have divided all the suppliers with one unique lead. Either the lead is Geely or the lead is Volvo. That's extremely important when you have one face. Because if all these kind of, I mean, I have a long experience to know that coordinations, they are quite weak. They don't work. There's one face that needs to be in front of the supplier. That's this. We spoke about we have also negotiation waves.
Four negotiation waves per one every season. We go and we go together. Joint hackathons, for example, hackathons. Hackathon is where you generate ideas, where you put cross-functional, all the cross-functional, and the brain starts to brainstorm, and you start generating ideas on how you can reduce cost. Every company kind of has them. We have them joint. More ideas, collective intelligence, world global intelligence, not only European, but so different way of seeing things and generating ideas. These are all areas on which we are working together. Then again, common supplier choice committee.
Every time we have a choice committee, once you have a certain point, you nominate for a new business, a supplier, then you have a committee where you decide, yes, from all the different cross-functions, yes, this is the right suppliers for criteria A, B, C, D, E, and we all agree on it. Now we do it jointly. Again, different perspective and ensuring that we are commonalizing the supplier panel. It is concrete, is really concrete, and there are real actions. We have started the harvesting now. We have started then, again, you have seen some results already in the SEK 18 billion, let's say, challenge, which is where we are ahead of the game. Variable cost reduction was one of it. We have a lot to harvest more going forward.
Last s lide, which is a positive, I would like to, again, I hope I've managed to share my enthusiasm and also how I strongly believe in that we are going to do this step change, how we're going to really do a step change in our cost competitiveness, which will bring us to a position where we are not only going to be cost competitive like the best ones. We are going to be the best one because nobody has the opportunity that we have. That is unique for Volvo because others do not have access. I have a long experience. I never had this opportunity of really accessing the best ones in cost. Again, we can say many things, but from a cost perspective, really, the Chinese, they see many other aspects.
They've developed many other processes and many other, let's say, ways where we have to learn, where we can learn, where we can go there and say, OK, how did you do it? And can I do the same? Can I do it the same and fast, particularly fast, quickly before the others? Again, I hope I've managed to transfer why I'm very confident, we are very confident that we will do a step change. We believe that this will bring, will add 2%-3% of EBIT contribution to our bottom line. This is all I wanted to share. Thank you.
Super. Now we have a short break, 10 minutes. We have restrooms here, restrooms downstairs, and some coffee. A quick break, and then right back here, and we'll continue with SPA3. Thanks. OK. With that, we'll get back to the agenda. Without further ado, I want to welcome Anders Bell, our CTO, on stage.
I like it, the background music. All right. Welcome back, everybody. I'm going to roll up my sleeves here because this is going to be wild. I'm going to try to cover now in 20 minutes what I usually do not even attempt at covering in less than two hours. So bear with me. My name is Anders Bell, Chief Engineering and Technology Officer. I want to keep the engineering in the title because that is kind of the grit, the finger, the dirt under the fingernails. Engineering is what we do. Technology is what we work with. Ideally, Chief Engineering Officer. But that abbreviation was already taken. Hence CETO. My job is to lead Volvo Cars Engineering through the most profound technology shift in the history of automotive.
For now, you get a bit concerned because now you're going to talk a lot about tech stuff. An alternative job description is that I take a small pile of money—small, but still a pile—Fredrik will point out. Transform it to technology, which we then pass through Francesca's industrial system and Erik's commercial system and transform that into a big pile of money. That is basically the job. I'm going to talk business and profitability to a very large extent today, but how we achieve that through clever application of technology. SPA3, first and foremost, I get a lot of questions. We are super excited. I will come back to this in the end of my presentation as well. Super excited leading up to 21st of January.
I usually say the only thing we haven't invented that I wish I had is a time machine because I always want to go back in time and fix stuff. You can always do things better. This time, I actually want to travel into the future because I can't wait until the 21st of January when we come back here to Stockholm to launch what will be the best electric vehicle in the world. It's a historic moment for us. We are on time. We are on cost, and we are on quality. Yes, we are working extremely hard at this point, which we always do leading up to a big launch. This is arguably the most important launch in the history of the company. We are working extremely hard, as we always do, in front of a major launch, especially on a new platform.
Areas of evolution I will cover today kind of keep it in three big piles of topics here: the uncompromised, scalable BEV architecture. Remember the word uncompromised. This is important. You need to park that in your memory bank. How we deploy into this architecture cutting-edge battery electric vehicle technology, how we apply vertical integration and horizontal optimization to achieve results that benefit the customer and the company. Together with this, the fully software-defined vehicle on a one-track software. This is really the profound change in automotive that is ongoing. We talk a lot about electrification of the car. The whole industry: will it happen? How fast will it happen? When does it happen in region? What's the technology? This is happening at the same time. The computerization of the car. They could have happened independently. They chose to happen together.
The merging finally of automotive fully merging into the digital society. These are happening at the same time. This is not change plus change. This is change times change. It is change square. This is why it is such a profound moment in time. We believe, I kind of know, but we believe that SPA3 is the best electric vehicle platform in the world. You all watched IAA Munich, lots of reveals. I will come back to some reference points. We also watched it, and we are super confident afterwards. We have a really great product, a fantastic platform coming here where we can scale all the company's business needs in a completely new way from the smallest electric vehicle to the biggest electric vehicle.
Whatever needs the team here will have in terms of size, price, position, markets in the electric vehicle world, we have made a platform that we can deploy to those needs in a very clever way. To bridge, literally bridge, Michael talked a bit about the electric car with a backup plan. The generation two plug-in electric vehicles. Today, I just want to bridge with that to give you context before I carry on and talk about the uncompromised battery electric vehicle. The context here is, as Håkan mentioned as well, we will have the same core compute software-defined vehicle system in our generation two plug-in electric vehicles. They will be essentially on the same technology stack with one-track software and share modules and parts. These are designed in the same context, in the same tech stack.
That is how you need to view the plug-in generation two technology that we will be talking about. This will provide us with peak effectiveness, cost scalability, modularity, upgradability. Let's pause on upgradability for a while. Why is upgradability important? Because we need to, in this fast-moving, hyper-competitive automotive industry, we need to make sure that the cars rolling out of the factory every day are competitive over time. We cannot let them degrade over time and then we replace them five, six, seven years later. We need to continuously upgrade with the latest involvement in technology, efficiency, cost, customer satisfaction every single day. Proof point, we are now in two weeks away cutting over to the 800 V system on EX90. The 800 V system which is launched in the EX90. Now we are cutting over. Current EX90 cars, massive cost reduction, faster range, higher performance. Everybody's happy.
That also goes into SPA3, same system. The technology and the sharing of the technology and progressions between the cars and being able to upgrade continuously over time is a key factor in this, which also leads to manufacturing efficiencies, not only for ourselves but also across the supply chain. What have we done in SPA3? This is kind of where I could talk for a long time on how removing the constraints of the combustion engine opens up completely new ways to scale and modularize a car. We talk about the software-defined vehicle. We also need to talk about the energy-defined vehicles, the electric vehicle defined around the energy found on the car. We also need to acknowledge that we are leaving the combustion-defined vehicle.
We don't talk about the combustion-defined vehicle because that's been the car since it was born over 100 years ago. Removing the constraints of the combustion engine in the uncompromised battery electric vehicle platform allows us to create a unified setup for batteries, e-machine, HVAC, chassis, electrical. Battery, you can see over here, this is an EX60 battery pack over here. If this is the big box of Lego, then you go down and look at the battery pack itself. It's another box of Lego inside the box of Lego. The battery pack already designed here around the cells is modularized to provide all sizes and price positions across a wide range of products from the smallest Volvo electric vehicle to the biggest Volvo electric vehicle. High and low. Tall or short, we can do them all.
It's all cleverly designed in how we standardize the extrusions, the power electronics all around. A standardized form factor, large prismatic cell, which Francesca can go to any region, any supplier, any chemistry. As long as it fits in that blue box over there, we can consume it. Onto proof points. What have we done to ensure high-margin, great electric vehicles? I'll give you a few examples. We talked previously about mega casting, how this takes 100 parts to make them into one, which you machine and then directly put into the car, replacing 100 parts. One hundred parts that need to be shipped, handled, welded, put together. We're saving around 35% on the cost of the rear floor. Also, how we integrate the battery pack into the vehicle. The battery pack is actually the floor of the vehicle. There is an opening when you build the body structure.
The battery pack completes the car, and we actually mount the seats directly on top of the battery pack, saving 25% cost. If we double-click on this one, here's the generational journey on battery technology system evolution at Volvo Cars. From 2020, late 2020, when we launched the first EX40, then called XC40 Recharge, I think. I wasn't around. You can visually see here the progression over the last five, six years, how we evolved from working on adapted combustion engine platforms and making BEVs out of them to where we are today on Spot 2 running production. Massive step in cost reduction per kilowatt-hour, going up in energy density, increasing the total pack size, the capability. We can make larger packs. We don't need to fill them all, reducing our CO2 footprint and taking out 40% charging time from where we are today on the 800 V system.
That's over the course of a few years. We take another step. Now we are truly designing on an uncompromised battery electric vehicle architecture, and we find completely new ways to design. The simplicity, you can visually see here how much more efficient it is. Another 25% of cost on kilowatt-hour level, plus we get 20% higher energy density to how we design a structural pack, another 40% reduction in CO2 footprint, another 15% in charging time. I think we're going to increase that even more. I got some good news yesterday. This is the S-curve of how we improve performance, improve range, improve charging time, and get costs down. Completely breaking the traditional automotive equation and breaking the cycle of being stuck in the combustion world and embracing all in on electricity. Next example, thermal system or HVAC.
Here I did not even put Gen 1 because that would be a combustion system, kind of apples and pears. Gen 2 here is 2024, launched a Spot 2 EX90 system, very good thermal system. Look here what we have done for Gen 3 in Spot 3. 20% cost reduction, which is on a thermal system that has been around for, not 100, but tens of years and just continues to optimize. Taking a step like that is unheard of. At 50% improved cooling capacity and 33% lower energy consumption. You get a 20% lower cost. You get 50% better cooling capacity. What does that mean? It means we can preheat the, precool or preheat the pack so you can have faster charging. It also means we can keep the cells in the optimal durability temperature quicker so we can guarantee the lifetime of the battery will outlast the car.
It's all these little things. 33% lower energy consumption, you get much longer range. That will be evident when we launch the EX60. This is a key contributor to how we can achieve that range. Third example, drive units, another core key technology for a battery electric vehicle. This is Gen 1, perfectly good first generation. Two years later, we replaced what we launched in CMA late 2020. Two years later, we replaced the first generation drive units with our first in-house designed drive unit and cut over into the model year 2024 for CMA cars. 16% cost reduction. 45% increase in torque, 30% up in power. Slight up on weight, which was acceptable. 6 percentage points of efficiency. I'm going to stop a little. We're talking about 86% efficiency, 91%, 93%, that's overall efficiency. I'm going to take a little detour.
When we talk about efficiency and electric cars. I'm going to do a pop quiz. If you have an electric car, let's say 85 kWh battery pack, which is kind of average for a pretty long-range car. You're fully 100% charged. It's been on your home charger overnight. You go out in the morning. It's 100% charged. You're ready, what do we say, Ben? Happy as Larry. Ready to take on anything that comes at you that day. You have early charge apps and everything. If you're traveling far, you know exactly where to go. Do you know how much energy you have in that pack translated to petrol, expressed in liters? I don't expect anybody to know. You will have around 9 L. Translated to megajoules to kilowatt-hours.
You are actually starting your day with 9 L of energy in your car and you're happy as Larry. That's how efficient. This is why. The electric vehicle is a superior product. You know this. What is the efficiency of a combustion engine? This is 93%. Yeah, that's on a really, really good day, Michael. In reality, in Scandinavia, you will have days at 18. The efficiency of the product is so much higher. And this is generation three. So this one is in production in CMA and Spot 2. Now we're cutting over to the 800 V system. ES90 is already here. EX90 will be here in two weeks. We're launching Spot 3 EX60 with this guy. In-house design, in-house manufactured. Another step up in efficiency, taking the weight back, power up, torque. We're perfectly fine. We don't need more. This is the speed of development.
This is the S-curve of fully embracing electric vehicle technology, realizing to make kick-ass electric cars, you need to have dedicated platforms. You need to vertically integrate yourself to a level where you can horizontally optimize the system. Otherwise, you will not win in electric vehicles. Putting this together in context, I'm going to kind of start assembling this again. In-house hardware vertical integration doesn't mean we make everything ourselves. We make this guy in-house. We make the battery pack in-house. This system we buy. That's perfectly fine as long as we can do the system integration and all the software, software integration. Because then we can optimize the system across. We've done things like we. This unlocked that we can, for instance. With small compromises. Allow.
The electric drive unit to produce excessive heat in corner cases that allows us to remove the auxiliary heater from the thermal system, saving EUR 150 per car. You can only do that when you do this. Another example, we have a brake system up here somewhere. We can take a raw signal from the brake system passed through the inverter to control the vehicle motion of the car, removing corner cases that are normally dimensioning the drive unit and the drive unit mounts to take about EUR 50 of cost because we can remove those constraints. Because we have a flat topology system, we do the in-house software.
So we can, with confidence, downgrade some of the stupid parts of this system and save money and weight because we know we do not need to design for those cases anymore. These are a few examples on how we assemble everything together. It is the combination of uncompromised battery electric vehicle platforms and all in-house software integration that is the key. On software, we now have merged all our cars to one software track. It means that EX90, ES90, EX60, and all these new cars, including generation two plug-in hybrids, will all be from the same software master. I will come to that shortly. This unlocks faster speed, efficiency in development. It means basically every single function or fix we do, we need to do once it is ready for all cars.
This is a massive change for a car company, truly becoming not only a car company but a software company as well. You need to be both. What does it mean for our customers? Because all this talk. The tech stuff here, the technology platform, what does it mean for our customers? There's literally no end to where we'll go with this journey. Immediately, we will have safer cars. We can provide more efficient cars. We can integrate in your ecosystem, in your apps. We have widgets for Apple. We have other solutions for Google. We can launch more innovative functions, outstanding user experience, and faster, better quality software updates. For us as a business, it's also massive. A few of the examples I mentioned on the technology side before is only possible thanks to this approach. We can continue to provide first-rate cars for our customers.
We can lower cost. We become a much more efficient company. Most importantly, on the software side, we're moving the complexity from the hardware layer to the software layer. Most importantly, all the development in the software realm will be accumulative, meaning what we do tomorrow is built on what we did today. Meaning that what we do in five years, which I have no clue what we will do in five years, I know it's going to be awesome, will be built on all the stuff we've done the next five years. We will build new functions on top of the capabilities we launched. There will be new functions on top of the combination of functions we already achieved. How does this work? This is trying to say, this is profound.
Having one software master where all the developers, signal database management, all the improvements and new features go into one master, and where we through configuration management and signal databases can steer the right software module to the right car, right market, right customer, is a massive change for us. Super hard to master. Once you're there, you're there. You have the platform. We are going to structure this into four major planned releases per year. This is not just releasing for the EX90. These are releases that go to the entire fleet. All the cars on the road, all the cars coming out of the factory, and all the cars that are on the drawing board that we have yet to reveal are getting releases from the same master.
Four times per year, two of them align with our big factory cutovers, which happens in quarter four and two, all with meaningful upgrades for the customers. Of course, we can do hot fixes in between. We really do not want to do that ideally, but of course, we can always do minor tweaks and fixes in between, but four meaningful releases per year from one unified master. Very few car companies have come to this point. It's super hard to master. It's super hard to get there, but once you're there, now we can polish the machine. Now we pressure tested it so much. Now we have a true diamond here, and now we know exactly what great looks like. We are going to keep polishing every single facet of this diamond for the years to come. In a nutshell, SPA3.
Uncompromised battery electric vehicle. It's on time, on time, and cost and quality. Cutting-edge BEV technology, which you can only achieve through vertical integration and horizontal optimization. All our cars at the highest, they're born digital, designed to be software defined from ground up, and all deployed on one-track software. All of this. I get a lot of questions. How about which is your key competitors and how will the EX60 do in relation to the Neue Klasse and all that? You have to wait until 21st of January. I called it before. Munich. Håkan said it afterwards as well. We have something really, really great coming here. Behind this smiley is, I mean, these are traditional automotive metrics, but we have all the reasons in the world to smile here.
We have the Neue Klasse. EX60. We love a good competition, all the respect for what they've achieved in Germany here. We really thrive. I think Håkan mentioned, we love the fact that there are more choices for the customer, and we love competition because it keeps us on our toes. We have a real winner coming here, not only in a spec sheet, but as a totally integrated product. All right, that's it for me. Thank you very much. Oh. Handing over to Fredrik.
So we have smiling engineers. We've had crying engineers for a few years. I'm glad to see they're smiling now. Now we've heard the strategy in a lot of different areas. I'm going to try to sort of summarize what that means for us in terms of financial potential and what our pathway to higher profitability and cash flow generation is. I'm starting with recapping a bit because our pathway that we've talked about now for a couple of months stays the same on the highest level. It is about electrification, regionalization, and profitability. We believe that we are extremely well positioned as the world electrifies and we will use those opportunities. We are also bringing down spend to secure that profitability comes regardless from the SEK 18 billion cash program and beyond.
The SEK 18 billion program is a bit in the near term. That is what we are promising for 2026. We have talked about this a lot. I talked about it in the Q3 report just a couple of weeks ago. In short, we are executing. We are ahead of plan, and it is already now helping our financials. Today is not about the near term. Today is about the longer term. I want to talk about what that means financially. As Håkan said in the beginning, this is not about providing guidance or a detailed timeline as to when we reach what profit, but we are showing the fundamental pieces of our strategy. We want to show what that means in terms of structurally building a more profitable company. Our strategy builds a company for long-term value creation.
We are building a company that should structurally achieve higher than 8% EBIT. We are building a company that should generate very strong positive cash flows. If I jump into each of these, starting with EBIT, I want to sort of size a bit the strategic opportunities. What are these building blocks or puzzle pieces that we talked about, and how much will they contribute to bottom line as compared to where we stand today? Starting with what Erik was talking about, profitable electrified growth. We see a 2% EBIT improvement potential from electrified growth. I think the keyword there is electrified because we're talking about more profitable electrified products. Growth is a factor, but not the key factor for our profitability here, to be noted. We're doing that by expanding our offer.
We're doing that based on SPA3, which we believe is the best BEV platform in the world. We're also extending our bridge to electrification with groundbreaking second-generation PHEVs, starting with the electric motor and adding a small combustion engine as a backup. I think this is an important point, so I'm going to sort of make it again because we are extremely well positioned for profitable electric growth, and it starts here and now. If you look at the left-hand side, and this is going to be a bit complicated, we are expanding our addressable market here and now, starting with the EX60. If we look today, this is the premium market where we have offers, what size cars we have offers in. Today we're touching 65% of the premium market. That is the Volvo models we have, 65% of the volume.
If we look at BEVs, we're actually only touching 25% of the market volume out there. We have the EX30 in the B segment. We have the EX40 in the C segment. We have the EX90 in the E segment. With that, as Michael showed, we're still leading in terms of share of BEV cars among traditional players. We have the highest share of BEV sales among all players, despite the fact that we're only playing in 25% of the market. With the EX60 that will start to ramp up next year, we're basically increasing that with 200%, as Erik said. We're going from 25% addressed market to a 75% addressed market because that is the most important segment in the world. It's the Tesla Model Y segment. It's the most important segment for Volvo. The XC60 today is by far our best-selling car.
We haven't even had an offer, and next year we have. It is a very beautiful—we haven't shown the car—beautiful rear headlights and more to come. The pie is expanding. When the pie is expanding, we're quite confident that we have good opportunities because the right-hand side shows what we have done with the pie we had before. This is our track record looking at year-to-date data in the premium segment. If we look at all cars, Volvo has an 8% market share globally. If we look at BEVs and in the BEV segments we sell, we actually have twice the market share. We're at 17% market share. On PEVs, we're even three times larger than on average. That means that our brand, as Erik talked about, is extremely well positioned for the electrified future.
We're punching really below our weight in terms of offer, but we are taking significant market shares in relation. This is sort of the cornerstone of our strategy, right? We want to be a bigger company as the world electrifies. We are already on that track. This is year-to-date data. Now we're expanding the market, which means new opportunities. In terms of addressing the market, we need to do it with the right product. As we said, we believe we have the best EV platform in the world. The engineers are smiling on the left-hand side. I'm also smiling on the right-hand side because, as Erik said, this is now priced as a PHEV. It's actually affordable. You don't need to pay more. We will get better margins, hence I'm smiling. The customers will also smile because you also get better features.
This is a better car, better performance in basically all aspects. More to come on this on January 21st. This is not the reveal of the car, but no, we are a bit too excited to not share this with you now. Second pillar in sizing this is synergies and variable cost reductions. As Francesca alluded to, 2%-3% cost reductions. This is about executing on the structured way of working we have already established. The big, big opportunity is then the hardware collaboration with Geely, basically the third largest BEV player in the world, and also tapping into China technology and more local China products without large investments. I think this is such a unique point for us that it is worth double-clicking on because we have something extremely unique in terms of access to China cost, China scale, and China technology for China.
Geely is the best player to be with. If you look on the left-hand side here, this is the current year-to-date ranking in terms of global market shares on BEV sales. Geely has, as a totality, 10% global market share, slightly less than Tesla right now, but Geely is also growing at 25% a year. That is scale. Francesca talked about what scale gives you. You cannot find more scale than this, especially not in China. That means that on a global level, we work on hardware. Software, we keep east and west separate, but on hardware, we have 75% common suppliers in terms of spend, and we're increasing that. We're now working through that to get the cost savings out, and Francesca showed some examples of what it can mean.
The other important point when it comes to controlling investments is that Geely has scale in Eastern technology for China. A Chinese consumer uses a different infotainment system. They have a different voice assistant. They have different apps. They have different ADAS systems. They have different AI algorithms. All of that, we do not need to reinvent and pay for ourselves. We can piggyback on Geely for those products in China. Lastly, we can do more than that. We can share components and co-develop platforms, creating cars like the XC70. There is more to come to make real tailored products. As Michael showed, taking us out of the traditional premium in China into the new energy vehicle sector, really competing also with the local Chinese with the latest and greatest China for China technology. Third pillar then, indirect cost reductions, 1%-2%.
Part of this we have already started. The cost and cash program we talk about is a lot about indirect. We have seen some of the savings already in Q3. Here, the key is keeping fixed cost discipline. Making sure that we leverage all opportunities not to grow our fixed cost base. There are ample opportunities with AI and automation. Making that flat. One big opportunity that we will start to leverage a lot more is what Anders talked about, one-track software development. We are also reducing hardware complexity, but on one-track software development. It is worth repeating, right? That will, on a cost perspective, investment perspective, enable a lot of synergies. We are now stopping reinventing the wheel. If we build a feature for one car, that feature exists in the other car. It is completely groundbreaking as compared to how automotive works.
That means lower cost, but more importantly, for the customers, that means that now we're out of the quality swamp. We can start as a price and delight. We can build features at scale for all our cars and spend our time on that. As we are basically one of the first three players to market with this, which already have now two products in the market which are working at quality, that means that we're past the learning curve. Super expensive and painful learning curve, but we're past it. Lastly, on indirect, we are doing a commercial turnaround. Part of that is also marketing efficiency and reducing our selling expenses, as Erik showed. That all ties into that. We also have some headwinds, if you will, or negatives. Depreciation and amortization.
We have invested a lot, and I will talk more about investments in a minute, but that investment will start to go online. Paying for the past product investments, paying for the very critical infrastructure investments we made into electrification and the first software-defined vehicle platform and the one-track software will take a toll on our margins. If we look at the totality here, this is sort of a delta from where we stand today. These are sizings to give you a flavor of the type of potential we see. These are not one-to-one fully additive, but what we are saying is that we are confident that we, with this strategy, will structurally build a company for the long term that is delivering more than 8% EBIT. That was EBIT. Let's talk about cash flows, and I like them strong and positive.
A big part of EBIT is, of course, helping cash flow as well. That will help improve the operating cash flow. I am not going to focus on that because I just talked about it. I am going to talk about investments because that is more here and now. When we talk about investments, we are now finalizing a lot of one-off infrastructure investments that will last for decades. What you see on this page are things that will have a return between 20 and 40+ years . We are building a new plant in Košice. Many dollar signs, but it is a BEV-dedicated plant in the EU, which will be completed in 2027. We have that capacity, and that will stand there for 40 years. We are not building another plant next to it. We have cell-to-body. We have mega casting and e-motors. All of those Anders talked about.
Those are building blocks into making SPA3 so cost-efficient. They're also quite big investments. Now we have done them, and we are finalizing them. Recapping what Anders said, 25% pack cost reduction, both on system level, but also on the actual pack, excluding the cells. We have mega casting, 35% reduction on the rear floor, a big component. E-motors, big component, 40% cost reduction. Lastly of these big infrastructure investments is the software-defined vehicle platform. It's really doing the base software to get the first EX90 car out, which we are now building on and will be working on the software on forever, I guess. Big, painful experience, big price tag, but it is done. That's the key with our investments. We have a big investment mountain. We're coming down that mountain quite quickly. You saw the completion dates on the previous slide.
This mountain is now behind us. If I look at a lot of our competitors, I would argue this mountain is ahead of them. I would not want to be them. How do we do this then? We are finalizing the one-off infrastructure investments that I talked about. We will have structurally lower investments in a lot of areas. One-track software is one enabler for that. In China, we have access to high-tech, low-cost China for China technology through Geely, meaning we do not need to reinvent the wheel and spend all our money from start to build an Eastern software ecosystem. What we are also doing here is maintaining a low level. We talk internally about affordable investment frames. You can argue if that is a good word or not, but it is really emphasizing the capital and cost discipline we have instilled in the company.
We will, of course, do great return on investment investments, but we are prioritizing within the frames we have. We will keep investment levels down. If you look at this graph, it is actually not adjusted for inflation and FX. If you were to do that, if you are in 2018, that is actually 45% higher. This is a structurally very low level in absolutes. With that, we are building for the long-term value creation. We have the right strategy for it, taking us into the future. It will create more than 8% EBIT and strong positive cash flows. Final remarks, Håkan.
Before we go into questions, let me summarize a bit. I think we talked about the challenging future, the new really challenges which will come to all of us in the industry, and what answers do we really have then?
What unique answers, because just saying we will continue more or less the same, but we will try harder, is not very credible. We need to define a way forward, and I think that's clear. These are then really, I think, the most important six points. One is electrification is an opportunity for Volvo. We have said that several times, but I think we're way too pessimistic in believing this will not happen. In a way, it's good, of course, because the more of our competitors believing this will not happen, the more our competitors slow down and go back to diesel, the better for us. Even, I mean, you saw the growth rate. Even if it's a bit slower, totally irrelevant. We have a huge market, which is definitely big enough for us.
This is our opportunity to come out in a totally different pecking order than we were in the diesel and petrol field. As you see, our Geely, our owner, is number three in the world. I think very few people realize that, way before Toyota, Ford, General Motors, and Kia. If you believe in electrification as a future, you cannot wait until it is complete and then jump in. You have to jump in early, and we will definitely do that. Okay, let's have a bit of hedging here also with the long-range hybrid generation two. Of course, that would be enormously expensive if we started from scratch doing it ourselves. Let's do that in a smart way together with Geely synergies. I mean, then we get this insurance in a very low-cost way. The future is, of course, the all-electric cars.
We will also remain a strong global brand. I mean, you talked about, Erik, our brand values. They are very global. I mean, there is no difference. Everybody in the world believes it is important with safety. They believe it is important with sustainability. It is important to have a company that is human-centric. We are all humans in all continents. There is no reason to regionalize the brand, but we need to regionalize the operations and exact what type of cars we have. That will secure that we will remain a global brand when many others will go back being an American brand or European brand only. That will not happen with Volvo. In this hyper-competition, we have really, Francesca, you call it superpower, like Spider-Man or something. Okay, our superpower is this unique synergies. I think you explained very well also, this is not something you can start.
Teaming up and say, "Let's coordinate our things." We know this takes three to four years to build up the trust and cooperation that is needed to have match pairs and have common sourcing and say, "We take care of this part. You take care of that." It cannot be done overnight. Very unique. This is, of course, I call it affordable BEVs. We're not going into the budget segment, but BEVs will never happen because of subsidies or incentive systems. They will come and go. They could help a bit in the beginning, but the only one that can drive transformation is, of course, we have good cars and they have to be affordable. That, I think Anders showed in a very convincing way, how are we able to price this new car as if it had been a normal hybrid car?
Yes, then you need to have, if you don't want to pay with merchants, then you have to have smart changes in the design. Then you need mega casting, cell-to-body, all of that, and one software. If you think you're going to have a software-defined car in 150 different boxes from suppliers, good luck. No, you need to have it in one box, in one computer. You can speed up and you bring down cost and quality will improve. That has been a painful process, but now we are through. We are ready, and we will have it in the 90 and the 60, all cars. Very important step. I think investors are most nervous about this. Volvo has invested for the future a bit too long. If you go back, we have done that for 20 years. We have always invested a lot.
Now we really need to say, "Okay, now we need to be smart. Use the synergies to come down to an affordable level." It can only be done with synergies. Of course, with a certain discipline, we need to use our organization, need to do the prioritization. This is an affordable frame. We cannot in EMT do that by cutting afterwards. This will happen. We will be down, and you saw the curve, and that will secure, of course, a positive cash flow, which we need because we need to invest also in new products that will come. Last but not least, we need to stop talking about flipping the market. Agent models, commissions, margin. Who cares about that if you are a customer?
You want to know what the product looks like, what does it cost, and you hate hearing that your neighbor got the same car cheaper. You need transparency on pricing and real honest pricing and fast delivery times. The times for 1.4 million combinations and upselling is gone. Nobody wants it. Customer does not want it. Production is a nightmare for production. Let's package cars and bring them to customers as they want them. I think that is really the key, what Erik said. This is my six points. Before we go into question and answer, let me then a bit go back as I started by going back four years. Now I start thinking there. I saw six of November. I recognize that date from history class. Everybody who has Swedish history knows that.
393 years ago, that was the day where the fog was very tight over the battlefield in Germany. It took till midday until the visibility returned. No more comparison with that. Today, now we are midday, so hopefully the visibility has cleared a bit also for you, what we want to do in the future to meet these new challenges. With that, but maybe there is still some fog. Let's go into question and answer, Maria, and you will lead us to clarify the last things.
Yes.
Thank you for coming.
Thanks, Håkan . Great. All right. As all the speakers get ready to answer the questions, a small reminder to people who are watching online, there is a chat box underneath the screen where you can post questions. We will, of course, also take questions here in the room. I see a lot of people here already. Before we open up for the room, we released a press release this morning, and we have seen some comments on that. I would like to start with that question for you, Håkan. The early comments are from the market, and it is based on the release. We said that we will see an 8% EBIT margin. When do you expect that to happen?
That is the question.
That is the question.
I think we have tried to answer it a bit better. Summarize again. I mean, normally when we do this type of events, I think we have focused too much on targets and results, too little on what do you really want to do differently. I am obsessed with more of the same will not be a success factor. We need to change, do something differently.
Let's today try to focus on that. This is what we want to do and be clear on that instead of just being very precise on targets in 4.8 or whatever. Of course, we as a management, if we want to do things differently, we must have an idea of what is the value of that. Then we said, "Okay, let's also present the value of the blocks, but exactly how they will materialize, we will not go into." This strategy consists of these elements, and it will be executed in the years to come. We will give no more guidance exactly when that happens. I think we will also come back to you, of course, every quarterly report, and we will, of course, then come back to this question. Today, I would stop here.
Yep. Clear? Thank you. Yes. For the ones in the room, please use the microphone so the online people can hear you as well.
All right. Hampus Engel lau at Handelsbanken. I have a question this morning on the product side. Maybe a little bit multiple question, but it relates to the EX60, XC60, and XC70. My question is, firstly, what will make you bring the XC70 to Europe? Secondly, will there be a second-generation plug-in hybrid of the XC60? How do you see the EX60 playing that? Also, is there a possibility today to take the XC70 to the U.S.? Thank you.
All right. Yeah, Michael?
Probably starting with the XC70 in Europe. As I said, this car was made for China with China technology. We have said that we will bring that car to Europe, but we need to, obviously, make it ready for Europe. That will take some time. The plan is to bring that to Europe. Why do we do that? Because this is a first BEV car with a backup engine. We believe that market in Europe especially is not really there yet, but we believe we can create a market there. Again, these cars will help either to convince our customers who are short before buying a BEV, or we will keep our customers with this product for the ones who do not have the infrastructure available.
On the XC60 then, as we said, we launched, or we will launch—how should I say? We will upgrade our cars, and obviously, XC60 will be part of this upgrade program. If we bring the second generation to that one, first let us upgrade that car, and then we will see if we bring a second generation Gen. PF to that one also.
I think maybe I can chime in without commenting in detail on future product plans. Will be the standard answer, right? On the EX60, your question was also a little bit how that fits in the market with having both an XC60 and an XC70. I think that fits really well because we see plug-in hybrids being a very clear transition into BEVs. People taking a plug-in hybrid, learning how to charge, their next car is a BEV. Today, we have not had a next car for the XC60 PHEV buyers. That is where the EX60 will be such a fantastic addition to our portfolio. I am actually very happy from a commercial perspective looking at the lineup in the mid-size SUV cluster with all those three cars, actually.
Good. Yes, [front].
Thank you. Mattias Holmberg with DNB Carnegie. Y ou've talked a lot today about the deeper cost and sourcing synergies with Geely. Given that your relationship with Geely goes quite far back, I'm interested in why now and what's changed and why wasn't this done earlier. I'm curious to hear if this will increase your Chinese content in your vehicles and also how you balance the cost benefits versus the, say, local content risk that you could then face in the U.S. or EU. Thank you.
Maybe I can start and then you can fill in a bit general. I mean, that's a good question. You could always put that question, of course. If you find some new way of working, you could always say, "Why haven't you done it earlier?" Yeah. It just takes time to build up the cooperation, I would say, and to learn how to work in this deep way, as Francesca will take some time. I think another factor is also, of course, to really have a good cooperation. You need to be on an equal level. I think it's no secret that Geely 10 years ago was very different from Geely today. They have done an enormous development, and it is now, of course, on a level they are much more possible for us to have a very fruitful advanced cooperation.
That is my starting point, but you can add maybe, Francesca.
Indeed. I mean, as I used to say, I tend to look forward when I drive instead of looking in the rear mirror. Why? Again, I think the organizations were not, now they are mature. They were not mature enough for this kind of collaboration in the past. Again, as Håkan said, it takes time to get to that collaboration. When we talk about the content, having same suppliers, and as you see, we have 130 suppliers, which are common suppliers, it does not mean producing everything in China. It means having the same suppliers, which are all global suppliers. In fact, we are going in the opposite direction then, as Håkan was talking about. We are regionalizing, especially a number of commodities. As you know, for example, batteries.
We are localizing batteries. I mean, everybody knows that today the best and the highest technology on batteries is Chinese, but it does not mean it has to be produced in China. We are localizing the batteries in Europe and looking also in the US because we want to have more regional content. Again, going in the other direction, having access to a bigger supplier panel and to bigger possibilities, not only in terms of power as a customer in front of the supplier, but also in terms of other suppliers that might have innovation and technology, which could be interesting for us, does not mean producing everything in China. It means simply having the access to different suppliers, which could be Chinese. Like, for example, in the batteries, there is no mystery that today they are far advanced than all the other suppliers in the world.
Good. We will bring a question from online also. This is from JPMorgan, José, and this is also for you, Francesca, and for Anders as well. Thank you for a great presentation. Do you see an opportunity to produce Geely Group vehicles in the dedicated Volvo Car plants, further leveraging the potential of cost saving and tech progress?
Indeed, indeed. I mean, this is something quite normal, sharing capacity within the automotive industry. I mean, and definitely if you have a strong partnership. Should there be, again, opportunities to produce Geely cars in our plants, which is already the case we share in China, for example, in other continents, we will look into it. If there is capacity and possibility to reduce cost or to share, let's say, capacity, that's definitely open. First of all, again, with our partner, with our owner and our partner, where we share, obviously, a closer partnership. As usual, like all carmakers, there is an opening also of collaboration with other carmakers. It's something that has always been the case and will always be. We will look case by case.
We're doing it with Polestar, I guess.
Anders, on the tech progress?
Yeah, absolutely. I mean, the platform sharing is not new to us, right? There's still a lot of cars, like CMA is a shared platform, very successfully so within the Volvo Group. There's still a lot of cars being built on CMA in China. Also, SPA1, there's a lot of cars being built on SPA1 in China still. Collaboration on platforms is absolutely open. It's something we need to do. On top of that, being where we are on this journey on the software-defined vehicle, we kind of learned a lot on stuff that are painful and hard and expensive that doesn't differentiate the product.
Those should absolutely be standardized. We are in a position where we are very strongly encouraging standardization of emerging automotive technology. This is in a world where everybody, like Erik usually says this, there are two types of car companies. Ones in the software-defined vehicle world, the ones who have completed the transition, which is a very, very, very short list, and the ones who have yet to do it. We are super open. The tech stack we developed is, to a large extent, the base stuff that the customer does not really care about. Wake up and shut down, software download protocol, cybersecurity platform, all the boring stuff. That is non-competitive, non-product differentiation. It is ripe for standardization, if you ask me.
Good. I think we had another one here in the front.
Thank you, Erik Golrang, SEB. Three questions. First one on pricing of the EX60. You mentioned price parity with the XC60 hybrid. I guess the range of that, I mean, it starts at around SEK 560,000 or so in Sweden and then up to SEK 890,000 or something for the top spec. Will there be, where in that range will it be, lower end or higher end?
I think the point I made was that we will price this car where we know there is a customer demand at that price point. That is in that range of what we're having today, if I put it that way. I will not go into the detail exactly where we will place the EX60, but it's also important to remember we're coming with a completely new car, state-of-the-art technology, and it's an electric car. Of course, it will be also priced as a new car once it comes. We know that we have a product where there is a customer. That is the key message. There will be a price range on the EX60 as there is a price range on the XC60.
Thank you. Maybe adding some flavor, I mean, the average XC60 PHEV consumer will pay the same as an EX60.
The point I made was that there is a price point for the customers where they're buying cars for today. At that price point, we maybe offer them an EX60 as well.
Yes. Thank you. Two more questions. You talk about your superpower, which is Geely. I guess there's still a bit of a flip side to that, the China ties and your U.S. operations. An upside and update to that would be great. Lastly, I thought the comments of culture sharing were quite interesting. Can you im plement China speed elsewhere?
Do you want to start, Håkan?
Yeah. China speed, I think Francesca commented on that. We can learn a lot from how they work, and their more holistic thinking, developing cars. When it comes to the flip side of this, I think we have stressed way too much on that, and the public talks a lot about that. We are very well aware of that. It does not limit us from working in areas as compressor seat and so on. It's just a fantastic opportunity to lower costs. When it comes to software and critical semiconductor components, it's a no-no. I mean, that's just accepting the rules in the new world. Those areas cannot be shared.
We need to have cars which are absolutely Western in software and electronics. Then we need to have them in China. Of course, you read here that there are competitors spending billions to develop autopilots and so on for their Chinese cars with special Chinese chips. I think Michael touched that. No, that's a copy and paste for us. We can just take that and put it in our Chinese cars, of course. In the cars we sell in the West, they will be very different. The whole process for any restriction in the U.S., yeah, that's going on now. It's not so fast anymore with the governmental shutdown. We know we have done that work, and we have a very close cooperation with our legal teams. I don't know exactly right now, but it's a normal process.
I would say I'm not in any way nervous about this process. We will continue being present in the U.S. also in the future.
Good. Yeah, any comments on the culture?
On the China speed, I mean, I discussed already the, I said already the industrialization, for example, and ramp up and the way they take decision. Also, for example, they have different methods. For example, in the cost estimates, they tend to do the cost estimates saying, okay, let's start with the best of the world, and then we see what would be the best cost, the lowest cost. Then we add the specificities of, for example, or the different specs that we have. So we add up, whether we start starting with, let's start putting all the context and do the cost estimate with all the context in.
By the time we're finished, I mean, the opportunity is gone. Let's start with the best of the world, and then we strip in everything. We put in all these specific specs. Again, this is something we are learning to go quicker to start with, okay, where's the opportunity? Identify the opportunity, and then you have time to fine-tune on how it is really for you. You grab it. You don't lose it. Otherwise, by the time you're finished, you're already in another world.
Good. Another question over here.
Yes. Agnieszka Vilela at Nordea. On your new generation electric vehicles, such as EX60, you say that you aim to achieve a similar or better gross margin compared to the PHEVs. That's impressive given the fact that the content, you still have batteries. I wanted to ask, can you confirm that the product content will be lower? Also, is there a volume prerequisite to reach similar gross margin? If you sell half of what you sell now for XC60, will you still be able to make a similar margin?
I think on product content and others cannot. What we're saying is the performance of an EX60 is actually better, right, on many aspects. That's not the comparison. In terms of scale, of course, we assume a scale of the car. We will not next year sell as many EX60s as we sell XC60s, but we're quite confident in the calculations we have to get to those levels.
Good. Another question then from online viewers. This is from Ross McDonald. This is on residual value. On BEV growth, a key consumer hesitation relates less to BEV price but to the BEV depreciation. How do you think about residual values for BEVs over time as technology continues to improve? How can you mitigate against any residual value weakness if EU policymakers delay the 2035 ICE ban?
I can take that. I think it's a good question. It's a relevant question also if you want to do your lease calculations, you have to know what the residual value is. You should also ask yourself, what will the residual value be of a petrol car five years from now? I think sometimes in these discussions, we forget that aspect of it. There is, what Anders explained, that state-of-the-art technology base for an electric car.
There's nothing saying in any way that that should have a lower residual value than a combustion engine vehicle at that time. I would argue quite the opposite. I would be more nervous buying a diesel three years from now than buying a BEV three years from now. I think that if you look at the technology and the efficiency of electric vehicles, we can make them last longer. I would argue electric vehicles should have a higher residual value. We now have discussions. I meet with residual value setters on an almost weekly basis right now in front of the EX60 launch. They are starting to see this as well. I am very confident that the value of BEVs will last, and they will last better than the value of combustion engine cars.
Good. Yes. Another question from the audience.
Hi there. Thanks. Sam Perry from BNP. You've spoken a lot about how your future is tied to EV growth. Can you just talk a bit about how you view the U.S. market in that context, given it could be sort of stagnating from an EV penetration perspective and maybe without further investments in your ICE offering there, you'd have an aging fleet relative to the peers and with upward pressure on pricing from tariffs. The second question would be around the Geely cost savings. Would you consider using the Horse JV, which they have with Renault, for powertrain sourcing further down the line as a potential avenue for cost savings?
Should I start with the market question and you take that one? I think looking at the U.S. market right now and looking at the electrification pace, if you go back a few years in time, I think we all estimated that electrification would be a bit more of a linear journey. It's not. It's going differently in different geographies. Also, you shouldn't look at the U.S. as a country. You should look at the U.S. as a continent. There is a certain electrification pace in California. There is a different one in Texas, and there's another different one in Boston, right? When we look at the U.S. right now, it's so important for us to see that's probably where overall the market is transitioning a bit slower. That's where we need our bridge.
That's where we had the communication just a few months back on bringing the XC60 to the Charleston plant and also continue to invest in that plant in a next-generation plug-in hybrid. Now, the underlying trend of growth with electrification is still the same. It's just that the pace is slightly different in the U.S.
Yes. On the Horse, it's already our supplier. It's already a common supplier, and it's where we get our engines. Definitely, yes, we share it, and we manage it together, and we find opportunities together, and we cost-benchmark together, and great opportunities on this. It was already before. Again, a lot of opportunities on that sid e.
You can probably add on the Horse side. I mean, we talk a lot about Geely synergies. We are doing that together. Horse does it together with Geely and even with Renault. There are even more synergies on that Horse side.
Even more synergies. Indeed.
Good. Yes. Another question.
Hi. Thanks for the presentation. This is Nikita Papaccio from Deutsche Bank. Two questions for me, please. The first one, I appreciate that you are not giving any timeline, but if we are thinking about this 2%-3% margin improvement coming from electrified growth, what do you think you will need in terms of models on SPA3 or Gen 2 plug-in hybrids to reach this 2%-3% margin?
A big part is naturally SPA3 and the lower cost position we have there. As that mix shifts into the portfolio, that will stand for a big share of that profit increase. I cannot really go into details without being time-bound, so I will leave it there.
You can also say we have a very high market share already today in plug-in hybrids. I think this generation two is more prolonging that in time to be able to have that solution longer. I would say the growth will come from affordable BEV cars, which suddenly start performing as petrol cars. That is the growth.
Okay. Thank you. My second question is on Luminar and LiDAR systems. I mean, last week, Luminar announced that you stopped ordering the LiDAR sensors for ES90, EX90, and delayed a decision for your upcoming new model generation. I mean, I thought LiDAR systems are relevant for your safety and ADAS functionalities. Could you maybe explain your thoughts here? And if you are considering replacing Luminar with maybe a Geely supplier? Thank you.
It's a good question. I think to look back at LiDAR, you talk about LiDAR, you need to talk about automation of driving, and you need to go back a few years. Kind of what we thought was the right thing a few years ago, not only us, but the general industry, how fast will we move into more and more advanced automation and what does it take to get there has changed a lot significantly over the years. LiDAR is still a very powerful and supremely important technology for us. We have also learned a lot during the last few years on how to create very powerful functionality more based on cameras and radars. We already plan to reduce our dependency, if you call it that, on LiDAR for our supervised autonomy functions. Now, with the unfortunate recent developments, industrially, we are just accelerating that a bit.
We can keep on producing without LiDAR and keep on developing very powerful functionality. On the ADAS system, which is the approach, and you mentioned safety, which is important, right? This is our kind of fundamental approach to automation. We're all about safety. This is how the company was started. We also approach ADAS and automation of driving from a safety perspective. Our vision is to get to zero. We need to accelerate our journey towards zero because that's the only goal we can have, really. And zero implies removing the human from the equation because humans are imperfect. Fundamentally, we need to design systems or cars that help the imperfect human to stay safe. That implies automation. We're still investing heavily, and we'll continue to roll out more and more a dvanced automation functions in the stack presented, which now spans also to our generation two plug-in hybrids.
Maybe in addition to that, I mean, I think also we should say we have now with technical developments seized opportunity to have supervised systems without LiDARs. I do not see any risk here if there would be disturbances in the supply chain either. LiDAR is maybe pushed into the unsupervised systems coming some years from now. That is where we need the LiDAR, but right now, it is no risk in the supply shortage, I would say.
Yes. No, maybe. Yep, absolutely. We will bring you the mic.
Thank you. Just one follow-up on the investment trajectory you showed there on the slide. I think the definition was a bit different. It excluded JVs and associates, but underlying, is there any change to what you showed now compared to the update you gave us this spring? If so, what are the changes?
Yes. We excluded JVs and associates to look at sort of the core Volvo business. It makes it a bit cleaner. The history has not changed. If we look at the future, we are lowering our investments. Part of the cost and cash action program we talked about is about taking down investments. We are putting these affordability frames, if you will, to make sure that we structurally stay on a lower level. That is a lot about leveraging synergies in our own systems for China products, leveraging synergies with Geely, taking the decision to go to one-track software, and structural changes in what we do. It is slower.
We're coming down to the flat level faster.
Yes.
Yep. Another question over here.
Yeah, and I guess to Fredrik again. The headwind from the depreciation and amortizations of 2-3 percentage points, when do you expect it to appear? Will it be gradual or will it come in faster?
It's coming gradually, I guess, as things go online. I think. A big chunk of that is linked to the infrastructure investments we talked about, where some are just done, some are completed next year, and then in 2027, you have the plant, of course. So it will be gradual.
Good. Another question from the online audience here then. This is from Simon Shapiro. What platform will the new PEVs for the EU and U.S. be based on? A few follow-ups. Let's start there.
PEVs or PFs, sorry?
PEVs. New PEVs for the U.S. and EU.
Yeah, for sure, we can say these cars will be built with a lot of commonality with our modules I talked about in the CBP. We will have a vast majority of the technology being shared within the Geely Group.
Further upgrades to the facelifted SPA plug-in hybrids, SPA3 with engines?
Good question. Good question. Anders showed, I think, very well how he has used the package space for the engines.
You fill the hole there with the radiator or something.
Yeah.
If I may, I mean, this is what I try. I only got 20 minutes. I could spend, as I said, two hours on it easily. You need to start from the right area. I think there's various—if you build your future being all battery electric vehicle and you start with a massive compromise, you're not going to win.
You need to start with a compromise-less battery electric vehicle, which is what we've done on SPA3. That needs to be a sports automobile. Your entire future depends on your success there. There are various ranges of how do you value the compromise. The compromise, if you build BEVs on basically an adapted combustion engine platform, you will have compromises in the entire front end of the car, your front overhang, your L113, the big packaging, all the stuff that you should not care about as car customers. You will carry that into all your BEV cars. Various studies, kind of depending on who you talk to, say, how do you transform that into cost penalty? Between EUR 1,000-EUR 2,000 is what you can find online as reference.
I say they're probably in the higher end of that range if the inefficiencies you bring, you will put on your battery electric vehicle because you're on an adapted platform. I say that's a low number. We need to start from having the absolute benchmark uncompromised BEV and then figure out how do you solve the bridge. That's the right way to do it. The most important thing when we talk about platforms is the square I tried to draw around or I drew around both. Platforms are still interesting. Platforms are interesting. We talk more about architectures, the cross-usage between the different platforms on the high-value components, and most importantly, that they all are in one software track. This is why I talk about tech stack more than platforms these days.
Because platforms, interesting, is the modularity between them and the fact that you have them on one software master in one tech stack. What do I mean with tech stack? It is everything designed deliberately to coexist. That is important to remember. Everything inside that box is very meticulously designed to fit together with cross-usage, with modularity, with commonality, with one software. That is the tree we are continuously pruning, which is like all that minimizing complexity on creating all the customer offers on, etc. That is the machine that is spitting out the products, which at the end of the day, puts food on the table.
Yep. Good to clarify. Thanks. Another question from the audience here.
Hi, it is Owen Paterson from Jefferies. Just two questions, please. The first one is you have spoken, or Volvo has spoken in the past about kind of closing the ASP gap to peers. Just kind of thinking, again, bridging to 8% EBIT margin, does that assume continued progress closing that gap? The second question is on working capital. We've kind of spoken about investments within cash flow. There are a few puts and takes. There seems to be the cash action plan and growth, and there's also inventory reduction. Where does that all net out, do you think? Is working capital going to be a contributor to cash in the next couple of years? Thanks.
Should I come, Fredrik or Erik?
This is a big question, and then you take the difficult part of the question. Yeah, and also ASP marketing spend is basically what you're talking about, the marketing spend efficiency. I want a comment on your statement that we're less efficient than the industry. That's not relevant. If we are, we aren't. But.
Put it this way. What we need to do, we need to find a different way of reaching our customers and reaching our customers in a much more efficient and much more targeted way. That is what I want to try to explain. By doing that, your conversion rate or your cost of converting a consumer from a lead into an offer is dramatically reduced. Your conversion rate is then by that also increased. We see by doing these things, we can take our marketing spend per vehicle down by up to 20%. That is the ambition that we're having.
To be able to sell more cars.
Your question, marketing or average sales price?
Kind of average sales price.
Would we price as BMW?
I guess it's the question.
You think about that, I answer the working capital. Working capital. I mean, we see that we will be able to grow without tying up capital. In terms of releasing working capital, we are working on it as part of the cost and cash action plan. I think I showed in Q3 quite drastic step-change reductions we've done in inventory. Of course, that has a limit. I think, as Erik alluded to, how we're now regearing our commercial system, that will release even more inventory. It is not the main cash driver, if you will. Some trimming opportunities, but a lot has been harvested.
I would always add then when you talk about working capital, okay, the factory stock is on our balance, but then how many cars are on the dealer stocks, which is not on our balance, but they are in some way indirectly still paid by us. I think it's really important to bring down the physical total stock, and that you can do only with the complexity reduction and exactly the concept we talk about. You will not see it in working capital, but there will also be benefits coming from that.
Also a better synchronization between the production plan and the sales plan, which is what we are doing day by day in a better coordination, and you see the results.
If your question was pricing versus competition, then I misunderstood you. We won't comment in detail on the pricing versus competition. What we're saying today is that we will price our new car EX60 in a price where we know that there is a customer base already today. I think that's the key message.
As we always do.
Yes. But with margin.
Let's move on to the next one.
We see that the CapEx is going down now. Can you give any indication of a dividend? Will there ever be a dividend in Volvo Cars?
I hope so. Of course, I think. It's a good question, a bit premature to answer it, really. First, we need to bring the company back to positive cash flow and to profitability, and that's what we are focusing on now. When there will be a profit, it's of course something the board should decide on after we have closed the year. We will close in January, so we will get a signal about dividends from the board. If there are any, I don't know. Let's see.
Good. We have a few minutes left on the Q&A sessions. Any other questions from the room? No? I'll turn to the chat then. XC70, we have talked about. No, but if there are no other questions from the room, I would just like to give the opportunity to you, Håkan, to have some final words before we close this.
What should I say then? I should. Basically, I think I already said that. I hoped we gave you now a bit new approach to this because I think if we talk about strategy or leadership, I always focus on something I say. Doing the right things beats doing things right and sweating more. It is very important that the company has an ability and the intelligence to decide and dare to decide, this is what we want to do. That will deliver the results. As we already learned at Scania many years ago, we said, this is how we do it. We have modularity, and then we always answered journalists and investors.
A result, yeah, that comes from hard work and doing the right things. We know it will be much better than it is today because we will do things smarter now. I hope we manage to communicate that we have a clear path and ideas how we will do things differently to meet these three challenges that everybody will meet now. If you do not have a good answer to those three, I think those companies will have big problems staying in business. I hope we show us that we at least have an idea, we will do this, and then I think it is up for us to prove that we will deliver results from that, and we will tell you how fast this will materialize. You as investors, new investors have to decide basically, is this a company.
That really will be stronger five years from now, then we should take a look at Volvo. I don't think you should take a look at Volvo if you believe what's happening with the business cycle. Is this going up or down? Should I short it or what should I do? Okay, we have those shareholders also. That's good for liquidity. I think we need more shareholders that believe in our story. I think now in IR, we will concentrate on communicating this story and following up, telling you what's happened. Will it deliver and gradually build up confidence in the company so that we can attract more shareholders? If we get more shareholders interested in buying this, we will have a bigger free float. I think that's something we also want to have.
It is based on that we have a good company performing and that we have more people wanting to invest in the company. I think that is my closing remark. Just at the end, I'll say thank you all for coming and thank you for your big interest in the company. I think that's a big commitment for us and a big trust that we need to fulfill and then deliver back to you and all other investors better performance. Thank you for coming.