Hello. I'm Sanela Ibrovic, and I'm Head of Connected Experience at Volvo Cars. I'm engineer, and in my daily work, I lead software development teams that are enabling this technology that Jim was talking about. Today, I will do something different. I will talk about the software, how it defines our cars, our products, and our consumer experience. I will do this together with Elsa, who will join me eventually when we look more at the safety aspects and how software has enabled that dimension using the Volvo EX90 as example. When it comes to software in the automotive industry, we see some clear trends. Hardware and software are becoming separated from each other. That gives the rise to the automotive software as a product in itself.
There is a strong demand for standard scalable platforms, and then centralized architecture that gives computing power that allows for the integration of the complex sensor sets, paving the way towards the autonomous driving. We believe in the software-defined vehicles. More and more features are becoming software-based. Instead of being recognized for the amount of the horsepower, the car will be defined by its brainpower and the software-based functionality and features. We also believe that there is a lot of value that will be and is unlocked through the software. Value for us and of course, value for our consumers. Software is enabler for more sustainable, and our commitment to the sustainability. It is a building block for the electrification of our cars. It is also enabler for safe vehicles that are prepared for the evolution towards the autonomous driving.
It is super important building block for us to enable personalized experience for our consumers. Even better, that experience is enabled to become better over time through the continuous over-the-air software updates. For us as a company, it means that we will be able and are able to deliver features fastest. Just leveraging on the nature of the software development features, which is a faster compared to the hardware-based. When doing this, we are not only building our own software platform, we are creating an innovation platform, which we can utilize to quickly adapt to the changes, and changes are happening. That, we know. Also for us to be able to quickly respond on the new business opportunities. My favorite part is the reuse. Historically, we have been forced to redo the software with the hardware generation changes. It's not the case any longer.
We will be able to use the same software with the small adaptations, which in turn creates the room for more innovation and more features that will delight our customers. We see also that the software is creating a path towards the new revenue streams, such as subscriptions and software sales. We listened to Jim, and we heard that we are prepared, and we have the technology that is already built in the car just behind me. Let's just look what are the strategic building blocks, enablers that are creating and supporting the path towards our software-based vehicle. We have moved and transformed our electrical architecture to be centralized, and I will tell more about it just in a few minutes. We have, of course, there, and have decoupled hardware and software and have the fully connected vehicles.
Also make sure that we have a flexible software platform. All of this is framed and enabled by our in-house development. The last one, I will come back to in the end of the presentation, but let's look at the more technological steps that we have taken. To support our vision of software-defined car, we are transforming the electrical architecture. We are moving to a core compute architecture which centralizes core software operations into one system. It's powered by two NVIDIA system-on-a-chip, Orin and Xavier, and is capable of more than 280 trillion operations per second. This core system have enough computing power to undertake the most complex tasks.
Everything from enabling the Volvo experience for all the occupants in the car to powering the complex sensor set that, as we heard before, is starting the new era for safety. By decoupling software from hardware, we won't rely on the supplier's compute deliveries. We will produce that behavior on our own, and we will have greater control of the customer experience. This is also a huge enabler for the speed in development. Because when the hardware and software were tightly coupled, in many of the cases, a majority of the cases, development lead times have been steered by the long hardware development cycles. With fully connected cars, our core system and in-house software stack, we create full control of the integration flow from code to complete car. Our software stack is driven by principles of continuous development and continuous release.
It's built for growth, and it's enabled our future sets to keep expanding. This is also a strong enabler for our data-driven development. Having the control of the software stack and making our software platform flexible enables integration of the key tech ecosystem. I will come back more to that later on, but it's important because it makes us flexible, again, to respond when the new opportunities comes up, but that makes us also as an interesting partner for the other tech company. Let's move to the part that will give you more of the insight what parts of the product that we have decided to do our own. Trying to get the control of the slides as well in the meanwhile. These are the four areas that I picked to just group us around our products and our car.
We look at the body control. Robin was talking about light. This is a part of the product that we see it's important to us to control and steer ourselves because it's a strong part of the approach and interaction with the car as such. There we also have the development of the lock and unlock logic, as well as the alarm. All of this is important. I would just bring one example. Now when we introduce the Digital Key as a feature with the Volvo EX90, the interaction with car starts much easier. It's convenient. You have your phone in the pocket. You seamlessly approach the car and start the driving. If not doing that in the good way, that could also create behavior it doesn't want.
Because I might just be passing by my car on the way to the trash can, or even I'm standing in the kitchen and talking to my kids while close to my car. In those use cases, you don't want the car to start lighting up and welcoming me. That requires smart algorithms and smart machine learnings that we are applying to really train and learn all these use cases in a good way. That is why it has been important for us to do it ourselves. Propulsion, it's a strategic area for us. It is enabler for our ambition to be leader in the electrification. In this area, we are looking at vertical integration across all parts, and that goes, of course, also for the software.
It is about optimization, the range and the charging times, but it's also a new dimension that comes up, and that is the integration of the electric vehicles into other energy ecosystems. Those integrations are happening in the car, but very much in the cloud environment, and that's why it has been natural for us to have the control and development in-house. Then we come to the core of our DNA. It's the safety. It's about vision and perception. Then we will also go more deeper into what does this mean in the area of the infotainment and connectivity.
Since everything starts and ends at Volvo Cars with the safety, and we did the great reveal of the Volvo EX90 yesterday, I will welcome Elsa on stage, that will tell us a bit more how software and safety are interacting and using the Volvo EX90 as a great example for that. Welcome, Elsa.
Thank you very much. Yeah. I'm Elsa, and I'm gonna talk a little bit more about the safety we have in this fantastic vehicle. The EX90 is designed to be the safest Volvo that ever hit the road. As Sanela talked about, the core computer is a really important key element for us to enable it because it powers the exterior sensors and the interior sensors that can allow us to create a deeper understanding of both the world around it, but also the driver within. Couple this amazing car with even more sensors. It has five external radars, eight cameras, and 16 ultrasonic sensors, but it also features a lidar.
It's a Luminar Iris 1,550 nm lidar capable of detecting objects up to 250 m away in the glare of a bright sun or in complete darkness, and in everything in between. Together with the other sensors in the car, the lidar can deliver its full safety potential. It has centimeter-level accuracy and high resolution, and that means that it can accurately estimate the size and shape of speed bumps and potholes, but also estimate the map geometry of the road and size and shape of objects. Why do we add a lidar then to our sensor set? It's because the combination of sensors that we want to create a shield of safety around the vehicle, the EX90, in every direction, and that's why we have combined these sensors.
We have combined them with a deliberate overlap in their understanding of the environment around them. We have then radars in front, side, and rear of the vehicle to determine an object's geometry and distance and proximity with high level of accuracy. The cameras are added to determine an object's makeup, what object is it, more or less. The lidar can accurately estimate size, shape, and geometry. Together, their impact on accident aversion can be massive. Our research shows that the addition to the lidar to our sensor set can help us prevent up to one in ten crashes, and even prevent serious outcome for up to one in five. Let's look inward. We see also in our research that driver distraction and, intoxication and sleep, like drowsiness, is a really big portion of why accidents happens.
We are adding now in the Volvo EX90 our driver understanding system and the occupant sensing technology for the first time. We have a two-camera system. Our driver understanding system is based with a two-camera system that allows for a deeper understanding if the driver is distracted, sleepy, or even impaired. That means that we can adapt our level of support, so we can intervene or warn or brake when needed, and only when needed. We have our occupant sensing technology, and that is when we're parked, we have a network of radars that can detect the tiniest movements, like a baby's breath or a panting puppy, and warn the driver that there's no one left behind, should you really close the door and go away. It's a really good step. How do we do this then and/or why?
We have our Traffic Accident Research Team at Volvo, and we have that for more than 50 years, and we know what crashes happens and why and when, and we are taking them one by one. Previously, that takes quite a long time between our development and the crash happens, and we get the learnings and understand what happens. Now we can do this much faster. With this core computer in this platform, that we have created now with EX90 and the really great exterior sensors, we can do this much faster. We can build, measure, and learn really, really quick. We do this to go to our journey with zero collisions. Right now with EX90, we together with Zenseact controls the complete chain from pixel to torque.
With that we mean vision perception, as you talked about, sensor fusion, that is when we take the radar and camera, fuse them together to get a deeper understanding of the environment, or fusing radar and lidar now. Decision and control. What should we do? Should we warn? Is it a threat? Is it not a threat? We complete the controlled chain and also how is the movements going to be, the vehicle motion, how will it be? With this control of the complete chain, we can be much faster and help us in progress towards our journey of zero collisions. To get more data, as you talked about, Sanela, as well, we will from the fleet learn and improve. We have now a fantastic platform to innovate on and further improve in the safety area.
Thank you, Elsa. Talking about measuring, learning, and adapting our solutions, we need connectivity. Connectivity is foundation for many of the things that build our future. Autonomous drive, connected safety, over-the-air updates, new business models such as subscriptions, Google-based infotainment services, and access to car data, and many more. Given the importance of the connectivity for our future, we invest to be able to manage that connectivity over time. That includes systems to monitor the quality of the service, to efficiently manage the data cost for the traffic we use, and also to continuously adapt to the new technologies. Today, we operate a global network of more than 3.5 million connected vehicles. It's a quite huge network to be compared with the teleoperators that are running today. That network is increasing for every new car we are selling, of course.
What is important for us is to deliver a seamless experience to our customers. We don't want them to bother with which technology we use to connect the car, or we don't want them to care about how much the data will cost. That is something we care about. Instead, we focus on the service we provide for them. In the new Volvo EX90, we are introducing latest connectivity technology for the speed in the cellular technology with the 5G adaptation and also the adaptation to the latest Wi-Fi 6 standard. Let's go back to customer experience that is enabled with the software. I will start with one of the proud moments in my professional history at Volvo Cars, and that is that we were the first car company to introduce a car with the infotainment system that was based on Google's Android Automotive OS.
Now, we build on that open source platform and take our infotainment system to the next level. Our new Volvo EX90 comes with a vast new intelligence capabilities, again, software-defined and powered by a core computer. From the beginning, one of major ambitions for the next generation for Volvo has been to remove obstacles for the electric car drivers. We have done much already, but we are taking that even further, making the driving and living with this car a truly effortless and enjoyable experience. We have a clear purpose. We want to give our customers easy way of owning a car that feels personal for them. Behind me, you can see a lot of new capabilities and features that have been introduced with our Volvo EX90.
It starts with the interaction with the car from the living room with our Google Home or other relevant systems. In other markets, we don't have the Google support where we can interact and steer the car from the convenience of the living room. I mentioned a Digital Key, seamless approach, and seamless start of the car. Talking about the app, we also have the new Volvo Cars app we also talked about before, which will enable the smooth interaction with the car, but also before the car is already in the customer's hands following the order process. It will also be a strong enabler for our home energy system integration, truly leveraging on the smart charging principles.
The overall experience in the car that is based on our design principles of simplicity and safety, but still giving the full capability of personalizing the experience that we can relate to from our, for example, phones, sets. Another part that we have been very careful about has been to make sure that we recognize that our consumers are loyal to our ecosystems. We are used to our phone models. We are used to our applications we use, and that depends on which ecosystem we have chosen. That is why it has been important for us to create a software that is flexible, that enables integration of these ecosystems into our environment.
That goes both for example, again, the phones and those technologies, but also when it comes to the business-to-business integration with all new opportunities we'd see with the fleet, but also with the home energy system integration. Where we started. The most important enabler for our software strategy is, of course, our software development capabilities and our teams. Today, we have more than 400 development teams in-house and almost 100 in our partners. They all together are building our new software platform that in a current fleet has been corresponding to 30%-ish of the in-house developed software. With the introduction of the Volvo EX90, we are doubling that figure. Those are the talents that we have been looking for and continue to do so across the globe.
Of course, strengthening our sites in Gothenburg and Lund, Stockholm, Shanghai, as well as the tech hubs in India. We are not doing this only on our own. We do take strategic decisions which part of the software is a differentiator for us and creates the value adding for our consumers. In other parts, it makes us faster, it makes us better to collaborate. For that, we have a quite significant scale of the tech companies that are relevant for us, but we are also very much relevant for them. Just to mention a few, we have strong collaboration with the Zenseact in the area of the AD and ADAS, and with the HaleyTek in the area of the infotainment system. Also with the ECARX, and then very known names like the Qualcomm, NVIDIA, Luminar, iFlytek , to mention a few.
With this, we are approaching a summary of this block. Summary is that we are well prepared for our electric future. We have done that with the new technology, with the core computer system that is prepared to be continuously update with the over-the-air software updates. With this new architecture and our in-house development teams, we will and we are gaining the speed in the development and the flexibility. Our software development teams are the key assets to build the future for us and to create the speed in the innovation. To do this, we are not doing this alone. We are partnering with the best ones around us. Thank you very much.
Thank you.
Thank you very much. Thank you very much, Sanela and Elsa. For this Q&A session that now starts, we also invite Jim to join our stage.
Yep.
As I mentioned before, this is being recorded, so there are two microphones. We have Anne over there and Una over here. Just raise your hand and we will allocate this and just take it one by one. Yep. Okay.
Oh, okay.
Should we take Una, please?
Oh, sorry.
Oh, Agnieszka. Sorry.
Okay, perfect. Agnieszka Vilela from Nordea. I have a question about the potential for you to generate revenues from software, you mentioned that. In the aspect of safety, you're putting a lot of sensors in the car, but how do you think about the safety software? Will you be charging extra for driver assist or in future autopilot, or will it be included as a standard?
I'll take that. First of all, when we talk about the different levels. We hear a lot of conversation around the world about Level 2, Level 3, Level 4, Level 5. We think that's very, very confusing for the customers. In our opinion, there's two levels. Your hand's on the steering wheel or your hand's off the steering wheel. That's. When you start to go into levels, people are like, "Am I meant to have one hand on or two hands on? Where am I..." You know? We're saying, right, when we get to autonomous driving, that's when your hands are off the steering wheel. That will be regulated per country, per city, and government regulation will probably be the bigger barrier to adoption than technology in that part. Just to kinda bring that off.
We will have our core safety systems, and then on top of that, you will be able to add on to that core safety system, which will be, let's call that, a higher level of assisted driving. Eventually that will go to full autonomous where and when that's allowable. Yeah, we will have that option. Core safety systems, advanced ADAS, let's call that, and then fully AD when it's ready in the cities and the countries around the world that allow that to happen. Does that answer?
Thank you.
Person here to the left.
Yes. Morning. It's Daniel from Bernstein. Maybe first, you talked about the openness to other platforms, but can you kind of elaborate a little bit on how the Google platform or the Android automotive platform influences that choice? So, you know, how does this work with a Huawei customer, with a Google customer, with an Apple customer? And are there any functionalities currently that are kind of limited to one of those? And then, secondly, you know, you just commented on the levels hands off, hands-on, but will you be prepared to take liability as Volvo in some cases when the customer takes the hands off the steering wheel? How far away are you kind of from that capability? We've seen other OEMs go in that direction. Is that something you're thinking about?
Mm-hmm. Do you want to take the Google one first?
I can take the first one. Of course, our today solution and the future will be, the foundation is embedded Android Automotive system that is Google-based. What we have done is not to lock our software stack to that system only. We have thought through how to have standardized APIs and abstraction layers in the software stack to make sure that we can introduce any other ecosystems. Of course, one simple example today is the Apple CarPlay, but doesn't mean we are limited to that. We can expand those ecosystems beyond, I'll say. Looking at Google as such, it's one system, but we will be able to enable parallel ones on top of the embedded, which is Android-based.
Yeah. Just to come back on when do we accept liability for full. You're speaking about full AD at this particular point in time. If you are driving in ADAS, and you're meant to have your hands on the steering wheel, and you don't have your hands on the steering wheel, then you should have. I don't think that we then take the liability for people who are driving the car in an irresponsible way.
You can add to that we have in the EX90 now a capacitive steering wheel, so we can also make these judgments if the customer has his hands on the steering wheel even better, and also with the driver understanding system, so that we can help the driver and remind for those cases needed.
We do that right now.
Yeah.
You'll see if you do try that in ADS, it will tell you, "Please put your hands back on the steering." When you get to full AD, which I think was really the question, when you get to full AD, then, of course, in the legislation and the countries where that's allowable to happen, and we have deemed our car to be safe enough to drive in those conditions in that specific space, and provided you're in that specific lane, country, region, then, of course, I think we take that responsibility.
We start over there, and then we go to Erik. Sorry. Yeah. Yeah.
Great. Thank you. George Galliers from Goldman Sachs. Maybe just following up a little bit on this. So just in terms of the revenue opportunity, is it fair to say that the Core is provided as standard, and then the Advanced and the Full would be subscription services or something you pay incrementally for from day one? Then secondly, with respect to the lidar, is the lidar hardware going to be on every EX90? And how do you think about this on future Volvo models, given the cost of the lidar and the packaging constraints? Can this safety system be replicated on your future vehicles? And then the third piece is just the readiness of the full AD. Obviously, in Germany, there is now parameters to have full AD. I believe in France, there has also recently been a change in the regulation.
When will Volvo be in a position to offer this on the EX90? Thank you.
On the full AD, we don't have a precise timeline of when that will be fully available, so we look at that. 'Cause we need to decide what the markets are that we feel comfortable to launch in. Even if it's available in certain markets then theoretically, we'll make the decision as Volvo where we want to launch full AD and learn from that experience before we expand that further around the world. In terms of lidar capability and lidar technology will continue to improve and reduce in cost. We're gonna start to see lidar technology now in many, many more vehicles and many other applications around the world. We've seen that adoption with technology that comes into the mainstream, and very quickly, large-scale adoption drives down cost and drives up performance.
Second part to that question is that one is the hardware, but the other is the software. If you're buying a lidar stack and you're buying the full stack and you don't build the software, the perception software and the sensor fusion software that connects the lidar from the silicon layer all the way up into the application layer, then you are paying for that software. We're developing that software in-house, so that makes the overall cost of the lidar and, of course, our software development team, and the cost of that is spread across our entire company. We're not paying a markup to those companies that want to sell you a full lidar stack, including software.
The other really important part to this is because we write the software to the application layer, if we choose to do so, we can change suppliers of sensors, of cameras, of lidars, and that gives us the control that when more availability of lidar comes into the market or more availability of sensors at a cheaper price or a higher performance, we can then write to that API. Long answer, I guess, to a short question, but basically, because we do the software, that takes a huge amount of the total cost that you would pay if you were bringing in lidar as a fully plug-and-play system. Hopefully, that answers the question. Sorry, I forgot the first part of that question I can usually only do two things at one time.
The subscription, how the payment model will look.
Got it. Yeah. The option will be you have a core, very core system, and this will be standard. It will come with lidar, and then eventually we will have the option to trade up into Advanced Driver Assist and then a fully AD when AD is available. That will be something you can either take and pay. Right now, the payment models of that will be either you buy that one-off lump sum, and then you get the continuous over-the-air updates, or you buy that as a subscription basis. I actually think what will happen in the industry will be we'll start to use the application layer, sort of the connection layer on iPhones and your smartphone, that you will be able to toggle in and toggle out of that subscription.
For example, you say, "Hey, I'd like to try the Advanced Driver Assistance on this." I don't wanna pay the full lump sum, but I'd like to try it, so I'm gonna toggle in through the app and try that for a while. While you're toggled in on that, you're gonna be charged a monthly subscription. If you don't like it, you don't use it, you toggle out, and the subscription stops. That's how I think we'll end up bringing that product to the market. Does that answer the question? Okay.
All right, we go to Erik here and then Hampus here at the top. Sorry. Erik?
Thank you. Erik Golrang from SEB. You've touched upon it now, but you talked about the successful decoupling of hardware and software, which I guess also ties into the ambition of taking out as many control units as possible and moving it into the core compute platform. With the EX90 now, how big is that step if you compare it to an XC60, XC90 or a C40 or something? How many control units are you taking out and putting to the centralized setup, to get a feel for how much you were able to improve the complexity in the system here?
I can take that if you like. Basically, let's say this gets us halfway where we want to be. Okay? This is the first step. First step on our journey towards electrification was to take a platform that was basically a hybrid platform, so the XC40 and the C40, we built on that. That was our first foray, if you will, into electrification. This platform here takes us a huge step forward and eliminates, let's say, half of those ECUs and centralizes core compute. The next step will take us much more towards that distributed architecture that we're looking for. It will be an evolution. It's not a different. We don't talk about different platforms. We're just talking about the evolution of an electrification journey. Unless you wanted to add to that?
No, I think it's.
You're taking out, like, 50, 75 previous control units.
No, I don't think we're gonna put a number on it, 'cause I don't know that accurately right now. Let's just say, directionally, we're taking out half and we're moving halfway towards where the next development will be, and that next development will be, of course, hopefully, maybe not the next vehicle that we produce, but the one after that. That's when we get to full, let's call that full core compute.
Architecture.
... architecture, yeah. I mean, I think the big thing here is that this is a really complex subject. It's a great question, and you try and boil it down into a really small soundbite. The real big thing is, in the automotive industry, people have outsourced that, and in so doing, outsourcing all the ECUs across the car, they actually outsource the silicon and the choice of silicon and the relationship to those silicon and fab providers. Now, of course, that's became a part of the problem in terms of supply.
If I had to take this into a really small soundbite, the real thing that's gonna change and differentiate global mobility in the future is companies who understand two things, software and silicon. Of course, there's a whole plethora of conversation in between that, but that's really the nugget that makes this change fundamental. We understand silicon. We don't need to build silicon, 'cause we see people like NVIDIA who are very well capable of doing that. They already have those huge investments, so we don't feel the need to have our own silicon fabs. We do feel the need to understand silicon. Of course, the application layer, we don't need to build. We don't need to build cameras.
We don't need to make sensors, but we need to understand how they work, and we need to understand the software that connects from the silicon to the application layer. That's really the journey.
Okay. We take the last question for this section from Hampus here at the top here.
Thank you. Hampus Engellau, Handelsbanken. Two questions. I know you don't wanna talk about level of autonomy, but it would be interesting to hear about the capabilities given the large number of sensors you're putting on this vehicle and what type of level it will be capable of. Are we talking about an L3 for a car here or L3 +? That's my first question. Second question is more related to the software. How much of the decision-making software is Volvo developed and how much is from the Snapdragon Ride Platform that you're using? Thanks.
Can I take the first so you can talk about Snapdragon? I would open that question up to the floor and say how many people understand what Level 3+ software is in terms of autonomy? Anybody here tell me exactly? 'Cause I'm being asked that question, right? What is Level 3+ autonomy or ADAS in the car? Anybody here know what Level 3+ is? Does that mean is it one hand on the steering wheel? Two hands on the steering wheel? Eyes on the road? Eyes on the dash? I'm sorry, I can't be driven on that. It's you either have your hands on the steering wheel or you don't, and I refuse to be drawn into a conversation of level three, level three point five, level three point two, you know?
You get to this, the weird conversation, which is, well, your lane change assist is at Level 3, but your blind spot assist is Level 2. I know I'm not trying to be smart, but I think it's a really important conversation that we say ADAS is with your hands on the steering wheel. Of course, we have advanced the ADAS systems in terms of its capability of lane change. We can now travel at faster speeds and still follow the lanes in the road. We can travel at faster speeds and follow the car behind. We can travel at faster speeds, you know, and decelerate and accelerate and so on. The actual levels, I'm gonna be really pretty precise and say it's either on or off.
It is capable of unsupervised, if that was the question. With the hardware wise-
Yes.
-function comes later. Yeah. With regard to the decision and control, it's not a Snapdragon for the decision and control. That is in the NVIDIA AI platforms. Together with Zenseact, we do some parts of it, they do some parts of the development on the decision and control. Because there is, for example, the ADAS collision avoid and things, there is mainly Zenseact. We have the Driver Understanding features that we do, and also the parking function. It's a lot of levels, but we do bits and pieces together. Together we control the complete chain.
All right. Thank you very much for a very interesting presentation, Elsa and Sanela.
Now we will talk about electrification, which is super exciting. We will talk about what we have been doing so far. We are talking about where we are today with this beautiful vehicle, and we will be talking about what we do in future. My name is Kerstin Enochsson. I'm heading Procurement and Supply Chain at Volvo Cars, and it is fantastic to be here with my colleague.
I'm Erik Severinson. I'm Head of New Products and Strategy.
Great. Let's kick it off. Talking about our electrification strategy and the different elements of it, obviously we need to start with demand. Looking at our demand today, we see we are well-positioned in the fastest-growing segment to achieve above market growth.
It's also, of course, for us important in our strategy that we leverage the strong track record we have from plug-in sales and recently also from BEV sales when we're building our portfolio towards fully electric at the end of the decade. The products is only one thing, though. The other thing we need to master in this transition to electrification is the value chain and how we can integrate and learn, both from development and from manufacturing, for all the key components in the electric propulsion system. The control of the value chain will also provide us with sustainable technology and secure our supply in the future, and we think there is a great potential when we look at our strategy to combine these two, right?
Yes, absolutely. We will talk much more about supply chain going forward, which I'm excited about. You take the last part, and then we jump further.
Yeah. As I said, the integration of the development and the manufacturing part will be a key thing in this transition. The technology is moving rapidly, so we are seeing now the generations of propulsion systems iterating very fast. It's also important for us to build a structure around development and manufacturing that can capture the value and the opportunities that that kind of fast transformation gives.
Good. Let's start with the demand. We all love numbers here in the room, and now we start seeing some numbers. As we speak today, year-to-date in 2022, our recharge volume in sales is around 33%. It's comprised of two different elements. One is the BEV sales of around 8%, and then 25% PHEV plug-in hybrid sales. That is October. You see the BEV sale is double this year-to-date compared to last year. If we are looking into the recent month, we see that we are extremely strong in BEV sales. In September only, we had BEV sales of 13% of total sales, and in October even 15%.
Until the end of the year, we see that we are going very strongly towards double digit, so the expectation is to come very close to that number end of this year. You have already heard about our ambitions many times. Until mid-decade, we wanna come to 50% pure electric car sales. In order to do so, we need to have fantastic products. Erik, you will now speak about the range that will lead us there.
Absolutely. We are on a journey, as we talked about. For a few years, we have had our first fully electric cars on the market, the XC40 and the C40. Standing next to me here, of course, is our new EX90. The EX90 is the first Volvo to be built on an all new, all electric and software-first foundation. It's also a step towards the journey. We will, going forward now, launch one fully electric vehicle every year in the coming years. At the end of the decade, we will be a fully electric company with a fully electric product lineup. The products, again, is one thing. The other thing we need to master is the technology behind.
With the EX90, we take the first step of building a car which is born electric, and that gives us a lot of opportunities when it comes to how you design the floor, fully flat, how you integrate the cells into the modules, and how you integrate the modules to the car. We can reduce materials versus the previous generation, we can lower cost, and we can improve performance by doing this. If you look at our different generations of E-propulsion systems, this is what it looks. The current car, which is built basically from a converted architecture or from ICE cars and applied with electric, with batteries and E-motors, is what we have at the market today.
In the next generation, which the EX90 represents, we can improve energy density, we can improve charging speed, and we can dramatically improve the CO2 footprint of it. This is also a step. Since the transition is so quick, our technology roadmap is crucial for us that is constantly evolving into the next level of technology. The third generation, which will be around mid-decade, takes the next step towards improved energy density, charging speed, and CO2. It's in this generation, we are working a lot on the battery cells, but also much on the integration of the battery into the car. Concepts like cell-to-body, for example, trying to figure out a way to lower the cost, lower the weight, and improve the performance. It's not only about battery cells, it's as much about the integration of the different components.
How you steer the electric engine, for example, is how you combine your battery management system with the climate unit. All of these things, how you build this ecosystem in the car around electric propulsion, those will be the key enablers to achieve these fantastic improved numbers.
Before we are getting too technical, why don't you outline again what is the key benefit for the customer? Because he or she needs to get engaged and excited about the car to buy it. You're talking about charging here,
Yeah. I think that is one of the important aspects, of course, charging time. That will be a key customer feature. Also I think cost, and I think range. If you look at the range between the different generation, it's not only about the top range, it's also about the bandwidth of range positions you can offer to the customers.
If you take the current generation of cars, we have ranges around 400-500 km, and that moves up with the EX90 up to 600 km. The next generation we add further to that, closing up onto almost 800 km. That's not the thing. The thing is also in the same architecture, being able to scale and create the bandwidth. You can have, for example, in our Generation 3 from 400 km up to 800 km, allowing the customer to choose if they want to use the car for long trips or if it's more of a car for short trips, and everything in between.
Let's look into how we do all this and a bit of the logic behind. Erik, you already mentioned vertical integration before, and I want to jump a bit more into that and the logic we see behind it. Why is vertical integration important for us? Say it's an outcome we are expecting. It's speed of innovation. It's taking control of the value chain, and this is of course harnessing of cost efficiencies. Why is it so important to take this control? The electric propulsion system is complex. You will be able to see later on around lunchtime in the studio, the electric propulsion system only in the raw setup.
You will agree with me that it is very complex, and we will also have a look later on in a few minutes on the entire system we are having in front of us. We need to, in this complex system, be in the driver's seat, and we need to orchestrate the changes we want to make. Orchestrating changes doesn't mean we will do everything ourselves. We will do it ourselves partly, both design, assembly, but we will work and continue to work with our suppliers and partners, of course. Now we will have one interesting example on how we work with our partners on vertical integration.
Yeah. It's our collaboration with Northvolt and our two JV companies, which we are building up together with them. As you might know, and we have communicated about it before, we have two different collaborations. The one is towards the development, focusing on developing not only the next generation of cells, but also exploring how we can combine the knowledge of a cell manufacturer with the car manufacturer when it comes to integrating battery cells into the vehicle. We think that is a great potential of the collaboration. The other part is, of course, the gigafactory that we are now planning and preparing for in Gothenburg, which will go into production in 2026. Normally, when I talk about our gigafactory and our plants in Gothenburg, we talk about the numbers such as the gigawatt hours, up to 50 GW hours per year.
The site is prepared for that. The first step is 30. We talk about the amount of jobs we might create or will create. It's up to 3,000 jobs, or the size of investments which we have communicated around SEK 30 billion. Since we are the last act before lunch, I thought I could talk about frogs instead. There is a point to the story. In the preparation project right now, we have actually moved 4,000 frogs. We have found a new home for them in a frog hotel, separate in the plot next to our plant. Why do I talk about frogs when we are here to talk about electrification?
Well, with proactive ideas and proactive actions like this to actually go out and find what are the key bottlenecks for getting this project according to time plan in place, when you take this, we can build much more confidence in our permitting process. By giving 4,000 frogs a fantastic experience in a top of the world frog hotel, we are actually able to be ahead of our permitting plan to get this plant in place in 2026. Construction start and deforesting will start first quarter next year.
Good. One great example. Let's look into the entire map of our electric propulsion system and just run you through some of the highlights and the things we are actually doing to further improve. The electric drive consisting of three core elements. It's the inverters, it's motors and transmissions. In the car here, we have in front of us the generation two car, the EX90. We are deeply integrated in the areas of motors and transmissions, and the motor is going to be assembled in-house. Then in the next generation cars, around mid-decade, we are taking a further step, and then the inverter is not only bolted on as it is in the generation two, but it will be fully integrated, meaning that also the housing part is then in one block, and it will be one component. It will be a much more deeper integration.
We will have in-house design going forward and also in-house assembly. The other major block in the electric propulsion are power components. We have three main components, and that is the 12 V battery, it's the DCDC, and the onboard charger. In Generation 3, we will integrate the DCDC and the onboard charger in the so-called power box, so we have 1 component less, and we will actually also be able to get rid of the 12 V battery. We will simplify, put things together and make it then also easier and faster to drive further technical development.
Exactly. The other, of course, component which we have touched before are the batteries. Battery in the current technology is a bit of a box-in-a-box problem. You take the coated films of cathode and anode material, put them in a can for the cell. You take the cells and put them in a module. You take the module and put them in a battery box, and you put the battery box in a car. It's a box, in a box, in a box. What you want to achieve with the volume you have available, you want to have as much as possible of that volume in a battery to carry energy. You don't want to have a lot of aluminum cans, you don't want to have cables, connectors, et cetera.
You want to use the volume for material that can hold energy, meaning basically battery chemistry materials. To do that, you can see the evolution between our Generation 1 and 2 already, reducing the battery modules from 27 to 17, also allowing us to go in for bigger cells with a higher energy density. The next step on that journey is to take away the module altogether and go for a direct integration of the cell into the car. A lot of the development in the battery and electric field around electric cars when it comes to energy and density has been focusing on the battery cell, especially on the cathode side. In the future, I think we'll be much more focused around vehicle integration and anode development, leading to even further improvements.
The same principle of integrating and taking away parts, we can also apply for common technology in the car industry such as stamped body - in -white. If I take the future cars, for example, they will come with a megacasting rear floor, and that means we can take away a lot of different parts which are stamped and welded together and replacing them with one big part that is casted and optimized for that vehicle. That reduce weight, reduce cost, it increases flexibility for product updates, and overall also allows us to utilize technology between the different cars in a much smarter way.
Good. Where does all this lead us? Obviously we want to talk about cost, something we are doing in procurement all day long. We have now learned that all major electric propulsion components will be re-engineered to achieve cost efficiency and of course also the technical performance. We foresee that with generation three, the total battery pack is expected to cost less than $100 per kWh, and we assume that this will happen around mid-decade, and we are also assuming raw material prices of the level of 2021. Now we have talked about product, technology, we have talked about cost. Also interesting to know if we are getting supplies. We want to now show you what we are doing in order to secure the capacities we need to make our ambitions come true.
Little bit of animation here. We have of course long-term contracts. Long-term contracts with our tier one suppliers that is already set up today. We are having electric cars out on the road. Contracts are signed for next cars to come, and those contracts are very long. We talk about often around seven years or so, very long contracts with tier one suppliers. On top of those contracts, we are having supply volume commitments, and that is over a three-year period. Now we have signed it in 2022 for 2023 to 2025. While we are going on, this will roll forward. We have supply commitments from our tier ones, and that is also then including the raw materials we will need. Having global supply is good, but we all understand that regionalization is absolutely key.
For this car, the EX90, that is going to be produced in the U.S., we are fully localizing our supply into the production region and then also into production regions further on. We are having long-term volume commitments signed with Northvolt and NOVO. One step further, as it was outlined here before, we will have in-house production from quarter one 2026 with NOVO. Then there are two things in the pipeline, which is number one, raw material sourcing to feed into our supply chain, that is also regionalized. Looking into raw materials, we are focusing on three, the core cathode materials. It's lithium, nickel, and cobalt. We have the opportunity to feed this material into existing supply chains, which we are going to do.
This is in close alignment with our tier ones, and this is simply to further ensure that we are not getting short of supply. You will hear more about it, so stay tuned. For now, it's in progress. The last part, as mentioned before, the supply volume commitments which we have set up previously, for 2023 to 2025 will roll forward. There's of course more in progress as we speak. That's then the summary and Erik?
Yeah, okay. Before we go to the summary.
Yeah.
Maybe I can just take you back a little bit to the cost discussion because came up with something I wanted to say. It's the cost parity to ICE is of course very important when you develop this. We will get there. That will be in focus. It's also important in the cost discussion of electrified vehicles to think about the cost of ownership and the cost of usage. Because Jim touched at it in the beginning and also yesterday in the reveal, you require much less service. It's less moving parts. The electric machine is four times more efficient than a combustion machine, so you actually use less energy in a electric car as such.
When you talk about cost parity, and we talk about the future of demand and where the consumers are heading, you also have to consider and compare the total cost of ownership of electric cars to combustion engine cars. To move into the summary, we believe we can transform fast. We think that we have a strong demand. We know we have an attractive product portfolio coming. We have it lined up. We know what we wanna do. We know how they will look. We know when they will come. We see the technology evolution, and we understand how to get there. How do we collaborate? What is strategic? What is not strategic? We also see that we have a robust plan to deliver on our cost and our supply.
We are, as Kerstin said, securing all angles to meet the current production, the midterm production, and the long-term production when it comes to supply. Thank you.
Thank you. Thank you very much. All right, now we open up for questions again. I'm sorry if I missed somebody in the previous session, but let's start here. Una, go ahead.
Thank you very much. It's Jose from JP Morgan. Three questions, please. I'd love to understand a little bit better the locations where the vehicle is going to be built and if you're going to plan to produce the car in Chengdu, and whether the investments are behind us in terms of the ramp up of the car. Second, in terms of the components within the electric motor, how far do you want to develop this expertise? And can you talk also about your partners that you have to assemble the electric motor? And three, can you talk about battery, and what is the big difference between your purchasing contracts you have on battery and the 50 GWh ramp up plan you have in terms of battery technology? What's the difference between the purchasing contracts and the in-house production?
Three very good questions. I don't remember all of them, so you have to repeat them. Let's see if we can try to answer them together. I'll start from the back. Easiest to remember it that way. When it comes to the collaboration with Northvolt and the JV, the difference versus sourcing at the tier one supplier is obviously that we are a 50% owner of that production entity. It also enables us to build a very optimized process to how we are bringing the cells into the plant. That production plant will be next door to our car plant in Torslanda. You will basically see how we can find new opportunities. Also this is an area in battery cell production which has not been, I think, totally veloped yet.
How do you optimize the handover between a battery cell and a battery car plant? That is one thing, and now you have to repeat the other two because already lost them.
The other two within the electric motor, the key components, who are your partners? Or let's say two, three years down the road, how far do you want to develop your expertise in inverters? Motors, et cetera?
That's a good one. First one is for you.
The electric motors already in this car we are assembling ourselves. Incoming components we are purchasing from a range of different suppliers to that. When we are moving into gen three, there will be a larger part of the components we take more control of. We work, say, upstream in the supply chain.
From a technology perspective, I would like to add that the trend is in general, as in many other technologies and electric cars, that you integrate parts. If you look at an electric motor inverter going forward, they are more and more moving into an integrated unit. Of course it becomes also more important to understand how do you design such a unit so it optimizes the performance for the vehicle.
The first one was, you're building the car in the U.S. I understand you want to build the car also in China.
Yes.
In Chengdu. Are the investments behind us in terms of the ramp up of, you know, the investments needed to assemble the car? Those two locations are correct and the investments have already been sunk.
In regards to location, correct. This car will roll off the line in our U.S. plant in Charleston. Of course, I mean, we are fully investing, we are fully in the ramp-up phase. It's both at our own facilities but also in the facilities of hundreds of suppliers, and we are preparing to ramp up. The launch in China will be after that. Similar procedure is happening there, of course. It's a big, very big job, and hundreds of people are very engaged in getting there and making it real. Yeah.
Thank you.
On the right, Erik.
Thank you, Erik Golrang, SEB. I have two questions. I appreciate the slide on how you source sort of the delivery security of raw materials. If I could ask you a specific question just to understand how much of battery supply and so on you have actually secured today. If you achieve your target 600,000 fully electric vehicles by 2025 and a bit less than 200 hybrids, are you fully covered on battery supply for that figure?
We have contracts in place that are supporting it, base contracts, both with partners. Now you're aimed towards 2030, that is then with suppliers and also then with Northvolt. It's a combination of different players. We have contracts in place to reach these numbers in 2030. On top, for the first few years, we have these supply volume commitments that are absolutely securing that we are getting the supply.
Yes.
Okay. Thank you. The second question on how you think about the sort of how future-proof the EX90 and the sort of the drivetrain technology is there. I mean, I assume you plan to be making this car for quite a few years also.
Yeah.
Beyond 2024 when it goes into volume. You talked about the sort of third generation technologies with the fully integrated drivetrains and cells in the chassis and so on. Arguably, there are a few competitors who have some of that already in production or soon to go into production. As we move up to gen two and so on, I mean, how competitive do you think the EV tech in this one is in 2025, 2026, when I assume quite high volume hopes for it also for those years?
I think it's a very good question. The first question is a little bit how do you future-proof when you're in this massive technology transformation? I don't think you can ever stand and say that we make a car now which will be future-proof for the seven years that we live. The thing how to tackle that question is to build a structure which is not so based on platforms as we have been in the past in the automotive industry, but you can build an architecture where you can backwards compatibilize new innovations into this car. If I take the EX90, for example, and we look at the software stack, that is actually very much updatable from whatever we will come with the future also backwards. That can also be applied partly into the electric propulsion system.
Of course, it is difficult to change the battery concept in a vehicle, but we believe that the battery concept we have from this one will very well be competitive very long down the line, even when the third and fourth generation comes online as well.
Okay, that's interesting. Just to follow up to see how far you can take that, would it be possible to shift the 400 V architecture into an 800 V in this one? Or is that too much of a change to do on an existing platform?
It's possible.
Mattias. We go here.
Thank you very much. Mattias Holmberg from DNB. I assume there will be some geographical limitations in the gigafactory in Gothenburg in terms of reach. I'm curious to hear how you think about, say, the U.S. and China long term in terms of own battery capacity. Will you be happy to be fully dependent on suppliers for batteries in these regions, or would you at any point consider getting your own capacity in these regions as well?
If I put it this way, I mean, our industrial strategy is quite simple. It's build where you sell and source where you build. I don't think battery cells are a very good commodity to ship because they're big, they are heavy, they are dangerous if they are not in a battery pack, so you have to treat them a certain way. Yes, it makes a lot of sense to regionalize and localize battery cell production. Our strategic initiative with Northvolt, the JV together starts with the plant in Gothenburg, but obviously we are having a growth plan for Volvo, and that growth plan would require more cells. The JV is definitely a part of that planning, but we have nothing concrete we can communicate.
Can we go to Daniel here in the front? Yeah.
Cheers. Thanks. Daniel from Bernstein. I'll follow up on that and ask whether the regulatory changes in the U.S., specifically the IRA, has changed or accelerated your thinking. If you could be a little bit more specific than just saying we're gonna get more suppliers in the U.S., right? If you think about the different value chains from raw materials up to the cell, has anything changed in your thinking over the past year?
Should I begin?
Can I start and then you
You start.
You jump in? I was kind of expecting that question after the previous one. Yeah, obviously it has. I wouldn't say it has changed, but it has accelerated. It makes it more urgent to take the steps to go there. I think also in general for the battery industry or the electric vehicle ecosystem in the Americas has a collective task to make that happen. We are having our plans, but we are accelerating those. That would be my answer to that one. You can talk about the supplier ecosystem.
Yeah, I can. Well, of course, I can only agree that the urgency is increasing with this kind of legislation. There are a lot of unknowns as we speak around this legislation. We don't know exactly how definitions need to be understood, and we are expecting more input during the next month. Already today, we are with all suppliers discussing how we can regionalize upstreams as much as possible because that we foresee is the name of the game going forward.
Okay. We have one, in the back here. Oh, Hampus.
Hampus Engellau, Handelsbanken. Could you maybe talk a little bit about guarantee on the battery life cycle, battery swap so we can compare a bit with some competition?
Yeah. Oh, that's a big question. Everything from guarantee to battery swap. ow long time do we have? It's like I think, let's start from the technical side with the battery swap. There is two technology tracks when it comes to battery and vehicle integration. Either you go for kind of a cell-to-body track, trying, as I talked about, maximize the amount of material in the battery volume that can carry energy. Since this is the floor of the car, you cannot swap it. You would have to take out the seats, and that doesn't work right. The other one is to go to battery swapping. On our track, in our technology solutions, we are not doing battery swapping as some other competitions is doing.
Obviously, if there is a failed battery cell or if there is a failed module, there is a possibility to fix that, to remove the module, to remove the cell and handle that. We are designing the car for having a highest possible quality on battery cells, and we're also planning the software that steers the battery in a way, so we're utilizing it as smart as possible, so we limit the risk. This will be a challenge. We think that if you do it right, we don't see any reason to why the life length of the battery should be less than the life length of the car. That, I think, is the best way to protect for future insurance questions and problems.
No percentage on battery capacity after a couple of years?
No.
Okay, thanks.
No. You're the guy with the numbers, right? It was the same with before. We have there at the front.
Hi. Thanks for taking my question. It's Dorothee Cresswell from Exane. I think I understood you correctly that you're obviously very confident on the cell supply being locked down, but you're also looking further up the value chain. Does that mean you're gonna invest yourself in metals mining and refining? We'll see that in your CapEx, or do you do that via joint ventures? Any comments on that would be helpful. And then I just wondered what your latest thinking is on LFP battery technology. I'm sure it's not relevant for this product, but there are more compact, more affordable products coming later. And I wondered whether that's something that could be relevant. Thank you.
We start with LFP, and I continue with the battery.
Yep. Okay, good. No, very good questions. Both of them. When it comes to battery chemistries, just as you say, for this car, we will not have an LFP battery. It's too big, and it doesn't make sense to have that technology. For lower vehicles, further down the line with smaller battery packs, more focused on cost, definitely LFP is a chemistry which we are looking into and which we are having in our plans as well. We have not today any cars with an LFP battery, and as I said, this one will not have it either. I also think there are opportunities on the battery chemistry side where you go for high-manganese cells, which can actually achieve similar cost levels, but without some of the drawbacks of LFP around recycling and cold climate.
Battery cell chemistry will not be the deciding factor for us. We will be able to handle all kinds of different chemistries in this application.
In regards to battery raw materials, we are looking into everything from pure offtake agreements to investments, equity investments. There is a very broad range. A lot of discussions with many players are ongoing right now. As I said, we will come back once we can talk about something. Yeah.
George, you know.
Thank you. Just actually on Dorothee's question on LFP and also what you've been talking about in terms of cell to chassis. Is it fair to assume that you see the opportunity for cell to chassis with nickel-based chemistries? Secondly, when we think about cell to chassis, what are the implications in terms of recycling? Does it complicate recycling or not, especially from your perspective?
I don't think the chemistry, the LFP discussion or whatever chemistry, that doesn't make a big difference. We want to have one vehicle integration concept regardless of cell chemistry. It's more the form factor of the battery cells, which is the deciding factor, how you structure that. I think in the future when it comes to technologies like LFP, we are seeing that you can use them in different places in different ways, different markets, having different requirements, et cetera. That also goes for recycling. I don't think the vehicle integration concept, if it's cell-to-body or not, is the most difficult factor to solve when it comes to recycling. I think it's rather the different chemistries.
It's very difficult to mix an LFP and an NMC battery cell in the same recycling process. It's not possible. It's also very difficult to manage those. I think the vehicle integration concept is not the deciding factor in that territory.
All right. Harald?
Yeah. Morning, it's Harald from Morgan Stanley. Can I ask a slightly more commercial question? You know, we've talked for the last five, six years about BEV versus ICE, you know, comparability on the cost. That hasn't been achieved. You know, your third quarter, I think that became quite clear. Can you talk about two sides, really? One, can you just talk about the big buckets that makes you so confident that you can achieve that price comparability? If you don't achieve that, you know, aren't we all gonna have to pay higher prices for cars, and do you think that it's realistic that we will continue to do so, right? The first few of these cars that we're buying are. We're buying at very high prices relative to the cars that we bought before.
Yeah.
That's not necessarily true for 100% of the population, right? Not everybody has enough money to do that. Can you talk about how do you approach that angle? Then internally, considering the gross margin difference between the cars today and considering the fact that you've got a very ambitious target for BEVs, how does that conversation go, right? Because at the same time you wanna maximize profitability, but you wanna also get to 50% BEV. How does that conversation go, right? Are the targets still gonna be the same, whatever happens?
Yeah.
To the relative profitability? I'd love to understand.
Yeah.
Can I-
I mean, they're connected, right? Your first question around ICE parity of cost is very connected to the margin of the car, obviously. How will we achieve it, and I will let you come in from the commercial perspective on the suppliers, but if you look at it technically, the game you have to play is to figure out the triangle between charging speed, size of battery, and expectation of range, basically. Those three. It's super easy to achieve ICE parity between with an ICE. It's just I shrink the battery. If you are okay to drive, you know, 200 km, you can have it today. But that will not be the right. You have to balance that. I think in that discussion for our consumers, you cannot only talk about the upfront price.
You have to look at the total cost of ownership, because there are so many other aspects which will help the consumers in the financial calculations about this one. I think when we start balancing our vehicles on total cost of ownerships, back to your last question, then we can get to a totally different discussion in the company when we talk about should we build a BEV or a non-BEV.
Yeah. Not much more to add. I think it was clear. I think in regards to your question around internal discussions, I think we can take them in the end when we are all together, yeah? Okay.
All right. More questions? Okay. Sorry. Over there.
It's an exciting topic. We are on many questions, huh?
Yes, you're talking a lot about securing this supply volumes long term, and we are moving from, I mean, a low inflation environment to a high inflation environment. How many suppliers are eager to sign up to long contracts, or how are you changing those contracts? Are we seeing much more rapid updates on pricing for your suppliers, or are there mechanisms built into the new contracts, et cetera?
There are definitely mechanisms built into. It's very common to index materials in contracts, so that we are doing for battery materials, for steel, aluminum, and others as well. There is a mechanism built into. In general, we are having price discussions with our suppliers. It's all absolutely transparency based, so we see exactly how much of the total parts price is, for example, energy related, and then we can have relevant discussions. All fact-based negotiations we are having, and this is how we are proceeding, in my view so far well.
Those discussions will be more frequent now, I guess, as we have had like a few decades of no inflation.
Of course, if there is an enormous cost pressure in the market and problems to pay electricity bills, then these dialogues can be more frequent. Just keep in mind, out of the entire parts price, electricity is 2%. It's not a major part of the cost.
Thank you.
Well, good. Henrik.
Hi. Henrik Christiansson, Carnegie. Just a question on this bidirectional charging. Very interesting technology. You can use that as your local power bank at your house, but that obviously increases the usage of the battery as well, and how do you as an OEM guarantee range and guarantee topics really when you start to use that as your own? How will you manage that dynamic?
I think, I mean, actually it doesn't increase the deterioration of the battery so much because it depends on how you do it. The critical thing for a battery when you go from no charge to full charge up and down all the time, if you through software can be charging within, say, 50% and 70% all the time and using that window for bi-directional charging, in our analysis we see it doesn't make a material difference on the life length of the battery. We believe that there is an opportunity here that if you do it smart and you steer that functionality in the right way, you can achieve this without having a major deterioration of the battery, actually, and that will be our approach to it.
Thank you.
We have time for one more question now before lunch, if there's any. All right. Thank you very much, Erik and Kerstin. We'll move on.
Thank you. Hi, my name is Henrik Green. I'm Head of Advanced Technology and Sustainability here at Volvo Cars. With me-
My name is Anders Kärrberg. I'm Head of Sustainability at Volvo Cars.
Consequently, we will talk to you about sustainability. That is obviously a very dear subject to Volvo Cars. You all know we were founded nearly 100 years ago with people in mind. That has always given us our core value, safety. It's very natural to us to bring that core value further into planetary safety. People safety as much as planetary safety or sustainability expanding into society and people at large. We also see that it's not only for ourselves and our history that we are dear to this subject. We can see that consumer demand is already out there, and it's growing. The sentiment, especially for the demographic around interest in our brand, is growingly asking for mobility that doesn't require unnecessary footprint on the planet.
We hope and we think that all the investors looking to invest in Volvo Cars also pays attention to sustainability. For us, this is a key success factor going forward. We build this sustainability strategy, and I will be rather brief, and then later, Anders here will go into more detail. We build this sustainability strategy on mainly three pillars, climate action, circular economy, and responsible business. Starting with climate action, which is imminent in many ways and the most urgent for us to race towards our strong commitment that we still stand firm behind, to be fully climate neutral as early as 2040. On our way there, we have also committed to take a large step already by mid-decade, this decade, to reduce the carbon footprint of every vehicle with 40%. Circular business.
Circular business is, on one hand, as important to reach the climate action as it is also important to go beyond climate action and carbon footprint because it takes into account all Earth's resources, and for us to grow business, to continue to provide mobility to our consumers and customers without necessarily growing the need for virgin resources in doing that. We have already committed to SEK 1 billion in cost saving by circular economy mid-decade and 2.5 million tons of CO2, which would actually account to 8% of our CO2 footprint by mid-decade this year. It's the biggest thing for the second half of this race towards climate neutrality. Responsible business. As I said in the beginning, people has always been at center in Volvo Cars.
We have heard it throughout every presentation today from the start, and you will hear it, I believe, until we finish four o'clock. It's at our heart. People inside the company, our employees, of course, our customers, our users, but also people around us, people around our cars, and people in societies where we operate or society at large. With that, let's dig into this in more particular and start to compare how does the amazing EX90 perform against these hard targets. Anders.
Our long-term ambition is to be a climate neutral company by 2040. More importantly, we are focusing on the short term, to reduce CO2 by 40% per car between 2018 and 2025. This target is in turn broken down into three sub-targets, which you find on the screen, tailpipe, supply chain, and operations. In tailpipe, you find the emissions from driving through the life cycle of the car, assumed to be 200,000 km. Here we use CO2 emissions data from certification that counts a battery electric vehicle as a zero-emission vehicle. In supply chain, you find all the emissions from mining, extracting, processing raw material for our components, but also the energy that goes into machining and manufacturing assembly of all the components. Basically, from the mine to the tier one supplier, that's those emissions.
Finally, operations. It's about our own manufacturing operations, supply chain, retailers, logistics, business travel, and so on. Now, these three buckets of CO2, they are not equal in size. When we started to develop this car in 2018, roughly, 2/3 of the emissions from an average Volvo car was in the tailpipe bucket. One-fourth in supply chain and the rest in operations. Now, today, when we have started to electrify, you find 55% of the average car's emissions in tailpipe. 35% in supply chain and about 10% in operations. As we electrify, the proportions between these three buckets will change. Now what about the EX90?
Well, thank you, Anders, and you have already given a hint. Let me try to walk you through this. Apologize for rather complex slide, but this is important. I think this tells actually the story behind the whole electrification journey at Volvo Cars, and as we see it throughout the auto industry. Well, first of all, the tailpipe emissions. Obviously, this car does not have tailpipes. The tailpipe emissions are zero. It's CO2 required to produce energy, but out of the car, that tailpipe emission is zero. That was the largest bucket, and that becomes a 100% reduction, of course, going from our previous XC90 to our new EX90 fully electric.
That also shows that we bring on a burden in terms of sustainability here that also needs to be addressed, and which is key part of our strategy to address and have already been partly addressed. We add 500 kilos of batteries. Although that Kerstin and Erik showed you before that this second generation of E-propulsion has 40% better efficiency when it comes to CO2 footprint per kilowatt-hour, we still mount 1,100 or 111 kWh of energy inside this car, and that accounts for a larger footprint than a traditional car. We should be honest about that fact, and we need to address that with actions. Continue, as was also shown in a previous presentation, to third generation, where we will see a further reduction of CO2 er kWh.
Right now, this car, as it stands, actually has a higher supply chain emission than our previous car. That is also partly to be mentioned from the higher levels of aluminum. Aluminum per kilogram has a higher CO2 footprint than steel. Going to a more lightweight and advanced body structure, holding that battery in the floor, it adds CO2 to the total life cycle. Finally, Anders talked about our own operations, our manufacturing facilities, our retailers, our R&D operations, test labs, et cetera, where we are continuously improving by using more and more fossil-free energy and taking that down. We can see here that that is down by 19%. If we proportionally add these three buckets, the -100% in tailpipe, approximately two-thirds, the 68% plus almost of a third, and the smallest bucket of -19%, we see a total reduction of this amazing car versus its non-electric predecessor with 50%.
When it comes to circular economy, our long-term ambition is to be a circular business by 2040. For us, this means to decouple business growth from the consumption of resources being material, water, energy. How do you achieve that? Well, first of all, of course, very simple, you reduce the consumption of resources. You engage in recycling of all materials, but without degrading the material so it loses value. You eliminate waste, you eliminate pollution, and you grow revenue beyond vehicle sales. Short-term, we've set some targets, and we focused on the three targets you see on the screen: plastics, aluminum, and steel. We do more, of course. We focus on remanufacturing of parts, waste elimination, and to better use the material, raw material that we buy.
All in all, we believe that this actually can provide major savings for the company, about SEK 1 billion by 2025, and at the same time reduce our CO2 footprint. Recycled content has been important when developing this car as well, and Henrik will tell you more about this.
Well, as we have already talked about, adding aluminum and batteries to the car adds a burden in terms of CO2 during the supply chain and manufacturing process. Addressing that, we knew from start that it's very important and urgent to increase the level of recycled material into this vehicle. That was one of the prerequisites really early, and it's also one of the continuously growing challenges going forward, both to our mid-decade ambitions and to the fully climate-neutral target of 2040. Looking at this car, we're quite proud to stand here today and say that we achieved 50% recycled plastics, 15% recycled steel, and 25% recycled aluminum. As an example, that accounts for, I believe, 48 kilos of recycled plastics in the car right now. This needs to grow.
If you remember what Anders said, that has to go up to 25, the same for steel and aluminum up to 40. Aluminum is the most CO2-intensive out of these three buckets.
The third pillar of our strategy is that we aim to be a recognized leader in ethical, responsible business going forward. Here we focus on four areas. First, it is about how we treat our employees. We want to be an industry role model, so we work hard with diversity, inclusion, gender equality, and the safety of our coworkers. The second area is about procurement. Here, we now put procurement on par on the same level as cost and quality. It's a basic hygiene factor. As a tool, we've introduced an internal price on CO2 of SEK 1,000 per ton, and this guides us to weed out high-emitting suppliers early in the process. Of course, there's more to sustainability and procurement. It's about screening for human rights, applying our code of conduct, and doing audits based on a risk analysis globally.
The third area is about finance. We have already issued two green bonds. We have established a sustainability-linked loan, and I just learned over lunch that it was the first in the automotive industry. We also use CO2 as an important screening factor when making decisions. Which option are providing the lowest CO2 footprint? That's a decisive factor in investments. Finally, of course, anti-corruption, ethical behavior is a part of our corporate culture, and that's something that we reinforce all the time. Also, this area has then been important when developing this beautiful car. Henrik.
Absolutely, Anders. Although many of those activities actually goes cross our car line and deep into everything we do, there is a couple of highlights that we still would like to connect, of course, to this vehicle. Starting with traceability, which is the first step to a fully responsible supply chain and business, we are now increasing our traceability of raw materials from one previous metal, cobalt, to also now include nickel and lithium. That traceability is our first step to a larger set of traceable parts and materials going into the car. Very proudly, so far, three of them. We have also, of course, shown you the amazingly beautifully designed wool blend upholstery, which of course comes from a wool industry that is certified for the animal health. We also use wood interior.
As we could see yesterday, illuminated wood that is FSC-certified, of course, where it is grown and industrialized. As Anders said, we can also proudly now conclude that the second green bond that was issued provided money and funding to this particular car in the end of the production and development phase that we are in right now. EX90 partly funded by the second green bond.
To conclude, we would like to summarize some progress we made in sustainability compared to the situation we were in 2018. Let's start with climate action. As you can see on the screen, we are progressing with our target of -40% per car to 2025. We are right now at about 12%. This will of course improve as we sell more BEVs. BEVs, as you heard before, we are at 8%, and in October it was doubled. That looks progressive. Finally, we also have a target on getting to full climate neutrality when it comes to energy in our manufacturing operations. We are at 66%. It is a very good performance when you compare to industry.
Last year, we had our plant in Torslanda going climate neutral, and we also achieved 100% renewable electricity for our Chengdu plant in China. It is progressing well. The other area. If you click one more. Thank you. Circular economy. By 2025, we want our new cars to have a recycled content about 25%. Currently, our cars on the market average is about 10%, so there's a way to go. Here we're taking a step in the right direction. Waste and water are also very important, and here we talk about our own manufacturing operations. To manufacture a Volvo generates 450 kg of waste. 96% of that is recycled. Here, of course, we can do better, do more. We are ahead of our target now at 5%.
Water to manufacture a Volvo in our system consumes about 2 cubic m of water. We are overachieving the target, as you can see. One major reason being the drought in China, where we simply had to put in a lot of strong measures, which we have, and we hope, of course, to have this level sustained. When talking about water and waste, you should be aware of that the problem is not within our operations. It is within the supply chain. Here we simply do not have the data today to quantify the waste and the water and the energy consumption. We are working on it. Hopefully another day we will come back with better figures. Next slide then summarizes a few things on the ethical and responsible business area. We want women in leading positions in the company.
It provides a good culture, and it attracts talent to the company. We are currently at 29%. It's been flat for four years. It's not something we're proud of. We are putting strong actions in to get more women into leading positions. Is 29% a bad figure? If you compare to automotive industry, it's actually fairly good. If you compare to industry in general, it's a poor figure. We've introduced a Family Bond, which is a global offer, gender-neutral on parental leave for our employees. You can see the terms there, 24 weeks, 80% pay. It's been very popular, and we know that the ones that take this on is actually 70% fathers. It's more men that is attracted to this benefit than women. Employee engagement, I think all companies measure.
We are at an index of 77, which is against a global benchmark, which is 76. Pretty good. We have increased over the years. Finally, there is a measure on the safety in our manufacturing operations. LTCR, I'm not sure you all know what it is. Lost time case rate, it's an international measurement method where you measure accidents and incidents in manufacturing. 0.06 is a very, very good figure when you compare to competition. It's really world-leading. Not only do we make the world's safest cars, Volvo is also probably one of the most safest places to work. Thank you.
Thank you.
Thank you. Thank you very much. Now it's time for Q&A. Just to repeat, you need to wave your hand, get a microphone, because this is being recorded. Agnies?
Hi, Agnieszka from Nordea. I have a question on batteries, and if you have any concept for more kind of circular strategy there, what is that?
Well, speaking of the batteries, I think it's fair to acknowledge the fact that is one of the most important parts in the future to become circular. Steel, aluminum, and batteries is definitely three most important buckets in terms of CO2. One of the challenges is, of course, that growing in volume, you need that volume to come back before you can harvest batteries and put them back into production. I think there is a couple of things that are very important for us to become both circular and climate neutral here, and that is to use recycled material in production of new batteries.
When Erik and Kerstin and the team chose to collaborate with Northvolt on building the NOVO structure, that was one of the main criteria for choosing them as partner, the capability to bring in black mass from old batteries into new production. The challenge here is the lead time. We want all our cars to live as long as possible. Actually, you can say the longer a car lives, the better it is for the environment, the more mileage you get out of that car. We want the batteries to live long, but at the same time, we need those batteries back to build new cars. Well, to answer your question, well, it's an imperative part of the strategy to use recycled batteries. Right now, the main hurdle is access to old batteries in the volumes that we are growing to.
Thank you.
You may also know that, in Europe, the European Commission is going to require recycled content in the batteries. Starting 2030, about 4% of the critical materials must be recycled, going to about 10% in 2035.
Right. We have a question over here. Yeah.
You mentioned that you're applying new criteria to suppliers when you're working with them. When you compare the electric version of the vehicle versus combustion engine, have you reduced the number of suppliers you're working with, or have you changed the supplier base based on the new criteria you're applying when you're working with them? The second, you mentioned some data points that you want to come back to us, I believe it was waste, water management, et cetera. What are you doing to obtain this data from the organization so investors can see that in the future?
Yeah. If I start with the battery question or the supplier question, well, already when we sourced the batteries in these vehicles, which were actually quite a few years ago, we brought to the table that the sustainability requirement is, as Anders said, as important as quality and cost in our process. To be on the map as a future supplier, as a supplier today, and of course, a future supplier, you need to meet our sustainability requirements, and you want to be part of our sustainability journey going forward. Yes, that changes who supplies to us, but I wouldn't say that I know that we have reduced the number of suppliers in total.
When working with the suppliers and sustainability, today, we put requirements on them. 100% climate neutral energy by 2025, a waste reduction of 4% annually, and reduction in water. However, this is very difficult to follow up.
With a supply chain that is global and is about 2,000 direct material suppliers. Sometimes the suppliers do not know their own footprint on CO2, on water, on waste, and energy. It's those are the reasons why we currently cannot look into this. However, your question is very relevant because for a company like Volvo and in the automotive industry, that's where the issue is. It does not sit with our own operations. However, of course, it's a concern for us, and we must work on it.
Yeah, thank you. It's Philippe Houchois, Jefferies. I have a question, though, between reusing and recycling. When you look at a battery coming at the end of its life, does it have to be completely dismantled, all materials reused? What is the rate of loss of materials in that case? Or are you looking at batteries where they come back at the end of a life of a vehicle, but they can be reconditioned, and that would make a significant difference in terms of the energy, for example, required to reuse. Is there a cutoff? Is there a level of reusage or recycling that needs to be done to be able to reuse a battery into a new vehicle?
Yeah, I mean, I would. It's a good question that we spend a lot of time thinking about. I would like to answer it in three pieces. One part is, yes, we can remanufacture and reuse batteries in our own fleet. Then you have to understand that means that you have a battery that has no car and a car that has no battery. That means that a car either crashed, leaving a healthy battery, to take, and a car that is still healthy needs a battery. The best way in both those cases is, of course, to avoid crashes and to avoid batteries to break before the end of life of the car. Yes, remanufacturing of batteries back into our own use in the vehicle fleet is good, and we are doing that today, and we will continue to do that.
Remember, it's much better to avoid having to do that at all and have the same battery in the car until end of life is always best. Secondly, yes, I think there is a market for end-of-life batteries, and that should be used. It's better to have a battery end of life in a residential storage solution than to have it as landfill 100 days of the week. I also think that we will compete around those batteries, because when we are going to build 600,000 electric vehicle, we need 600,000 batteries to put into production that are recycled. I think there, in the beginning and the growth of the electrification era, there will be a scarcity of old batteries that will compete to go either into new production of batteries and cars or second life in residential.
From an environmental perspective, both are better than the alternative, but it will be a competition.
If I expand on this, effectively, a lot of the materials, if you take apart a battery end of its life, recondition or reuse materials, they don't really lose physical properties. I mean, copper doesn't. A number of other materials don't lose any property. I'm just trying to understand, is at a normal end of life of a ten-year-old vehicle, how much can you recondition a battery and consider it is new for a new vehicle? Or does it have to be taken apart and recycled completely?
Yeah.
Is reconditioning an option?
An average car today lives around 17 years. In Sweden, actually, I believe our cars live around 22 years. After 22 years, we don't really know today exactly what will happen with our batteries because that is yet to be seen. The estimation today is that a 22-year-old battery needs to go back into production through black mass recycling.
Thank you.
George, in the front there.
Yeah. Thank you for your very interesting presentation. Obviously a huge focus, quite rightly, on CO2 and but what we've seen obviously with diesel is, you know, there are other externalities in addition to CO2 to bear in mind. With battery electric vehicles, given their mass, presumably there are other external considerations such as particulates from tires, damage to infrastructure, which should be considered when we think about their overall sustainability. What are the top priorities for Volvo when we think about externalities above and beyond CO2, and how are you addressing those?
Well, yeah, let's share the question.
Yes.
Anders. I think you have things to bring to that good question as well. Let me start with the most important things, maybe this isn't exactly what you asked for, our priorities here is steel, aluminum, and batteries. That is both from a perspective that contributes largely to the CO2 footprint, but it's also because that draws Earth's resources. Beyond looking at climate and CO2 and carbon footprint, we of course need to look at usage of raw material. How much ton of metals do we bring up from Earth to build a car? And is there other pollutions that you mentioned that also needs to be addressed? Right now, I would say between today and 2030, this is addressing the giant part of that puzzle. The giants are steel, aluminum, and batteries.
From 2030 - 2040, it will be a long tail of thousands of things. There, we will talk about electronics, we will be talking about tires, we will be talking about lot of things to get to a fully climate neutral situation, 2040.
Climate is obviously the first thing to look at and to reduce your impact on nature. Circular economy and recycling used materials is the second. The next one coming in for all industries is biodiversity. We are still in our early phases to assess really what they are, the externalities and what we need to focus on. Land use, for example, then material use and so on. Your question on materials, I just want to comment. It's a very important question because a car weighs 2 tons. But upstream, when you look at all the raw material needed to produce those metals, minerals, and the plastics, that tail is really, really big. To produce 1 ton of steel, you need 5 tons of materials, gravel or coming out from the mine, 5 tons to one.
If you go to copper, you are at 330 tons of material to produce 1 ton of copper. You go to neodymium, which you find in our magnets, we don't use a lot, you are to 950 tons to 1 ton. You go to cobalt, which we use in our batteries, you go from 1,500 tons to 1 ton. The material you use, the focus on recycling here is going to be fundamental. I mean, not only for Volvo, obviously, but for the whole automotive industry.
All right. I think, you know, time is running up. Very interesting. For sure, we can get back to this in the general Q&A. Thank you very much, Anders and Hans.
Thank you.
All right. Now it's time for Björn to talk about what we do, quite significant changes on how we go to the market, right? Thank you very much.
Thank you, John. Nice to meet all of you again. I'm gonna start over here by this car, close to the eye of the car that you were all drooling over during the lunch. You were looking at the car. I don't know if some of you looked at the eyes of the other people. You know what I saw? I saw a lot of people saying, "I wanna buy that car." How can you do that then? Three options. volvocars.com. You go to any of our retailers, or for those of you here in Stockholm, I'll be here after the show. I'll take it on. Okay? Now, yeah, Jim always say that, you know, selling cars is a very core part of our business plan, and it is. How do we do that, though? Our commercial strategy. It's very clear.
Those of you who spent a lot of time with us in the IPO process, you will be a bit bored because it hasn't changed. A strategy shouldn't change every year. A strategy is something you need to execute on with more sophistication over time, and that's really what I'm gonna share with you. Some more detail, but the same direction. The strategy has three components. We aim to grow, we aim to grow faster than the market, and we do that by leveraging the two transformative forces of selling cars in the automotive industry right now. One is what you sell, electrified offers, and the other one is how you sell, then we power the potential of online and digitization in order to drive a more efficient go-to-market model. That's our strategy. In terms of growth, I get this question a lot.
Yes, our mid-decade objective is to get to 1.2 million cars. Yes, with one or two years of supply constraints, it's gonna be tougher to get there than we thought two years ago, but that's still our target. We see the demand, we know what cars we get, we know what supply we have. That's our target. Then some people want to be extremely technical. What is mid-decade? Mid-decade is mid-decade. We're aiming to go to 1.2 million by mid-decade. The key question is, will we do that come hell or high water? No. What's important is to grow in a sustainable and profitable way. This is not a target that has a value in itself.
It's important to show how fast you're gonna grow, but we're gonna preserve our margins, and we're gonna focus a lot on earnings quality and pricing in those cars that we sell. That's what we said before, and that's what we continue to say. In order to do that, of course, we also need to grow the strength of our brand, and that's part of our strategy as well 'cause that gives us a higher willingness to pay from the customers, a higher degree of loyalty. Electrification, we've talked about it so much. I don't think we need to hammer this home even further, but we will be at more than 50% full electric car by mid-decade. That will be slightly different across the world. We're gonna be far beyond 50% in EMEA.
We're gonna be roughly around 50% in Americas and a little bit lower in APAC by mid-decade. That's our plan. When it comes to online, what we have said has been 50% online. I get a lot of questions around what does that really mean. That's a very good question because if we mean searching for a car online, then all car companies of the world is already there. That's not really what we mean. Does it mean that you have a buy button online, but everything else is handled manually back? No, not really. What we are really after, it's not technology for technology's sake, it's not online for online's sake. We are after delivering a better consumer experience divided by the total cost of the system to deliver that consumer experience.
That total cost is all the costs that we have and all the costs that our dear retail partner has. That's the cost we need to optimize. We are a few thousand people within Volvo Cars working with selling and servicing and marketing cars. If you take all the retail partners that we have and take all their employees that work day and night but nothing but serving Volvos, and some of our agencies that have employees that do nothing but serving Volvos, we're around 65,000 people. It's that collective force of those 65,000 people that we need to optimize to get the best consumer experience divided by cost. That's what we're going for. In order to do that, we believe in a seamless omni-channel experience where volvocars.com is the base.
We have a network of retail partners that support the physical part of that omni-channel experience. We are also securing that we share the consumer data between us and our retail partner, given because then we can market more efficiently, we can administrate a lot of things more efficiently, and the customer care becomes much more tailored and efficient and cost efficient. We're also going with a fixed price. We know that the Volvo customers don't value price haggling with retailers, and that's not a very value-adding type of activity. If you wanna optimize consumer experience divided by cost, you stop price negotiating, and you take away people that price negotiate. That's an improvement. We know that in terms of the offering of the car, we're drastically taking down the complexity offering.
We know that our consumers, they get more angst from making the wrong choice from 58 different choices than the pleasure of making those choices. People want to choose the color, they want to choose the interior room, they want to choose the wheel, and then maybe some, you know, the equipment level at kind of a broad bands. That's what we're gonna offer. It's gonna be four or five choices to make for a consumer. Gonna make it much simpler and straightforward. The other thing that we're doing is if you take Europe, for instance, we have 1,500 retailers. That means today we have 1,500 physical inventory points, and we have 1,500 inventory flows. That's not a capital efficient way of running it. That is something that we're gonna optimize, so you have shared inventory flows, shared inventory points.
The likelihood that you have the right car in the right place at the right time is much higher with that approach. That's what we're going for. That will create a better consumer experience divided by the total cost. Doing this requires different approaches in different regions. In Europe, in order to actually set the price and to share the consumer data and to take the full responsibility of the inventory flow, we legally need to flip into a different legal construct. We go from a wholesale model into a direct-to-consumer model. In China, we actually already today share the consumer data, and you have a very different digital ecosystem, where that is enabled, and we have different legal ramifications and constructs. There we actually have the ability to set the price to a much higher degree.
In the U.S., we have the franchise laws, so by law, our retail partner has to be the transacting party of selling the car. Of course, we work within the legal frameworks of that and work with our retail partners to optimize the consumer experience divided by the total cost. We need to do it in a slightly different way. What we're going for is this retail endgame. If we then say, and focusing on Europe for a while, what will this mean? What does it mean for the customer? What does it mean for the retailer? What does it mean for us? Starting with the customer, it's very simple. He or she will get the better consumer experience. Much clearer what you buy, you know, very clear offer of the car.
You know what it costs, and your neighbor doesn't get the same car at a lower price, and you know the delivery time. This is in the long run. Right now, delivery times are very far out in time and a bit too volatile, but structurally this enable us to be much clearer on delivery times and a much more seamless journey. That's good for the consumer. For our retail partners, in essence, what that gives them is long-term sound economics. You cannot take today's model and just put it online. Then you add a lot of those online platforms, which then incentivize retailers to discount cars and send them into somebody else's region. That's not a good consumer experience, and it's not a role any retailer wants to have either.
By doing it this way, we get a structure that works for the retail partners and for us. The retailers can focus on really value-adding activities, explaining the car, explaining why the Volvo is the right for you, but they don't need to spend time price negotiating. They don't need to spend time calling other dealers and swap cars. They don't need to work with administration in different ordering systems and financial service systems. We take away a lot of inefficiency in that whole end-to-end process. That's really what's happened to the retailer. We're very, very clear, and we had all the European retailers in Gothenburg a month ago, and we had this discussion that there's no way we can be successful unless our retailers have sound economics. You can't have partners that don't have sound economics.
This will require, just as we need to change a lot, they also need to change. Their role is changing. In some countries, we are optimizing the network 'cause we might not need as many sites in some of the key countries. For us, what happens to us? We get basically a very good, efficient go-to-market setup. Importantly, with the direct consumer contact, we have a platform for further growth. Yeah, more efficiencies that I already talked about. I think it's also important that we take over the responsibility for building the digital infrastructure. We take over the responsibility for a lot of the direct consumer contacts and for setting the price. All the inventory is actually with us.
The total inventory in the system will go down, but the inventory that remains, all of that will be on our books. Which is also important, we get the direct contacts. If you want to do what Jim was talking about, toggling a software and add something on subscription, you have the potential for cross-selling and upselling and selling other things to the consumers. Which is an important potential, not so much until mid-decade, but in the times after that, we have big hopes in the economic consequences of that. How are we rolling this out? This page you should look at, but you shouldn't really look at it, because the honest answer is, we don't know exactly how fast this is going to go.
You need to slice the elephant, and the way we've sliced the elephant is we started with one specific channel, direct to consumer, one specific contract, Care by Volvo subscription. We started in five countries, Germany, Holland, Norway, Sweden, and the U.K., to get into this direct model together with our retail partners. It was shown quickly that consumer loved it. It worked well. We added additional cars, BEVs into that. We added also additional contract types online. That's fine when you have kind of 10% of sales, you can have this as a business on the side. When you start to add more contract types, then all of a sudden you get to half of the business, and then it becomes quite inefficient to work in two different business models at the same time. It's very hard.
It's not very easy stance to work like that. What we realized is that we just need to take country by country and flip them completely into the new model. Our first country to flip is U.K., which we aim to flip by mid next year. After that comes Sweden. We're going to learn all the things it takes to flip all the different channels, all the contract types, and understanding the automation of all the back-end system and how we optimize our role and the retail partner roles. After that, we will then go to the other countries, and we will adjust this timeframe based on the learnings in U.K. and Sweden. It's important to remember that the go-to-market model in the automotive industry is extremely decentralized.
You have the retail partners, that's really where the action is happening, and then you have a national sales companies. Now, as you need to digitize the whole system, you get an extreme centralization force into a decentralized system. That's what make this quite complex to optimize. Our intention is not to build up this up country by country. You're gonna draw much more synergies by actually sharing some things across countries. Some of the price setting, some of the offer steering, some of the inventory flow management. That's not gonna happen country by country. That's gonna happen at a cluster level of countries. You draw efficiencies. In order to make that happen, we have reorganized within Volvo now. We have a direct-to-market P&L area.
Right now Sweden and U.K. is in that area, and any country that's due to flip within 12 months will be moved into that area so that we really build the new structure for the future and not get stuck in the old way of thinking as we transform our company. That's how we pace the transformation. Get a lot of question on Care by Volvo. What is Care by Volvo, really? There are two types of Care by Volvo. It's the 36 months fixed contract, which is principally like a leasing setup, but we take more responsibility in-house, handling a lot of the processes with the consumers. Actually up until now, we have done the financing of the car on our balance sheet.
Care by Volvo Flex is a much more flexible offering where you have basically a three-month notice period for the consumer, which makes the barrier to entry into Volvo much lower. It's a fantastic tool for driving conquest, and we see that with the consumers that are coming in through the Care by Volvo Flex. A lot of them were not with Volvo before. We get more consumers into the Volvo brand. While they can leave after three months, they are actually electing to stay much longer, which is of course the whole idea with the contract setup, allowing them the flexibility to leave if their life circumstances are changing. Where are we in the U.K. then in terms of delivering this fleet?
The retailer contract for the full business, not just the Care by Volvo part, that will be in place by the end of this year. We have built and are building the different digital solutions to handle the different contract types and the different channels. We launched B2B for small, medium enterprises in the spring. We launched B2B for large companies through lease deals just recently, and we have a few other big digital deliverables during the spring. When all those solutions are ready, we will flip fully into the direct to consumer model. That will be mid-year next year. At the same time, we will also get up and running a new fund-based solution that handles the financing of the cars together with Optio, a partner of ours. It's a Luxembourg-based fund who works with innovative consumer-based financing solutions across different industries.
Now we're working together to really reinvent consumer financing in the direct to consumer model automotive industry. What will that give us? First, I'll give you a bit of context to where we will use it. We will use this fund-based solution for our leasing products, operational leasing products, and for the Care by Volvo Flex, which is roughly a third of the volume in the U.K. For cash, you don't need financing. For loans and financial lease, we're continuing to work with our financial service partners that we have traditionally had. This big picture, by the way, gives you a bit of the complexity that for every channel and every contract type, the online optimization you need to drive is a bit different. That's why it takes some time to build an efficient, fully online business model.
If you go back to the fund-based solution that we will do for the operational lease and for the subscription. Why do we need that? First, we want to make sure there's one consumer journey, not one consumer journey to order the car and another consumer journey to finance the car. No consumer wants that. Secondly, we want to have full control of the pricing. Yes, interest rates are changing. How do we optimize setting the price for the financings versus the car? The consumer doesn't care. They pay one thing in the end. We want to be able to kind of optimize how you actually price it to the consumer. The third point here is really important and a bit hard to understand sometimes.
When Jim says you want to toggle in or toggle off a subscription, you bought this car, and then you want to upgrade to self-driving capability for three months, and you want to pay for that. Today's financial service structure is not built on that premise. Today, all the leasing companies and the banks, they've been built on one premise. You have one asset. For that asset, you create one contract, and that one contract has one duration. That's kind of the atoms of which all the systems are built. Then if you say that, "Hmm, I want the timing to be flexible. I want the asset to be flexible. I want to add this insurance, this subscription on top now for the self-driving technology." Can't be done.
You look at me now and say, "Of course, it can be done." Yeah, of course, it can be done. If you built the system for 30 years with a paradigm that one asset is one contract is one time, it's very hard then to come in and say, "No, no, I want the time to be flexible. I want the asset to be flexible." You need to rethink how you build up the digital system to serve these consumers in the right way, and that's what we are enabled to do together with Optio. By taking a more active role in this value chain, we get a bigger capturing of the value creation.
Volvo, you need to remember that leasing grew a lot over the last 30 years, except for the last 10 years, we were extremely poor as Volvo, so we couldn't participate as much in this. We came by with different local solutions with financial service providers country by country. Now we have an opportunity to capture a broader part of this value creation. Interestingly enough, not only is the whole business inflexible, as I talked about here, the logic is typically set up country by country, which has been fine because we have run our business country by country. But as we now go into the digital online future, we're not going to run the business country by country. We then need financial solutions that cut across several countries, and the current structure is not built to provide for that.
The structure very schematically that we're setting up, so we as Volvo, of course, we will take care of the key interface with the consumer. That's gonna be our job. Then you have debt investors who are gonna provide financing. They want return for their money. What better to invest in and if you want safe assets than investing them into very safe cars, Volvo Cars, being driven by the most safety-minded people on Earth. That's the asset class. Then Optio will be managing basically the fund all around setting that fund up. We get the structure with SPVs, 'cause that needs to be country by country that are then actually holding the cars.
With this structure, we get around the inflexibility that the whole car financing industry has been built around for the last 20 years. This will not be up and running overnight, but this will be up and running for the U.K. for a third of the business by midyear. We believe this has great promises for making sure we can serve the consumers in a more flexible way going forward. I'll wrap up with some quick logic for numbers, and then we go to the Q&A. Yes, in the IPO, we were very clear. We had prior to COVID around 6% structural EBIT margin. We need to get to 8%-10% by mid-decade. 3% structural improvement. One big piece of that is gonna be the commercial transformation.
What is it that actually gives us a structurally better margin by doing what I talked about here? First of all, it's around revenue growth and pricing, it's around productivity, it's around capital productivity, and last but not least, it's about taking a better part of the full value chain and capturing a larger part of the value chain. On revenue, it's pretty simple. Having a great consumer experience enable you to price and mix your cars in a richer way. That's very important. Also, by going into this direct model, you steer the pricings, you take away some of the unnecessary intra-brand competition that you have in some locations throughout Europe.
Also in this whole model, you have a much higher focus on making sure the cars stay in your system, and by that, you have better pricing on the used cars and you control residual values in a stronger way. That's one key aspect. Productivity, we've talked about it. Big one here is taking away a lot of administration, both for us and for our retail partners. You also, quite importantly, in some of the countries, we have two big networks. That would have been true in a wholesale model, and it's also true, even more true if you go into a more digitally enabled model as we do. So we need to optimize the number of retailers in some specific markets, 'cause a lot of the fixed cost sits in the retail network.
Yet we need to make sure that the retail network gets a decent return that remains. Last but not least, having a higher degree of this Care by Volvo subscription enables us to drive a much stronger loyalty. Loyalty is key because it's much more cost-effective to keep a happy customer than to lose a customer and acquire a new one. On capital efficiency, I think I talked about that already, but it's actually a massive improvement when you think about one inventory system rather than 1,500 inventory systems. That we will materialize, then we will take a better part of the value around the car. Financial services is one.
Insurance is another one that I think we're gonna talk much more about once this car is on the road, because this is the safest Volvo ever. I don't think that was mentioned well enough in the earlier presentation that with this lidar and the software put into this car, our estimate is that compared with the next best Volvo, you're gonna avoid 9% of the accidents that are happening and a 20% reduction of accidents with a severe or fatal outcome. That's massive. On top of that, you have the best safe-minded drivers on Earth in Volvos, so of course, the premiums for Volvo Cars should be much lower than they are today, and that's something that we're gonna work on as well. I think I actually stop there and go over to the Q&A, John.
Great. Thank you very much. Thank you. Yes, I'm sure there will be a few questions on this section as well. Please, Hampus, over there.
Yes, you can buy a car.
Thank you. I take one as we speak. Talking about Care by Volvo, in the future, could you maybe talk a little bit about the used car business, how to play that in, and update us on how to think about that? Because historically, that has been a very profitable business.
That will continue to be a profitable business. Not all consumers can afford to buy a new Volvo, and a lot of people value a three-year-old Volvo. That's true today, and it's gonna be true tomorrow. We're very clear that we want to keep those cars within the Volvo ecosystem, so they should be sold by us or our retail partners and not ending up in an uncontrolled way in auctions via leasing companies. That's really what we are focusing on. I think a lot of the system we're building up to sell new cars in an effective way can also be leveraged for selling used cars in an effective way.
Could there be a possibility to maybe have a Care by used Volvos?
Yes. No, of course. We have a Volvo Selekt program, which is in essence a way to make sure that the Volvo you're buying, we have reviewed it's a Volvo in good order, and you can add simple financing solution to that. But of course, you know, Care by Volvo Used is for something we're gonna use soon here in Sweden, for instance, when you get car back from Care by Volvo, some of those cars we put into Volvo On Demand. A bit more fluidity, using the cars across different channels and contract types that you can also do much, much better in the future.
Is it fair to assume that you might be able to keep the battery electric vehicle maybe longer in that system, or how should we think about that?
Yeah. I think this comes back to one thing we didn't fully discuss during the circularity discussion. In the end, there is a big recycled value in that battery. I think we need to come to a point where that recycled value actually get the value up front. We're not there yet, but I think that's where the business model is slowly going, where we can actually already from the beginning, make a contract with who takes care of that battery when the car has end of life, and you can actually take some of that value up front.
Thank you.
Erik, here in the front.
Thank you. Three questions. The first one on, you've been quite keen to talk about the sort of establishing direct consumer relations because previously there's been a filter between you and the consumer and the sort of data that got lost, and there's a lot of things you can't really see in terms of preferences and consumer behavior. We're some way into this journey now, at least a long way to go, but could you give some snippets on sort of what have you learned so far? Have you seen the benefits of getting a bit more sort of hands-on access to all that consumer data?
Yeah. There are a number of different ones. One is in more targeted marketing, you get much more efficient. I think one that is more clear for the consumer is as you call into our care center, we know your Volvo ID, we know what cars you have, we know that when that was serviced the last time, and we get the full log of all the questions, we can in a much faster way serve you and solve your problems. Those are two very, very clear examples.
Okay. Thank you. Then the second question on pricing and you being more in control of pricing, and we've seen, I guess, some more opportunistic pricing and quicker price changes with some players in the market recently. Is that something you will go to as well? As an example, you said you'd cap the fully flexible Care by Volvo at 10% of the total volume. Will you sort of use. As that fills up, will you increase the price of that one or will you be-
Yeah.
-more stable? How opportunistic will you be with pricing?
No, we're not gonna be opportunistic. We're gonna be strategic and structural. The only reason we're capping that at 10% is that if you have the positive mind and the negative mind, that, okay, people come in, they try a Volvo, and they send it back after six months. If that's all that happens and everybody send them back at the same time, it's not a very valuable proposition. On the other hand, if what seems to be the case, people, A, keep them longer and, B, stay with Volvo, so the next car is another Volvo, then this is a fantastic acquisition tool. Then I'd rather, then I can sell 20% flexible subscription.
At first I want to have the clear proof point over time that this actually is the acquisition tool that I believe it is. I can do more of it.
Okay. The final question on this, the new financing solution to enable a lot of this, is that, is all that infrastructure and everything in place now or is that something that's still quite some time out in time or is all that in place?
It will be in place by midyear next year for the U.K. Of course there is a lot of legal structure that needs to be in place. That is in a very, very good place. There is the digital tools in order to make this happen in an efficient way. That's part of the journey that we're building now and getting it ready for midyear next year.
Thank you.
Okay. Björn, we have some here to the left.
Yeah. What's that?
Thanks. Björn, can you speak about improving the digital backbone? What does this mean for you in terms of, you know, transforming the company? You mentioned changing the digital sales platform from a country level into a larger level. What does this mean for you in terms of investments and managing that part of the business? Second, you mentioned inventories will be kept also now on a group level. Can you quantify a little bit the impact on the balance sheet as you move the business, as you flip the U.K. next year, what could be the impact on the balance sheet?
Yeah.
Thanks.
On the latter one, I will not go into the spreadsheet, but I would recommend you to sit down with John and Carl Fredrik. But in essence, yes, the total system goes down, but we used to have maybe 60% of it's not material, but it changes. Carl Fredrik and John can help you with that. The first question on-
The digital backbone.
Yeah.
-investments.
The digital backbone, what does it mean? If I get a bit philosophical first, and I need to do that, it actually changes everything. Because if you think about it, the way to build great digital products, if you're an Amazon or a Klarna or anybody starting from scratch, you do that quite centralized and you put the best business people you have as product managers leading the digital product team that fully understand the consumer, do the tactical decision, should have built that feature, that feature should integrate it that way or that way first in this. You have the general managers, they sit in the middle of the digital product teams quite centrally. Our business people, they sit very decentralized in the countries.
Changing the whole operating model, how we get the business acumen and full understanding of the of the business, the car business into our digital team, and at the same time building the digital acumen with our business people locally and understand that they have to give up the control of some things 'cause it could be better done at the central level, that's an enormous change journey. But I think we're doing it quite well. In terms of investments, this is what we have been investing in over the last few years and what we'll continue to invest in, and that's part of the business plan. It's just making sure that rather than investing digitally in 50 countries, you can do this more in a common way. You're here in the front. I maybe I'll add one thing.
I think in that decentralized model, we are also extremely dependent on buying digital solutions and systems from somebody else. Now we're investing in really building it ourselves. Clearly, we shouldn't build everything. There are components and stuff we build, but we need to be the system architects that understand how this works 'cause this is how we interact with our consumers. That can't be outsourced.
Hey, Daniel from Bernstein. Björn, could you comment on what is it you can learn from your sister company here? What are they already doing that's beyond what you've told us today? I'm thinking about kind of regional sales organization, city center showrooms. In the Polestar sales approach, what are items where you say, "Well, that's maybe something we'll consider in the future too?
I don't think I should comment in detail on what Polestar is doing. I think just the fact that we have had Polestar have enabled us to think, okay, if we started clean sheet, how would we do this? One thing you conclude is that having 2,500 entrepreneurial sales partners throughout the world is a fantastic asset. It's all about how you use that in a smart way and how you leverage that physical asset together with the digital product. That's something that I think Polestar and many of startups are very envy of. We are helping Polestar to get, you know, access and value out of that as well.
I'm gonna try it a different way. Some of your premium competitors are basically telling us, "Well, we'll move kind of the traditional dealership to the fringe of the city, and it's gonna be a service center, and the main customer engagement will happen kind of on the high street." Is that something you agree with?
I think people have said that for the last 10 years. I do believe that you're gonna have less physical flow to the retail sites. That's why you probably need fewer. You're gonna have more kind of downtown locations that's relevant. For test driving, you have one of ours is over here, right? Of course, that's something that we continue to build out, sometimes by ourselves, sometimes with our retail partners. We need to be where the consumers are and make it simple for them.
Thank you. Philippe Houchois, Jefferies. We talk a lot about affordability, the recycling value of the car, the battery, et cetera. Today, when you sell a vehicle like this with the battery, how much are already kinda improving the residual value of that car when you price the car? Because we only talk about price parity, TCO, et cetera. The biggest part of TCO is basically reducing the depreciation share of your lease cost. Are you pricing those cars, ICE, BEV, the same way? Will you tell me it would be a three-point difference, a five-point difference, 10-point difference?
This is one of the topics where you should be in country by country and compare, depending what you compare with. We see that the residual values of BEV cars, and if you just go back the last five years, everybody has said that they will be really, really bad and has been proven wrong every second year, right? We get good residual values on these cars. We're having the discussions right now with a lot of the residual value centers and fleet companies and so forth, but we're confident that we're gonna get a good residual value for this car.
The debate on affordability is a false debate. You could actually address that much more aggressively. Or the issue, I mean, if cars live 17, 20 years, you actually realize the value of the recycling is much longer dated. Could you not actually do much more in terms of affordability of EVs already?
Yeah, we can do more, and that's our agenda. That's what I think Erik and Kerstin talked about. I think having a more clearly defined exactly what happens to the battery at the end of life, you know, if it's a second life usage or if it's recycling, and already now setting the financial contract for that and getting that value into now. I think that's a very interesting proposition. It's not been fully done yet.
Yeah. Thank you. All right. We are ready for a leg stretcher, some fresh air, and let's meet here and start at 3:00 P.M. Thank you very much, Björn.
Thank you.
Very well.
Okay. Let's talk about the financials then for some time, starting off with the Q3 financials that we released a couple of weeks ago. As you know, there is a somewhat unstable environment. I still think we have a pretty sound performance. If we look into the Q3 numbers, and this is not a quarter, this is Q3 last twelve months compared to 2021.
We have had a decrease in retail sales volumes due to the fact that we have had constraints on production and supply for quite some time, both driven by component supply, semiconductors, et cetera, but also especially in China, lockdowns due to COVID, and also during the summer, due to electricity cuts in the heat waves in one of our plants, which means that we have had a 15% decrease in retail sales volumes. However, we do see an improvement now gradually. We have had an increase in retail volumes for the last two months, September and October. We have also seen a gradual improvement in the production situation, whereby October actually was the best month so far this year. However, there are still uncertainties and some volatility in the system.
If we look at revenue, however, despite the volume decrease, we have seen an increase in revenue, 8% for this period, which is then mainly driven by a number of things. It's good mixes of cars. We have seen a very good Pricing development on the back of the high demand that we are still seeing, driven by supply, but also in a general good demand.
We have had a tailwind on currency on revenue as well, driven mainly by the U.S. dollar. Also to some extent, we have increased revenue also due to the fact that we now contract manufacture cars for Polestar. If we look at EBIT, we do see a deterioration of the EBIT margin if we look at the Volvo, let's say, core business, excluding our JVs and associates. Especially now during 2022 in Q2 and Q3, we have seen increased costs for raw material. We have also seen, due to the constraints we have had in production, effects from we are buying semiconductors on the spot market, et cetera.
We have seen an increased cost level. Also on the electrified cars, of course, the lithium prices are still very high. If we look also on the currency effects, the positive effects that we see from the U.S. dollar on the revenue side is to a large extent currently being offset by also that the euro is on a very high level compared to the SEK. All in all, somewhat deteriorating margins right now on the back of the raw materials.
However, I think that as we have seen, the more traditional raw material prices have been coming down gradually, and that will over time have an effect in our P&L, although that there is a certain time phasing, which means that it takes a number of months before we really see the effects in our books. On electrified cars, we still see high prices for lithium, et cetera. The high raw materials will continue during the fourth quarter and probably somewhat into 2023. Including JVs and associates, we see an increased margin, but that is then, of course, mainly driven by the positive one-time effects we had from the listing of Polestar during the second quarter this year. Cash flow, operating and investing cash flow.
We see a negative cash flow of SEK 3 billion this year and SEK 5 billion last year. However, to be noted on that is that has been quite largely affected by those that we call pre-IPO transactions or structural investments that we announced already in connection with the IPO last year, which has actually affected these numbers with around SEK 10 billion or even more than SEK 10 billion in 2021, and an additional SEK 8 billion in 2022, mainly consisting of our purchase of the Taizhou plant in China from Geely, some investments in Polestar on preference shares, etc., and also our investments into our ICE JV with Geely Aurobay. Excluding those structural investments, cash flow is positive in 2021 and even more so in 2022.
As you saw the other day, we also have now announced that we are as a part of our strategy and electrification strategy, we are now stepping out as owners of Aurobay and selling our part to Geely Holding, which will be likely finalized this year, which will then also have a positive cash flow effect, both in terms of the shares that we sell and also the shareholder loan that will be gradually repaid during 2023. If we look at ROIC, we see a slight deterioration. Well, that's mainly driven by higher investments during this period. That's then the financial situation as of now, in short, based on Q3.
If we then look a little bit ahead on the mid-decade ambitions, which we are firmly standing by, as we have said, on the 1.2 million cars sold in mid-decade, the 40% reduction of CO2 per car, and an EBIT margin of 8%-10% in mid-decade. How will we then get there? Well, we need, of course, to grow quite significantly during the coming years. What's important also, I think, to bear in mind there is that if we look back in mid 2021, at the time of the IPO, we had on a last twelve months basis, volumes of almost 800,000 cars. Now we are lower, but that is completely driven by the constraints we've had in production and supply and not by demand.
There is a much stronger demand than 2022 volumes sort of represent. We would have sold considerably more cars each quarter this year, having had a normalized production situation. I think that's a good starting point also to understand that the increase, if you will, from that perspective, is not as big as it seems. Further, we are working on securing supply to be able to reach these ambitions. As Erik and Justin and others talked about previously here, we are working on securing battery capacity, for instance, both through our JV with Northvolt, NOVO, and also other supply contracts in order to ensure that we will have battery capacity to reach our volume ambitions.
We are also working on taking steps in regionalizing supply chains in order to reduce sensitivity for disturbances that we have seen during this year and during COVID. We are also working on securing more presence in battery materials, which we will come back to more later when there are more firm things to announce. Also beyond the 1.2 million cars, we are working on securing capacity. We have acquired the plant in Taizhou in China from Geely. We have announced the construction of a new plant, a third plant in Europe, in Košice in Slovakia. We will have capacity also of the mid-decade to go even beyond the 1.2 million cars.
If we talk about demand, we do see a record order book currently in Europe, virtually twice as high as some normalized level, and we still see a robust demand across the regions. There are, of course, uncertainties due to macroeconomic factors that we see, inflation, interest rates, energy prices, et cetera. We need to be prepared, if you will, for different scenarios. Currently, we can say what we see, and we still see a healthy demand globally for our products. We will also, during this period, up until mid-decade, have a very good product portfolio. We will, starting with the beautiful EX90 today, we will release one new electric car each year. We will release a smaller SUV next year, that we have said, and then continuously each year.
Also considering the current portfolio with both our BEV cars and our PHEVs, et cetera, we believe that we have a product offer that will support the growth during these years. Profitability. Björn was talking also somewhat about this recently. I will go into these different buckets a little bit more in detail. We are currently in the last years at an average EBIT of around 6%. We will reach 8%-10% in mid-decade, and how will we do that? I will go into this. We'll see an effect that we have initially some cost for the electrification up until we reach cost parity mid-decade. But we will also see that we will reach cost efficiencies and synergies, both with our cooperations with the Geely ecosystem and others.
We will do the commercial transformation that will increase our profitability, as Björn just showed. We will of course have an effect from the growth on our profitability, and we also will in the outer years have a contribution from our affiliates. If we look into these a little bit more in detail. Cost of electrification. Yes, we firmly believe in our electrification strategy, but currently the margins for BEVs are slightly lower than other cars. Gradually, with each new generation of technology architecture, we will see and due to the technical development and over time, we believe a lower raw material prices, we will reach cost parity in mid-decade.
Cost efficiencies, we talked about earlier in these different areas, through vertical integration in selected key areas, core components developed in-house, et cetera, we will reach a much more efficient cost structure. We will also have efficiencies across the Geely ecosystem, examples being the new smaller SUV, which is developed in cooperation with Geely. We also see with Polestar, for instance, that we have a lot of cost sharing on product development platforms and other common technology between, for example, the EX90 and the Polestar 3. That can also be like synergies in terms of sourcing components, et cetera. Further, the commercial transformation that will drive increased profitability. I will not go into that in that much detail due to the fact that Björn just went through this in more detail.
As he said, it's both about growth, better pricing opportunities, and capital efficiency, et cetera, and over time capturing a larger part of the total value chain. Growth, of course, when we grow, we will have leverage both in terms of coverage for indirect costs, but also over time increased gross margin, because there is always an element of variable cost also in gross margin. We will have an effect just by the growth that we will have in the coming years. On top of that, we aim to reach between 8%-10% Volvo Cars standalone, but we will also on top of that have a contribution from our affiliates, especially then on Polestar and Lynk & Co in the outer years into the mid-decade. That was profitability.
If we look at the CO2 target of reduction of 40%, we are well on track. If we look at what we have done, what we have in secured and decided actions, and also then, of course, as a large contributor, the increased volumes of BEV sales in the coming years, we will be well on track and even more so on the 40% CO2 reduction at mid-decade. Yes, the transformation and our growth journey and all new cars that we will launch will also require quite a large amount of investments.
During this period, up until mid-decade, we will have investments in fixed assets and capex, including digital investments of above SEK 100 billion, in order to secure that we will deliver on our transformation and on our mid-decade ambitions. However, I think it's important to point out that these investments will be fully self-funded by our operations during this period. Finally, liquidity. We have a strong, healthy liquidity position as of now, and we also have a prudent and healthy maturity profile of our different financing. We also have a good mix of green bonds, other bonds, and loans. Going forward, virtually all new financing will be green financing under our green financing framework.
You also see that there is the maturity profile is very balanced over time in the coming years. With that said, that was what I was planning to share. John?
Thank you very much, Johan.
Thank you.
All right. Now it's the time for the last part of the day, and that is the open Q&A. For that, I invite Jim here to join on the stage. We have a little bit change in plans. We were thinking of bringing all the presenters up, but it would be very crowded here. We will direct the questions from our end. Please, the chance of asking questions before we... George?
Yeah. Thank you. I had two questions really with respect to the financial targets. I think the first one was just in terms of mid-decade. I think in Björn's presentation, he slightly alluded to we shouldn't be too dogmatic about mid-decade being necessarily 2025. Does that also apply to the financial targets? The second question I had really was on pricing. Obviously you've shown a fantastic vehicle to us today, and when I look at the pricing, it looks very ambitious. It certainly looks to be slightly higher than the pricing for comparable vehicles from BMW and Mercedes-Benz. Is that what we should think about for Volvo's pricing ambition going forwards? That actually you may be able to price above your premium German competitors? Or is that specific to this one vehicle? Thank you.
I'll let Björn speak on both of the points, one on the midterm ambitions in terms of volume and how we don't become fixated in volume. It's more about adding value. Then obviously on the pricing piece in more detail. Actually, if you look spec for spec against the competitors that you mentioned, then that's actually not the case. If you measure the two specs up, we are actually lower than both of those companies that you mentioned. So on a like-for-like basis. Let me hand over to Björn and take those other two questions.
I think. Does this work? Yeah. No, but I think you actually answered it quite well. We are not planning to position ourselves above, more than the traditional German competitors, but we are planning to position ourselves on par. Premium product, premium price, and given the spec you have in this car, that's how we position it. In terms of the mid-decade-ish, what is really mid-decade? On the volume side, yes, it's a range. Given that we now have had two years of supply, yes, mid-decade might be more on 2026 than 2025. On the margins, I don't think we're giving that guidance right now. Mid-decade is mid-decade.
It's fair to say that we will not prioritize volume at the sacrifice of margins.
Margins are more important than volumes. On the other hand, delivering on our electrification journey is more important than setting, you know, the margins, 'cause if it was more important, we should break some of the electrification journey. That will strategically put us in a much worse situation in the long run. We have a golden opportunity to grow, and we're gonna take that within reasonable margins.
Thank you.
Our data points as well, just to come back on that, the data points that we have right now is we see that internal combustion demand is coming down, whereas BEV and NEV, let's you know put together everything, PHEV, long-range PHEV, and let's call that NEV, and pure BEV are rising rapidly in every single region. That's what emboldens us. See the big issue with transitions in technology is it looks like it's gonna be linear. You see this everywhere. You saw this when you went from a desktop computer to a laptop computer. Were laptops more expensive to start with? People say, "Oh, you'll never get that to the price point that will sell en masse." Guess what happened? The same with cell phones when you had feature phones, and feature phones were much less expensive.
Of course, you go to smartphones, and it looks like it's gonna be a linear transition, and that curve is gonna stay the same. Boom, you hit an inflection point. When you hit that inflection point, it flips into hypergrowth. The people who have had the fortitude and the foresight and the ambition and the courage to put in the capacity knowing that that inflection point is gonna happen, and then they're ready to take the market, those are the companies that win when the technology changes. That's exactly what's happening right now in internal combustion. Is it a little bit more expensive? Yes. Will that price come down? Yes. Will you hit the inflection point, and you'll see it flip? Absolutely. If that's when you make the decision, you're too late. You've missed the market.
That's our entire purpose here, is that we're gonna get ahead of the market, and we're gonna be brave, and we're gonna be bold, and we're gonna be courageous, and we're gonna see it as it flips. You see that when those friction factors are taken away, when you take away the friction factors of range anxiety, of charging speed, of cost, then you have the pricing part of batteries versus BEV, when all that disappears, you see it flip. You've seen that happen in a couple of countries around the world. You've seen it happen in Norway. You actually just mouthed it there. Norway, right. You will see that happen in a lot more countries. That's really the ambition.
I think there is another friction point that is worth mentioning, for all management companies or automotive companies, is that they all sit on big factories producing petrol and diesel engines. So as you make that decision, you also need to take the social responsibility, what happens with all of that into consideration, which is a friction factor in driving the change. It's very important to handle that in a socially responsible way. Now, we're very happy that that's not the job of us. Our job is to deliver a fully electric company. All our ICE asset is now in Aurobay, and per the announcement we made this week, we will fully exercise and sell off the remaining 33% by the end of this year. We have no ICE development. We have no ICE factories.
We don't even need to have that as a mental friction factor as we go into the future. That is a big deal.
Although we've not spoken for five hours, I know. On you go. We'll take another question. Go.
Agnieszka, and then we have Hampus up there.
Yeah.
First off with Agnieszka, please.
Perfect. Thank you. Jim, yesterday you showed us a small teaser for the small SUV, electric SUV, and I just wonder if you could share any color for that. Will it be launched next year? Also, how crucial will this car be for reaching your 1.2 million volumes target? Thanks.
I am so glad you asked that question. Yeah, because I think that's the part that people are missing. Yes, we will launch that product next year. We've already alluded to that. We haven't given details. We have. Despite what you read in the press this morning, we haven't named that car. We haven't put volumes on that car. There's two things to that. Yes, that takes us into a price point and to a demographic that we've never really played in before. Gen Z is coming into the market. Gen Z, 18, 19 years old, they're becoming first-time buyers. That is a fantastic car for that generation. When we offer that on subscription, and you're signing up to three months, that's all you're gonna sign up to on a much more competitively priced product.
That becomes a really compelling offer for that younger demographic, first-time buyer to come into the Volvo brand. They won't, in many cases, even go anywhere near a dealership. They'll look at that three months, that's a pretty good monthly subscription. I can take away insurance and roadside assistance, all that kind of stuff. Boom. Done. Then we find they stay. If we do our job properly, we will keep that customer all the way through. If they need a bigger car, as they have a family and a dog and another car and all that, we will then hopefully trade them up through that. Yep.
If you wanna put some color on it, yes, it will come in gray. Hampus, we take George and Jose.
Oh, sorry. Just as a point to that, the other really important part to that is that's a volume vehicle in terms of that. Back to your other question, which was asked, does that then help get us to the 1.2 million ambition? Of course, because, one, it's a brand-new demographic, and two, it's additive, it's non-cannibalistic to our existing product line-up.
Does it help us get to the 8%-10%? Yes. Hampus?
Thank you.
Over there.
I have more of a strategic question. Introducing this top-of-the-line EX90 model is very interesting, and it's a fantastic car. From a strategic point of view, when you look at your volumes and you look at the EX60 segment, volume segment, family car, et cetera, what was the strategic reason why you choose to go EX90 when coming with a next year battery electric model and not doing an EX60 model? Thanks.
It's a really understandable question. We have the XC40 and the C40, so we're in that segment and we're covered. That's, let's call that a mid-range segment. We already had an electrification play in that, and we wanted to be big and take the flagship and move to that. It's a really important car for us. Obviously, it's a really profitable car for us as well, and so that helped. We knew we were also gonna be topping and tailing the range when we bring out the smaller one within a very short period of time. Then, of course, that allows us to circle back and then fill in the gaps. We said we'll be releasing a brand new electric car every year for the next four or five years. We need to start somewhere.
We're starting with the C40, so the XC40, the C40, the 90, the smaller one, and then we start to fill in the gaps in between.
One additional answer is also what they went through with Generation 1, 2, and 3 of electrical architecture. Clearly, the number three, Generation 3 will be even more cost competitive, and that cost competitiveness is even more important for the EX60-
Yeah.
-than an EX90.
Can I do a follow-up? Is it fair to assume that the next launches you do in battery electric models will the duration be shorter between introducing and being able to take a delivery of the car?
Shorter than-
Yes. Yes.
16 months.
I'm trying to square this mid-
Yes.
Term number.
I get that.
Even if we go in 2026, okay?
Yes.
Thanks.
Your question really is when we release the smaller SUV, when we release that, between release and receive, will it be shorter than this?
Yes.
Yeah.
Okay.
Hi. Thanks for taking the question. You sound very confident when you talk about battery costs coming down. If I look at what the price of lithium is doing, and at the same time, everyone is ramping up their BEV mix aspirations.
Yeah.
What makes you so comfortable that that's really gonna evolve in that way?
We're talking directly to the people who run the mines. We see the new capacity that's coming on. If you look at lithium over the last five years, I don't know, maybe you, Johan, have the exact numbers on lithium, but if you look at the last four or five years, lithium had been pretty flat. Then, of course, a whole bunch of different events caused lithium to spike, supply and demand. Then at the same time, we start to see new sources coming in on lithium, and we're speaking directly to the people in the mining industries. We're confident that direction of travel will be downwards in the next quarters, certainly in the next year.
I don't know if you want to add to that.
No. I agree. I think, yeah, we're excited to say the intelligence that we do have and the discussions that we do have indicates that the prices will come down. Short-term, of course, currently the prices are high, which of course affects the profitability on BEV cars. I also think that we will not be short-sighted in that perspective. We are very, very confident in our electrification strategy, and we believe that that's where the growth and the future profitability will come from. We will execute on that strategy, even if now in an isolated quarter or so, that will have an effect on the very short-term profitability. All right. We have Jose and then Harald. Please.
Question here. Can you talk a little bit around what you consider strength of the balance sheet and capital allocation priorities in the next two years? There's a lot going on. There is CapEx, digital CapEx, there is loans to Polestar, dividend payments, et cetera. When you think about the balance sheet and the use of the proceeds and the free cash flow, what are the priorities for you strategically as a group?
As you say, I mean, we have a very strong liquidity situation and a strong balance sheet as of now. We will need to do investments in our commercial transformation, in our car program, in our digital infrastructure. We will, over this period for some years up until the mid-decade, we'll also have a growth and an increased profitability we will be able to fully fund the investments that we will do.
Polestar, as you commented, we, as we announced the other week, we have decided to, together with the other main owner of Polestar, provide funding support to Polestar for them to being able to deliver on their plans up until and beyond 2023, which is something that we definitely can, without having any effect on our own strategic plans, can afford to do. That doesn't, that's not sort of a prioritization in that respect. That doesn't affect our ability to deliver on our transformation.
I'll just add a couple of comments to that. We're being very, very choiceful and very strategic on where we spend our engineering dollars and where we spend our investment dollars. Back to the comment earlier, what we buy versus what we build. We build the core technology that adds differentiation, and then we buy in really good technology that we think enhances the car, but we don't need to own that. Android Auto, Apple CarPlay, there's 7 billion people in the world who have either got an iPhone or an Android. I don't think we need to build that interface. I think people are used to saying, "Hey, Google," or "Hey, Siri." I don't really think they care whether they say, "Hey, Volvo." I just think they want a really good experience.
The engineering dollars that you need to put into that kind of investment, if you're gonna have your own in-house infotainment stack, is huge, and you need to keep updating it. That's gonna be the gift that keeps on giving if you make the wrong investments in that. You make the right investments in that, you partner up with these big companies that are gonna continue to invest. Of course, Android and Apple spread that over the entire base. Balance sheet wise and our investment wise, silicon is the other thing. We don't make our own silicon. NVIDIA are pretty good at that. Qualcomm are pretty good at that. TI are pretty good at that. The huge investment on fabs and silicon development is massive.
We saw since NVIDIA get into silicon on the car, on the drive system, the first one, Xavier, was running at 40 TOPS. The next one, Orin X, is running at 180 TOPS. The next one, which they've conveniently named Thor, is running at well over 1,000 TOPS. That for us. We just need to know how we harness that computational power that we need to extract the best from the car. You harness that computational power by writing the software between the silicon and the application layer. We're really choiceful about where we spend our investment dollars in that sense.
Maybe to add shortly, the fund solution that Björn was discussing, of course, is also one part of this where we will be able to have a profitable growth on these leasing products without having them on our own balance sheet, which means that we can also to have more balance sheet headroom, if you will, to do other investments. Of course, there is. Yeah, that's also different or other important part of that.
Good. Harald?
Thank you for taking my question. Just a little bit what we talked about earlier in my earlier question. We talked about IRA. You've kept all your targets. In the last 18 months, right, I've never been so busy, right? Every day the world has changed. Every day, right? You know, the interest rate environment is different. The consumer is in a completely different place. You yourselves are in a different place from where you thought you would be. Strategically, you know, we've got IRA. Who knows what the European Union will regulate? You've got the geopolitics with China. You've got the localization of supply chains, which is something we're gonna talk a lot about. The relative profitability of EV versus ICE, right?
Comparing this to what we talked about 12, 18 months ago, which part of the plan, what part of the strategy are you thinking about that you think you might have to adapt? Things are changing, right? The companies are going to have to adapt to those changes to some degree or other. Where do you feel that the changes might have to come?
Do you want to start on the sales front? Because I think the big thing that doesn't change for us is that we've had this in play for a long time in terms of how we're gonna top and tail our existing electrification journey with the C40 and the XC40. We knew that XC90 was coming out. We knew we had a new platform. Of course, we knew the smaller SUV was coming out. That positions us in pretty good space. Does the profitability, the difference between ICE and BEV, remain in place for... The changes to that recently caused a speed bump that we're gonna have to cope with. Absolutely. Right? Everybody's coping with that, right?
Quite frankly, as investors, as you sit here as investors and you're saying, "Hey, we want to invest in the auto industry," what are you gonna invest in, ICE? I mean, even as a consumer, a consumer two years, three years from now, you're thinking about buying a $50,000, $60,000, $70,000 car. Are you gonna put your money into ICE technology knowing where the depreciation on that's gonna go? Yeah, it's a moment in time whereby you're hitting some speed bumps because, as you say, there's a huge amount of change between the war in the Ukraine, the pandemic closing things down in China, rising inflation costs, rising energy costs, rising costs in logistics. Everybody's playing in that. I go back to my earlier comment, right? Technology wins the day, and you need to be resolute, and you need to be focused.
You're trying to ride two horses at one time. I'll keep a foot in ICE because that's giving me profit right now, and I'm gonna wring out those assets. I've got all these people, and I've got all these unionized plants, and I'm frightened about all that stuff. I'm also gonna try and play here and be successful here. Versus this is where we're going. Everybody, the 42,000 people in our company are fully lined up on exactly where we're taking the company. Same as our dealership network. There's a clarity of purpose there that I think drives you through those speed bumps in a much more controlled way than if you're trying to. Would I prefer we didn't have all that going on at the moment?
That is what it is.
Thank you. That's a very good answer, and I wasn't really referring specifically to the product range, which looks great. The brand is very fresh. The way that you're making decisions is very different from your competition. What about, I don't know, even supply chain or your manufacturing footprint and all of those things? You're not thinking about any of those things at this stage.
That's what Erik talked about. Our strategy is very, very clear, and that's the strategy that I think accelerates now. You need to produce where you're selling. You need to source what you produce. Are we there? No, we're not. Do we need to speed up to get there? Yes. That's what we're working on. That's not the change of strategy. That's the further acceleration of what was the strategic direction.
It's an interesting question, though, when you look at it in terms of bifurcation. It's actually trifurcation right now that's happening in the world. You've got bifurcation started with China kind of decoupling a little bit from the rest of the world. Now you've got trifurcation because we've seen you mentioned the IRA, which I'm happy is now called the IRL, considering it's going into law. That inflation reduction law again is beneficial, because it's driving adoption and it's putting in infrastructure investment into the U.S.A., and we're all gonna benefit from that anyway. As we bring out a smaller SUV, we're gonna benefit from that as well because that's when we meet the price points.
Quite frankly, the people who buy that product in the US are gonna be the people that qualify from a household, total household income point of view, so.
I think when we talk about things that have changed since a year and a half ago, we talk about all these disturbances. There are a few structural things that are happening. That's exactly what we were saying. You see the inflection point of BEVs in the world now. I mean, you always get this discussion. You only have two BEVs, the XC40 BEV and the C40. Yeah, that's just a version of it. You have one BEV. Yet, I mean, more than 20% of our order intake is on BEVs. Much more on those two cars. Consumers are fully woke there. EU has legislation that comes with a ban for ICE in 2035. The changes that are happening now are exactly the changes that we said we bet on will happen. We feel quite confident we have the right strategy.
Yeah, it's bad weather right now, but we're going in the right direction.
The other thing, 'cause somebody's gonna ask the question, so I'm just gonna preempt it. Somebody's gonna say, "Well, what about the subsidies that you get from the different governments? This government is doing this and this government." I know very topical given the changes recently, but let me just address that head on. No industry should have to rely on government subsidies to be successful. That was gonna have to go away anyway. You need to get to parity between ICE and BEV as quickly as possible. We think we'll be there by 2025 or so, right? Maybe even before that if the price of lithium comes down even quicker than we think it will.
That's how you gotta be playing this game to say, "I'm not gonna rely on my business model on the whim of some government giving subsidies or not giving subsidies. I'm gonna win this under our own steam and under our own strategy," and we're kind of figuring that part out to get there as quickly as possible.
Thank you.
Okay. Time is running, but we have time for a couple of more questions. We'll take Henrik and then finally Daniel as the last one.
Hello, Henrik Christiansson from Carnegie. Question on the commercial transformation. Which was the biggest error there in your EBIT bridge to reach 8%-10%? During the IPO process, you talked about the importance to build a central inventory to facilitate that transformation. Starting point today, low inventory levels, you have strong demand, you talk about long order books. This battery is not delivered until 2024. The question is, you know, how important is that build a central inventory as a piece of the puzzle to actually achieve those commercial synergies, commercial transformation synergies, given where we start today? You know, mid-decade is not far away.
No, we will come to a point now. Now demand has been here, supply has been here. Demand will come up with macroeconomics and supply will come back. We will be in a situation again where the industry has inventory. It's important that we don't build that up in thousands of places, we build that up in a streamlined way, so you don't get the wrong car in the wrong place at the wrong point in time. That's our strategy. It's a meaningful part of the whole benefits that we're gonna get out of the commercial transformation. You're not seeing it right now because you're seeing record high margins with this demand and supply imbalance that we have. By mid-decade, I'm fairly sure we're not gonna have a supply constraint in the industry again.
On the centralization of inventory, the hidden part of that which you often don't see is not so much the inventory holding cost of holding inventory. Holding little deposits of inventory in a thousand places around the country or around Europe is sub-optimized because you never have the right car at the right time when the customer comes in. Centralized architecture allows you to do that. The biggest thing, the biggest benefit you get is you don't get discounting. Because when you're sitting there and you're a small entrepreneurial dealership, and you're trying to run cashflow, then you're tempted then to try and offload those cars that the customers might not want, but I'll take it if you discount it for me, and that won't happen anywhere near as much.
You really get the benefit in terms of brand value and keeping the brand value up, but you also get the benefit of non-discount.
Okay, we have one mic to Daniel here. Yeah.
Thanks. Daniel from Bernstein. Jim, could you talk a little bit about your relationship with Geely and where you see kind of the biggest opportunities there for the next decade? Then maybe for Johan, kind of the flip side of that, right? Where do you have the scope as Volvo to demonstrate your independence from Geely to the markets? Could you maybe talk a little bit, you know, related party transactions, I don't know, the debt issuance, free float, any hope? Kind of the opportunities for Jim and the headache for Johan.
Yes.
He would say that's always the case. Of course you know that by the way. First of all, let me start with independence, 'cause then he can pivot in on that. We're an independent company. We floated, as you know, and we registered in the Stockholm Stock Exchange, and therefore, we are guided and governed by all the rules and regulations of being a Swedish company. We have ownership from Geely, for sure, and that gives us a couple of benefits. One, because we can aggregate the spend power and the leverage in terms of supply chain spend and supply chain architecture, we're allowed to tap into that as Volvo. We get the benefits of being part of a bigger group without having the drawbacks of losing control or losing independence. That's a positive.
The second positive to that is it allows us access to an infrastructure within the Chinese supply chain that we probably wouldn't have had access to in quite so meaningful a way in the past. You combine both of those things together. That brings us the leverage that we wouldn't get if we were just Volvo. It also brings Polestar those same benefits because, of course, they leverage off the benefits that we get. We run our company completely independently. There's no team orders, as they say in F1. We go after a certain demographic. We go after a certain market and, you know, they play in a different swim lane from what we do.
Yeah, I guess I don't remember what the question was now. But as you say, I mean, there are a lot of benefits of course. I mean, that can be product development, cost-sharing, that could be sourcing, that could be. I mean, we already have the CMA platform on the current BEV cars is being developed together with Geely. We have a lot of projects together with Polestar, where we share product development and have commonalities between the cars, et cetera. Of course, I mean, all those are related party transactions, if that was the question. Of course, we have a thorough process to ensure that they are always on arm's length, et cetera. It doesn't have anything to do with that.
It's on market terms, but it's more that we get synergies due to scale rather than anything else.
All right. That concludes the Q&A. I'll leave the floor now to Jim for some ending remarks. Thank you, Björn and Johan. Yeah. See you.
Thank you.
I'll be real quick in the closing remarks, and then I'll hand over. Maybe you can just then bring the day or the almost whole day now to a close. I'm gonna start where we ended up partly through that conversation at the Q&A, which is my firm belief is at the end of the day, technology wins. It usually always does. Sometimes you've got some speed bumps that you need to get through. Sometimes you have a little bit of delay in the adoption of that technology. There's a good reason why everybody here probably has at least one smartphone, and you're not running out looking at a pager, and that's because technology won the day on that specific topic.
The same thing is absolutely happening in the automotive industry or next generation mobility, which would be a more accurate term. It's nothing to do really with electrification. This is the nomenclature that we've used in order to describe what's actually happening in the industry at this point in time. The nomenclature of electrification only covers the tip of the iceberg. The big profound change is obviously the move towards core compute technology, the understanding the silicon and the silicon layer, which is the computational layer of the product itself and of the infrastructure itself, and of the whole economic environment that new product is gonna operate within. If you don't understand silicon and you don't understand software, then you are not gonna be a winner when this thing shakes out.
That's why it's not really just about us saying we stay in electrification. By forcing ourselves to stay in electrification, we force ourselves to stay in those conversations with those suppliers around silicon, around software, around connectivity, around cloud, around data analytics, computer science, and all of the things that are being poured into this at the same time. There's no way you can deal with all of that and be focused on all of that and have one foot still being an internal combustion supplier. Doesn't matter how big you are, doesn't matter how rich you are, doesn't matter how deep your pockets are. I just don't think there's any way you can be successful. You guys are investors, right?
You've got to figure out what you're gonna invest, where you're gonna take people's pensions monies and invest it in and say, "We've got to invest this for the long term," 'cause this is gonna be the next generation of mobility. This is a moment in time. It's a pivotal change. It'll take two, maximum three years to play out. The theory of the oligopoly will absolutely be in play within three years. You'll have the winners and you'll have the losers. You'll have a mushy pool in the middle that are neither winners or losers that are slowly gonna claw their way to try and stay in the game. They're gonna be competing on price. They're gonna be competing on non-specific products. They don't have the technology 'cause they never invested in it early enough. Then you're gonna have the clear winners.
That's how we think this whole thing is gonna play out, and that's the technology side. On the customer transformation side, as you know, I don't come from the automotive industry, I come from the tech sector, and consumer electronics. It was very strange for me in this industry that you sell somebody a $40,000, $50,000, $60,000, $70 ,000 product and you never speak to that customer. You don't speak to that customer presale. You don't speak to that customer post-sale. Yet it's probably the single biggest purchase that they ever make in their life beyond their house. Because everything went through the dealership network. Quite often, that dealership network was selling more than just your product. It was selling your competitor products.
You're in a landscape where you've got to try and make sure that your marketing is strong enough and powerful enough that when that would-be customer walks into that dealership, they say, "I just want a Volvo. Don't talk to me about anything else. I just want a Volvo." "Now we'll get a really good deal on this car, or we'll get a really good deal on this." "No, I just want a Volvo." That's really tough to get marketing that's that strong to do that. Unless you have a direct relationship with the customer at point of sale and then presale and post-sale, you can keep that relationship going, I think it's gonna be very difficult to be relevant in the new world.
If this, if that wasn't enough, the new demographic, the digital natives, the Gen Z who are gonna come into this market and be the most powerful consumers of the world ever, they shop online and they expect to have two things. One, a direct relationship with the end supplier, the OEM, let's call it. They also expect that direct relationship to be with a meaningful company that does genuinely care about safety, sustainability, and human-centric technology. I think we tick maybe not all of those boxes, but we certainly tick a lot of those boxes. That's why I think our strategy will need to be sharpened up. Back to that point, the strategy shouldn't change it every month or every year. It needs to be sharpened. You gotta be really clear.
This is where we're taking the company, and you gotta get everybody faced in that direction. I think we've done that at Volvo. I think our sales, our customers, our suppliers, and our dealership network understand exactly where we're taking the company. That gives us some clarity of purpose, and it gives us some sure-footedness of where we're headed. With that, I shall hand back to Johan, who will bring us to an elegant close, no doubt.
Now, I just want to thank all the presenters for a fantastic day and the Volvo team for making this possible. Of course, all you visiting here and your interest, your questions, and interest in Volvo Cars, as I said. We have all this recorded, so online you will find the video, you will find the material being downloadable, et cetera. As always, if there are any questions that haven't been answered, just reach out to the investor relations team, and we'll be happy to help you. Now it will be some time also afterwards to stroll around the car and hopefully we have a couple of designers there to answer your questions as well. From my side, just thank you very much for coming and look forward to seeing you again. Thank you.