Hi, all of you, and a warm welcome to the pre-close call prior to the Q2 report for Volvo Cars. It's 11:00 A.M., but I can see and hear that people are still joining, so we'll give them some additional 30 seconds before we start. While waiting, I can inform you all that this call is going to be as per usual. We will start by talking a bit about the macroeconomic environment, then followed by more Volvo Car specific. After that, we open up for a Q&A, during which you can ask questions, of course. If you would like to ask a question, please use the Teams function, raising your hand, and we will hand over the word to you. Now it's one minute past 11:00 A.M., so let's start. As I said, we will start with the macroeconomic environment.
The global macro environment has remained challenging through the second quarter of 2026, with continued low visibility across key regions and no clear based improvement in consumer sentiment. In the euro area, consumer confidence showed a slight rebound in May but remained clearly subdued. The European Commission's May flash estimate showed euro area consumer confidence at -19, up from April, but still well below its long-term average, underlining continued household caution around purchasing power and the broader economic outlook. In the U.S., consumer sentiment weakened further during the quarter and remains soft in historical terms. The University of Michigan's Consumer Sentiment Index declined to 44.8 in May, down from 49.8 in April and 52.2 in March, reflecting continued pressure on household confidence, affordability, and expectations for the economy. In China, macro conditions have remained uneven, with continued fragility in household consumption.
The auto market also remains highly competitive, the overall total industry volume declined sharply in April and May, further weighing on volumes. At the same time, Chinese manufacturers continue to expand internationally, increasing pressure in overseas markets, including Europe. Looking at the entire industry, S&P Global, in their most recent forecast published in April, in which the global premium segment is now expected to contract by 4% in 2026, compared with the 0.9% decrease forecasted in February. The U.S. premium segment is expected to contract by 5% in 2026, Europe to contract by 4%, and China premium market to contract by 6%. Moving over to more specific Volvo Cars, starting with revenues. Reported retail sales for April and May showed a 9% volume decline quarter to date, with April down 11% and May down 7%.
As a reminder, wholesale volumes, rather than retail sales, are the most relevant input when assessing the volume impact on revenues. As we communicated throughout 2025, we continue to aim for a balance between retail deliveries and wholesale volumes. FX remains a headwind, although current spot rates suggest a smaller effect than in Q1. Discount levels remain elevated and are typically somewhat higher in the second quarter, reflecting the introduction of the new model year. When moving over to gross margin, gross margin continues to be affected by elevated discount levels as well as a phaseout of the 2026 model year. Freight costs have increased, mainly driven by higher crude oil prices. Sequentially, car line mix is slightly weaker, with a smaller share of XC60 and S90L.
Due to the delayed financial impact of higher raw material costs, Q2 is expected to be impacted to a greater extent than Q1. As a reminder, Q1 EBIT was positively impacted by the usual seasonal inventory buildup. For EBIT margin, as seen during 2025, depreciation and amortization have increased compared with 2024 and are expected to continue rising as we launch new and updated products. The start of production of the EX60 was during the second quarter of 2026. Following the debt-to-equity conversion in Polestar, the book value of our holdings is now above zero, and as a result, we will again recognize our share of Polestar's net profit or loss with a one-quarter delay. This means that we will start accounting for their net income in Q3, and our current holding in Polestar amounts to 19.9%. Last but not least, free cash flow.
Historically, Q2 typically shows stronger seasonal cash flows than Q1, and as Q1 is usually impacted by inventory buildups. Free cash flows continue to be affected by ongoing investments, including the SPA3 platform and the finalization of the Košice plant, among other items. That was all for us right now, and we will open up for questions. Again, if you would like to ask a question, please use the Teams function, raising your hand, and we will hand over the word to you. Yes, Agnieszka, please go ahead. Agnieszka, can you hear us?
Now, can you hear me?
Yes. Now we can.
Oh, sorry. Yeah, I was muted. Could you please give us some more detail behind the financial impact from recognizing the Polestar earnings from Q3?
Yes, absolutely. Since the value is now above zero again, we will start recognizing them. Since Polestar report later than we do, we will do it with a one-quarter delay, meaning that in Q3, we will take in their Q2.
All right. That will be then the 20%, so to say, of their-
Yes.
Reported earnings. Okay.
Yes, or 19.5.
Yeah. Perfect. Maybe if you could provide us some more details around the raw material impact for you, what's the main raw materials that are impacting your earnings and if you see any impact on the supply chain as well due to the Middle East situation?
Yes, we're starting, obviously, to see impacts on the higher raw material cost. Raw material started rising already during the fourth quarter of 2025, and has continued staying on fairly high levels. That said, we are, of course, hedged to some extent against it, but as the longer we go, the lesser the impact from the hedges are. Apart from that, we haven't guided or said anything more.
Thank you.
Harry Martin.
Hi. A couple of things. The first one, in the May retail sales, the big decline was in the ICE models. The BEV still did okay. Is that a function of the fuel price? Is that a function of simply the model changeovers and the internal changes that you're doing? Any kind of read that you have on that one would be useful.
The biggest collapse might not be the right word, but there was basically a collapse in the Chinese ICE segments in April and May. That spilled over to us, of course.
Okay. That makes sense. You gave the updated S&P premium segment numbers. Would you still expect to outperform those numbers?
Yes. So far, yes.
Okay, great. Do you have any updated comments on the EX60 order book or production schedule compared to what you talked about at Q1?
No, no real update, and we haven't communicated anything about the order book other than orders are coming in in a faster pace than expected. In addition to that, I think we said when we published the Q1 report that we can also see that the orders coming in are with a better margin on those orders than expected. That's positive. In terms of volumes for the full year, it's what we've also communicated in the past, the 40,000 cars, and we haven't changed that forecast for the EX60.
Great. Thank you very much.
Thank you, Nikita.
Hi. Good morning. Thanks for hosting this call. A couple of questions on my side. The first one, you said D&A should increase like it did 2025. Any comments on how this should evolve compared to Q1? I would say that because of the start of EX60 production, D&A should also increase sequentially, right?
We usually don't guide so much in details on those items, I don't think you should expect a major increase in Q2 versus Q1.
Okay. The second one, I think you commented earlier that H1 should be lower than H2. Do you still stick to this guidance?
Yes.
Okay. Anything on your cost savings in Q2? Should we expect similar magnitude in Q1?
Yes. A majority of the activities was in H2 last year, so you saw the flow-through effect in quarter one, and you will see that also in quarter two.
Okay. Yeah. Anything on your other lines in revenues? It's bumpy sometimes.
No.
Not on revenue. You can see the spot rates have been more favorable to us in quarter two than it was in quarter one, so the year-over-year effect would be smaller. Otherwise, the quarter should be fairly clean in terms of revenue.
Okay. Last question, I think I didn't get your comment on the mix impact. Could you maybe repeat this?
Yeah. We have some more BEVs in quarter two than we had in quarter one, less S90s and XC60 than in favor of some of the BEV cars.
Perfect. Thank you so much.
Sure. Thank you. Mattias?
Yes, thank you. You flagged the wholesale as the most important input. I know that you've talked over the past couple of quarters how wholesale should be tracking close, I think, to the retail sales figure. Could you give us any commentary on how would you think about these two in relation to each other?
Not other than that we expect them to be on par in each quarter for this year. It's also always difficult to know that exactly before the closing. It could be that a boat is late or something like that. The aim for all quarters when we began the year was that they would be on par.
Thank you.
Ross MacDonald, please go ahead.
Yes. Hi there. Hopefully, you can hear me. Apologies, I'm away from the model, but thanks very much for doing this call. Just be interested if you could maybe give a little bit more color on the EBIT margin trends, maybe year-over-year or quarter-over-quarter. It sounds like, to a lot of the questions, there's a lot of negatives here in terms of mix, volume, incentives, FX, and D&A, maybe the key offset being the self-help. How should we think, given that quite negative picture, how should we think about margins, maybe sequentially versus the 2.2 you did in Q1, or maybe year-over-year? Do you think margins will be down year-over-year versus Q2 2025? Thank you.
When we write the script, of course, we write it for the quarter that we're talking about, and this time it's quarter two, and we have mentioned a number of items then that have developed negatively, most of them in relation to quarter one. Hopefully, that will give some kind of indication of where we're headed.
Got it. Thank you very much.
Yeah. Pushkar?
Hi. Thanks for taking my calls. Just a few clarifications. I think at Q1, I don't know the exact wording, but the indication was that Q2 would be weaker. I think that's sort of the message that we should take also from today's call as well, right? That Q2 is weaker than Q1 based on the headwinds that you've mentioned.
We don't do short-term guidance. What we said in Q4 in Q1 was that the first six months of 2026 is weaker than the second half of the year.
Okay. Good. Understood. If you could just, I probably missed this, your comments on incentives and discounts, if you could just repeat that would be really helpful.
Sure. In quarter one, we saw basically the same levels as in quarter four. During quarter one, we saw indications that the orders on the cars that were taken then were a little bit more discounted than the ones in quarter four. Meaning that with the delay that we have, quarter two then would be impacted a little bit more maybe than quarter one in terms of discounts.
Okay. Understood. Just on the cash flow side, and particularly inventories, I think you mentioned the seasonality aspect of it, but there was also this communication earlier that H1 would be sort of impacted by inventory buildup. I just wanted to understand, Q2 versus Q1, if you can comment on how inventory has evolved Q2 versus Q1.
Yeah. I think you should expect that seasonality will be here for this year as well. In Q1, we normally build up a lot of inventory, and Q2, we do not. You will see improvements in working capital in Q2 versus Q1, which is usually the case for us every year.
Okay. Then maybe, probably just a final one. You start EX60 deliveries towards the end of Q3, right? For June, we shouldn't expect sort of a improvement in your retail sales run rate. Is that fair? Is this a fair assumption? All things remaining equal.
The growth is expected to be in H2, and we're ramping up the EX90, we're ramping up the XC70, and then you have the XC70 and maybe a few other things in H2. Yes.
Okay, cool. Thank you.
Let's see, Keegan.
Hi. Yes. I think you've alluded to this already, but just to be clear, there are no special items to flag, both on a P&L and cash flow perspective?
There can always be special items in a quarter, but we don't communicate them before we have seen the numbers and so on. There are usually a lot of things that can happen the last week, actually, in a quarter, so it's difficult for us to say that right here. Yep, okay. Any additional questions? Yeah, Owen?
Hi, just a quick one from me. Just is there any color on specific regions that you're seeing the discounting in more than others?
China is tough right now with the volume collapse that they had now in April and in May, so China is tough, of course. So far, the ICE segments in China have kind of developed fairly well, and we have kept our market share, and the volumes have been fairly stable in that segment. Now also that went down, and that is, of course, very negative for us.
U.S. is a little bit more stable now. You have strong pricing power from us in Europe with a lot of growth in the BEV segment.
Okay. Interesting. Thank you.
Thank you. Any more questions? Doesn't seem to be any. Well, thanks all for listening in. As always, if you have any additional questions, please reach out to us within the IR team here. Hope to see you all on July 17th. Thanks all, take care. Bye.