Welcome. Let's start. As usual, we will start with a written statement from our side, then we will continue with a Q&A session, during which you are free to ask questions, of course. We will start with a macroeconomic summary. 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 it remained clearly subdued. The European Commission's May flash estimate showed Euro area consumer confidence at -19.0, which is up from April but still well below its long-term average, underlining continued household caution around purchasing power and the broader economic outlook. Moving over to the U.S., where consumer sentiment weakened further during the quarter and remains soft in historical terms.
University of Michigan's Consumer Sentiment Index declined to 44.8 in May 2026, 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. Moving over to the industry. S&P Global's most recent forecast, published in April, 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%, China premium market to contract by 6%.
Moving over to more Volvo specific, 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 revenue. As communicated throughout 2025 and the beginning of this year, we continue to aim for a balance between retail deliveries and wholesale volumes. FX remains as a headwind, although current spot rates suggest a smaller effect than in the first quarter of 2026. Discount levels remain elevated and are typically somewhat higher in the second quarter, reflecting the introduction of the new model year. Moving over to gross margin. gross margin continues to be affected by elevated discount levels as well as the phase-out 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. Moving over to 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. Start of the production of the EX60 was during the second quarter of 2026. Following the debt-to-equity conversion in Polestar, the book value of our holding is now above zero. 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, our current holding in Polestar amounts to 19.9%. Last but not least, moving over to the free cash flow. Historically, Q2 typically shows a stronger seasonal cash flow than Q1, as Q1 is usually impacted by inventory buildup. Free cash flow continues to be affected by ongoing investments, including the SPA3 platform and the finalization of the Košice plant, among other things. That was all for me right now, we'll move over to questions and answers. If you would like to ask a question, please use the Teams tool to raise your hand, and we'll hand it over to you. Thanks, all. Mattias, please go ahead.
Hey, team. Thank you very much for doing this call. I have two small questions, if you don't mind. Just one clarification on one of the things that you mentioned before. What I don't really understand or what you mean or try to say is- You mentioned there are slightly more discounts in the second quarter because of the model year changeover. That's something I don't really understand why that is the case, or did something happen during the quarter? Is that every year? Yeah, would love to get a little bit more color on that. Then my second question is just on the emission credits. I think that one was a little bit lower again in the first quarter, I think SEK 370 million, if I'm not wrong. Compared to in 2025, it was quite a bit higher every quarter.
Would this new, let's say, I don't know, low to mid triple-digit number be a good ballpark for the rest of the year, or was it unusually low in Q1? Yeah, any color there. I think it's still an agreement you have with Mercedes, yeah, would be interested in that. Thank you very much.
Okay, let's start with the model year and discounts then. See it from the consumer perspective. If you have an iPhone 16 and iPhone 17, and you just introduced iPhone 17, you will not be able to sell the iPhone 16 at the same price. Those have to be discounted if you still have some cars, in this case, then in inventory. That happens every year, not only in week 17, it could be also sometimes we have model year introductions in autumn, week 46 is the normal week, I think.
Okay. It's not the case that the pricing in the second quarter is just the net pricing, everything together is weaker than in the first quarter. That's not necessarily the case, or?
Well, that is basically an effect of it, I think.
Okay. I understand. That's very helpful. Thank you.
For the CO2 credits, we haven't really said anything more than that we expect to sell CO2 credits throughout 2026 as well. It is a bit unevenly spread over the year when we can account for them. We had a similar situation last year when we, in Q1, didn't take in any of the CO2 credits, and instead took it for the entire first six months of 2025 in the Q2 report of last year.
Yes. Would you expect something similar then this year?
I think what we said there is that the full -year amount is going to be lower than 2025, but it's going to be higher than if you take the numbers from Q1 times four .
Yes. Okay. No, very clear. Super helpful. Thank you very much, team. We appreciate it.
Jose. You're on mute, Jose.
Thank you, Martin. Thank you. A question, sorry if I'm repeating, and if I already asked, just skip to the next one. I can read the notes. What has been said with regards to maybe CapEx first half to second half, to what has been said with regards to cutting fixed costs? I think since came in, you had more clearly actions to lay off, reduce the workforce and just consultant take down fixed costs. Where do we stand with the fixed cost reduction plans when you think about Q1 and into Q2?
Sorry, Jose, could you repeat the question? You're continuously breaking up, so it's a bit hard to follow.
Yeah. CapEx first half, second half, Q2, Q1, any comments provided? Second, fixed cost action on the labor front. Last year, the big surprise in the second quarter was the ability you had to reduce the fixed cost base and adjust the fixed cost base to lower volumes. Where are we standing with the fixed cost reduction plans for 2026, and what has been said with regards to Q2 in the past month of Q1?
You're breaking up a little bit, let me guess a little bit of what you're after.
Thank you.
If we start with the investments, then what we said is that H1 is going to be a little bit more elevated than H2, since we still have continuous investments in the Košice plant, and that will be finalized in the end of the year. Elevated investments in H1. When it comes to fixed cost actions, then, in Q1 you saw the flow-through effects of the actions taken in 2025, and that means that you will continue to do that in quarter two for this year. Beyond that, we also said that we have the ambition to lower cost with another SEK 5 billion for the year. We haven't provided a split really between fixed cost and variable cost on that part.
I think most of that is going to be delivered on the variable part, and I think you could expect those effects to come in in H2 and not in H1.
Hopefully you can hear me, or I'll get my microphone closer here. I'll try to make this work. Have there been any comments on the sequential volume increase second half versus the first half as a result of the volume launches and the inventory build-up in the first half?
Not so much. I mean, the obvious growth factor is of course the EX60 for H2. Also, we have ramping up still on the EX90 and on the XC70. Those are the biggest contributor. EX60 is of course the largest one.
Have there been any comments, again, in the last month regarding the high oil price? We have heard from other car companies in this regard that the compact electric vehicle segment is being boosted, and order backlog in effect going higher for some vehicles. Is this something you have mentioned?
Breaking up a little bit. I think your question was related to freight costs. Those are going up sequentially quarter two versus quarter one. You also see increases in cost in raw materials.
The question referred to an increase in electric vehicle order intake. Are you seeing that? Are you seeing an increase in order backlog, in order intake? We have heard comments from other car companies in this regard that high oil price is driving up electric vehicle demand for orders to go higher.
Absolutely, that has been widely communicated throughout the industry, we see that of course as well. What we've said so far for this year is not so much related to that, but we see an increase in order pace on the electrified products. Of course, that conflict doesn't take away those orders. It's rather that they build up even more.
Got it. One more from me, I'll hand back to Mattias. When I think about the working capital move first half and second half, you have communicated, right, I think working capital is negative in the first half, we're supposed to see second half inflow, what could be the margin for that?
What we said, I think, is working capital should not contribute to an increase in free cash flow 2026 versus 2025 for the full year, you should see an improvement in working capital in quarter two versus quarter one, which is always the case since we build up a lot of inventory in the first quarter.
Thank you.
Okay. Thank you.
Mattias, welcome.
Yeah. Sorry, one last question on my side. It's also a little bit just working capital related, and then one of the comments you made on the free cash flow as well. In the first quarter is always very negative in terms of working capital, in the second quarter, usually it snaps back. On the other hand, you're now building up also a lot of inventory, probably, but correct me if I'm wrong, for the EX60. Would we expect the normal pattern to hold, where Q2 should actually be a relief in terms of working capital, or does that change with the EX60, you would say?
No, you can assume that pattern is valid also for this year.
Okay. Got it. Super helpful. Clear. Thank you very much.
Sure.
Thank you. Any other questions? Jose, do you want to add something more or just- No? Okay.
Thank you.
If no further questions, thank you so much for listening in, and, as always, please reach out if you have any further questions later on.
Thank you very much.
Take care. See you on the 17th.
Have a good day. Thank you.
Thank you.
Thank you.