Welcome to cloudy Gothenburg and the Volvo Group Capital Markets Day 2022. It is great to be back again. It is 18 months since last time, and what a period it has been. The world has been faced with more than one crisis, but with at least the pandemic improving, it is great to be able to welcome a live audience again. So a special welcome to all of you joining us in our studio here in Gothenburg and also, of course, a welcome to all of you watching online. The last period has truly been challenging, but we within the Volvo Group, we have been able to ride the storm and also make considerable progress. We are in a strong position, and we are geared for growth. We think it is time to start to view our industry differently.
Because if you think about it, decarbonizing our customers' businesses will provide us with remarkable business opportunities that will allow us at Volvo to make a real step change. With growth as our main topic today, let me welcome Martin.
Thank you, Kina. Also from my side, it's great to see all of you here in Gothenburg today. It has been a while since we have had different type of audiences back at the headquarters. Now we have been able to welcome customers and suppliers and other partners, and now also all our friends from the different areas of the capital markets. Great to see you. Of course, great also from my side to see everyone on the web here. As Kina alluded to, it has been since we actually met in November 2020, then virtually, of course, a very specific period. I think that we, at that time, even if we were eight, nine months into the pandemic, could not understand all the different challenges that still should prevail.
I mean, it has been two and a half years now of, I should say, unprecedented global challenges. Despite that, I'm very proud to stand here to say that the group has continued to grow, to show strength and resilience and also to perform when it comes to the financial metrics. What is really positive in this turmoil is despite this, the journey of decarbonization and sustainable solutions in different sectors are not only continuing, but as a matter of fact, partly also related to this accelerating. As we say in Sweden, this is the time when the wheat is separated from the chaff, or to be more international, maybe when the strong and the best are separated from the rest. Welcome to the Capital Markets Day 2022 for the Volvo Group.
We are geared for growth.
Thank you, Martin. Let's get this show on the road and join our colleagues by the table.
Absolutely.
Hello, colleagues, Tina and Jan, and maybe Tina, a special welcome to you. You are of course a familiar face to us, but maybe new for some in the audience. Martin, we said it has been a tough period globally.
Mm-hmm
We are in a good shape. What has enabled us to get to this point?
Now, I mean, we always talk about it, but for me, it's very clear that it's all about people, it's all about colleagues. We have seen, I mean, the relentless work that has been done now over the last, as I said, 2.5 years, of course, before that as well. This period has been very special to us, both, I mean, just keeping the right priorities when it comes to health and safety, when it comes to customer focus, and still also having the eyes on the ball when it comes to actually continuing to have a strong resilience. It goes not only for our colleagues, it goes for all the partners. We feel that we have strengthened the relation with customers and suppliers.
For me, it's coming back to how we are working together as a company, our values, our operating model. I'm a strong believer in a decentralized organization, where the P&L, the profit and loss responsibility, the balance sheet responsibility is very close to where the magic is happening. We have seen that is working in this type of environment when you need to take a lot of different type of decisions, quickly. You can summarize that, decentralization, because I often get the question, what does that really mean? I say that we are operating with two principle basically in this company, that, the principle number one is that every business area, every region, market area, they are responsible for their customer satisfaction, their growth, and their profitability.
Principle number two, they can utilize whatever they like in the Volvo Group to improve number one. It's not more difficult than that, because then you're creating pull instead of push, that we are sitting here at the headquarters and telling everyone what they should do. That is what we see now, speed, agility, but also this can-do mindset that is really in the DNA, I feel, of the organization, and you will hear more about it today.
Indeed. Tina, among the four of us, you're actually the one who has been the longest with the company, believe it or not. Your view on the cultural change?
Yes, I have actually seen this company for quite a few years, 24 years, to be honest.
Impressive
When we do the calculation. Yes. I think as a company, we are much more aligned than what we used to be. We are also stronger on owner's mentality, which for me, as a CFO, is great, because it means that we are more disciplined in cost and price management, but also in capital allocations. It is not only about the financials, it is also about the people, and I think everyone in here knows that a company with stronger earnings and with financial stability more easily attracts the right talents and the people that we really need.
Absolutely.
Jan, our strategy still holds as well?
Yeah, I think so. I think we, when we go back to 2015, we all remember when we set the strategic framework with a pyramid with seven strategic priorities, and I think the strategy has served us very well, actually. We did in 2020 an update. We called it internally the Vision 2030. We were looking a little bit ahead. We saw that maybe clearer than 2015 that the transformation was coming, actually. An update, but also we kept the consistency as well, so you will recognize a lot of the things are the same, the base is the same, but more focus on the transformation. I think if you look upon it, transform to become a leading end-to-end transport integrator is one typical area, I would say, that is emphasized more than before.
When we look into the end-to-end transport solutions, it extremely important, obviously. When we talk about the product portfolio, service portfolio, desirable and sustainable as well. Obviously what we have talked about for quite some time, how we continue to focus on services and solutions as well, and I think you will see a lot of examples of that, during the day.
Mm.
It's interesting to see also, I mean, the pyramid, we discussed that during the update, should we change anything? I mean, I have to say that it's very well-balanced actually. A clear mission, driving prosperity, and I love the word prosperity through transport and infrastructure solutions, and all the way down to our values and our way of conducting business. I think that is holding together in a smart way and putting the framework without putting the limits, so to speak.
Jan, would you say that it is our strategy that has enabled us to deliver on our financial ambitions?
Absolutely. I think what we recognized quite a few years ago was that we didn't have the profitability that the company like this should have. We were in low single-digit figures in terms of EBIT margin. We had a far too high volatility in our earnings, in our cash flows, and we also saw that there were room for improvements when it comes to the capital allocation as well. If you look upon it right now, I think we can say that when it comes to these three things, I think we can say honestly that we have actually ticked the boxes on these three. We also added on, I think it was a year after these three circles, we also added on that we would continue to invest in business model innovation and new technologies as well.
As you can see here on the slide, it's actually so that we haven't ticked that one, and we will never tick that one firmly, because it is always a question about being in constant motion, and we need to develop all the time. I think what we can say is that what we have talked about before, we are delivering, and I think you, once again, will see a lot of examples of that we are leading this transformation, actually.
Martin, we have deliberately left some space on the right-hand side. Maybe you would like to reveal what's gonna come.
No, I mean, first and foremost, I think, Jan alluded to it, when it comes to business models, when it comes to innovation, when it comes to new technologies, we are not doing that for the sake of doing it. We are doing it for satisfying the needs for our customers, their customers, and for society at large. What is happening now with the decarbonization journey is, of course, that the whole innovation here is a great opportunity for us also to drive growth. Because the whole industry dynamics that is happening right now with the electrification and with autonomous type of solutions, et cetera, is driving growth in another dimension that we are used to, and that we will come back to.
If something that you should maybe remember during these couple of hours is that we are moving more and more from a unit count to a content count, since also the diverse type of product portfolio is making it difficult to have a unit count. Great excitement about these opportunities ahead now, and we wanted also to have this consistency when we talk about the value creation journey for Volvo in terms of the capital markets as well.
What we're saying is that the fifth ambition.
Mm
is a consequence of the fourth, basically.
Absolutely. They are linked. Because the growth, of course, will continue in the underlying demand and company-specific opportunities in the current business, we'll talk about that. The great step change here is, of course, the decarbonization, and leaders lead.
Jan, I would like to bring up an old favorite slide.
Ooh.
The magic one with the dots, our product portfolio. How does our approach to product portfolio management benefit us going forward?
I think first and foremost, I know that you, out in the audience now, and many of you on the web, you are still wondering which one are the red ones. I will not tell you which ones they are, actually. Because if we go back some years when we started this discussion, which ones the red ones are, they have changed over time and they change over time as well. Many of the red ones, they are turned into yellow, into green, and some of them actually turned into dark green as well. This is a methodology that we work with.
I think we have some very good examples of activities where we have improved quite a bit. We have UD Trucks, a fantastic turnaround that has been made, that also then formed a basis for our alliance with Isuzu, and also then obviously a good transaction end of the day of UD. I think to lift another thing, or two other things in the truck business is actually when it comes to medium-duty trucks, both in Europe and in Brazil as well, for Volvo Trucks, has actually moved up quite a bit on this ladder. What we need to do now going forward is obviously we need to continue. We are not done. We have some actually assets that are still not performing in the way they should do, that are still red.
We need obviously to take care of that. When we are in this transformation, it is maybe even more important than what it was before. Because with all the things that we need to do going forward, the assets that we need to allocate going forward into the transformation, we need maybe to be even stricter actually, when it comes to, call it the low-performing assets, actually. We are shifting the bar upwards. Something that was maybe yellow one year ago, maybe suddenly turned red, even though the performance is not getting worse. I think this with capital allocation going forward is quite important. The model in itself serves us very well.
Mm.
I mean, that's the beauty also with crystallizing the different type of performance through decentralization. I mean, otherwise, the risk in a big group is that everyone is hiding behind everyone.
Mm.
Here it's clear, and it's good for everyone also, because then we can actually take the right actions.
Tina, we of course have external factors that we need to take into consideration, inflation, geopolitical turmoil. We had the pandemic recently. How will our ways of working be beneficial for us if you look at both sort of the long-term and the short-term perspective? Yeah, we have worked really, really hard to increase our performance over time. If we look at the numbers, we do have structurally higher margins now, and we also have lower volatility or less volatility than what has been the case before. Just coming back to your question, Kina, I think we can use the year 2020 as an example. 2020, we had COVID. We basically closed down the whole operation for six weeks, but we did reasonably well.
For me, it's also satisfying to conclude that we did not even have one single month in red numbers year 2020, not even the second quarter. I think 2020 serves as a good proof point to really conclude that we have improved the flexibility in the operation significantly over time.
Mm-hmm. Absolutely.
We have a strong net cash position, and we have also continued to pay out to our shareholders. Now I'm gonna ask you a question that I believe you probably get quite often these days. What is your thinking regarding our famous cash position? Well, I think it goes without saying to say that it is a strength for any kind of company to have a strong balance sheet, and so for us, and particularly so standing in front of the transformation, which is the biggest change journey that this company has ever seen. A strong balance sheet also is comforting when you enter into something like COVID and also the situation that we now have in Russia, or the inflationary pressure for that matter.
A strong balance sheet gives us, as management, the maneuverability to really balance between different interests and take the right decisions for the company also in tough times. It's a very good strength for us as management. If we look a little bit back and look into the numbers, we can see that we have had a strong cash generation, not only in the strong years, but also in the more difficult times. If we look a little bit ahead, it is a strength for us to have a strong balance sheet because it will help us to both invest for the future, but also to return a lot of money to our shareholders. We have actually returned more than SEK 100 billion over the last five years to our shareholders, and we have still kept a strong balance sheet.
That is a pretty impressive number, Martin.
Yeah, I mean, we should remember also. I think everyone that is sitting here is of course well aware of that, but also the net cash position is actually belonging to the shareholders. It's also a situation depending on where are you keeping, so to speak, the funds. When with the capital, return on capital employed over 25% in this situation, I think also we have been showing that we have been good in actually generating good returns for our shareholders. Of course, if we should have been having a normal going concern in the world with the current financial target, you can argue, should it be in on this side?
I think also if you take a step back, now 2.5 years with unprecedented turmoil, as we have talked about, an upcoming transformation and also a changing landscape into the normal again, with interest rates and with funding costs that will be as it should be. That has been an exception over the last 10, 15 years. I think that balance will be, of course, reconsidered big time when it comes to how you think about value for your investments and as an investor.
Martin, one of the key elements of our growth journey is services. It's super important for our resilience. What is your view on our development?
First and foremost, favorite subject, for different reasons. The first reason is because, the better we do in our service business, the higher customer retention, customer loyalty, and customer touchpoint we have. When I talk to Roger and Bruno and Martin, they are always talking about that, Melker, et cetera, how do we continue to drive this? Because it's all about the customer. On top of that, as cream of the pudding, it's really also of course the resilience, the ability to actually leverage the installed fleet in a smart way. As you can see here, we've had a good development, CAGR of 5% over the last, since 2017, despite then all the turmoils that we have discussed, and still an untapped potential. Of course, the base is the installed fleet, as you can see on the right side.
When we look now granular for our different type of services, we have done great improvements, but still an untapped potential, both when it comes to duration and when it comes to content. The contract business is one of the key areas, because that is driving parts, it is driving workshop hours, it is driving productivity services, et cetera, et cetera. More to come.
More to come. As we said, a topic that we discuss a lot within the company. Tina and Jan, thank you for now. We will see you both later. Now we're gonna widen the perspective and look at how the move towards a fossil-free society gives us great business opportunities. Stay put. We are moving towards a more sustainable society, and here our industry is playing a crucial role. As you remember, during our last Capital Markets Day, we presented our ambitions and our plans, and Martin, I would like to revisit them, and also take a sort of a fresh perspective.
Mm
on how this area is developing.
First and foremost, we actually took the step into the new long-term ambition for the group in 2020, talking about what we call the 3x 100%. The reason for that is to have a clear direction also where the group is heading when it comes to a truly sustainable transport and infrastructure system. 100% safe, because that is deeply embedded in our DNA. If you think about, if you close your eyes and think about Volvo, you think about safety, you think about this type of really high level of durability, and that is more than important than ever. Actually, 1.3 million people dies every year in terms of a traffic accident, which is completely unacceptable, and of course, a focus area when it comes to the long-term United Nations global targets.
Also in other areas that we are serving, we see that health and safety is coming up rightly so high on the agenda. 100% fossil-free, that is the whole decarbonization journey that we will continue to talk. I mean, in order to drive, I mean, the increased need of transport, they need to be considerably more sustainable. Last, 100% more productive. Why is that important? Yes, because we see in the operations of our customers fantastic opportunities of improvement, and utilize the resources in a better way. It's everything from circularity, but it's also about filling rates, it's about utilizing the digital capabilities of our connected units to cope with the planetary boundaries and at the same time embrace growth, and that is the equation. We like this.
It's simple, it's straightforward, but it's very, very, clear what the ambition and direction is for the group.
We also have a reminder from last CMD.
Yes. We left you actually in November 2020 with this slide. It looks pretty busy, but a lot of things have actually been confirmed since. We talked about an opportunity of a century, and we talked about a number of keywords here that we will actually see if that was only talk or if things have actually been evolving and executed accordingly. We talked about the growth opportunity, and we talked about the resilience opportunity with a shift into decarbonized and sustainable transportation. Maybe a number of highlights. We had the thesis of an uptick when it comes to the revenue over the life cycle for electric and electromobility that is approximately or at least 1.5x in relation to a diesel, and up to 5x or even more than 5x then for autonomous, two data points.
We said also that at least 35% of our sales in 2030 should be electric, either fuel cell or battery electric. Also saying that this in turn will also give new opportunities when it comes to services and when it comes to the service content of our total revenues. I think that can serve as a good starting point for today's sessions also when we listen in to the business area presidents later.
Martin, on the topic of sustainability and transformation, I would like to put you to a test early on in the show. I brought two numbers. Do you know what they represent?
I actually do know what they represent, Kina.
Surprise.
So, pure luck. But they actually represent companies that has been approved by the Science Based Targets initiative for two different years. In 2015, it was 116 companies, and year to date now, 2022, that has increased up to 3,170, so a very steep increase here. Maybe you want to put your question to yourself, why is this significant? We will soon come back to that, but maybe what will happen in the future here?
Well, what's interesting is if you extrapolate this graph with the same current growth rate, this graph is completely skyrocketing through the roof, which provides us with a great business opportunity.
Yeah, as a matter of fact, the market and the whole transformation is unfolding in front of our eyes here, and the reason for that is that if you take a one-minute crash course in Science-Based T argets, what is that all about? That is that companies are actually making a clear commitment to the link between their own operations and their own business and the Paris Agreement, either the more ambitious 1.5-degree target or the other target of a maximum 2 degrees warming, right? How is that process working? That is working in the following, that you are actually doing a mapping of your CO2 footprint, and then you are dividing that into different categories, you can say in a matrix.
One category is scope 1, scope 2, scope 3, where scope 1 is the CO2 footprint from your own operations, scope 2 is the bought energy for your operations, I should say, and scope 3 is actually the input material as well as your products and services in use at your customers' operations. The other part of the matrix is also that you do this mapping when it comes to different categories of your operations. It could be heating, it could be building, it could be logistics, it could be input material, it could be product in use, et cetera.
What is happening is that something is playing out now when it comes to the ecosystem because what is my scope 3 or our scope 3 could be someone else's scope 1 and scope 2. Suddenly, people and companies really need to start cooperating at a different level. Just to give one example, here is a global OEM in automotive. It could have been a retail company for clothing or for dairies or whatever. It doesn't matter. As I said, first and foremost, it is a categorizing of different categories building up to the 100% ``` . Here, for example, you have a category that is representing a very big part of the total 100% because it's going from here to here. That is the x-axis, right?
On the y-axis, it is the abatement cost or benefits for taking out this. Friend of order can ask themselves, why has not that been done? For example, here it looks like a great opportunity. You can take out like 5% and save money. Yeah, because to take out the waste, you have to see the waste, and which is, by the way, maybe the most important principle when it comes to lean, that is often forgotten in the lean training programs, by the way. But, so what can that be? That can be, for example, filling rates in logistics, that you have today a filling rate that is 60% of your inbound transport as a company.
If you can increase that to 70 or 75%, it is a saving both for CO2 and for cost, right? Then you have the more hardcore and hard to abate sectors that we are all aware of. A lot of progress happening there often, but it's coming with a premium cost then so far. Cement, it could be steel, aluminum, whatever. The good news, if you take a customer, because this chart is representing a customer. It's not our direct transport customers, but their customers in turn. When they are doing this inventory and mapping, they realize often one thing that, number one, logistics and transport are representing a big proportion on the x-axis here of their CO2 footprint.
They also realize when they start to look through this that the cost, the total cost of taking it out, is in relative terms rather low. With a science-based target dynamic where you are, one, doing the mapping, two, setting the targets, three, starting to execute, and four, now the magic is happening. You start to disclose your progress. In the boardroom and in the management room, you are starting to get, you know, a little bit nervous over a couple of years if you're not seeing progress here. That is a fantastic opportunity for us and for the sector to really drive the shift into electric mobility. If we go to the next slide here and talk about how will this happen then for our direct customers, the transporters.
To simplify it, we will go a little bit more in detail. Three parameters must happen for our customers directly to support the examples that we did see. They need to understand the revenue and TCO, the total cost of operation impact, and it's both a revenue impact because in many cases you can get better paid with the CO2 functionality. They need to understand the CO2 savings, and one thing that we have realized now when we are ramping up when it comes to orders and deliveries. They need also to have the confidence and the ease of implementation and operation.
That has been seen in many cases as a bigger hurdle than previously expected, and that's the reason why we are setting up that support and partnership in new ways now so they feel confident that we will support them over time. If we take it to the next level, we talked about this last time we met. It was based on the ICE total cost of operation based on years of experience. We knew everything about how the cost, the distribution is made, et cetera. But we had certain theories of how it should play out for a battery electric vehicle. What we basically said that is the vehicle with our replication excellence, the service and repair piece, the financing and insurance are staying the same, basically.
What is happening is that the light gray part here, that is the cost of energy, diesel is going down, and it's shifted to electricity, and you are pushing in a battery here. What we need to provide is also the battery and charging system. The whole trick of the ease and confidence of implementation and operation is to get the desired outcome for the customers, and you cannot miss one single piece. We are B2B. We are selling production equipment, and we are selling promises together with our customers of uptime, cost per kilometer, CO2 free safety, productivity, and eventually peace of mind. In order to drive this, we have invested heavily and focused in the battery and charging systems, but also on how we are actually approaching our customers in a very consistent way to make the journey together.
Let me take two examples on what is happening, where we have been working. The first real cases, we have done plenty of cases here, and this is maybe the essence of the whole transformation that we're going through now in the coming five, six minutes here. This is of course, a real case, France Urban Distribution. You see the ICE, the internal combustion engine, situation for this transport company. Unaffected cost because rather low mileage, right? In terms of driver, administration, et cetera, is 75% of the operational cost of the company. Then when it comes to the truck TCO, the truck total cost of operation, you see that fuel is representing 7.4%, leasing 11.4%, and you have other than services and insurance also exactly.
When you are shifting into battery electric with a current price point, of course, CapEx for the customer is increasing, and thereby leasing cost is going up to 19.4, whereas the cost of energy is decreasing dramatically. Two learnings here. First, three learnings. First and foremost, the total cost of operation for the customer. The necessary price increase is then 5.5 percentage points in turn or a little bit more if you have a margin, hopefully as well, towards the customer, the retailer or the OEM or to the Volvo if we are buying transport, which we do. 5.5%, okay? Have that in mind. Number two, we'll come to the next slide here in a summary. Here you see again the TCU of the truck, 25%.
For the TCU of the truck in itself, up with 22.3%, but the change in total cost for the transport company, 5.5%. Two learnings. Every extra kilometer for this very truck to drive efficiency with digital services and others is actually 57% lower in relation to the ICE. The reason is simple. You have the CapEx, you have a much lower variable cost, right? This will continue to drive also the utilization. We actually did see in factories and in operations when you started to automate, because when you started to automate, you started to think about, okay, should I do two shifts, three shifts, four shifts, five shifts, et cetera, because you would like to utilize your capital.
The other thing here is that the CO2 cost of abatement cost is still rather high, right, EUR 300 per ton. Since the cost here is only 5.5%, I would like, and I cannot avoid it, come back to my milk example. You remember that we talked about what will the impact be on the cost of the milk for the customer's customers. If we go to our previous thesis, we said, actually, it should be a 1% impact. We were pessimistic. The reality is that the impact is less than, so it's a 0.5% impact with this 5.5%. The mathematics behind that's simple.
In a cost increase of 5.5%, as we did see on previous slide, and then multiply the cost of logistics for example, a retailer that is selling milk, that is somewhere between, yeah, let's say 6%-8%. Take 8% x 5% increase is 0.4%, right? This is what will happen. The good news is that often for a retailer, the logistics CO2 footprint, the scope 3, is very high, could be up to 30%-35%. For this type of price premium for their products to take away and to adhere to the Science Based Target is what I should call a no-brainer. Next example, a little bit other angle on it. This is a regional haul, a customer in Sweden this time. You see that the unaffected cost here is 60%.
Fuel higher mileage, so 18%. Leasing, 15%. Significant higher fuel because much higher utilization of the fleet. With the shift into battery electric, leasing is going up, again, higher CapEx with the batteries, while electricity or the cost of energy going down. If we do the summary of this example, you see the same logic. The 3.7% increase of cost of operation. If you go to the next slide, you can see again in summary that the truck total cost of operation was 40% of the total cost for the company. The change in the truck TCU up with 9.3% in this case, and the change in total cost for the transport company up with 4%. The cost per extra kilometers is significant also here in regional haul.
40% per extra kilometer is fantastic. We know that here is a big room for improvement by utilizing, as we said, a lot of the connected and productivity services as one example, better planning. Take a look at this. Here, the cost of reducing 1 ton of CO2 is EUR 85 per ton, right? That is also related then to that you're utilizing the equipment much higher. It's coinciding with the publicly traded prices today in Europe. Here you see the European carbon permits pricing that is publicly traded, that is around EUR 85, so that is the publicly traded prices. Interesting enough, more and more corporations are utilizing this, but often multiplied with a factor X, two or three, to take their investment decisions for the future, to get the right angle.
To have this type of knowledge together with the customers will of course drive the shift here. Maybe one last single clue on it that we all know from an investment profile perspective. If we look at different sectors and how it looks for companies, we can see also that the leaders in decarbonization also enjoys higher growth, and thereby eventually higher valuation. If you look at sectors like chemicals, food, automotive, et cetera, you see that it has been a considerably higher growth over the last years now for the leaders in decarbonization, and that is of course a trend that will only continue. That is the reason why we also focus to continue to lead the shift in this transformation.
Maybe, Kina, why don't we listen to one of our key partners into this journey?
We are going to do so, but first just a comment from my end, Martin. I mean, we have obviously seen this presentation now many times, but it is really an eye-opener.
Mm
... we see that market really growing in front of our eyes, so thank you so much. We're gonna go to the Danish logistics solution provider, Maersk, who is a longtime partner of ours. They have high ambitions when it comes to eliminate emissions in line with the Paris Agreement and their set science-based target. To do so, they turn to the Volvo Group.
Over the last six years, we have actually been on a road to transform from being a quite diversified conglomerate, but with a lot of shipping interests, into what will eventually be a global logistics company. Our aim is to become the global integrator of container logistics, offering our customers truly end-to-end solutions, door-to-door solutions.
With this leading position that you have in the industry, what are your goals when it comes to decarbonizing the transport system?
This year have advanced our carbon neutrality date to 2040, and probably more importantly, we've set some pretty, I think, ambitious targets for 2030 in terms of where we want to be with that decarbonization. We are seeing customer support. We are seeing a good understanding of the technical pathway.
If you look at the partnership between Maersk and the Volvo Group, how do you see that partnership, and what expectations do you have on Volvo in supporting you on this journey?
Well, we have quite a unique relationship with Volvo because Volvo is one of our largest customers, but we are also a customer of Volvo, and we certainly look to Volvo to help us by providing solutions for how to tackle, in particular, mobility trucking onshore, so that we can find, you know, green solutions we can offer to our customers. I think Martin Lundstedt have said it very well, leaders lead together, and that's what we're aiming to do with Volvo when it comes to inland transportation. We are on the way already. We have ordered, I believe, around 125 electric trucks so far in the U.S. from Volvo. We need thousands.
We're starting to learn how to operate electric trucks in the right way, and that will be a focus for us in the coming decade.
Søren there, the CEO of Maersk.
Yeah
What is your take listening to him?
Now, first and foremost, I think what we see about Maersk being a leader in their sector, how ambitious targets. I had the chance to participate at their global summit a couple of weeks ago that actually was hosted here in Gothenburg. That was a privilege. I mean, we should not forget that Maersk, as a global leader, that they have direct calls to Gothenburg is very important for the whole Nordic region, so it just shows how important logistics are. They have very, very clear ambitions, and Søren Skou, as the CEO, has pointed out that together with the whole team that decarbonization is key. They are also a great example of what is happening when it comes to the transformation.
We have talked about these famous S-curves that average is the sum of nothing at the end of the day. But you need to understand granular what is happening. Last time we talked about that, I mean, certain regions, segments, and applications will start this transformation first. When they are coming into this transformation, I mean, it could be distribution in the Nordic region, or it could be waste collection in certain big cities, or it can be, as we did see with Maersk here, I mean, that they are looking through their different hubs and container terminals and saying, "Okay, in this hub we will start," and then the shift is coming very quick. Then finally it's adding up to some sort of average here.
The trick is that you need to have the abilities to meet this flexible demand with speed, agility. What we have learned also is that we will not only lead and follow these S-curves, we will actually create them with customers. To get to that understanding is bringing so much energy and excitement among our teams, that we are not only leading, we are actually creating the future. That is just a fantastic moment. That brings us to, I mean, something that is very important for our industry, that is the very close customer relations that we have.
We are B2B, and I often say that we are B2B with a heart, because of course the majority of the business decisions are taking on rational grounds, but a part of it is also based on a long-lasting trust that we have built up together. What will happen now with this shift is that the already deep relations will be even deeper, closer, broader, and it will cover different areas. First and foremost, don't make any mistake. I mean, the whole equipment area, the core of the core, will continue to develop. We talked about that, electrification, autonomous, but also when it comes to infrastructure and equipment. It's about the operational ecosystem and the productivity services.
As I've already alluded to, we see great potential when it comes to growth per unit over the life cycle, but we also see the whole service and finance penetration opportunity unfolding big time here. What is important is, of course, also to understand where to play and where to win, and we are very clear about that also with our must-wins, where we are investing, where we are taking the lead, but also where we need to have strong partnerships with the best because that is the only way. No one can do it alone, both with our customers and supply partners, but if we do it together, we will win. This is also an exciting journey that is taking place now.
I think we will listen to some exciting partnerships, moving forward during this Capital Markets Day.
That's true, Martin. To win the game, you obviously need an innovative organization.
Mm
you need money to spend, but how much value would you put on our customer relationship that has been running for decades now?
Interesting, we have discussed that, and I will come back to it a little bit later, I mean, the balance sheet is an important financial type of metric, but the problem with the balance sheet is that it's just covering a rather small part of the real value of a company today. Customer relations is one example. Modularity could be one, innovations, speed, agility, et cetera. That's the reason I think that one of the key aspects of having a Capital Market Day is also for all of our investors, our analysts, is to get a grip on how do we actually paint the picture around the balance sheet, and the customer relations is a key aspect for the transformation.
Thank you so much, Martin. We're gonna move on and sort of dig deeper into the value of our customer relationships, and we're gonna do so together with some of our colleagues from our business areas. Roger, last time, we met during the Capital Markets Day, you did a very elegant entrance in an FMX Electric. Welcome.
Thank you, Kina. Yes, it was a really great entrance at that point of a good feeling.
Really good feeling. At that time, in fact, not many of our customers had tried the feeling of being behind the wheel in an electric truck, but that is different today.
Yes, it is, and the feeling is actually better today because a lot of things has happened with a good speed as well. Now, these trucks are ready to be ordered from production, and the demand is really increasing.
Mm-hmm. We're gonna dig deeper into the e-mobility journey of Volvo Trucks.
Mm
Obviously, could you say a few words first on your sort of overall performance?
Yes, with pleasure, Kina. We at Volvo Trucks, we have been growing our business in a very strong way despite of the global supply chain situation. We have been taking market shares in the majority of the countries around the world. In Europe now, we are well above 19%. In North America, we are moving closer to the 12%, and in Brazil, we have 26% market share. We have been doing this and driving price increases at the same time, and also then growing our service business.
I guess that means that you are now sort of in a good position to continue the transformation?
Yes, we are. We are very strong into this one. As you know, we started on the series production of the medium-duty electric trucks three years ago, and then one year later we came in North America as well. Today, we have our electric trucks rolling into customer operations into 21 countries around the world, and I think that is very impressive. It started really with the transport buyers, and then it was moved into the larger logistics companies, like Maersk, as we heard here, DFDS. Now it's also coming into our traditional customers, and the really good thing is that customers is coming back and buying more electric trucks.
I know that you love market shares, Roger.
Yes, absolutely.
Can you tell us about the market share for electric trucks?
Now, we have a strong position, and globally in the electrification segment, when we are leading the electrification segment here in terms of market share, and we have a higher market share into that segment. In Europe, we have around 35%, and in North America 50%. Our clear ambition is, as this is a step change here, that we should have a higher market share in the electrification.
This beauty here.
It's lovely, isn't it?
It's wonderful. It's a Volvo FM Electric.
Yes, correct.
Great with our mark.
Yes.
It will soon be delivered to a customer, right?
Yes, it will. We will start now series production of three heavy-duty electric trucks, and we will start that after the summer. We have already sold 1,000 units out of these three models, and we have been selling more than 2,200 units of electric trucks since we started in 2020. Now, we will have a product range of six electric trucks to offer to our customers, and that is the widest offer in the industry. We will be able to handle most of the transport needs for our customers.
The widest range in the industry, it makes you proud. Let's be fair. Still, I mean, compared to diesel truck, volumes are quite small. What does it take to make that true big shift?
Martin was into it before. Peace of mind. We need to work closely with our customers to help them into their transformation. We need to look into each customer's needs, how they are operating, what is the route that they are driving, to build this and optimizing their productivity and efficiency. When it comes to financing, we will then offer different kind of business model, including equipment and service, and that will provide our customers with peace of mind.
What does it mean in terms of business opportunities?
Of course, this means revenues for us, that we can get out more revenues of the business because we will offer them a smorgasbord of different service options. Gold service contract on the, on electric trucks is up with 70% compared to diesel. The average contract length is twice as long compared to diesel, just to mention one example.
Roger, with the Paris Agreement in place, all trucks needs to be fossil free by 2050. These are high ambitions. We have high ambitions internally to reach this target. How will it happen?
No, of course, this is high ambition, and we should have high ambition, as you said. We have a clear roadmap to achieve them. In 2030, we say at Volvo Trucks that 50% of the volume that we sell should then be battery electric. That means around 75,000 trucks. In 2040, all trucks that we sell should then be fossil free. In 2050, we should have replaced the complete rolling population with fossil-free products. We have a very strong position. We have the products, we have then the customer relations, we have this distribution network, and we have the competence to do this. We will then support our customers into that transformation.
We have you in the driver's seat, which feels very comfortable. Thank you so much for describing the-
Oh, thank you.
The progress. The development is, of course, also ongoing in our other truck business area. We're gonna move over to Renault Trucks and to Emmanuel. You are the head of electromobility within Renault Trucks, and I would like you to give the audience a bit of a deep dive in how you support your customers and what that means in terms of business.
Absolutely. Thank you, Kina. Our customers and their customers, they have taken some strong commitments to reduce their CO2 footprint, and they are now seeking for advice and for tangible support when it comes to reaching these targets. We at Renault Trucks, based on our experience, we have decided to organize a structured approach in order to accompany them in their transition, and we are positioning Renault Trucks as their partner for decarbonization. This approach is organized around four main steps. In the first steps, we develop and we understand the customer constraints and the challenges. In the same time, we develop their awareness and the knowledge around the available technology options to decarbonize road freight, and this based on scientific facts. Moving into the second step, the second step is where we are doing the diagnostic. The diagnostic, it start with the fleet.
Here, we make the full diagnostic and a detailed analysis of the fleet, and we provide to our customer a proposal on how to organize the transition plan over a three to five years period of time. From it, we deduct the potential CO2 savings. Because charging infrastructure is very key in this journey, and because it requires anticipation, we here perform together with our partners the electric audit of the site, and we conclude some recommendations when it comes to the power upgrades, but also when it come to the charging solutions and installations. Moving into the third step, the solution design. The solution design, it's often starting with a vehicle trial, and it is an important step because it is the way for us to engage all the stakeholders in the project and to get the buy-in from everyone, including the drivers.
The complete offer includes charging solution, financing solutions, 100% penetration with service contracts, but it also includes different operating models from standard leasing up to full rental solution, also called equipment as a service. Here, going into the details with our customers enable us to offer to our customer the most efficient solutions contributing to their total cost of ownership, while in the same time protecting their operations. Moving to the last step, the implementation and operation. We run the implementation as a project in order to secure that we will have the entire readiness of the full ecosystem when the trucks will be reaching the yard of the customer.
During the first week of operations, we organize a close monitoring of the fleet, we organize a frequent dialogue with the customer to collect feedback, but also to help him further improve the energy consumption and the driver acceptance. This new approach is really requiring anticipation, expertise, speed, and reactivity and proximity if we want to make sure that we deliver to our customer the expected financial, operational, and environmental performance. To illustrate, I propose that we now listen to one of our customer, Feldschlösschen, Carlsberg Group, operating in Switzerland, the largest fleet of electric trucks in Europe.
Wir waren uns sicher, dass die LKWs für unseren Einsatz funktionieren werden. Wir als Feldschlösschen und Carlsberg haben ambitionierte CO₂-Ziele bis 2030. Wir sind der Meinung, dass LKWs einen großen Beitrag zur Dekarbonisierung unserer Logistik beitragen können. Wir hatten die Experimentierphase schon 2008 begonnen. Das heißt, in 2019, als wir die LKWs bestellt haben, waren wir uns sicher, dass sie für den Einsatz in der Last-Meile-Distribution mit einer Range bis 100 Kilometer für uns funktionieren, und deswegen sind wir den Schritt gegangen. Die Fahrzeuge werden extrem positiv von unseren Fahrern angenommen. Es sind tolle Arbeitsmittel. Sie gewöhnen sich auch daran, dass sie weitere Reichweiten damit fahren können. Am Anfang waren sie eher skeptisch, mittlerweile sind sie dort sehr positiv. Wir nutzen die Fahrzeuge in allen Regionen, in den städtischen genauso wie in den ländlichen, in den Bergregionen.
Wenn wir damit bei unseren Kunden ankommen, ist das Feedback auch sehr positiv zu diesen Fahrzeugen. Unser Einsatz hier wird sehr geschätzt, auch von unseren Kunden. Wir hatten eigentlich keine Überraschungen. Wir haben das Ganze ja vorher simuliert. Die Simulationen stimmen eigentlich eins zu eins mit der Realität überein. Auch der höhere Verbrauch im Winter war uns bekannt, war keine Überraschung. Das funktioniert. Was eine kleine Herausforderung noch ist das ganze Thema Ladeinfrastruktur. Das haben wir unterschätzt. Da steckt mehr dahinter. Aber auch hier sind wir froh, wirklich mit Renault Trucks einen Partner zu haben, der uns hier unterstützt und uns weiter begleitet auf dem Weg, unsere Flotten CO2-neutral zu machen.
This very structural, almost surgical approach is appreciated by our customers that we heard. What is the result of it, Emmanuel?
Oh, the result is quite impressive. We are taking some strong position, and we are really accelerating. As end of May, our market share is 21%, and we have already signed more than 1,000 orders and letter of intents. I can say that this new approach is really contributing and will contribute to our success. It will contribute to the success of our customer. Again, the very positive feedback we receive from the customer and the drivers is really encouraging us to continue in that direction.
Thank you so much, Emmanuel, for now, and good luck with your continuous journey. As you pointed out, batteries and charging is critical success factors. Joachim, there you are. Why don't you join me? You are the head of Volvo Energy, and you are in the midst of this development, and I know that you and your team, you are working extremely hard to make all this happen for our customers. Why don't you walk us through the progress?
Thank you, Kina. It's a pleasure to do so, and I would say we are working very hard in order to make sure that we accelerate the required charging infrastructure build-up. It is so important, as we have heard both from Emmanuel and Roger, to create the peace of mind for the customer. In order to create that peace of mind, several solutions are required. It's both for the home depot and overnight charging for the customer, it's while the customer is on the road, and it's also at the destination and opportunity charging. Let's take it step by step. We start with the home depot and overnight charging. Already today, we offer all heavy-duty Renault Trucks and Volvo Trucks customers this beautiful 43 kW AC charging.
This charger is connected, which means that both Volvo Trucks and Renault Trucks services can monitor it online. In the unlikely event there would be an issue, of course, our dealers are there to support, and also we have central support services, but we don't expect that to happen too often, of course.
No.
No. In addition, this one is easy to install. It will be delivered to our customers before the truck is delivered, which means that it's plug and play from day one. Of course, with 43 kW AC charging, it's one of the most powerful chargers on the market today when it comes to AC home charging. Of course, we're already working on the next generations, including powerful DC chargers as well. Now, if we move to on the road, I took a national example here, Sweden as a country, we are of course striving to secure a holistic network from the northern part of Sweden all the way to the southern part. We will have 44 charging locations in cooperation with our partner OKQ8. 29 of those will be at Volvo Trucks dealer facilities, and the remaining 15 will be at OKQ8 properties.
The idea here, of course, when it's on the road, is to secure that our customers get a powerful, quick charging, so they can have their 45-minute stop and then move on. We will secure that all of these locations have the most powerful fast charging available today, which is 350 kilowatts.
I believe you also have some good news about the charging infrastructure in Europe.
I do, Kina. Looking at the European situation, or as late as last week, we got the EU approval unconditionally to move ahead with the intended joint venture that we're planning to set up together with Daimler Truck and Traton. The ambition here, as we have communicated before, is for this joint venture to install and operate 1,700, at least 1,700 high performance chargers along the main road arteries in Europe. Targeting heavy duty electric trucks, but also coaches. We plan, Kina, to do that within five years from getting the final antitrust approvals. Of course, with the EU now weighing in as late as last week, there are only a few left to go. I hope to be able to have some good news going forward as well.
You will get there, I'm sure.
Mm.
Part of your scope is also to ensure a second life for our batteries. What does that really mean, and what value does it create?
Well, as you know, within the Volvo Group, we take a holistic and circular approach to electrification in general, and that also goes for the batteries. While the batteries are on board our vehicles, we refer to that as first life, we will monitor them and optimize them, and Lars and other colleagues will come back to that later. Having done a great service for our vehicles, be it trucks or yellow machines or others, for a number of years, sooner or later the batteries will come out, and we are monitoring them. That means that we have the data for each of the battery having served each Volvo Group vehicle, and that means that we know when to take them out, and we also know what would be the best second life application for those batteries.
That means, of course, that we can select a route for each battery that creates a really long customer relation, maybe up to another 11 years or so. That, in turn, means that we can have a greater asset value coming out of that battery, which is a win for the planet, it's a win for our environment, it's a win for our customer, and it's also a win for the Volvo Group, of course.
If we take a step back and look at one of the main possibilities with second life batteries, it is battery storage system. What can you sort of see if you look around the corner?
Well, this chart tries to look long around the corner, and I would say there are two main messages coming out. The first one is that the market, the projected market, I should say, for battery energy storage really is a growing market, and we can see a very impressive forecasted compounded annual growth rate here of 34%. This is a rapidly growing market on one hand, so that's one message. The second message is that the reason it's growing so quickly is that these storage systems can be used in so many different kinds of applications. It can be industrial, it can be commercial, it can be residential, it's in a cellphone tower, it's helping to stabilize the grid, it's EV charging for cars. There's so many different kinds of applications.
The true beauty here, of course, is that we are leaning in to help to create this, and that's also why we last week announced the investment into a U.K.-based, second life specialized storage company, to further accelerate our efforts in this area.
Thank you so much, Joachim. I know that you enjoy breaking new ground. Why don't you have a seat? We have looked at some parts of our growth strategy for trucks, but we also have, of course, other business areas. We're soon gonna move out. I hope it is okay for you in the audience that I leave you for a moment. I'm gonna step out and join Melker, who has brought one of his beautiful machines with him, as you can see through the window. On my way out, we're gonna listen to one of our customers. They are operating both trucks and construction equipment, and I think this will give you a further feel for the business opportunities lying ahead.
Decarbonization within our business is the same for Volvo Group. We want to reduce our carbon emissions by 50% by 2030 in all of our operations, so production of cement, hauling materials to our customers, and extracting materials from our operation.
We have been working together with Volvo in reducing our emissions of our fleet. We have been implementing different electric tryouts of trucks in Berlin, in Paris. We have been working in developing new equipment to reduce our carbon footprint. We are working in different initiatives as well to reduce our CO2 footprint and to increase our productivity, and we have a long path to go together in this journey.
My expectations on Volvo are we need to go fast. 2030 is already tomorrow. We're late. We have one cycle left in our equipment replacement, and we need to be bringing this new equipment into our business and our operations as fast as possible.
We went together with Volvo to speed up this process. 2030 is just around the corner, and we have, together, to lead this change and evolution towards a better world and to better solutions for our businesses.
We cannot have a Capital Markets Day without looking closer at one of our wonderful yellow machines. Melker, this one is actually quite famous. It was in media all over the world just a couple of weeks ago.
You are absolutely right, and, what a beauty. Don't you agree?
It's fantastic, but why is it so special?
To start with, this is the first construction machine ever built with fossil-free steel going to a customer, and in this case, to our partner since long, NCC. Actually they will start to use it in Skåne southern part of Sweden already this summer, so this is for real. Secondly, the emissions from the material that we use in our products is a big part of our CO2 footprint, and steel is a big part of that. That's the reason why it's so important with fossil-free steel. Thirdly, to decarbonize the industry, I think it's so important with collaboration, and collaboration in the whole value chain. I think in this case, the partnership between SSAB, Volvo, and NCC is, it's a good example of it.
Like Martin quite frequently points out.
Exactly, yeah.
Partnership is the new leadership.
Yeah.
Yeah. During the last Capital Markets Day, you and I talked a lot about the business opportunity with electric compact machines, and we really said that now we're gonna create a new market with these. What has happened since?
We made a lot of promises, yeah. Last year we delivered the first fully battery electric compact machine, so we moved from zero up to 321. I must say the demand for this kind of solution is accelerating, not only on compact machines, but also on the bigger and larger ones.
We listened to Cemex, and like Roger, you have a lot of customer that needs help on their decarbonization journey.
You could hear it in the film as well, and it's a strong demand from our customers, smaller customers, but maybe even more on the bigger ones. We heard Martin earlier here as well. Already today, 50% of our key account global customers have already committed to the science-based target. Cemex is one of them. When we talk to all of them, it's very clear that they need support in this journey. They need our support in this journey, and they need it now. They need it here and now. We are investing quite heavily into our portfolio of both services and machines. By 2030, we will have CO2-free alternatives for all our applications, actually.
Let's listen to two operators. They have both tried the new electric EC230. Take a look.
Now I have tried out this machine for some time, the new EC230 Electric. Yeah, I'm just fell in love with it. The productivity, the efficiency, the quietness of the machine because it's electric, it's really cool. I think this will be very nice for me and my people working outside the machine on my working site.
It's so quiet in the cab, and outside the noise is kind of zero, so I can talk with my colleague without turning it off. The productivity and efficiency is the same as my old diesel machine.
These excavators, they will be introduced soon, both in Europe and in North America?
The electric excavator, EC230, what a fantastic machine it is. It's, I think, outside that, it's also a really growth opportunity for us because it's placed in the biggest and the most fast-growing segment within excavators, which is important. In my belief, if you are, if you have a really good machine, and if you're early out, that is a real first-mover advantage. This is being tested in Norway now with great feedback, and to your point, we'll soon launch it in other markets in Europe and also in North America. Coming back also to what Joachim said, charging is very important in our industry, and we are now developing a number of options, mobile chargers, fixed chargers, bigger power bank solutions.
We will introduce, for all size classes, for all markets, and for all different segments, different charging solutions as well.
The operators, they focus a lot on productivity, as we could hear in the movie. Productivity goes beyond the machine.
We are not focusing on the machines only, of course, but to offer complete solutions our customers can really optimize the whole working site. Of course, we'll continue with traditional transactional machine and part sales, but focus more on the Volvo side solution. That means that the customers, they will buy productivity, the customers will buy uptime, and the customers will buy peace of mind.
Mm.
Actually, we have customers on all continents already today, using our equipment as a service, concept.
Thank you so much, Melker, for describing your progress, and thank you for bringing this wonderful machine. I'm sure we're gonna see it more in media because there is a really high interest. I need to get back into the studio. We are going to listen to our fifth business area, which is Volvo Autonomous Solutions. While I'm on my way into the studio, I will show you a film that shows some of the segments where autonomy creates a great business opportunity.
The challenges we face, it's about people, the climate, and our resources. At Volvo Autonomous Solutions, we see our vehicles as moving nodes in a network. In this network, we want to be more than just suppliers. It's not an autonomous truck or machine. It is the autonomous transport solution, built on collaboration and our customers' needs. Through autonomy, we can transform how we create value, making it cleaner, safer, and more efficient. Our solutions address real-world problems, and the shift has already started. The dawn of autonomy is here, and Volvo Autonomous Solutions is proud to lead the way.
The dawn of autonomy is most certainly here. Welcome, Nils.
Thank you, Kina. Great to be here.
Listen, a few years ago, Autonomous Solutions was really the talk of the town. It was in media more or less every week. We don't hear so much now, but I know that under the hood things are really gearing up, and I would like you to show the audience how we are making progress.
Absolutely. Thank you, Kina. Yes, a lot of progress we've made within Volvo Autonomous Solutions, and let's look a little bit under the hood. Kina, as you know, within Volvo Autonomous Solutions, we've identified three strategic segments where we believe that autonomy can create the biggest value for our customers, but also for society. Let's look at those. The first one here, mining and quarry. Here we actively contribute to reduce the CO2 footprint on our customer site. With automation we're increasing, obviously, efficiency, but we're also adding safety as we're removing the human being from a hazardous environment. We're doing this with a full stack solution. We've built our own virtual driver, and we are connecting it with our truck and with our machine.
Here you see the example of the TARA solution, which by the way, we're implementing as we speak with our first customer, Holcim. Let's go to the middle, the ports and logistics center segment. We know that certain ports in the world today are acting as bottlenecks. They're limiting trade, they're limiting transportation, but they're creating supply chain issues which impact many of us all around the world. We believe that more automation in ports and logistics centers will respond to that problem. With our partner, NVIDIA, we're working on autonomous solutions to help address that issue. That leads me to the third segment, hub-to-hub on highway transportation, geographical focus is on the U.S. We're developing an autonomous transport solution with our partner Aurora. Just in May, we have announced our first customer for that program. It's DHL.
Let's hear from DHL why they chose to work with Volvo.
We think Volvo is a tremendous partner for us in our autonomous trucking journey. We see autonomous trucking as a very strategic opportunity here in North America. We all know that there are cost savings. We know that the long haul driving is some of the least desirable here in the States, and we've had a truck driver shortage for many years before the pandemic. One of the things that a lot of people don't talk about is the transit times. Our consumers are looking for faster and faster receipt of the products that they order, and we can move trucks across the U.S. several days faster with vehicles that don't need to take breaks, that don't need to rest.
Vehicles that don't need to take breaks, vehicle that don't need to take rest time. Within Volvo this is enabled through transportation as a service, and it means that we're expanding our scope. We're bringing new solution sales that will then unlock entire new revenue pools for the Volvo Group and giving us unprecedented access to the wider transportation industry. The technology we deploy here is really at the core of our business, is at the core of what we do at Volvo. The next subject I want to talk about is our autonomous vehicle platform, and this autonomous vehicle platform is built using the Volvo CAST principles. CAST stands for Common Architecture and Shared Technology. My colleague Lars will speak more about it later. For us, more precisely, this represents an autonomy-enabled vehicle and our own Volvo virtual driver interface.
This interface, which we build in-house, an automation interface, communicates between the vehicle and the virtual driver. We can deploy this with our own virtual driver, which we develop in-house, but we can also deploy it with the virtual drivers of others, of partners. This allows a certain standardization, which is unique in the industry. More important, this allows for scaling. We can scale across the Volvo Group brands. We can scale across geographies, but we can also scale across industry verticals, the use cases. I also want to point out that this will strengthen Volvo's leadership position, 'cause we can allow tech companies to monetize their technology on our autonomous vehicle platform. Through this, we can also deploy new business models and enhance again the revenue opportunities for the Volvo Group.
At the core of all our autonomous solutions is our ambition that we want to support to solve real world problems. We want to respond to true needs. We want to answer real demands, like the shortage of truck drivers, like the need for more safety, like the need for more sustainability. We also want to respond to the quest of the always growing freight demand all around the world. Consequently, this strategy creates a great ability for us to contribute significantly to the Volvo Group top line, but also to the bottom line.
As visualized here, you can see that we think that the strongest opportunity we have is within hub-to-hub. Again, it is within our approach of autonomous transport solutions where we can access new revenue pools, and by that, we can strengthen the growth, and we can strengthen the resilience of the Volvo Group. The last thing for me today here is to announce that very soon we will open up our reservation program in the U.S. for autonomous freight capacity. More news coming soon. Back to you, Kina.
Thank you, sir. Nils, great to hear that we are soon opening up for orders and making history at the same time. That's the beauty. Thank you.
Thank you.
Having looked at our business areas, now we're gonna dig a little bit deeper within our organization because to win this race, you also need to invest in product and solutions development and in production. Welcome, Lars. Welcome, Jens. You brought a lot of assets with you today.
We have enormous amount of assets in the Volvo Group, and it's truly a strength going forward in this transformation.
Lars, I get a little worried. When I look down at the cells, they look like my Nintendo batteries from the '80s.
Yeah, or even like small torch batteries. I can assure you, Kina, that from an energy perspective, they are completely outperforming your old Nintendo batteries.
That's very comforting. Thank you so much. Jens, why don't you and I step aside, and Lars, walk us through and show our progress.
On this transformation journey, there will be a lot of technology development, so being in engineering, our industry, it's just fantastic right now. We will add a lot of new and advanced technologies. Today, Jens and I, we will tell you about how we will continue to develop and produce our vehicles in an efficient way. 100% fossil-free solutions from 2040 at the latest. We have stated before, we don't believe that there is one silver bullet. We believe that we need several technologies in parallel. For propulsion, we think that we need three technologies in parallel. The majority of our vehicles will be electric. They will be a mix of battery electric and fuel cell electric vehicles. We also believe that there will be, for some applications, a sweet spot for combustion engines also in the long run.
We don't see an end date for the combustion engines, but then of course, running on renewable fuels like different kind of biofuels. There is one, I call it the wild card here when it comes to combustion engine, and that is hydrogen. It is an area where we are gearing up our efforts. Still early days, but so far, we see really good and promising results here. I often get the question around this, the split between these three technologies towards 2040, and it's hard to predict if I only take the technical parameters into that equation. I can tell you that it will not only be decided but, by technology and technical parameters.
It will also very much be defined by the availability and the cost of energy in different parts of the world, be it green electricity, green hydrogen, or different kinds of biofuels. Depending on the energy production, distribution, and infrastructure, we will also see differences between countries and regions. That means that in some cases, better electric vehicles will be the sweet spot in one region. For the same application in another region, then perhaps fuel cell electric or combustion engines on renewables will be the best solution. As Chief Technology Officer of the company, I'm extremely happy that we have the financial strength to work with these three technologies in parallel. With that, we feel that we can meet the future demands of our customers independently on what those demands will be.
One contributor to our financial strength is definitely our CAST system that Nils went into. CAST stands for Common Architecture and Shared Technology. We have many brands, and we have many different vehicles in the Volvo Group. Our 12,000 engineers, they have a CAST mindset when they are developing components and systems, and that mindset is that my component or system, I should always have the aim to be able to use it across the group, across all applications. By that, we can lower the development cost, we can get higher volumes, and we can streamline our production. We use CAST in most areas. Nils talked about it when it comes to autonomous solutions. Today, I really would like to focus on our propulsion system. For combustion engines in the Volvo Group today, we have two engine families here.
We have the family for the heavy-duty applications, and we also have one engine family for medium-duty applications. They are used across the group in all business areas. Our automated manual transmission is used for all our truck brands across the globe and also in bus applications. We connect engines, transmissions with a broad variety of different rear axles depending on the customer applications, and this is the complete traditional powertrain used more or less across the Volvo Group. Now, with electrification knocking at the door, we need to secure that we use cost also in this area, and I would like to show you where we are on this. Here in the studio today, we have four components that are the base for the electric driveline for most of our vehicles for the future. Let me start with the batteries.
Here you can see it's one, two, three of what we call our new cube batteries that we have developed together with our battery partner, Samsung SDI. These batteries we will use in our heavy-duty electric trucks that, for example, Roger just showed you. We will also use them in our yellow machines going forward. These battery packs are very modular, and that means that depending on the customer specification, we will use four packs or five packs or six packs onto a vehicle. Going forward, there will also be other geometries coming than battery pack geometries, but from a cost perspective, reuse, we will reuse a lot of technology and subcomponents into those batteries as well, as battery monitoring system, thermal management, and charging systems. For fuel cell electric vehicles, the fuel cell system is of course core.
This is a system from Cellcentric, our joint venture together with Daimler Truck. Inside this unit then, hydrogen is converted to electricity, and the power output of such a unit is 150 kW. In the heavy-duty truck, we will then use two of these ones in order to get the right power output. Cellcentric as a company is then developing this right now. This is a prototype. The progress of the company is really good, both when it comes to development of products, but also planning for high-volume production. Developing fuel cell electric trucks is much more than just installing two of these ones into a vehicle. There is a lot of development, a lot of optimization in the area of thermal management and hydrogen storage, to mention a few areas.
A fuel cell vehicle is a fuel cell electric vehicle, so yes, there will be batteries on board on these vehicles as well, with a little bit different requirements than what we just saw. But reusing the cost philosophy, there will be a lot of similar technologies into those batteries as well. We have come pretty far when it comes to the development of fuel cell electric trucks, and right now, we have vehicles rolling out at our test track outside of Gothenburg. I dare to say that together with Cellcentric, we are on track to commercialize fuel cell electric trucks in the second half of this decade. The third component I would like to show you today is this electric drive unit. This is the one that we'll use in our heavy-duty electric trucks.
I want you to think like this, that we have replaced the combustion engine with one, two, three electrical motors. We are also here using an automated manual transmission, but this one is of course optimized for electric drive. We connect this unit with our full palette of rear axles. We call this our versatile platform. It's very flexible and can meet a variety of customer demands when it comes to vehicle height, length, weight, number of axles. With this solution, we still install the driveline, the powertrain, in the center of the vehicle in between the frame rails. That means that we have the batteries on the side of the vehicle where we today have the fuel tanks.
For customers that have demand for even longer range going forward, there is a true demand to get more energy on board on those vehicles, and that means that for those customers, for those demands, for those applications, we need something different. We need something completely different. Ladies and gentlemen, for the first time in public, since the broadcasting is approximately 2 seconds delayed, you in the audience will be the very first one to welcome the new child in the Volvo family. That was unrehearsed. This is our proprietary electric axle or e-axle. Here you see the rear axle. Just imagine you have a wheel here, you have a wheel here.
Our engineers have installed the electrical motors, the electrical drives, and the complete transmission directly onto the rear axle. This is the complete driveline in one compact unit, and by that we free up valuable volume, valuable space in between the frame rails. For battery electric trucks, we will install more batteries there. For fuel cell electric trucks, we will install other components there. Our proprietary e-axle will be used for battery electric trucks with long-range demands and in fuel cell electric trucks. Still in development phase, but within some years this will be ready to offer our customers. Kina, cost has taken us to where we are today, and we intend to go on in the same direction on this journey also in the world of electric transport.
This, Lars, if I may, is the definition of beauty.
Yeah, I dare to go that far to say that she is beautiful.
Can I have one for Christmas?
Of course.
Thank you so much, Lars. As always, well done. Why don't you have a seat, and please join me, Jens. We're gonna swap places. During the last CMD, we talked about how we are integrating the assembly of electric trucks into our existing assembly line.
Yes.
Where are we today?
First of all, going very much from word to execution, and but the message is still the same. Same platform, same plans. We are leveraging on our existing knowledge on how to build high volume production with a very high degree of variance, and that is really the key on how we can build electric trucks on the same line as combustion engine vehicles. Why is this so important? For me, the main reason is scale. Scale to meet up when the S-curve is coming, segment by segment, region by region, we need to be there with our industrial footprint and meet up wherever, whenever. How will we do this? It's really combining them. Taking out a combustion engine component, goes out, and instead we put in a battery electric component, and by that we produce down the same line.
We call it our mixed model assembly concept. You can ask yourself when. Right here, right now, let's go to our assembly plant here in Gothenburg with Sandra, our plant manager.
Here in Tuve, we're now producing fully electric heavy-duty trucks on the very same line where we've been producing trucks with combustion engines for years. In fact, mixed model assembly is not new for us. The electric driveline is only adding a dimension to an already existing fishbone concept. I am standing by one of the pre-assembly stations that feeds the main line with, from one side, the combustion engines and the other side the MAC, the Module Under Cab, consisting of components for the electric engine. We fit the MAC at the same place in the truck as the diesel engine, at the same station on the assembly line, even using the same lifting tool. We've been producing trucks in Tuve for over 40 years. That experience and solid competence enable us to create production flexibility to meet the demands. If the customer wants it, we will build it.
Now we're looking forward to volume ramp-up in the autumn. We are ready.
As Sandra pointed out, serial production in Tuve will start soon.
Week 37. We are really excited. However, we should remember that already in 2019 we started serial production in Blainville, for the medium product and in 2020 for our U.S. platform, so we are building both experience and competence.
We looked at truck assembly, but we are using the same modular strategy when it comes to powertrain?
Absolutely. Let's have a look at the versatile platform that Lars talked about over there. We see the gearbox there, and of course it's optimized for battery electric vehicle. However, when we look at our industrial processes, we can reuse up to 90% of our industrial processes, so a good fit. If we go to the e-axle, we can talk about that gearbox. Same thing here. We can reuse around 80% of our industrial process for that gearbox. On top of that, see the axle in itself. It's cast in Skövde, and in Skövde today we cast cylinder blocks and cylinder heads, so imagine in the future when we do not cast a cylinder block, we will cast an axle instead, so no stranded assets in powertrain.
No stranded assets. Good message for this audience. Like Lars said, today we are buying complete battery packs, but in the future our strategy will be slightly different and we will deepen our own depth of engagement.
Yes, but battery is a broad term, so how we build up a complete system, starting with a cell, going into a module, going into a pack, and finally into an energy storage system. When we now industrialize, we're a little bit going the reverse direction. The energy storage system we have done since 2019, as I said earlier, in Blainville. We now start up our first pack, high volume, in Ghent, 2022. We will go into modules. We want to go into modules, and that is probably where we are at. If we look at the industrial logic, cells, that's chemistry. When we go to module, pack, and energy storage system, that's highly automated assembly, very good fit into our industrial system. Do not forget the logistics part of it.
We have the competence, and we have the platform, the footprint, and we are ready to meet the future.
Mm-hmm. Thank you so much, and we are already rolling. Just for this audience in particular, this is done without costs skyrocketing.
They will not. Be very clear on that. We have to remember that from an operational perspective, we are not automotive. We are producing highly specialized industrial machines. It's our core business to handle variety. No increased costs, and again, same plants, same platform.
Thank you so much, Jens. Very clear. Dear audience, you here in the room and also you online of course, I hope that this have given you a good view of our progress and also a deeper understanding of the future growth journey that we have ahead of us. We will go even further in a minute, but first I would like to welcome back Martin, Tina, and Jan. You have, of course, been sitting, listening carefully to all our colleagues. Martin, starting with you, your reflection.
First and foremost, I think the level of execution that is happening in the group now as we speak, technology, the industrial development, the commercial development. I think it's fantastic to see how different things are coming together and that's building on this customer centricity to really provide these tailor-made solution for our customers while leveraging in a smart way the platforms that we're having, and at the same time, adding a lot of innovation and technology value. You know, I've always said this is the era of the engineers.
Mm.
I getting really, you know, excited to see it.
Emotional. That's fine both. Tina, what about you?
Yes. I think for me it was very striking to listening to the what was presented by Roger and also by Emmanuel on the market shares, seeing that it was double market shares for Volvo Trucks on the electric vehicles compared to ICE, and the same with Renault.
Mm-hmm.
I think that's a huge growth potential for us, and it will be super exciting to see what this will take us in the future.
Mm-hmm.
Absolutely.
Jan, we opened today by talking about how proud we are of all our colleagues out there contributing every day on this journey. People, it's probably the most important investment we can do it in our own people.
Yeah, exactly. I think, I mean, this is a transformation that fundamentally changes the industry and obviously fundamentally changes our company. Exactly as you said, I mean, to go back where we started, Martin, with the people and the organization and all the competence that we have in the organization, I think it's just fantastic to see that during the course of the day, and obviously we meet a lot more people.
Yeah
... than what you see here today, deeper down in the organization with a lot of competence. Competence that many people maybe thought were redundant in the transformation. It's not actually.
Mm.
A lot of people that have competence that we can use still, and of course, we can re-skill a lot of people as well. I think it's just great. Also to see the teamwork, how we'll work along the value chain. I think we have seen a few good examples here as well. That's what strikes me, actually.
What strikes me is that, I mean, I listen to you and listening to all my colleagues, we enjoy this transformation. It's great fun.
We love it.
We love it. Yeah. Martin, in a second, I wanted to move back to the screen and also share with us why we believe that so strongly that the Volvo Group is the company to invest in, please.
Thank you. First and foremost, I have to say, I mean, I've been listening into the rehearsal here earlier this week, and of course, also listening into this every day. We are working 24/7 with both the performance part of our company, but also the transformation that is actually now happening but continue to accelerating. But before coming into that, I have to say that I'm getting so excited about the energy and the passion for this transformation and journey when I listen to my colleagues, and knowing also all the colleagues in the group that they are representing because that is the true value and the strength.
We have been doing a journey that is continuing now, a journey that has been based on a very, very clear and consistent focus when it comes to taking this company to the next level. We have been delivering on our financial ambitions and our strategic direction, and we will continue to do so. We have seen how the underlying performance in terms of financial outcome, but also customer satisfaction, has continued to increase. We have improved resilience, and we have been very dedicated when it comes to our capital allocation in order to drive innovation, footprint presence, and thereby also customer retention.
Now, we are continuing to invest into this transformation as a fantastic opportunity through new business models, as you have heard, but also when it comes to technologies and innovation, and that will be linked to an unprecedented opportunity for our industry and for our company when it comes to growth. Everything of that starts with the customer. What you've heard here boiling down is that for the customer, it is about executing on three main parameters. It is the revenue and the TCO impact, the CO2 reduction, and the peace of mind, the ease of implementation and operation, giving the productivity outcome expected for our customers to in turn deliver to their customers. This is a complex task. We should not refrain from the fact that this is a number of headlines.
It is about executing on all these four areas when it comes to the vehicle with an application excellence and a tailor-made product for that specific use in that specific geography for that specific customers, and doing that also with scale and quality in order to provide a competitive solution. That is based on our core system. It is about repair and maintenance and productivity services packages with the right density when it comes to our network, when it comes to highly qualified people to support 24/7 around the clock where the customers are operating, and the financing, ensuring solutions in order to get the complete package and solution together, providing all the way up to equipment and even transport as a service. We have executed on the fourth very, very important piece.
That is the battery systems, the charging infrastructure and solutions for our customers to bring that extra dimension with the first life of battery, the second life of battery, but also the recycling. Everything of this must, in all details, come together for our customers to make the shift into this. The good news is that it's not stopping here. It's actually a very attractive case for all stakeholders in and around the Volvo Group. It is about attracting talents, it is about driving the motivation among our colleagues, our partners in the value chain, but also for authorities and governments, and of course, an investment profile for investors that want to have a solid performance here and now, but also great prospects for the future.
This is based on a unique asset set of assets that we are lucky to have in the Volvo Group and that we are working hard to continue to develop. It starts with a long-lasting customer relation in a business where trust is everything in order to move ahead, and we have been building that for years, and we are now seeing how we can continue to move along with together with our customers and also their customers. It's based on the people, the culture, and the value in our company, combine them with a modular technology through the core system with a regionalized and flexible industrial footprint, bringing both scale and variation when it's needed to meet all these different S-curves. It's based on a global but still dense presence through our sales and service network to support 24/7.
It's based on customer finance abilities that are continuously developed, and it's based on partnership with the best in the ecosystem in order to provide these holistic solutions, where we are opening up for a different type of partnerships, and you've heard it already today, many examples. We are leveraging the multiple brands and their respective competitive set, and of course, at the core of this transformation also, the lead in technology, innovation, and digitalization. When that is combined, we are getting to the current situation with a best-in-class profitability and yield, while at the same time maintaining a financial position for the future, a financial position that will meet different turmoils, but more importantly, to be offensive into this transformation and maneuver from a position of strength. That has brought us to high level of customer retention, leading market shares, and a resilience for this group redefined.
This set of assets will also lead us into the future, into the transformation. This is about leadership in decarbonizing transport and infrastructure for the future, giving step change opportunities in market share, in service content, driving the business opportunities into solution as a service for even higher resilience, retention, and recurring revenues, and doing that in a capital efficient and flexible ramp-up. Again, not leading the S-curves, creating them. That takes us to the story of growth. Yes, we've had growth in our industry based on the underlying increase of demand of transport and infrastructure. That will continue to happen, but also through company-specific activities when it comes to market share gains step by step, the service journey that we have talked about, and other factors as well. Now the transformation will lead us to another step when it comes to the growth opportunities.
Based on the same factor, the underlying demand will continue to be there. More transport, more infrastructure needs to be considerably more sustainable. We have ambitions for the company when it comes to continue to untap the service potential, and of course, to gain market shares in important regions where we already today have a strong position but can continue to grow. The big step is, of course, when it comes to the transformation into electromobility, both fuel cell and battery electric. Here it is the 1.5x confirmed revenue of the life cycle that is the number one, but also when it comes to the first-mover advantage, when it comes to market shares, but also service and finance, duration, and penetration.
As the cream of the crop, as you have seen, it will also give great opportunities when it comes to infrastructure and energy services, when it comes to productivity services built on our digital capabilities, and the transport as a service in selected segments with a great revenue pool potential. This is the era of unprecedented growth opportunities. For us, in order to summarize that, I can be clear about the opportunity for the Volvo Group. First and foremost, the industry dynamic and the company ambition, we will capture this potential. We will continue to invest to win based on the set of assets that we are sitting on. We will continue to invest in technology, in innovation, in leadership, in presence, in people, and we will do that by continuing to deliver on our financial targets.
That is the right direction, that is the challenge, and that is the great opportunity. The group has been on a journey that has been fantastic. That has, as you can see on this slide, led us to a situation where we have been increasing our customer satisfaction, and we have been increasing our operating margin to a best-in-class level on or above 10% delivering on our financial targets. Now, it's time for us to make the same journey when it comes to growth. Thank you.
Thank you, Martin. Stay put. Just to pause for a second here, so all the messages sink in. My humble reflection is that few companies actually have the prerequisites to manage the transition.
I mean, I think we should be humble in this. There are a lot of investments ongoing, but what I feel and hope that everyone that has been here feels is that we have been consistent in our journey, when it comes to our execution, and that we are seeing great potential, both when it comes to the company's prospects, but also, I have to say and admit, that makes me very excited to actually be part of shaping the world that we want to live in. We know how important logistics, transportation, and infrastructure are for the development of a sustainable world. To at the same time, being part of together with all great colleagues and partners, being able to deliver and develop the business and also shaping the world that we want to live in.
I mean, how cool is that?
Super cool. All right, Martin, thank you so much. We are going to change gear, but first, we have presented you with a lot of material today, and as always, it will be available on our global website, volvogroup.com. Now it is time to make room for all of you watching. We will finish today's Capital Markets Day with the opportunity to ask questions to our presenters. Stay put. We are going to do this the following way. We have several of you listening here in the studio and online who would like to ask questions to our presenters. We will take them one by one, and it will be orchestrated by Christer and Johan from our Investor Relations department. Christer, why don't you begin with the first question?
Thank you very much, Kina, and I think we'll limit to one question. With me, I have Olof Cederholm.
Yes, hi. Thank you. It's Olof with ABG. So one question, but maybe a longer one then. It's on growth, of course, and 3% is your baseline. That's historical growth. The illustrative example looked good on the chart. Can you talk a little bit more about sort of the how quickly this growth can come through in terms of realizing the 1x sales per truck? Is there an immediate effect of that when you sell the truck or not? And also, a second part of my question, is there a big difference in the growth opportunities you see in CE compared to trucks?
Shall I start, and then you fill in, I mean, Johan and Tina and anyone who would like to do it? I think, I mean, first and foremost, I think we have been pretty clear about the number of target settings here, both when it comes to the revenues over the life cycle, also when it comes to the ambition of penetration. I think you should think about the figures you have seen both from Roger and others here as not a hockey stick type of phenomenon. I mean, everything should be realized 2029-2030. This will gradually come. What I think is good news to see here is that we have now a pretty good momentum when it comes to the acceleration of electromobility.
That is based both on the demand from the customer side, but also based on the fact that we are getting better and better, both when it comes to the product range, but also in our, sales, abilities and our sales capacities, and also to offer the complete solution, as we have said. This will gradually step in, and when it comes to the immediate or not effect, that is, to Emmanuel's point also, depending on how different customers would like to see it, we will offer everything from a more traditional type of business with the products and the added services up to the whole equipment as a service that by definition then will be more of recurring subscription type of, revenues, and thereby, obviously also another type of revenue recognition pattern.
We have talked a lot about that. On one side, you can say, okay, then in that case, it will not immediately capture the growth potential. On the other side, it will make our industry even better when it comes to the recurring revenues and thereby the service content over the cycle and taking it out. Generally speaking, I should say that the dynamics that we see and maybe have seen even more and more. I don't know if you would like to add, Melker, but it has really catching up also on the construction equipment side with the same type both of solutions, but also on the interest from the customer side. Is there anything to add there, Jan or Tina?
No, I think maybe to think about the slide with the S-curves actually, because it kicks in gradually in different type of application, different markets and so on. There is also obviously an average on that one, but it will be different from application to application.
I mean, if you look at Roger's order intake or in what I mean, what used to be one year ago where, you know, three, four trucks to test. First it was one to two trucks to put in front of the head office for customers. Then it was four to five trucks to start to test. Now we start to see the real orders coming in. I mean, the performance team order to Maersk in Los Angeles or the DFDS order. I mean, there we are talking about really electrify a complete hub or complete terminal. We see also the pattern when it comes to the single order type of size.
Good. Thank you. Christer?
Yes. I think next question we have, Agnieszka at Nordea.
Yes. Perfect. We talked a lot about the electrification, the potential coming from the technology changes for your group for the growth. But also part of your growth strategy is to improve your positions in China and in the U.S. I wonder if you could reflect on your achievements there, and also maybe if you could tell us if the COVID situation, the geopolitical situation changes your strategy for China.
Yes, I can start, and maybe Roger, you can also add here, both for North America and China. What we have said is that obviously good potential, a mature market, part of it will come with electrified introductions here. As we see it, China is strong on that. We had a good offer also when it comes to these type of solutions. In North America, there are a number of different factors. We are running a big investment program now when it comes to further extending the range for the two brands, and also actually strengthening our supply chain step by step.
That has historically been one of the shortcomings, that we have not been able to actually capture the full potential, due to the supply chain resilience, you can say, not only related to the situation that we have now, but generally speaking, and that is a work that is ongoing. We have seen a positive development. Roger, I don't know if you would like to comment both U.S. and China.
Yep. I can do that, Martin. As we were into, we are seeing then a good growth into our development, and we are working. We have a good product offer both on diesel side, on electrical side in North America. We're taking market share in a good way, working with a complete regional value chain. It's not only to take the market share. We are then taking profitable market share as well, with good price realization and good price increases that we're getting out. Also, as we were into before, that we have a leading position into the electromobility, that we are then the largest brand in North America and to manage this market. In China, we have clear growth potential. We are building then the base of then our operation and to continue to grow our volume and to increase our business.
We are committed and to continue the journey in China.
Thank you, Roger.
Thank you.
Let's have another one from the room.
Yes. Then we go to Daniela-
Maybe to add on China and the geopolitical thing, I think it's important that we are also now building our industrial presence in China, and that project is ongoing.
Mm-hmm.
The way we build this is obviously that we build it in China for China. We don't build it in China for a bigger part, and that's, I think, maybe a little bit of a reflection that we think it. The market is huge. I mean, it is a 1 million truck market on average, even though this year is a little bit tougher. We still have a belief in the Chinese market.
When it comes to the premium segments, we are sitting on a strong position. We have approximately 40% market share now for the Volvo Trucks in those most advanced segments. Of course, these segments will continue to grow as logistics is continuing to mature also in China.
Yeah. Thank you. We move to you, Daniela Costa at Goldman.
Perfect. Thank you very much. You gave a lot of details regarding EV, so I wanted to ask on autonomous. I think there was one number in the slide, which was five times the revenue opportunity, but maybe I missed it in terms of timeline. I know you're launching this year. Can you tell us through how you see the path, if there is a 2030 target or some other sort of target like you gave for EV would be helpful. Also related to autonomous, you mentioned hub to hub has the biggest opportunity in the U.S. I guess a lot of that is fleet. Can you talk about, give us a little bit more insight, given I guess you've been more skeptical on fleets in the U.S. in the past?
Absolutely. Maybe, Nils, if you would like to start.
Yeah.
You can stand up also, so people see.
Yeah. I think, you know, the timelines are different per segment, and with what I said earlier, the segment mining and quarry, that's something which we're addressing now. We're starting with that. However, the biggest potential we see is in hub to hub. Here we have a clear focus on the U.S. market to start with. We of course also have thoughts that we will expand that outside of the U.S., but there is a lot to grab in the U.S., and we really believe that we need to be amongst the first out in order to really capture the growth potential there, and we're on a very good way. Now, there are different, you know, dates out there on when this will happen.
We believe that it will start around the mid of this decade, but what will happen is not an overnight event. This is a gradual shift. This is a rollout which will actually take time. I think it will take several years that we will really be able to cover the whole of the U.S., as you have very different requirements in the, you know, Sunshine States versus if you go up into, whatever, the Midwest or even above that, where you have climate conditions which make autonomous driving more complicated or add to more complexity. We believe there will be a start around the middle of this decade, and then it will gradually roll out over the rest of the decade.
I think, I mean, just to add to what Nils said, I mean, this is also where it's very clear that the business-to-business game is so important because also for the first applications, it will be dispatch areas and receiving areas. The gain from productivity, from the production solution, uptime perspective is so huge, so you will have these step-by-step solutions.
Yeah. I think also what I want to point out is that, you know, for us it's very crucial that we own the customer interface, and all our efforts are gearing towards that. The partnership which we have in place with Aurora gives us the customer interface, and we know from our customers that they really prefer to work with us versus with other players which are new in the market. The tradition we bring and the closeness we have in place with our key customers is an asset which we can really leverage and we will utilize.
Good. Thank you. I think we are ready to move over to Johan and take our first question online.
Yes, we have a question here coming in and which is saying that Volvo dynamic is clear about the fuel cell vehicle need, but some competition are leaning more towards battery electric only. What's your reflection on that?
Yeah, I mean, Joachim, you can fill in here also. You have been studying this obviously in the Volvo Energy space. I think you need to see this from a couple of dimension. If you take the pure energy efficiency dimension, then it's a clear benefit for a battery electric vehicle. The reason for that is simple as you understand. I mean, you have an electricity generation into a battery, and then you're dispatching that energy out to the powertrain, and you get a very high efficiency. That is a no-brainer. On the other hand, when it comes to different type of applications, there are different needs to start with when it comes to autonomy, when it comes to flexibility, when it comes to how a network of charging or fueling should be dimensioned.
The big game is obviously when it comes to the energy storage, the grid capacity, when it comes to the green generation of energy over time, where electricity is instantly produced or storage will actually have a huge competition between different sectors. We had customers actually visiting the board of AB Volvo, a big Swedish customer, but very pragmatic, so it's a family-owned company, and got that question, "How do you think about it?" Very progressive. They are running on bio-based solutions today with Volvo.
He said, "You know, I remember in the 1960s in Sweden when we had one TV channel, and 60%-70% of the Swedish population were watching TV, when it was a popular TV show, and one of the popular TV shows was called Tekniskt magasin by Erik Bergsten. One of these TV shows, he was standing in front of the Stornorrfors hydropower station, that is one of the biggest in Sweden, sending live. He said to the audience that, 'Now I want all of you, the 60%-70% of the Swedish population, to go out in the kitchen and turn on all your electric appliances.'
You go back and look into the TV again. He said, "We did see how the flaps of Stornorrfors hydropower station slowly opened." He said, "I realized one thing, and that is that electricity is produced when it's consumed, and we need to think about that in this transformation." I think that is a brilliant answer why we will need, that we need to have the different type of solutions. We are convinced that both will be needed, but we are also convinced that there are a lot of synergies, as Lars alluded to, based on the same electric powertrain, different energy storage, great benefits for the customer. Joachim, something to add on that?
It's difficult to compete with Stornorrfors, for sure, but I think you said it well. I mean, electricity is consumed at the same time. It has to be produced and consumed at the same time. One of the greatest challenges when you look in the EV space in general, you can look at the passenger car side, for instance, is getting enough electricity into the charging points because the grid is a bottleneck. I think you hear politicians in different countries saying, we've been basically harvesting the investments that were done in the 1950s and the 1960s, and we've been harvesting them for 50 years. To be honest, if we want to come together as a society and really meet the Paris Agreement, it's going to have to be a strategy of all of the above.
I think that's also why Lars showed you very clearly the different technology strategies that we have because it's going to happen that way. There is no alternative.
What is great about all this is, of course, this is taking both the technology ecosystem but also our business model to a new level. Because what we anyhow need to develop, like, the fuel cell stack, or the battery storages for the truck, et cetera, can be utilized in a variety of different combinations. First life, second life. Heléne and Volvo Penta, of course, will utilize that, for different type of power generation activities. And it will be also utilized for depot support, for example, together with our charging system. This is the ecosystem coming together on the next level. Great opportunities.
Mm-hmm. Christer, I think we're ready for another question from the room.
Thank you, that is, José Asumendi.
Thank you very much. José from JP Morgan. Just a question on battery and battery strategy. Can you comment on who are you going to be your key partners in terms of battery sourcing? And also how far do you want to invest into battery packaging, battery modules? And as we think about investment, I mean, fantastic presentation today around, you know, how you want to think about all the different technologies. What does this mean for CapEx R&D for the company for the next five years? Is CapEx R&D going higher? Is it flat as percentage of sales? What does this mean for the group? Thank you.
Thank you, Jose. Maybe start with the partnership and how we think about it, Lars and Jens, if you maybe a little bit.
I can start, also. Our current battery partner, as I said, is Samsung SDI. We are very happy with that partnership. I regard them to be top-notch. We have then developed a number of batteries together, and we will continue to develop together with them. It's also clear in our communication that going forward there will be a lot of batteries, so we can simply not be only working with one partner. There will be more partners on board in the upcoming years. Jens, you were into it on your presentation already. Perhaps elaborate a little bit more on this, the cell module pack-
Exactly.
-journey.
When we are then potentially using different type of cell suppliers, we need to have the ownership of module pack and especially the software around it, then we can be much more flexible.
Yeah. When it comes to CapEx, I don't know.
Yeah
If you would like to start.
Yes, let's do a few comments on that. I mean, we are a bit different in the truck industry compared to the car industry. It's not so that we take one platform and exchange that to another one. We will be able to have leverage on all the assets that we already have in the growth scenarios that we're looking into, and I think, Jens, you were stressing that quite well. I recall you said, "No stranded assets," which is good, and we will leverage from the platforms that we already have. Of course, as we are growing, we will also investing, and we will grow significantly, as I think you dwelled a lot upon, Martin, and the investments will follow. We will also do that and still fulfill the financial targets, so that's the context.
I think that what Tina is saying is very important because we were a little bit joking about this question yesterday. Not because it's a very relevant question, but we were joking about how to answer. You can do it in different ways. One way is, of course, also to refer to our own view on decentralization with our different business areas. Once upon a time, a couple of years ago, we were capped based on every line on the P&L. We said, "Okay, you have a cap on 6% on R&D and X% on selling," etc.
We found that useless, actually, and say, "Okay, what we expect from you is actually a delivery on your P&L completely, and actually to utilize the P&L and the full P&L over time." I think that is also very much, to Tina's point, coming back to what we see now. We have clear financial targets that we'll continue to leverage. We will capture the growth potential. We know and we should invest to win here. With a return on capital employed of above 25% and the growth opportunities, I think it should be passé to say that, I mean, there will be years with a little bit higher. It will not explode, but it will be smart. That is a trust issue, I think, that we have been actually delivering over time here.
Not taking the first mover advantages at this point in time should, I think, be unwise, given the growth potential.
Thank you very much. Christer?
Yes. We move to Harald Hendrikse at Morgan Stanley.
Thank you very much, and thank you very much for the great presentation today. I can see you're very excited about the new technologies and stuff. Can I just ask you, because I know you're very pragmatic and you think about this very deeply, from a societal perspective, right, we live in strange times. We've closed down a lot of nuclear power. We're burning more coal. We're not really going in the right direction. If we think about the whole BEV shift, right, you can make the vehicle zero emission, and I have no doubt you'll be very successful in doing that. What about the lithium? What about the production of batteries? How do you control the supply chain? What about the infrastructure, right?
We haven't even got enough power in the ground to be able to do high-speed charging in many places. How do you control the CO2 output in many of those ways, right? Because right now, the electric vehicles we're building, if anything, are bringing forward CO2 into the environment, right? I know this isn't necessarily a Volvo question, but it is a wider question that needs to be addressed. You know, do you see that becoming a roadblock for you, or have you got a good answer for me again?
I mean, if I start and anyone can fill in here, but this is a true challenge, obviously. And if we are to be serious that the end game here is to make the planet a better place, which is the end game and must be the end game, I mean, we see that the planetary boundaries cannot cope with the current development. In that regard, we need not only to look upon, so to speak, our part of the value chain, that we are providing a battery electric, and we say, "Okay, we cannot help that, it is powered by brown electricity," for example. We are both thinking and investing a lot in this.
We think that one of the key aspects when it comes to our joint ventures involved with energy, for example, is not only to take this together with Daimler Truck and Traton Group, but to also link in other partners that see the pathway on heavy trucking now on battery and also fuel cell electric. Thereby thinking with the utility and energy companies, how do we make sure that we are thinking both when it comes to the big build-outs of nuclear and hydro, Stornorrfors type of projects, but also when it comes to the decentralized power and how do we leverage that in the smartest way? When we talk to the big windmill producers that are also going more into the solutions, they say, I mean, 60%-65% is utilized efficiently.
The rest cannot be utilized because then you're, you don't have anywhere to put the electricity because it's produced and consumed at the same time. Here, obviously, with the assets that we are sitting on, battery storage, hydrogen production, et cetera, we can gradually build it out. We have been clear about one thing. We should not utilize the possible roadblocks in other parts of not doing our part. We should try to actually participate on how can we be clear about our transformation together with our customers to support others to do their part because some of the big investments need also visibility, what are the technologies to be used. In the short run, this is of course, one of the key areas to think about.
I mean, we should not avoid to discuss the fact that we are seeing an integrated type of world moving to a fragmented, a free trade world moving to, an industrial policy-based type of landscape, where, by the way, the regional value chains and the cost system will serve us well, but also from a deflationary to an inflationary environment based on these premiums that will come into society when it comes to health, defense, resilience, green transition, energy transition, et cetera. My fear is that at the end of the day, that we will start to take out the most important part of the equation that is actually the green transition. Here we really need to keep an eye on now that we are continuing to invest in the energy transition that will actually support the green transition.
When it comes to batteries, very good, or the materials, very, also very important question is, of course, that one thing that we've learned during the crisis recently is the relation with our supply chain partners, semiconductors being one of them. It's not only the T1, it's the T2, T3, T4, T5. It's 2000 semiconductors in one truck, just to have a figure. I mean, we have strengthened the relation up in the value chain here, and that goes also for the materials now for the future. We have great contracts, and contacts and contracts with mining operators, refiners, et cetera, and to try to construct also this pathway, because at the end of the day, it must be a fossil-free product and solution.
Otherwise, it's we have not done our job, so to speak.
Thank you, Martin. Another one from the room, Christer.
Yeah. Thank you. We have a question coming from there.
Hi. Yeah, Tom Narayan, RBC. Thanks for taking the question. On battery raw material, just to follow up to what you were speaking about, curious as to how chemistry helps solve this problem and also recycling. Could recycling be the silver bullet? We've all seen what happened with semiconductors. Everyone's doing their math now on nickel and cobalt and everything, you know. How do you see those two, chemistry and recycling as potentially solving this issue? Then just a quick follow-up on the hub to hub. Is that by mid-decade without a driver completely? Thanks.
If we start with the materials and the recycling aspect. Chemistry and recycling then. Chemistry, yes, working on different chemistries with a clear ambition to reduce the use of, let's say, the more precious ones and the more scarce ones. Recycling is extremely interesting, and today, both research and industrialization is pointing into the direction that it will be possible more or less to recycle all material in a battery. We should think like you produce the battery once, and then you recycle it. You hear more and more about the urban mines companies investing into the recycling flow here. That must be part of this, definitely, and that's a part of our value chain that we are working on.
Joachim, maybe if you would like to add, how do we think about these different steps when it comes to our own processes?
Oh, absolutely. If you remember the slide I showed with the circle, it's circular, and that of course includes recycling. We will have the first live usage, then we will as much as possible also try to have a second live usage because then we postpone the recycling for another decade or so and leverage that asset value. Of course, we will also do the recycling when the time comes. That is the basic intention that we have then, right? To extract the value, and that's good for, as I said, both for the planet and also for business then, right? It's good for all stakeholders.
Nils, on the virtual driver, will it only be the virtual driver in the truck?
Yeah, of course, the objective is to remove the safety driver. I don't know where the question came from. I wouldn't be, you know, doing the right things saying, you know, this will exactly happen on that date, but I think the industry forecast is the middle of the decade. The industry, but also Volvo, we're working very hard towards that. We're making significant progress, but we also know there are still things we need to solve, things we need to address, things we need to verify, things we need to validate. We have a clear ambition and, you know, we have, you know, drawn, you know, for ourselves, of course, the things we want to accomplish by a certain point in time.
Everything, you know, what we do, what the industry is doing is moving towards this timeframe, which, you know, I've indicated.
Very good. Christer, one more?
Yes. We have Björn at Danske Bank.
Thank you. Yes, on your current journey or transformation, and how much is Dongfeng contributing or how much are you benefiting from them? Would you say that the business case for that JV has changed last, what is it, 10 years or so?
No, I think we, when it comes to Dongfeng, obviously we are working with the present business model when it comes to the ICE and so on. We are obviously also evaluating the opportunities when it comes to the transformation as well. It's still too early days, actually.
Christer, I think we have reached our last question.
Okay. Yes. We have, going over to SEB, Erik Severinson.
Thank you. You're pushing the message of higher growth pretty strongly here today, and you seem very confident in it, but there's no new target to back it. Why not? To complement the margin target.
Now, I mean, what we have said here is, of course, that, I mean, there is a clear growth opportunity. We have also outlined what are the different parts. What we have said is also we think it is important to be credible. We think that we have built our journey on credibility, on delivering on what we are saying. Since some of these aspects are pretty early out now, we have said that indicate that this is an era of unprecedented growth when it comes to the content of the different type of solutions instead of just the unit count, if I put it like that. So far decided to keep the financial targets and indicate that the next step in this journey now will be to do the same type of journey when it comes to growth here.
Again, I mean, as we said, Erik, also, if you look into the different metrics and I think you can also shape an interesting picture about the opportunities.
Very good. Thank you, and thank you for putting good questions to our presenters. We have in fact reached the end of this year's Capital Markets Day. As I said before, all materials are available online and in various social media channels. The last thing for me to say is, Martin, why don't you do the closing?
Thank you, Kina. I will be very brief. I would like to start by saying thank you to you, Kina, also for leading us through this Capital Markets Day. It is a task in itself with all the things that are cooking in the group and around us also with the customers and suppliers, et cetera. I will keep it short. First and foremost, thank you everyone that has been coming here today. Thanks for interaction and coming interaction also during the afternoon and also to all of you listening in to the web for questions. Of course we are, the whole team, available for further discussions and interactions.
As just a very final closing, I hope that you have felt that my team, myself, and the whole Volvo Group, all colleagues around the world, together with our partners, we are really excited to move into the future.