So what a great movie. Every time we see it, every time we see it, Every time we see it, we just feel so proud of being part of this fantastic industry of these fantastic times. We are lucky to be present just here and now, given the great transformation that will take place in the coming years that is already taking place. And we will have plenty of time this afternoon to talk about that, what will happen here and now, what is happening here and now, but also what will happen in the future. I'm Martin Lundstedt, the President and CEO of the Volvo Group, and I would like to wish all of you most welcome to Gothenburg.
We are happy this time to have the opportunity to host you at the Volvo Trucks Experience Center or Volvo Group Experience Center to test and feel our different products, but also to have good conversations with the different teams working at Volvo. Program and the agenda of the day will be a little bit mixed actually. We will start with a short introduction by me about where we stand from a value and culture and strategy point of view. Jan Hittberg will go through the financial performance and also the business cycle management. We will have Lars Tienk who is talking about technology, but more importantly, what that will bring when it comes to new business models and reshaping the future of transportation and infrastructure.
After the break, we will have also an opportunity to meet a number of our customers that we are doing deep partnership together with. And then we will have an exciting tech expo where our expert teams also will go through a number of the innovations that we are working on as we speak. Melkrijan will then continue with the Volvo Construction Equipment story. And finally, it's time for plenty of questions in whatever area you would like to ask. I should say also the good news about that is that we have a very strong line up from our Executive Board and management team here today.
Actually, where should I start? Maybe I should start with you. We have if you can stand up Bruno Blain, who is our President for Renault Trucks. We have Roger Alm, who is the President of Volvo Trucks. We have Hakan Agnewal, President of Volvo Buses.
And we have Diana Niew, our HR Global HR Leader. We have Scott Rafkin, who is the President of Volvo Financial Services Bjorn Ingmanson, President of Volvo Penta. And that's the high season now, so I can understand it will be a long lineup with Bjorn We have Sofia Fremberg, who is our Legal and Compliance Officer, also sitting in the Executive Board, Kina Wieleke, Head of Communications for the group Jan Olsson, Global Head of Operations. We have Jan Geranders, Deputy CEO of the group Andrea Fuder, who is our Chief Procurement Officer, Head of Purchasing Melkki, you will meet later, then President of VCE, Lars De Henquist, our CTO, Chief Technology Officer and Jan Litterberg, our CFO. Anyone who feels that they have been forgotten?
It feels good. It feels good. Very good. So take the opportunity now to utilize the fact that we have a strong lineup, discuss your different topics in detail with the different expert areas, obviously. So we are here for you and obviously to have a good conversation during the day.
Before I'm coming into my presentation, also this morning, we had another very important milestone for the Volvo Group when it comes to taking transportation logistics to the next level. And that was the announcement of a very, very important partnership for the most advanced part of autonomous driving. So if you can please welcome me to give a hand to Jensen Wang, the Founder and CEO of NVIDIA. Great to see you, Jens, and thank you for coming, especially for us, both for the partnership and also for attending this Capital Markets Day.
Yes. This is a very special day for me too. I wouldn't have missed it for the world.
Thank you very much for that. And as you know and most of you know, you are well into our business. NVIDIA is a very, very strong company working in different variety of fields but has been investing heavily into the mobility sector now for a couple of years. I will let you comment on that. But before letting Jenssen comment on that, some small comments from myself why this is so important to the Volvo Group.
And that is coming from the fact that we have been working together already for a number of years now, NVIDIA and Volvo, obviously. As you have seen, we have done gradual announcements of our autonomous journey, of our connectivity journey, our electromobility journey. We are rolling out a number of both pilots, but more importantly, commercial solutions as we speak. But now we are taking this partnership to the next level, and we are taking that partnership into the next level when it comes to the fully autonomous solutions for Level 4, Level 5, 4 applications already coming into place now, that is the next step. And then we said, I mean, partnership is the new leadership, if you allow me to say that, Gustaf.
And if we are to succeed in the future having the speed, quality, but more importantly, the safety of these solutions and to gain the benefits of autonomous driving when it comes to the environmental impact and eventually as a consequence for activity. You need to partner up with the best guys and not doing only as a partnership of a normal level, but because in this world, the unknown is the new normal, and that partnership must be built on trust. That's the reason why it was so important for us to have the opportunity today to actually sign this next level of long term partnership with NVIDIA. So Janssen, for us a great day. How do you feel about it?
Thank you. Well, this is a huge day. You know very well that our 2 industries are separate industries. And since its founding, the 2 industries have remained separate for until now. And today, we announced the partnership of leaders from 2 different industries combining into one partnership to develop the future.
And so the first thing I want to say is that I'm so pleased that we're part of Martin and his management team's transformation and reinvention of this industry into a technology industry. This is the beginning of something very, very large. Now we stand at a time when the discovery of some of the most important technology of the future has been found. As you know very well, artificial intelligence is the most powerful technology force the industry has ever known. And for the very first time, we can imagine applying this technology to solve some great challenges that no one has ever known a solution for, and that is the autonomy and the automation of transportation.
The challenges that we need to overcome together as a team is really quite extraordinary. This is the first and the largest endeavor that has been announced of our industry. The world leader of commercial vehicles and our company working on high performance computing and artificial intelligence for over a decade now coming together to solve this problem.
What I think is important, as Jens said also, I mean, this is a very extensive partnership both when it comes to the simulation because this requires a lot of obviously a lot of data, enormous amount of data, a lot of type of simulation, integration into the stack when it comes to the decision making brain, you can say, of the vehicle, but also everything that comes around. It's not only a classical, so to speak, hardware and then a layer of software, but an integrated system for taking us to the next level?
Everything that we're going to do has never been done before. The way the software is developed, the algorithms of this new approach, the type of computers that we will use to run the software is all completely revolutionary. And when we combine all of that, we're going to transform the automotive industry, the transportation industry into a software defined industry, and it will be one of the most advanced technology industries in the world.
I thank you, Janssen, for that. And I can just say also that what is interesting for us is that we are sitting on the number of capabilities, obviously, in the Volvo Group, both when it comes to self driving capabilities in confined areas, also in even bigger complex areas, the whole redundant base technology that is completely new to what you see on the road today, the Volvo Dynamic Steering Systems that makes, so to speak, the full control. But to take this to the next level of full autonomous on road applications, you need really to partner with the best. And it was really great to have you here today and It's
such a great honor.
So let's work together and take it to the next level.
Thank you.
Thank you very much. We're going
to invent the future together. Thank you. Thank you.
Thank you for coming. And we will continue to talk about that during the afternoon. But again, just to say that it's so important for us to show that winning the territories in the future will be a lot about continuing these type of cooperations. That has been true in a lot of different spaces for Volvo Group. But now when we are entering into electromobility, automation and obviously connectivity, such an important step.
Having said that, yes, that we see the line. I'm sorry for that. We should have had that, Janssen. I mean we have a number of nice. And the good news about this is that this is a rendering done also by the world famous also rendering team of NVIDIA.
So you can see how it looks like it looks as good as it does in reality. So what can be better? Good. Then coming into the theme of today, we will talk about here and now, as I said, but also to the future. And just as a very quick backdrop, I've been 30 years myself in this industry, and it has never been more interesting and encouraging to be working here.
1st and foremost, because you can make a long list of different figures. I've just pick the number here that will show that it will be continuous growth in our industry, in logistics and in infrastructure development, and the reasons are obvious, obviously. Already by 2,030, we will be 8,000,000,000 people in the world, global. Most of that growth will come in areas that have still immature logistics. We know that it will not only be 8,000,000,000 people, but it will be in a completely different world when it comes to digitalization and opportunities that will bring with it, so to speak.
But we also see both already announced because many of those are very long term plans, infrastructural investments coming into play. Here, we have a number of figures up to 2,040, but more will eventually come, and a big part of that will come into roles that directly will affect, of course, our way of providing solutions for our customers, but also how we actually can participate in building that infrastructure. E commerce has just started. Depending on where you see it now in different parts of the world, we see a big impact on how transportation, logistics are organized and how our type of more advanced solutions can play an even bigger role. But obviously, this can only be done if we are also taking the responsibility that we need for the world.
The winners tomorrow will not only be the guys that are counting the money. The winners tomorrow, and I think all of us in this room should reflect on that, will be the guys that can count the money, but doing so by knowing that we have provided that with the boundaries that this planet can actually take. And I'm actually encouraged to see that this type of conversation is coming more and more to the table of decision makers all around the globe. How will we be able to hand over this planet and equally so our company to the next generations in good hands knowing that we have provided good solutions that have been driving prosperity on society for prosperity for society, but also prosperity for the stakeholders of Volvo Group. And I think the good news is that this can and will be combined if we do it in a smart way, utilizing, so to speak, the drive in society through transport solutions by also taking care of the future when it comes to safety, environmental care, social benefits, etcetera.
If you look at the world, you have seen this slide before, but for me, it's important to take this start. Still, the world is highly diversified when it comes to logistical efficiency. The most advanced countries in the world today, logistics represent approximately 7%, 8% of GDP. But in the less advanced economies, still logistics count for a very big proportion, and the efficiency gains and opportunities are enormous, obviously. If you take China, that's the reason why this is one of the top priorities, both when it comes to infrastructure development, but also when how it comes to transportation development.
And gradually, we will see this curve bending down. India, for example, that will continue to go up until it will bend down again. And the reason is simple. When value chains are developing, actually the factories and the manufacturing centers are developing first, logistics second. And therefore, when efficiency is coming into manufacturing by nature since it must add up to 100%, right, Logistics would have taken bigger place.
And then eventually, the curve will bend down again. And why is it so? Every industry that you are meeting will say the following. This is very unique and complex and special. And I will not say super special with logistics, but what is special is that the value chain as such is not that visible.
There are many actors. It's rather fragmented. There are a lot of room for suboptimization and a lot of transactional parts in the flow. And by new technologies, we can address that part. So already here, you see that there are enormous potential continue to drive efficiency and thereby also environmental development for the emerging parts of the world where our type of solution will play an increasingly important role, obviously, and we see that also with the growth in those areas.
The good news, though, is even if you have 7%, like Scandinavia or whatever, in those 70%, the waste is enormous. I mean if you think about the asset utilization of a truck, of a construction equipment unit, it is probably somewhere between 25% 35%. If I should ask one of my production managers, if you have the 25% to 35% utilization rate of our transfer lines in our powertrain production, I think we should have a rather long conversation. And this is production equipment, right? The load utilization factor is still also very low, 60%, 70%.
And you can see also how much amount if you really calculated the full transport work, etcetera. You have a number of factors. And then you have the safety piece, obviously. Still one of the most dangerous part of working environment, the traffic, the traffic situations where a lot needs to be done and which also have big societal losses obviously. So also in this way of looking into the mature markets, potentially is enormous.
So for us, and that is the main theme today, we will talk about perform because in order to be the transformation leader of logistics and our industry, we need to perform constantly. Long term consist of many short term. We need to know where we are going, but we need also to be sure that we can go there because we have a strong company and a strong balance sheet and a strong innovation platform to build on. We are, in the Volvo Group, well invested. And often when we think about well invested, we think about products, we are thinking about factories.
We are thinking about networks. And that is true. We are well invested in products and innovation, engineering, skills, etcetera. But in this transformation that is coming up now, maybe the most important is that we are well invested in the customer base. We have close relations with our customers.
They are operating in all parts of the world, and they are operating in a number of industrial verticals that will actually drive this transformation, like ports, quarries, terminals, what have you. And therefore, that is also starting points that people tend to forget that when we have built that trust over time, when it comes to doing business together, you can also continue to build this journey when it comes to innovation. When you do a snapshot about where we are operating and the majority of our business are located today when it comes to the industrial verticals and segments, You see, for example, building and construction, very big, both VC, Volvo Construction Equipment, but also trucks, the different divisions. We see that for Volvo Penta, obviously, in the industrial segments where we are supplying solutions to many of the equipment builders and also Janssen manufacturers, to mention a few. You have, for example, mining and quarry.
And the reason why I'm mentioning those as two examples and highlighting them, they are opted obviously for disruption when it comes to autonomous, electrified and connected. And what we feel more and more now when we see those type of industrial verticals and when we talk to the customer base that we have, our customers, the big directors, they say, guys, we want you to come as a group, a team, a key account to work together in the full scope of it because this is not a unit game anymore. This is a solution game where you need really to define the flows when it comes to safety, when it comes to environmental outcomes, when it comes to different parts. So very important. And here, we will continue now after the brand decentralization also to continue to drive decentralization and clarity around this when it also comes to key account and industrial verticals.
And a key enabler that we have here is our Volvo Financial Services organization, global, well presented and also needs to know by detail also the different industrial verticals logic from a financial point of view as well. Other strong assets to build on, we have clarified under the left side, what you see is the example on the truck side. We have now clarified our brand positioning and how do we utilize the strength of the different brands in a good and clear way. We have one global brand on in all different product lines, and that is Volvo, operating all parts of the world. And then we are complementing that with strong local or regional brands that actually can take their fair share of the market when it comes to Renault, for example, Europe, Northern Africa, Middle East and some other selected markets.
We have Mack in North America and Australia. And we have Yudin now continuously expanding in the Asian footprint but also in other selected markets. And then complementing that proudly also with our joint ventures of Dongfeng in China and with IHIR of India. That is not, as you know, not only a corporation when it comes to market presence, but also when it comes to production capabilities, sourcing, corporations and carry back when it comes to certain technologies that will feed certain markets where they are not operating, but the group is operating. The application excellence is, of course, key here, not only that we have a strong customer base and that we're operating geographically and in different industries, but how does their balance sheet look like?
How does their income statement look like? How does their cost situation look like? And where can we actually help and support them to improve that? The interesting part of the application excellence, Jarni, we see is that traditionally, we have been focusing a lot and we continue to do so on the cost piece for our customers: fuel economy, repair and maintenance costs, wear and tear, etcetera. But more importantly now, we see how connectivity and other solutions are driving us up through their P and L up to the top line piece of it, revenue streams.
Environmental performance, more and more important, uptime, obviously, etcetera, etcetera. So application excellence, there is no one size fits all. I can tell you, ladies and gentlemen, we are by far now moving beyond the world of average. Average is the mother of nothing. And if you want to win here, you need to have the application excellence and really make sure where is your depth of engagement for the different applications.
Synergies. As you know, one of the most overrated words in the world because the problem with Synodis is that what we learn in school is this, you will get it for free. This is the y axis and this is x axis. And on the y axis, you have dollar per unit, right? And on the y axis and on the x axis, you have volume.
And then you know what? The line looks like this. Fantastic. The problem is that if you are not careful, you have another small curve coming up, creeping up, and that is called bureaucracy and bullshit and steering committees and other things. And if you're not really clear about what is what here and in what verticals you can work with synergies, you can be in a really, really, really bad situation.
But on the other hand, if you're really thinking through where does synergies matters and why, you can be in a good situation. And I'm proud to say that I feel that we have been working through that. We have had Sweden, we always say wrongly high up to the roof, but it's high up to the ceiling and discuss that a lot, what synergies really matter for us and what does not. And that has been also the play about decentralized and powered organization when it comes to a lot of decision making to get speed and agility and on the other hand then get the synergies where it matters. Powertrain is a very famous one, both when it comes to technology and volumes and scale, but also now moving into parts of the powertrain arena where we have not done so with VCE, with Penta, with buses and also with the medium duty offering for the whole group as one example.
We see that in distribution, financial services again. We see that in some of the common services where we see that it's serving us well. Technology areas, model platform and not at least now in electromobility, automation and connectivity. And Lars will come back to that in more detail later on here. The journey continues.
Strong growth and expansion for 10, 15 years. A consolidation after the Great Recession, obviously. A lot of focus of internally to get that together on the platforms and the economy, product renewals mainly in Europe, etcetera. And from 2015, 2016, a new focus of this decentralized organization with a strong customer focus, continuous improvement and build on the assets that we have built up over many years to come here and work on it. We are happy.
We feel that it's working. It's serving us well. If I may say anything of the words that we put up there, 16, I'm very happy with the customer focus in the organization. The beauty with a decentralized organization is that more people have the fantastic opportunity to meet customers. Money is not falling down from heaven.
They are coming from customers that want to work with the Volvo Group. And the more people that can be engaged in those interfaces, feel the heat and win together, the more we will win as a team. Very happy with the continuous improvement journey and how we are driving that culture, organic growth. I will never be happy, by the way, with the speed and agility and the simplicity because the day you say, now we are simple enough, where we have speed enough, then I should move to Portugal or wherever. That is feasible.
And but having said that, so for us, we are very happy to what we see while we are constructed, and that is based on common values. The values of building, so to speak, a future, short term long term consists of many short term. And we are obsessed in this group. We know that prosperity is built by, among other things, logistics and transport solutions. We see that clear link.
We see the short term. We see that long term. And we are obsessed about being part of that transformation, the big societal challenges, but at the same time, have a good and strong and solid and sustainable performance for all our stakeholders within the group. And that is possible to combine, and that is all fantastic. We're happy to see that this pyramid is representing what we are.
We have a strong base of code of conduct. We want to win because we are the best. We want all our 105 plus 1,000 colleagues to feel the strength of that we have strong values and way of operating so we can win because we are the best, and that was the right choice for our customers. And also, we see that we are moving in our different aspirations for the key stakeholders, working fine, continue to drive it in the best possible way. We also launched 2016 for the next step, the 7 strategic priorities for us.
We have said consistency is the key now. We can incorporate the main activities, both when it comes to the long and short term, into this. In number 3, for example, we are hosting the next level of service and product portfolio platforms, the solutions that Lars will talk about, given the opportunities with the new technologies. We see clearly that we are leveraging from both sides the group assets that we have for all business areas and the rationale for us of still being 1 group. We are operating in a way where we are saying this together with this that our 10 business areas are run on 2 principles.
Principle number 1, everyone is responsible for their customer satisfaction, growth and profitability. And principle number 2, utilize whatever you like in the Volvo Group to improve, number 1. Pull instead of push. The good news about this is that we see now that we are on a good trajectory. We will continue to drive that.
And that is, of course, still a lot of good opportunities to improve and continue to improve the performance of the Volvo Group. We are not there yet. I got the other weekly question from someone and said, okay, now Martin, in your culture journey, where are you? Since I'm an engineer, I tried to answer in percentage points. And I saw that the audience were expecting, okay, you are probably 75% down the road, but probably we are 28% to 29% down the road, maybe to 30%.
And the reason is simple. It takes time. And it takes time to build that and continue to have this owner mentality, the right balance in the group, etcetera. But the energy and the direction is there, and we see and feel so many opportunities. And the good news for us is obviously that we feel that by continuing to improve this, we can both fund the transformation that is needed to be the driver, to invest the right amount of money into innovation, research, to be attractive to the best partners like NVIDIA, for example, while also giving the right shareholder return to be an attractive player also when it comes to shareholders, stakeholders and, of course, our employees and colleagues.
Perform is therefore one of the keywords that we are working with. We don't want to be seen as, I mean, working with the ongoing concern of the business daily to take care of the customers, to cherish and to get from time to time these feedbacks where they say, guys, you need to improve here and there. It should not be seen as this is something that some people are doing, but the rest is working with transformation. To be part of here and now and drive the business is fantastic. And there is so many great opportunities.
That is the block we call Perform. And when we look at excelling on the basics in the group, there is there are still plenty of opportunities. We base that on the Volvo production system. It started actually in the production sphere. When it comes to teamwork, continuous improvement, visualization, flow thinking, keep it simple, use the right technology when it's needed, take out the wrong technology when it's not needed, etcetera.
But the good news is that we are expanding this constantly. We are expanding that upstream to our supplier partners, supporting each other to have that visibility, and we have a lot of work ongoing there. We are expanding these downstreams to our dealerships, to our customers. And maybe we will hear a little bit about that later on here when we are defining the new structures with autonomous and electromobility. A lot of that is based on the Volvo production thinking when it comes to value stream optimization.
But the best news of that is that the number one parameter that is coming out on top when you're working on this is safety, that we can actually stand in front of our colleagues and say that we have one obligation, and that is bring our colleagues home and ourselves home safely to families and friends. Then quality is coming. And when quality is coming, productivity and efficiency is coming. So really work with the means to get the right outcome. On the right side, you see a number of the key areas that we are addressing through this way of working.
Agility and flexibility, adaptation of volumes, obviously, is a key area that we are always into and continuously improving so we have the right speed and means to actually we are, after all, in a cyclical business. We have to live with it, and we have to make sure that we can do that. The common architecture and shared technology, the cost system is the key enabler for hoovering between the global and the local, between the right type of scale and, so to speak, the local agility and the owners mentality to really find this modular platform. We have come a long way. There is more things to do and not at least in the new technology areas.
Continuous instead of concentrated introductions when it comes to products. Customers couldn't care less about balloons and things like that. They want to move the world to actually achieve their targets, introduce new solutions in iteration with the customers constantly, take down risks. Quality is always a concern for us, and we have made fantastic progress. I've told you a number of years ago that we are protecting our customers, but the ticket is too high, and we are addressing that in a very, very positive way and a lot of energy in the whole value chain.
This is not an engineering task only. And then obviously, the whole issue of brand and regionalized value chains. Decentralized organization, fully accountable P and L organization that can take actions and responsibility and thereby adjusting much more quickly. We have an installed population of 2,800,000 units. And the opportunity when it comes to the service business is enormous, obviously.
We know everything about the bottom line, what is the percentage points we have in market share, etcetera, for the hardware, but the further up we go on the road here. And you can just see there, I mean, the untapped potential on the existing fleet, and that is illustrative, obviously. We see for different segments and markets a different pattern. But I can tell you that this is one of the highest focus that we have in the organization. We follow that value stream by value stream, how does it look for parts, how does it look for workshop hours, insurance, finance packages, coaching, etcetera.
And we are also making sure that we're utilizing a number of bundle offer in order to pull this to the right side, service and repair contracts being one of those, obviously. And just to take the service enabled, some of them that we are actively working on and have good plans. The network, obviously, enormous strength of any global player today that we have, I mean, a good reach and that will continue to be so we are providing production equipment, right? I mean that will continue to be a big necessity of having strong players out there also serving autonomous electromobility solutions and obviously the normal solutions. The population continue to drive that.
Penetration given for all our services, and that is really connected to what I showed here, how do we drive the penetration for the different services. We see, for example, financial services and when we have a financial package with our customers, it is one to one probability that our retention is the retention to the Volvo Group is higher, just showing the importance of the business per lasting relation with our customer base. You see a number of the more other very important here, the segment and application thinking beyond average and then obviously, the contract business. On the right side, you see also how it looks like today, both when it comes to the most prominent then segments like long haulage, for example, but also and that is what we see, so to speak, for that. But also when we look through the different type of segments, we see different patterns and different penetrations, and that is a high focus area to build the resilience that we would like to have in the group moving forward, the resilience and the customer loyalty.
But because the higher the penetration is here, the higher the loyalty is. So it means that we are offering something that they like. A couple of examples and proof points. It's always good to show illustrative examples, but it's good to show some real figures also. Here you see Europe.
Roger, for example, here for Volvo Trucks, the portfolio growth value on service contracts, Very, very important driver, as you know, for parts and workshop hours, but also for other factors. Since 2014, high focus on this, an increase of 72% of the portfolio, partly driven by good markets for sure, but also partly driven by FX lately, but to a big extent also driven by real efforts, real penetrations in number of contracts and also upgrades from service contracts to repair and maintenance contracts. Also growing parts sales per vehicle in operation is a little bit we have to take it, I mean, with real numbers, and we are consolidating the SEK. It's a little bit exaggerated, I have to admit, when it comes to the FX development. But nevertheless, if you take away everything that is excuse management, it is still a good and solid development.
And more importantly, we know why it's happening and how we can continue to drive that. When we look to the North American situation, you have seen this development before, but I think it's more to the right side that is important to look at. We have said that by increasing the proprietary or captive powertrain components, we will continue to drive the parts and the service sales in North America as one key element. And you can see now, I mean, we have been now for a number of years up to rather high levels when it comes to or elevated levels when it comes to engines. We have been driving it also strongly now for the transmission offerings both for Mack and Volvo.
And you see also with a little bit of lag also how service sales are kicking in, in a very positive way. And more importantly, they are also kicking in for our dealers, which makes them more resilient, which makes them more willing to invest in the network for the future. That outcome ends up in the service sales development for the group. We had a rather stable situation, partly driven by the park development. Obviously, that was negative after the Great Recession utilization a little bit.
But I have to say that we are not happy, but we are at least a little bit happy about seeing this development. And we will continue to drive that. And Jan Iturbay will also address that a little bit later on. So I will not be so granular. But more importantly for you guys to feel that on the perform part, on the focused areas that we're working, we are working with the methodologies.
We're working with the different activities. And we clearly see also the expected outcomes to arise in our figures. The famous parking lot, how does it look like? Shouldn't we start to disclose it a little bit more granular? Yes, maybe one day.
But let's look at this. What is the development we have seen? If you look at what you have here, the brand dimension on the truck side. You have the regional dimension on the vertical. And when you look at Volvo, the only change, a positive change is obviously as North America has moved from a yellow position to a green position, driven by obviously strong market but also very, very good reception when it comes to the truck models that we have launched recently.
So a very good development in Volvo Trucks, obviously. Renault is stable. Africa, Oceania, with all respect, is rather small piece. And the reason why we have had a drawback there is mainly related to the fact that we have had a very, very difficult situation in Algeria that is an important market. But on this yellow note, I will give you some more flesh on the bone here.
I can say that Renault is moving in the right direction in the yellow field. So we have seen an improvement over 2018 and a very good development there. Mack for Australia moving into green. And given also last year's launch of the new model, it was a tough year for Mac. So he stayed, so to speak, in yellow during that year, but good reception of the model.
We are now through the launch. So we are looking forward to interesting development for Mack as well. The biggest improvement in the year in actual figures in percentage points was made by UD. The problem was that the starting point was rather challenging. But I can tell you just to give you a little bit flavor on this, they are very close to what we call a yellow.
But since we are engineers, we are ruthlessly sticking to the game, and they are orange still. But biggest improvement and also close to yellow. And in total then, as you can see, it adds up that the world actually, for the first time, given those targets, actually ended up in a green position. We continue also to work with the portfolio of different types and different angles of the portfolio: product lines, pruning, services, market areas, what shall we continue, what shall we nurture, what shall we take out, mainly also for the simplicity and the acceleration of that. A number of examples in this is obviously the divestment of wireless core.
That is the PES core endeavor. We are not into PES cores. It is hosted better somewhere else. Take it out, reduces complexity. We were divesting NHL shares for the holding equipment in China.
It will not add anything to us. It is in better hands with someone else. And we are rather proud actually that we are starting to see that it's giving good result also when we are comparing with peers in our industry. We are on a good trajectory. We feel it's more to come, and we will continue to drive that.
On the transform part, also very important. To find this balance, perform and transform, making sure that we are in a competitive position. I will just quickly go back to this. Why transformation? Yes, again, because the world needs that.
More environmental performance, we cannot push the boundary planetary boundaries that we have done. And also we see that the opportunities for efficiency and safety gains are enormous. That is the backdrop. So this is the drivers. Often, we start with these as the drivers.
Those are the means. Those are the means together with the capability of putting together a business model that will actually work in order to put that to the market. When it comes to electrified and autonomous solutions, we are seeing now that we are moving into much more of a project based selling organization. And that will, as we go down the road now, also have implications of how we are organizing those verticals in order to drive revenue streams, to drive innovation, investments and also open up for visibility to the investment community. So there, more things will come as we go along here.
We have, since we met the last time, presented an avalanche of product news in all business areas, both in electrification, in autonomous, in connectivity solutions, but more importantly, in all geographies, in a lot of different industrial segments and verticals and almost all business areas. And the reason is simple. If you are getting these results, and I will not reveal that now because we will hear maybe a little bit more about that later, But if you can take down CO2 with 98% for a world that cannot need it better than ever now, while at the same time taking down energy with 70% and operating cost with 40%, improving safety at the same time. It's not easy, but it's a no brainer. So this is about continuous work into this solution ladder.
We are not naive. Many of our industries and geographies will still be on level 12, and we are proud about that. We should drive an excellence with them. I mean, the vehicle, the service, the hour, the coffee break, the peace of mind, working on their safety, driver coaching. But gradually, if we are to win in this transformation, we need to climb this ladder.
We need to drive the capabilities in the business models, the financial models, the setup of I mean, how the risk and reward structure should look like and, of course, the technological capabilities to win this in the future. So what we are doing now and we have been doing in the last couple of years is we are moving from piloting. We need to do pilots, But at the end of the day, I'm starting to get tired of pilots, and we are moving into commercialization. And that will be great times ahead actually. So that is a little bit the backdrop where we are standing and why this is so exciting and why did you why you did the right choice of coming here today.
And by that, it will be more exciting now when I introduce the next speaker, and that is Jan Littberg, our CFO, for the financial performance update. Please, Jan.
Okay. Thank you, NVIDIA and Janssen and all of you. Looking forward to meeting next time. Okay. It has, as Martin was into, it has never been so challenging to be in a business this business as it is right now.
I think I've heard that from many business leaders many times before standing in front of changes. And it's probably true in each and every specific situation. Perform here and now has always been a way forward to be able to handle these transformation and changes going forward. And of course, this time, it's maybe even more important to not lose out on the performance part because we want to play an important role in the transformation and to have and to act from a platform of strength will be key. That will not secure success, but it will sure make it easier.
This is still about survival of the fittest, not the biggest. Size will be important because it creates possibility, but it's not an insurance. Or as someone said in a car company some years ago, if size was important, then dinosaurs will be around. Perform is not to continue to do business as usual. It's actually about our continuous improvement journey to bring more value to the customers, get our fair share of that and be more efficient by doing that.
The journey we have done as Volvo the last years looking at the adjusted operating income has been half of that has been related to our own achievements, what we can call continuous improvements, and the other half has been related to what we can call external market factors such as total market with maintained market share, FX, raw materials, regional mix, etcetera. The favorable external market effects will change, and we have to adjust to that. And we also have to continue this own continuous improvement journey to be able to invest for the future and for the transformation and also to bring good returns to shareholders, both short term and long term. We are still not where we want to be financially. The gradual and consistent earnings improvement must continue.
And at the same time, we have to ensure reduced volatility in our earnings and cash flow and also in case of decreased demand of transport and delivery of new equipment, be good at it. Volvo learned the hard way what the value of money is. After some years of acquisitions and expansions in combination with lower earnings under a period put pressure on the capital and the funds. The effect of that is, of course, that we cannot lose focus now when we are getting better financials and earnings. And the development of, for instance, the inventory, the last 1.5 years is something that we must see as a deviation and must handle going forward.
We are still in a situation where we have depreciation and amortizations being higher than capital expenditures. That will change as we are running the production on high levels, which will trigger replacement needs in our industry in our industrial footprint. And also as we are ramping up R and D, that will lead to new products, new solutions, which in its turn will lead to more investments. And we must be very granular where we are investing and also secure that we have funds for this new business model solution that we have in the transformation part. Volvo established financial targets 3 financial targets in August 2017 to focus the organization on organic growth, on improved profitability through the continuous improvement journey and through innovation as well as an industrial balance sheet for the industrial operation to handle that will be strong, debt free to handle cyclicality and also to provide financial services with a good cost position.
So the three targets are then an operating margin over 10% of our business cycle for the group, an industrial operation with no net debt under normal conditions, excluding the pension and leasing liabilities and also return on equity for Financial Services that should be 12% to 15% at an equity ratio of 8%. We have reached 2 out of these three targets. With the favorable cash generation market conditions, we have been able to have an industrial operation that has been debt free since this target was introduced in August 'seventeen. The resilient towards the cyclicality has, of course, increased at the same time as the net cash has been improved and increased. And as you can see, we ended the Q1 at SEK 47,500,000,000 of net cash.
After that, just recently, after that, we had the AGM, where we took the decision to dividend out some SEK 20,000,000,000 of ordinary and extra dividend. The dividend and the ordinary dividend and it's gradually increased should be seen also in the light of that we want to continue with that increase and also that we have seen around sorry, I have to have some water. The ordinary dividend should be seen in the light of that. We have been increasing that. And that we have been over the last years been divining out around 40% of our earnings per share in dividend per share.
And when we have had the possibility, we have made an extra dividend as we did just recently in April 'nineteen then. Besides the cyclicality aspect of this, we are also committed to the rating, and that's, of course, also committed to the cost for financial services. These are priorities for us as well. And talking about rating. With improved earnings, the cash generation and the balance sheet, We have then also got gradually an improved rating.
And just recently, we got increased ratings both from Standard and Poor's of getting our long term rating up to single A minus. For Moody's up to A3 and R and I up to A plus all of them with stable outlook. And of course, it's always good to be recognized for a job well done. But even though that improvement was already discounted into the credit market, we also saw some lower cost and improved pricing for Volvo Financial Services as a consequence of this rating hikes. Talking about Financial Services.
The gradually improved profitability, you can see here, measured then as return on equity. This is, of course, a combination of good transport demand for our customers and also good performance from Volvo Financial Services to handle mainly an upcoming market, but also in some areas some tougher situations like in Brazil, for instance, some years ago. And as a consequence, Volvo Financial Services has a good and well performing portfolio. The market share of captive finance and insurances are important, both for brand loyalty, but also for bringing opportunities of more sales into the group. And presently, we are in what we can say the lower level of what we feel as being relevant.
But that's, of course, also related to the fact that we have a customer finance market in general that is extremely competitive. The financial target for the group. The operating margin of 10% over a business cycle is a little too early to assess. It's just 2 years down the road. We have not passed the cycle yet, but we can summarize the 1st 2 years in the words of that the path and improvement is definitely correct one.
The level is wrong or has been wrong. And we should, of course, have been over 10% with those favorable market situations that we have had. But we are on a journey, and we are undoubtedly on the right path here. And as I said before, a substantial part of the improvement of income is coming from own achievements. It's not related to external markets factors.
So we will reach this target if we can continue with the journey and also if we can show that we are resilient in case of downturn. To be able to distance ourselves from our competitors, we need to excel on the basics. And what do we need what do we mean by when we say excelling on the basics? Well, pretty simply, we shall continuously improve our operations in our day to day work, and we should be the provider of best life cycle profitability to our customers. And for example, that is everything from the starting point, selling the right product, the right solution to the customer.
And we also have to think about when we are doing that, that we also go into industrial verticals where we can get revenue streams going forward as well, such as in mining and construction, equipment and vehicles. Those are important industrial vehicles industrial segments for us. It's also about providing the best uptime to our customers, both preventive and, of course, reactive by having competitive contracts and by having best in industry service workshops and service mechanics. And as regard cost per unit into the manufacturing system, we have now a certain stability in our supply chain, which is good because now we can address more of efficiency and productivity, which will be beneficial for our cost positions going forward. And the amount of different parts number is a major cost driver in a company.
And of course, then if we can leverage further our cost system, we can also improve the cost per unit and also solving the paradox of having more product variants, more performance that while at the same time having less of unique parts. Opportunity will also exist in our industrial footprint, including then the JVs to get out economies of scale, like we are doing with our joint venture in India, where we are getting 5 8 liter engines from production system that have better cost positions. And as regard our product portfolio and our portfolio solution and geographies, we must be sorting out nonperformers. And when we do that, we have to be without sentimentality, ruthless in doing that. Volatility is part of our business, even if we have not noticed that for many years, but that should be in our blood.
We have, during these years, handled most increased markets and increased demand, but we have also had some regional downturns, which has tested the organization in Latin America and in North America the last years. As for all companies, we have performed a lot of scenario planning. I can see that my fellow team members in export are not looking very happy when I talk about that. But we have done that to be able to see how we can secure our profit and loss and our cash flow and also to already now talk about what priorities are needed, what kind of different decisions do we need to take under different scenarios. Transport will always be needed and thereby service of those vehicles.
If we go back to 2,008, 2,009, what Martin called the Great Recession, we can at least call it the biggest recession in our industry in modern times. We, the industry, lost out some 10% of service volume, while at the same time, vehicle deliveries went down with 40%. The last years, we have as Martin Schoch built vehicle population, bigger population, younger population, which is good for us because we have a higher market share on the first owner, I. E, the owner that have the vehicle normally between 3 to 5 years. Then we have on the second and the third owner, something, of course, we are addressing.
Repair and maintenance contracts are important tool for us because they also tie up future revenue stream, which will be important in case of a downturn. And as long as the customers are standing by the orders, and they are, we have an order stock to live from, an order stock that creates a buffer of time that we can use when we are adjusting our production in to new levels and also adjusting our cost base in general in the company to those new levels. The recipe over successful downturn is not so much in the tool and in the toolbox. You can read that in the university, in the school books. It's more about the discipline and execution and timing of different activities.
And we have then a global S and OP planning that involves the full Executive Board on a monthly basis, and we have also what we can call pulse meetings, 1, 1.5 hour when we sit together week on a weekly basis, Executive Board, where we can also take adjustments of supply chain levels if needed. After direct material, the biggest cost item is personal cost. And these are, of course, costs that we need a decision for to change. I mean, direct material is goes by the volume, so that is 100% volume related. People is cost.
People has ambitions. People drives activities that drives cost. So this is about to be very disciplined in our prioritizations around ambitions to be able to bring down the cost level in the group. And the need to prioritize hard what to do, what to not do at all or what to not do now is critical for success in case of a downturn. In the supply chain, we must use the flexibility we already have installed by flexible manning, by time banks, etcetera, something we are doing right now when we are taking down production rates in the European production system 2 reflect the lower demand in Europe and Asia as you saw in the Q1.
Our customers are in good financial shape, which is good for financial services. They have a healthy portfolio. But during these years, Volvo Financial Services has also actively worked with the risks in the portfolio, both from a geographical perspective, but also from a customer perspective with risk sharing with syndication and also moving into new geographies and products. Martin was into that, this slide. Actually, the volatility, as you know, will occur mainly in the vehicle sales and the vehicle gross income.
A key ratio to understand how resilient a company like us are for a downturn is to look at what is happening with our service revenues and service gross income in relation to our indirect spend, I. E, our selling and admin expenses and R and D. The more the better, of course. And if you have over 100% of gross income from services, you are pretty safe in case of a downturn. And of course, the indirect cost will decrease in a downturn situation.
They are doing that, but not with the same speed and magnitude as you normally lose on the vehicle sales and the vehicle gross income. And as you can see, we have been improving sales. And as the gross margin on service is stable over the time. The percentage is stable over the time. Also in downturns, we have, of course, also improved our resilience the last 5, 7 years in this area.
The proof will be in the pudding, and we have not had a global downturn that we have tested the company lately, but we have had some regional disruptions or downturns like in Brazil or in this case, the North America, which is in this slide, in 2015, where we actually lost some 39% of truck deliveries. That was the same magnitude as we saw in 'twenty nine and also with the same speed as we saw in 2,009. During this period, we were able to stay on positive numbers in U. S. On the truck operation side.
We were also able to show a better margin on group truck segment in total of 1.1% in 2015. These regional settings are, of course, easier to handle in a global supply chain, in a global production system than when we have a downturn that is more worldwide. But what's a good test actually for us of our capabilities in North America, which that you will that have followed us have seen in the past has been a concern, a problem for us in downturn situation that North America has been a drag for the group. But this is due to a better profit level in general in U. S.
And also the things that Martin was into, that we have a better service business in general, not at least due to the captive driver lines and also by that a more resilient and stronger retail network, which also passed this downturn in a good way. We have made an impressive journey as regard earnings the last years. What we must focus more on is on cash generation and capital efficiency. And to visualize that, we actually started to show external loss of return on capital employed for the group to show that balance that we need to have. And as you can see, we have done an impressive journey the last 5, 10 years, and we have gone up now in 2.5 years then from 15% to 25%, which is, of course, very impressive.
And our aim objective is to follow this path going forward as well. We have also, as I was into, delivered a good return to our shareholders by dividend out the last years around 40% of our net income as ordinary dividend And when we have had the possibility and deemed it to be in suitable, we have also made an extra dividend. Our objective is to continue our path of profitable growth and to be the preferred choice for our customers, for our employees and our shareholders. By that, we continue the thrilling journey last year and Krist into group innovation and our road map in that area. Thank you.
Thank you, Jan, and good afternoon. I feel that the world is changing faster than ever, and our response to this is to increase our speed. Many of us, we met 1 year ago in New York at the Capital Market Day. And then I talked to you about our view on new technologies like electromobility, automation and connectivity. And then I thought it was a good idea to bring a slide today to show you what we have showed to the world since last year, since we met in New York.
And I dare to say that it's a rather impressive lineup of proof points in areas like electromobility, automation and connectivity. And it's really truly across the complete Volvo Group. Of course, it makes me extremely proud as the Chief Technology Officer of the group to be able to show something like this. But I always emphasize that technology is never for the sake of technology. And Martin has already been into it, and I never miss an opportunity to include in my presentations that we, as the Volvo Group, we believe in more transport demand going forward.
I know that all fractions in society doesn't agree, but I normally say that I can understand that they have another view, but they are wrong. There will be more transport demand. There are so many indicators pointing in this direction, increased global population. If we are talking about and being serious about economic growth, lifting India, for example, out of poverty, if we are talking about effects of urbanization and not the least e commerce, increased transport demand. But at the same time, I'm the first one to acknowledge that we cannot just go on with transport as we knew it today.
The planet cannot just simply cope with something like that. And that means that we need to come up with something else. We need to talk about. We need to develop and deliver a truly sustainable transport system. A lot of those solutions will be based on new technologies.
And I normally say that this is the era of engineering in our industry. It has never been so complex, never been so difficult, never been so complicated being an engineer engineering our industry, but it has never been so far. Take electromobility, for example. Electric vehicles using green electricity equals 0 greenhouse gas emissions. It's not a small step.
It's a giant leap. And during last year, we presented electric solutions in all product areas. Volvo Buses, Hakan's team are now taking the step into articulated buses, full electric. We start with sales later this year. Mack trucks in U.
S. Just showed their first full electric refuse truck that will be in test operations at the customer in the end of this year. Volvo Trucks North America has announced that their first full electric vehicle will be a VNR to be operated in California and commercialized next year. Volvo Trucks, I think many of you have seen Verra, full electric, full autonomous truck. But in the more traditional offering, we are now starting with Volvo FL, Volvo FE in customer operations.
And Roger and his team, they will open an order book for those vehicles in the end of this year. And the same goes for Bruno Renault Trucks. When we are talking about Renault D, DYde in 0 emission mode. Volvo Construction Equipment. We will hear more later today regarding electric site, what we can achieve when we are applying electric solutions on a broad scale.
And also clear announcements on starting to sell full electric compact excavators, full electric compact wheel loaders from next year. And then Volvo Penta, you see the ferry on the slide. There, we are going to utilize the Volvo electric powertrain in order to deliver full electric ferry in the on the river in Gothenburg. And we will also see a sailing catamaran using the same powertrain going forward. And yesterday, Bjorn, announced you showed a press release on the utilization of the electric drivetrain or electric powertrain into a harbor or terminal tractor as well.
There is definitely a raise right now in our industry regarding being quick to market when it comes to fully electric vehicles. Many of the traditional OEMs are spending a lot in this, and many start up companies are also spending a lot of money into this. In the Volvo Group, we see it as a very clear advantage that we were early out with buses. We have approximately 10 years of experience when it comes to electrified buses, both hybrid solutions and full electric solutions. 4,500 buses out there with batteries, and we are learning and gaining so much experience on how those batteries are behaving over time, how we can enhance the lifeline of a battery by running it in a more intelligent way and basing it really up on the customer needs.
Another huge advantage for us in the Volvo Group is really being a big group. Many of our different business areas, they have 2 bonus when we're digging down to it, rather similar needs when it comes to electrification. And if we then are playing this in a good way, our modular why we have been able during last year to show that impressive lineup of new vehicles across the group. Our vehicle concept and electrical concept is very flexible and easy to adapt to the different needs of different business areas. It will lower our development cost and make us quicker.
And in the long run, definitely, it will help us to get volumes out in this segment that will help us with the product cost. On the truck side, so far, we have limited our offerings to urban applications and partly to construction applications. But it will come into more long haul operations in line with the development of batteries. We are about to start to commercialize the electric vehicles now, and you can see this in different phases, starting with customers that is demanding this mainly from an image perspective. They are present all across the globe, and they have reasons to show to their customers or to society where they are and that they want to take the lead in this journey.
But they are far too few to base a business case upon. Next step, and we are already there, is certain segments where it's already today and most certainly tomorrow possible to calculate a good business case for fully electric vehicles. Incentives in different countries, incentives in different cities will definitely speed up that transition. We hear from many customers that they will be able to charge more for transport if they go CO2 free or fossil free. And we hear and you hear from cities that there are serious plans in banning diesel vehicles and then all of a sudden, then the business case is rather simple and straightforward because then it's only 0 emission that will be possible.
So we see a gradual increase here segment by segment, country by country, also city by city, where it will make sense and where full electric solutions will outcompete more traditional solutions. But it will take time, and it will be a gradual phase in. And the decisive factor for speed is the development of batteries. And it's principally 2 parameters that we are talking about. It's the energy density of the batteries, meaning weight and performance, but also cost of batteries.
And the development of cell energy density will definitely be decisive when it comes to speed of this transition and as well as the cost of cells, modules and battery packs. We have set our battery strategy. We know exactly what we want to do. We know how we're going to scale this when the market takes off. One of the strategies we have is that we are going to team up with really strong partners in the battery area.
Martin was into it. Partnerships will be vital in our industry going forward. And earlier, it was not so easy to attract the big battery players. Andriy and myself, we have spent many meetings together with the big battery producers. And 2 years ago, 2, 2.5, 3 years ago, we were not that attractive.
But now when those guys are starting to understand how much energy we need on board and if they and when they start to understand the annual mileage of our vehicles compared to passenger cars, All of a sudden, we feel that attractiveness of our company, and I dare to say, attractiveness of our industry is increasing for the battery suppliers. It's extremely important to have cost efficient solutions for customers when it comes to batteries, but not only that. We have to work extremely close with our customers to understand how we are going to run those batteries. It will be a big difference if you run a refuse application or if you run a regional distribution application. It will even be so detailed, so we will go we will sit down with each and every customer and decide if it's better to have 4 packs, 5 packs or 6 packs on the vehicle, if it's better to charge over lunch or if it's better to be able to drive the complete day.
Even to have discussions with those customers, if it's good to really maximize the use of the batteries and accept that they need to change batteries in about 3 or 4 years. That might be more beneficial in order to increase the payload of the vehicle over that time. And this means that these vehicles will be more tail made, and it will be a much closer relation between the sales crew and the customers, which will increase the loyalty in both directions. We don't have an ambition to develop battery cells on our own. We are convinced that there will be a rather few number of players in the world that will be experts on that.
But we need to have and we have battery experts already on board in our company, working extremely close to the big suppliers, specifying our demands and really tailor making sure that we can tailor made the battery packs for use in our industry. But it's not only battery development that will set the pace, also infrastructure. Definitely, acceptance from society, investments, public, private investments, this is necessary before we get a deep and broad deployment of electric vehicles into society. We are rather convinced that market forces together with governmental initiatives will solve this. But it will be a little bit unbalanced between different markets, different regions in the world, but this will just happen.
And then when we are into infrastructure, I decided to bring one slide on hydrogen and fuel cells as well. The reason for that is that I often get, for me, a rather strange question. Of course, not from you, but from other guys. I rather often get the question why we believe in electric vehicles and why we don't believe in fuel cell vehicles. And of course, this is clear to most of you or all of you, but I will now take the time to try to sort out some definitions here.
Why is it wrong to talk about if you believe in electric vehicles or fuel cell vehicles then? Because a fuel cell vehicle is also electric vehicle. But this is the level where society is right now in the discussions. So the starting point is always an electric propulsion of the vehicle. And then we're talking about electric motors, power electronics, electrified auxiliaries, and that has to be a perfect design solution.
And then you design some kind of energy storage onboard, and there you have to come up with a modular approach. And right now, the most promising technology when it comes to energy storage onboard a vehicle is batteries. No doubt about it. If you want to industrialize today, it's batteries. This might change definitely.
But with our modular design, we are prepared today to take that change. For example, dynamic on road charging, electric highways or different kind of range extenders could be fuel cells, could be gas turbines. And when or if fuel cells are mature enough to outcompete batteries in cost and in uptime, then the batteries will be replaced by hydrogen tanks and the fuel cell stack. That's the way we are thinking. That's the way we are treating the different options when it comes to onboard energy storage and offboard energy storage.
And we have been conducting both research and testing of fuel cells for many years, and we will continue with that. We will even increase our efforts before because we believe that in the long run, fuel cells can definitely be a viable technology, not the least for long haul applications. But we believe that it will take a rather long time before its high volume in fuel cell applications in our industry. So yes, a lot of cool electric vehicles from the Volvo Group, but I can assure you that for many years, I will be at the Capital Market Days talking about combustion engines. And this is cool for real.
We need to develop continue to develop more energy efficient solutions when it comes to combustion engines in order to stay competitive and not the least also to fulfill upcoming very tough stringent regulations in Europe, U. S, wherever in the world. Europe just recently settled the legislative demands, minus 15%, 1.5% to 2025 and minus 30% to 2,030 in SOHO reductions on our average annual fleets. Really tough demands and approximately the same demands as we already have in U. S.
The speed of these reductions is approximately 3x higher than what the industry has delivered over the past 20 years, 3x higher. Tough demands, yes, really tough demands, but we have a clear view on what we need to do, what we need to do to secure that we are competitive and not only fulfilling regulations. To illustrate that and to give you a flavor on how it is to work in our industry, I brought a short video clip from a U. S. Customer, Vlad.
He's working with VTS Transportation. And he has got a couple of new Volvo VNL with the new turbo compound engine. So let's see what Vlad is saying about the new engines. They told us it's 7.5% fuel savings with the Turbo Compound. We have all the data and I check all the expenses we have.
It's about like 10%. I love this guy. To be honest, 10% is noble price, and we don't even get a smile back. It's
10%, yes.
You can just imagine if we would have promised that guy 7.5% and delivered 5%. Yes, just imagine. Well, the Turbo Compound engine from North America has now also been launched in Europe. Turbo Compound is a technology where you're recovering energy from the exhaust gases through a turbine and then you just bring it back to the crankshaft. It's waste heat recovery for real.
The turbo compound unit and technology is only one of the reasons why this engine is so efficient. There are several different technologies that we have developed We have a long list of technologies that we are going to improve, and we are going to implement them gradually over the years in order to stay competitive and to meet upcoming regulations. Combustion engine is, I call it, a versatile machine. And with rather small adaptations, you can run it almost on any kind of fuel. Many of our customers are already using our combustion engines for different renewable alternative fuels, and we have extremely good experience now from our Volvo trucks running on LNG, liquefied natural gas.
The good thing with gas engines is that you automatically get a very good CO2 reduction. Just by running on gas, you can get up to minus 25%, an enormous step. And if the customers choose to run on liquefied biogas, yes, then you are close to 100%. I was into electrification of long haulage before. And yes, fully electric battery electric trucks for long haulage will come, but the in between step will be hybrids, combustion engines and then combined with mild hybrids or full hybrids, where we are then recovering brake energy and energy that you have in the vehicle when you go down a slope.
And by that, I plan to leave both electromobility and combustion technology. And even if I still define electromobility as one of the really new technologies, we dare to say when we are discussing this that from a business perspective, from what we're going to do, from what we're going to develop, we know rather well what we have upfront, what we have in front of us and what we need to do. If I change to another technology, if I change into automation, then there is much more uncertainties. Uncertainties when it comes to technologies, but also uncertainties when it comes to business models. The benefits are rather easy to understand if you talk about full autonomous vehicles, safety, energy efficiency, productivity for our customers.
There are different levels of automation. And when it comes to driver support functions, we are investing a lot, have been investing a lot since safety is in our DNA. And we have the Volvo Dynamic Steering as a unique feature in our group. The Volvo Dynamic Steering is an electric motor connected to the steering gear. And through very advanced sensors, we are comparing the intention of the driver, where is the driver trying to get the vehicle, comparing that to where the vehicle really is heading.
And that means that if you get irregularities on the road, for example, disturbing this, then the Volvo Dynamic Steering will compensate for that, meaning that the driver is just keeping a steady hand on the steering wheel and the vehicle will compensate for all kind of disturbances. This gives a fantastic stability in high speeds, and the maneuverability in low speeds is just amazing. This is a killer. If you once have started to utilize the Volvo Dynamic Seering, then you never ever want to drive a vehicle without it. So that's examples of features that we have launched based on Volvo Dynamic Steering this year, remote control, lane keep assist and stability assist.
If we go to higher levels of automation, then all of a sudden, we come into the discussion of replacing the driver and higher productivity. But it's definitely much more than just replacing the driver. If you think about it, a self driving vehicle can operate 2 shifts, 3 shifts, 5 shifts, 20 fourseven principally, meaning that you can increase the utilization of the vehicle, but also you can run it in a much smarter mode, less acceleration, less braking, less idling, and by that, you can save a lot of fuel. Also in this area, we have shown a lot of proof points since we met last year. Some of the proof points.
We have publicly announced that we have 2 commercial pilots now for Volvo Trucks, the self driving electric truck, VERA, and our self driving trucks in Norway. You're going to hear more about that later. UD trucks has demonstrated high level automation on the UD-1, now in discussions with partners about Next step. Volvo Buses has shown a self driving electric city bus here in Gothenburg and together with the university in Singapore. This bus is intended to be utilized at the university campus in Singapore and also then at the bus depot in the evenings.
Think about it. The bus can go to the washing station on its own. The bus can go to the charging station on its own. And then after it, it can go and park itself, opens up a lot of possibilities. Volvo Penta has shown a self docking yacht.
Could be something for all of you just ahead of vacation. Target for Bjorn and team is to launch it next year, but perhaps if there is anyone interested in field testing, could be a possibility. Our first applications when it comes to really self driving vehicles like Bronde in Norway, like electric site, that's in what we call confined areas. In those confined closed areas, we are working with geofencing, making sure that we have control of the environment 100%. In those areas, we have also, of course, 100% responsibility for the safety of the vehicles.
But in a confined area, it's rather easy to control the environment. And there, we have developed in house all the software needed for the autonomous driving system. But now when we take next steps, now when we go on road, then we need more we need much more sophisticated systems. And that's the reason why Jenssen was on stage here today earlier. That's the reason why Martin and Jenssen this morning announced our partnership with NVIDIA.
NVIDIA is, for me, a world class company when it comes to accelerated computing and artificial intelligence. We have been talking to each other now for years. We have been working together during these years. And now we said, now it's time to formalize this cooperation and tell the world what we are doing. Amazing company, amazing people, engineering driven company making own money that they are reinvesting into new technologies.
Rather similar to us, to be honest. And that's why it's easy for my engineers to work together with NVIDIA guys because we share some kind of common DNA. Together, we will develop what we call the automated driving system, the decision making layer center in this slide. But that's not sufficient if you really want to be good in autonomous driving. You also need to have what we have to the left here, the redundant base vehicle.
The vehicle need to be able to operate also if the primary brake system is out of order or the steering system is out of order. But on top of that, if you think about it, if you are going to operate a self driving truck, 25 meters long, 60 tonne, then it's rather good if you know your braking performance at any time, at any kind of road condition. It's rather good if you are good at knowing what's the maximum speed that you can allow yourself before you go into the next curve. And then you come into this or you really come into the DNA of our engineers, the vehicle dynamics. That's really our profession, and that's where we are going to bring a lot of knowledge into this cooperation.
Quality and uptime will be extremely important. I said before, these vehicles cannot operate 20 fourseven. And there will be no driver kicking the tires, checking the vehicle, meaning that we need to be even better with remote diagnostics in order to make sure that the vehicles are in good shape. It's not about vehicles only. We also need to connect them to a control tower to other vehicles and to the logistics system of the customers.
Automation is very much about connectivity. But connectivity on its own has also a lot of potential, and we are talking about almost 1,000,000 connected vehicles right now, 1,000,000 vehicles. The data those vehicles are creating is an enabler for new services. And when you talk about connectivity, I think it's rather easy for everyone to understand that the data generated right now as we speak is an asset for this company. We are talking about those vehicles constantly generating information on where they are, speed, status of different components, fuel consumption and many, many, many more parameters.
You have earlier seen today the potential we have when it comes to service business. And through intelligent use of this data and launching new services, we have a golden opportunity to close this untapped potential in services. Already today, we have the possibility to monitor components in our vehicles and to judge if they are close to breakdown. And you can just imagine, when our guys working at the Uptime Center is giving a call to a customer, just imagine, hello, this is the uptime center calling you. We think that there is a risk that your vehicle will break down within the upcoming weeks.
We don't know for sure, but we see it as a rather big risk. If you are interested, you can come into a service workshop, and we can have a look at your vehicle. What's your guess? Do you think we get a lot of noes to that question? No.
And sometimes, it's a false alarm. And let me say it was a false alarm. We have reset the fault codes whatsoever or we change the component, and then they're on the road again. And this is building loyalty, and this is building business, and it's building trust. Those customers, they will definitely consider us when it's time to make the next purchase of new vehicles.
And applying artificial intelligence is now what we are doing into this in order to find our patterns of where of different components in order to be better in the diagnostics of when are they going to break down. That's not only when it comes to uptime centers. That's in other areas as well. Connectivity goes in 2 ways. We're not reading only reading out from vehicles.
We're also updating vehicles. A lot of the features in the vehicles today are controlled by customers. In the past, then the customer needed to go to a Volvo workshop or a Renault workshop or a Mac workshop to get an update. It could take hours. Today, we can do it over there while they are having lunch.
And this is definitely a service that our customers are willing to pay for. In North America, we have both for Volvo Mac brand a service that we call Parameter Plus. It's a subscription model where the customers are paying for getting up to 2 50 parameters updated with the latest and the greatest software. This is only the start. And coming back to artificial intelligence and data analytics, we're using it more and more internally.
First, we thought about it from a customer and service perspective, but from an R and D perspective, in order to maximize the output of the R and D organization, in order to optimize the different solutions. If you think about it, for us as human beings, it's hard to analyze more or 2 or 3 parameters. But computers have no limits. They can analyze relations between 8,000 parameters or 10,000 parameters or 100,000 parameters and come up with smart answers. Here, we are opening doors that we didn't even know existed a few years ago.
This will increase our capabilities in research and development. I said in the beginning that speed is increasing. I said in the beginning that the world around us is more complex than ever, and we see clearly that we cannot solve everything on our own. Partnerships will be key. What we announced with NVIDIA today is one big step, but there will be more to come in the months after vacation.
We have also decided that we need to have a new way of working. That's why we inaugurated what we call Camp X a couple of months ago. The first Camp X is in Gothenburg. It's an innovation arena where we have co located engineers in electromobility, automation and connectivity, 450 experts in the areas of engineering, business development, purchasing and legal. By that, we're increasing our internal speed, but that's not the most important here.
We have also reserved rather much office space here together with our engineers where we are inviting external partners to co locate with us. And that's partners like NVIDIA, big tech companies, it's start up companies, it's medium sized suppliers, It's academia. It's authorities. It's even customers sitting together with us. And just after a couple of months, my teams are complaining.
They're sold out. No more plays. They need to so we decided the other week that we will increase Camp X, Concert in Gothenburg and most likely also go globally into other sites. We have a lot of partners in big projects, and we have a lot of partners already now in I start with saying that the future is changing faster than ever, and our answer to that is to increase our speed. I also said in the beginning that this is the era of engineering, and I dare to say that my advice remains, if you want to advise your children, then engineering is a good choice.
Thank you. Things outside the doors up there. Thank you.
So hello, everyone, again. And good sign. It seems that most of you have found a way back off the break also. So that is good KPI. We will actually continue now with, as we hope also, another very important and interesting session, and that is around 4 use cases of the future technologies that we have been discussing or as a matter of fact, technologies that we are partly also already using and will accelerating.
And yes, as a small introduction that we discussed already. You've heard from me and from Lars. But a number of key things that we are discussing together with our partners and customers are the following. 1st and foremost, that when we are thinking about the new technologies, it's not about the new technologies per se. It's really about finding common grounds for what is the outcomes that we would like to have in terms of environmental performance, safety, productivity, obviously, and different factors to really outline that together.
And that can only be done through in-depth application knowledge. And when we said before that we are moving beyond the year of average and the scale in the wrong dimension, Hopefully, you will hear around that also during these 4 use cases, how we are actually going into depth about working together in the specific environment, application, geography, legislation environment or what have you. We have been talking about the need of having the best partnerships in the industry That goes upstreams, it goes horizontal, and it goes downstreams. And that is also another proof point of these cases. The cost system, obviously, for the new technologies, meaning that we can utilize the backbone both of hardware, software developments and still and yet get, so to speak, the very specific needs for every use and customer case.
Iterative development together with customers, more and more important. I mean the heritage of our industry has been okay, secret, secret, secret, nothing to say. I mean, I remember the first sentence I learned 30 years ago when I was starting in this industry was, are you launching a new product? And then the answer was the following. We are a company that is constantly developing our products and services.
And when we are launching something new, we have the reason to come back to you. That will not work anymore because if you're really about to launch something, you must iterate it, do it quick and agile and do it with customers in real use cases. What do we mean by commercial pilot approach? Yes, in order to get things going, you need to pilot and see how it's working in different environments, but rather quick after that, accelerate that into a scalable solution. And that's the reason why we are combining that commercial pilot approach with the speed to market to see if that is working.
And it will be a constant, so to speak, iteration between, okay, not working, that is not the right thinking when it comes to the flow of the business model, develop a new one or test a new one, etcetera. So I have that in mind. That is how we are thinking about it as a group together with our partners when we are going through these 4 use cases. And the first one we will start with is actually on the bus side. Buses has been leading the development obviously in urban areas when it comes to electrification, the system thinking, that is about CO2 performance, it is about NOx particulate matters, and it is about having, so to speak, an attractive city.
It will be Jan Schilstrom, who is the CEO of Keyolis, one of the biggest operators in the European arena, and also a person that I happen to know very well. We have been having the chance to be working in different angles actually during our careers, together with Hakan Einewald, who is the President of Volvo Buses that will pursue a conversation around this topic. But we'll start with a small introduction over here.
Good. Good afternoon, ladies and gentlemen. It's a great privilege to be here, Hakan Agnewal, President of Volvo Buses, and it's a fantastic privilege to have you, Jan, here.
Thank you, Hakan. Yes, my name is Jan Schistrom, and I'm heading the Swedish part of the KOLIS organization.
So you could see a little bit what the focus is in the bus industry. It's a major transformation. From Volvo, we focus on system solutions, 0 noise, 0 congestions, 0 accidents, 0 emission, a lot of zeroes to create the future sustainable cities. And Jan, Kirolis?
Yes. First of all, I have to be a little bit rude perhaps. Martin, I have to correct you a little bit. We're not just a European player. We are present in India.
We are present in Australia, and we're present in the North America. Keyolis is a group leader, would say, leader in public transport. We have a turnover of about €5,000,000,000, 6,000,000,000 But I think the most important number is that we have 22,000 buses. And we need good cooperation to get those buses work well and specifically also develop in a way that the whole industry is now developing. Just an example, we have 20 ongoing test setups in about 6 different countries regarding autonomous vehicle setups, And that is one of the things that we need to work further on, I would say.
So basically, coming back to what Lars said, the coming 10 years, we will see more changes in public transport than in the previous 30, 40 years. And it's all driven by autonomous, electromobility and connectivity. It's these three technologies that are kind of converging right here, right now and creating great opportunities to create a sustainable public transport of the future. And if we start with electromobility, when we started out the journey, it was a lot about reducing emission. We learned on the way the value of noise.
So what started with air quality then converted into changed way of planning cities because when you have a transport mode that is silent and emission free, you can bring public transport much closer to people and you can bring it indoors. And by that, you can really start to plan cities in a different way. And then the 3rd wave of change that will come is then when the cities have this huge amount of electric buses, it actually becomes a component in your power system for the city, a component that the city can leverage and work with as part as an integral part of its power system. So it's new horizons. Of course, as an OEM, as a bus OEM, this also means a completely new way of working because it's really truly a system.
It's not only the bus, it's the charging infrastructure. It's the cooperation with several different stakeholders. And we are all new in the technology, and we all need to find reliable and sustainable systems. And we have been working very closely with Kiolis, both here in Sweden, where we have a very close relationship, you will talk more about that, but also in an international arena. So can you tell a little bit more about that cooperation and how what we have been developing?
Yes. I think over the years, you could say that we've had a good cooperation. We have had some test runs. We have had very early, we had hybrid buses. And I'd like to give you some credit here because Volvo was very early shifting over to electrical solutions.
You gave up the gas engines a little bit because you saw that something else was coming in the future. And to be honest, if you look at the tenders that are coming out now from the public transport authorities, it's so focused now on electrical solutions. So I think that's worthwhile saying. But I would like to highlight one other thing, and you almost mentioned it. And that is it's a big transformation right now in the whole public transport sector.
Politicians want to have all the new solutions. They want to have electricity. And we as operators, even though we are a company sort of with 65,000 employees, we don't know really what to do because there are so many different things out there. There are test setups, and we don't really know what will be the, let's say, the business models for the future and so forth. And maybe you say, well, this you're the operator, figure that out.
But I'm saying, no, I need help. I think the industry from the OEM side needs to also come together. We need you to help us to set this up and to come up with this because it's a little bit of a waiting game right now.
And that ties back to knowing your industry vertical. So of course, we don't have all the answers to Jan's problem. But working together, we can find out the way forward. And I think this is key. Also with electromobility, if we look at that as a technology, it is a system.
And you cannot only put a large set of electrical buses in operation in the city. You need to involve more stakeholders. You need to involve the utilities. You need to involve the mayor's office, traffic planners, etcetera. And this is something that we are developing as Volvo Buses, a kind of project system business capability, both on the business development side, the sales side, but also on the cooperation.
And then we also want to because there are certainly competitors in the arena of electric buses, But then we go back to the kind of the Volvo DNA, safety, quality, environmental care, providing a premium bus or a premium vehicle with premium services. And what really is important, even with new technology, because we need to move out of piloting, is uptime reliability, a fantastic service that people can rely on. And a little bit going back to Line 55 that we have had here in Gothenburg, it's a pilot commercial pilot that we actually did together. What is your experience so far? We've been running this now for 4 years.
Well, it's we have very good experiences. And when you go out and ask the both the
encouraging.
Willing to pay more money for this type of setup. And that's very encouraging. And the drivers, they like the way no vibration, no noise. So overall, I think the outcome has been very good. And also from a quality point of view, we can see some good results.
So I think this is something that we need to take one more step. And I just want to at least also a little bit sort of challenge you, we would like to see more of those kind of tests because we need to come proactively to our customers and say, this is a setup we would like to test together with, for example, Volvo. And then that could be incorporated in a solution further on somewhere else. So that's the way to work together. But this is a very good example.
Then we move on to autonomous, very strong coming in public transport as well. The message Volvo on Volvo Buses, it's a step by step approach. It's a lot about driver support now. Depot operation, that would be a kind of industry vertical that we would focus on. Only later will come operations running because the because the technology is evolving very rapidly, but it's still challenging applications.
And as a bus operation, we have a fantastic asset in being part of Volvo Group. I mean, as a bus operator, we could never do this ourselves, but we can really leverage the Volvo Group platforms in all these three technology areas and also leveraging the scales of our trucks colleagues. So that for me gives me a fantastic confidence of Volvo as a bus provider for the future.
Maybe it's worthwhile mentioning that we have an upcoming project together where we are going to look at the depot in Gothenburg to see if we can get autonomous transport from the depot parking into the service hall and from the service hall back again. It seems simple, but it's very, very interesting to see that happening now.
And also for us as Volvo to cooperate with a global player like Chiyolis, it's a fantastic advantage and then and then we scale it all over
the world. Yes. We have the best possible sort of conditions as well with such I mean, there are you have Volvo here. We have Scania here. So it's a good ground to start
Thanks a lot. Thank you, Jorgen. Thank
you. Yes. I think before you're allowed to leave the stage, I think maybe one thing that a lot of people are sitting here and wondering about is, is it profitable today to install, so to speak, a bus a public bus transport system that is fully electrical? What do you say, Johan?
I think the jury is still out on that. But if you look at the tenders that are out here now, it will definitely be profitable. It's just that it's another type of it's a heavier investment in the beginning, but then you get it back at a later stage. So I would say that, that it's going to be profitable. I'm a little bit concerned about the quality, for example.
I'm a little bit concerned about how long will the battery run, those kind of things. But as soon as we get that under control, it will be profitable.
And I think that is part of the game. I will not take your words there. But I mean, for us, really, to be able to provide also that security in terms of battery replacement and things like that. But I think that seriously is
Yes, I agree.
And by the way, it's encouraging to hear Jan saying that it will definitely be profitable because one of the key things that we have felt, if you take the societal benefit for cities, that is without doubt, so to speak. Anything you would like to add, Morgan, on that?
No. I think it's profitable. It's also driven by regulatory measures. So it's a combination because I think I have the privilege to meet the mayors in the world, traveling the world and talk about sustainable public transport. And I would say there is one topic that isn't the top of the agenda of any mayor in the world, and that is air quality and the need to create sustainable transport.
So I think the big shift is coming. And we are 25%, 30% 5% into the business for sure.
Absolutely.
Great. Thank you very much, Jan. Thank you. Thank you. Very good.
So now we are getting started, and we are going to the next area, and that is actually our beautiful Vera. Michael Karlsson, who is the Vice President of Autonomous Solutions within Volvo Trucks, will give a presentation what Vera will do as part of the first assignment. So a small field to make the introduction here, and then we will meet Mikael.
So that was Vera taking her first assignment, and I'm proud to be here presenting this new autonomous solution that we are doing not so far away from here actually. If you're a good golfer, maybe it's or a very good golfer, it's maybe a couple of 4, 5s. Or you can take an electric bus with Hokkien, then it's 5 minutes. So it's in the port area of Gothenburg. It's on a predefined route, a 10 kilometer repetitive flow with quite large volumes of goods and relatively short distance.
And this is the typical pre reqs that is needed for installing an autonomous solution. Autonomous solution does not work for everyone everywhere. The same way, I would say, as in manufacturing, what we have seen within manufacturing also applies to Autonomous Solutions. So if you have a repetitive flow, high volumes, it makes sense to invest in what we can say a prolonged production flow that we call also an autonomous solution. So this is what we will do here in Gothenburg in a commercial pilot.
In a production flow, you get different benefits as well. And lastly, we've talked before about the different TCO, total cost of ownership, that is on the cost side. We also have on the value side the same benefits as you see in a production plant. You see productivity gains through delivery position, through flexibility and not at least safety. And that, I think, will be very hard to compete against.
When we have installed an autonomous solution for a predefined route, it will be a quite tempting business case to operate in. We have also talked about driving prosperity through collaboration. Collaboration is the new leadership. Partnership is the new way of strategic direction on the outbound side, you can say, on the commercial side to partner with strong players in order to learn faster and to be able to scale quicker and in more relevant cases. So this is what we have done here.
We have partnered with DFDS, who is a strong ferry and logistic company. And together, we will build a transport solution, finding out the benefits and potential hurdles of this new solution. And we will listen to Torben, who is the CEO of DFT, as when he explains the benefits of working together with Volvo.
With autonomous trucks arriving at the port terminals, we get a unique opportunity to build and test solutions that will enhance safety, help the environment and bring commercial benefits. Our role will be to ensure that the terminal systems, gate systems and processes are adapted to communicate with the autonomous trucks. Volvo Trucks has been a customer of DFS for many years and is one of the world's most innovative and admired companies. So we could hardly wish for a better partner for this project.
So DTS is the main collaboration partner to start with, but there are more, and we will reveal more as time goes by. If we look at autonomous solution as such what we are offering, it's quite different to what we are offering in our normal performing business. We are shooting for a solution business. We will not only provide vehicles, we will provide a solution. That said, we will not do everything ourselves.
We will partner in different areas. We are strong in vehicles, obviously. We need control towers. Lars was into that before, not only for controlling the vehicle flow, but also for integrating into the customer logistics systems. We are also running operations and the Brondno is the next example.
We will come back on that. Maintenance and repair obviously needs to be included as well. We need to have smart payment solutions since there are no people involved in the transport. There needs to be some infrastructure adapted like gates and other digital solutions. And all in all, we get autonomous transport solution that could be provided to new customers.
And speaking about customers, we have a quite long list of customers that are already interested in working together with us in these different solutions. These are not normally the type of customers that we have had. It's customer's customer, you can say more. It's the trans those who have the transport need. It's big porch.
It's big logistics center, it's big providers of logistics that are typically the customers that are contacting us and want to work further with us. So autonomous business, it's a progressive journey. It's a collaboration both on the enabling side and on the customer side, and we are here to win. Thank you.
Thank you, Marc Jens. And before you are leaving the stage, maybe one follow-up question. When we looked at Vera here, she was running rather softly, not maybe at a higher speed. What is your thinking about that?
I think we have safety as our core value and in our G and A. So we are starting in a way starting to walk before we run. So we are starting in this kind of segments where we believe it makes sense both from a safety perspective and from a commercial perspective. And we have put the speed limit today over here for 40 kilometers per hour.
But Which is not the technical speed limit, but
No, it's not the technical speed limit, but it's a speed limit where we start to feel that the braking distance and everything will be handable.
But I think that is an important message also, I mean, to really get to the flows where, I mean, it's more the continuous flow that matters rather than if it's 40 or 60 kilometers, for example. Yes. I mean but we
will be able to run 20 fourseven. We will be able to run consistently. So the productivity will anyway be quite well improved.
So when do we get started?
We're already started.
Yes, I know that. But when will we have the next Capital Markets Day that we Thank you, Mikael. Very good example as well. Now we're actually moving into the space of construction equipment. Some of you have seen and heard about the electric site.
I just briefly mentioned that. We will have Gustave Werner, who is Head of Nordics when it comes to Industrial Solutions within Skanska and Perej Eklinstrum, actually Senior Vice President of Volvo Trucks. And up to recently, the key account had for construction equipment on the global accounts, including then Skanska and some of the other big players. But this also shows good mobility within the group that we are nurturing good talent. So we start with a small movie here as well, and then you will see the gentleman upstage here.
Well, every time I see this movie, I really get proud and I get goosebumps. So it's really, really cool.
Yes, it's really great. It's really great. And it's great to be here. I'm mainly Head of the asphalt and aggregate business in Skanska in the Nordic, mainly in Finland and Norway. So this is one of the parts of the projects that I've really been working together with you in the collaboration.
And take the full part as a construction company, Lakskanska, who's a major player in the U. S, in the U. K, in Central Europe and in Nordics, we really are pushing also the emission free perspective. But all the sustainability area, how to actually reach those goals in a better way. But we started when we discussed this how to actually work with the quarry business to start with what it's called an area where you can control the business.
So what you see on the screen right now is actually how a quarry or classic quarry works. So I will lead you through it. We work on the left hand side, you see the crusher. That's a crusher, and it's been feed by an excavator. So what you say, Perrik, what's the fuel consumption on an excavator?
Depending on the brand, of course. But if it's
a Volvo, it's about 40 liters an hour in this size clause.
Yes, sure. Okay. And then we crush the with the crusher, and the crusher has approximately a few consumption about Yes.
This one has a penta diesel, so it's about 45, 50 liters. So all of it depending on the level.
So 100
liters to 100 liters per hour. And then we have the wheel loader that you see on the front side here that's loading the haulers. And then we form the primary crusher, we take to the secondary crusher to reframe the material. So when you take those machines, what few consumptions do you have there?
Yes. So if you take the wheel loader typical in this application is about the 50 tonne, 40, 45, 50. And then we have the ridges here is 3 ridges, big ones, and they are also taking like 50, 60 liters an hour.
So in total, how many in 1 hour, how many how much liters
do we actually
Now you put me on the spot here, but that's close to 400 liters, I think.
Yes. It's quite a lot. And the initial discussions we have had is actually how to lower the fuel consumption. But when we started this, we see that, okay, could you do something else? We think about outside the box and trying to do something really different.
So we put up really tough targets on the CO2 emission, on the energy perspective, but also on safety and the noise perspective, actually how we work. So we went from this kind of classic quarry to something else. And what's that?
Yes. So this is actually the electric site. Just a quick go through that we actually electrified everything which was possible from the crusher to the excavator. And we had a hybrid wheel loader, which Lars was talking about earlier today. And then we also redefined the hauling solution.
Remember that the classic way is 3 big ones. But with the disruptive technologies, we realize we can do this smarter. We can as we take out operator, we can have more machines, actually more vehicles because we don't depend on the operators, which also gave some effect that we can reduce the fuel the energy consumption of going smaller and also creating a higher redundancy in the production system. So we have 8 machines instead of 3. If someone goes down in the classical, you only have 67% of your capacity.
If someone goes down here, you have 8% to 7% we did the was really the increased safety because if you think of a traditional quarry, there are lots of erratic vehicle movements. But here, even though the machines are smart, but they are quite foolish because we have to tell them what they are doing. And by telling them, we need to think in advance how this logistical flow will look like. And by that, we can reducing really safety concerns.
Sure. And when we look at the result, what we did was that we created a test, a full scale test during the autumn, this fall last year. And then we tested the older system, and we reached those goals. The goals that we set was 95% of reducing our CO2 emission. We actually reached 98%.
That's really good. And fine. And actually with this, we have the from approximately how much liters do we need to have, 400 liters something down to 64 per hour. Actually, it was even better.
It was 3.3 cubic meters per day. And we went down to 64 liters per day. That's fantastic.
And we didn't use HVO or BO diesel. If you use that, we can actually decrease that even more. If we look at the energy costs, we with this type of 3,300 liters of diesel, reduced it down to just 64 liters, but we changed it to energy. But if you calculate those 3,300 liters, it's approximately 33,000 kilowatt hours on one shift. And then we went down to almost 9,000 kilowatt hours per shift.
So the increase of productivity was quite extraordinary as well. So we reduced the energy cost quite a lot with 70%. And then the operations cost, we reduced the staffing, of course, and we shifted some competence exactly to drive and control the machines instead. Exactly, exactly.
And come
back to that carbon emission, actually when you calculate this lot of cubics of diesel that you consume every day, it's actually almost 9,000 tonnes per day. And we went down to 166 kilos per day. So it's really beneficial for the environment. So what do we do next? When do I get this from the shelf?
Exactly, exactly. That's really the challenge, Niall. So what we actually are doing now with Invalvo Si that we're breaking apart the electric site as such, so we can focusing on continue developing the wheel loaders, continue developing the excavators and really to continue to developing the autonomous, what we call, the HX solution. Because like Mikael was talking about earlier, this is a solution. And of course, we are now using all the knowledge within the group.
That goes without saying, of course. We are working tight together with our colleagues here. Then, of course, we're using external partners. Of course, that Volvo CEO will get used of the partnership, which was just presented today and continue working with academia because the good thing is that we are also creating a bus around our brand and that talents really want to join us, which is a great effort because there's a war out there to get a hold of all the good talents. And of course, we will continue to ramp up.
I mean, we are in very good discussions with you, Gustaf, how we can explore this further and get to commercialization. But of course, we're also working in the other different verticals. Martin was talking about different segments. So all where there's a need for a repetitive transport solution, we are looking into that now and working with other customers' partners. And so we really put a stake in the ground, and we're really focusing hard on this going forward.
Yes. And if you look at this, this is one quarry that we did a test. Skanska has approximately 100 quarries in Sweden. The industry has 1200 quarries in Sweden. And if we electrify it and we work with these kind of machines, it's really make a change because we talked a lot about the potential in the market, the growing market for the future, and that's actually a business for Skanska and it's also a business for Volvo.
But it also comes with a lot of responsibility how we work with this in the future because we are part of a problem, but we're also really part of the solution to create this for
the future. And talking about attractiveness in the partnership, also what we have showcased here during the fall here has created a lot of attention to Volvo Group from customers which we actually don't have so much relationship with today. So sometimes I was joking that there was a line outside my booth that people want to come and talk to us. And that's pretty cool, I must say.
So, Gustav, what do you say? Great job. Yes,
absolutely.
Thank you. Thank you, Gustaf and Per Erik. Maybe just some follow-up questions. What I thought was very interesting with this program, not because we only because we see these fantastic benefits and opportunities moving ahead, but it was also the learning from the 2 organizations because for me, Skanska is sitting on is a project based organization basically. You're running everything in projects and solutions.
I mean you have your site that you should construct. You're constructing P and L around that, etcetera. Absolutely. And you got hold of some other findings, I mean, when it comes to competence, when it comes to people, etcetera. Can you elaborate?
Absolutely. And we tried it's quite early because we have worked with this since 2014. And quite early, we recognized that could we collaborate in different areas as well. So we started discussing this VPS, Volvo Production System, how can we take benefit from that as well in Skanska and then we have started that. But also we started with Melkirk's unit, with Volvo CE HR initiatives where we have 10 peers from Skanska and from Volvo CE that meets together and talking about
the
future, what can we develop together in a better way.
And I think that's also tell us that when you're going into a partnership, 1 plus 1 is not 2, it's 3 and more. And when we came up with this idea about HR, I mean, we didn't thought that before. But then we were chit chatting, and we realized maybe we can do something in the HR community. And then we engaged with Diane and others and then we got there.
And we lost it to you and my boss and you said that's really
No, but as you say, Jose, I mean, I think this is a key ability for that we need to get hold of now. How do we scale this, to your point? I mean, it's good enough to do 1 or 5 or 10. But if we are to change, I mean, the footprints moving forward and do that in a profitable way, we actually need to install a couple of 100 per year. We had it up in another event a couple of weeks ago.
And thank you very much for all the presentation. Good progress. And then we are moving to the last one, and that is also coming even closer to commercialization. We are about to commercialize this now during the year also the electric side. But where we already have the ink on the paper, we have put a stick on the ground, and we have put harder promises when it comes to fully automated solutions.
It is in Norway with Brnoj Kalk. So please welcome Raimond and Sasko to present it. But maybe we should start with a small movie again, so we are keeping the traditions here.
Hello, everyone. Great to be here and share a little bit about what we are doing together with Rune Karlk. So my name is Sarsko Soklev. I'm Director, Autonomous Solutions at Volvo Trucks. And I'm extremely happy to have Managing Director, Bruno Kalk, Raimond Langford, here with me today.
Thank you.
I will start with taking a bit into the future, but not that far ahead. So let's peek into this coming winter. Then Volvo Trucks autonomous mining solution will be in operation, and we will get paid per transported tonne. Then 7 FH16 trucks will, in rough mining conditions, transport limestone from the mine to a nearby port, and this will be done autonomously. These 7 trucks together with a site management system, service and support, workshop setup, insurances, payment models, etcetera, will be packaged into one solution.
And this solution will be Volvo's first commercial autonomous solution in real operation. And it is happening now. So we could say that the future is already here. Already mentioned a couple of time, both from Martin and Lars and Mikael, we took a strategic decision I should do like this as well. We took a strategic decision to go for a commercial pilot approach, meaning that we are partnering up with a customer.
We are implementing a solution in a real case, and we do that based on the customer's input and needs. We jointly agree on a feasible date and time we should start to operate, and then we iteratively develop the solution together with the customer with that date as a target. And when I say develop the solution, I mean both the technical and the commercial aspects. And it's very important that they are driven in parallel. Further, it is very much about collaboration, so constantly sharing about problems, challenges, successes and then it is very important for us to partner up with a customer that we can share rewards with as well as risks.
So according to me, the Brond Ne implementation has or is a great example of a successful commercial pilot implementation. But who am I to say that this is a success? So let's ask the customer. So Raimo, please share your view. Thank you, Sasko,
and thank you very much for inviting me. In November, December 2015, we sent out a lot of e mails to many companies. On December 17, at 19.52 in the evening, the Gimel went to Volvo. And here we are. Going a bit quickly forward, what we saw after a while with both
of us that we share values:
safety, quality and environmental care. And well, why are we doing this? We are competing in a tough industry, global industry, and the cost level in Norway is high. So new technology is
how we are able to
be survive in the future. And I'll give you a couple of examples. What we get with this solution, improved efficiency, improved productivity and flexibility. 2 things that we see now, and I will say that's on the first row here. That's what we see now.
When we look at availability for maintenance on the crusher, looking in the 4 week period, today we have 6 full shifts available for maintenance. We don't need to talk about shifts anymore. And when we look at availability for maintenance tomorrow, we can talk about 20 shifts on daytime under good light conditions, and that's a huge increase. And let's say another thing with flexibility. When the stockpile is full, you can relate to this.
When the stockpile is full, what do you do? Well, you have to stop. But what then do you do? Well, you just stop the solution. And I think that my view on this project, And
I'm going to
say this with utmost respect. When we started, we got behind the first level. So I'm sorry, Jan, we didn't talk about finance. We were only talking about the solution. The solution, solution, solution was always in focus.
And for a long period of time, there was this gentleman's agreement between us. And I know that somebody was pushing down your neck and also mine that we need to sign something now. But we went on for a long time, and it was trust. Has it been a success? Yes, I think so.
And if I am to take away some key takeaways. I want to go back to trust. There were no hidden agendas. There was only focusing on solutions. And I used to believe that trust is something that you earn, but trust is something that you choose and dare to give.
And we both chose trust.
Thank you, Raimond. It's great to hear your words. We'll get emotional about this. We have been working hard. So what is ahead of us then?
What are the next steps? I mean, 1st of all, of course, the full focus will be on implementing the Brnoise solution. And after that, the intention is to start scaling up within the mining segment. And we are, as we speak, in the initial stages of kicking off customer implementation number 23. I can also share that many of the major mining players, mining customers are in contact with us, very interested in our approach and working together with us.
We are also looking into other segments, both confined area segments as well as public road segments. And I mean, Mikael Karlsson, you were up here explaining about the Vira pilot, which is one great example of another segment that we are working on. Time is flying. To summarize, if I would get the question to highlight the key success factor for an implementation like this, I would say it is all about the customer relationship. Thank you very, Raimond, for being here, and thank you all for listening.
Thank you very
much. So here we are a little bit more clear on the time schedule. So Raimo, you were very precise on the e mail when you sent it out to us. So I imagine that you will be equally precise when it comes to measuring when we should get started here. So what is the time plan of getting started in real we have tested obviously now, but to start the real production, so to speak.
We are testing when truck is on-site, and we will continue testing throughout the year. And I would say later this winter.
Yes. Later this winter, we'll get in real operations. So maybe that can compete with also being on the next Capital Markets Day to go up to beautiful Norway and visit you at Brnochjalja.
You're more than welcome.
Thank you very much, Ja.
Thank you.
Thank you. Thank you. So I hope that you have got a feel about what we started this part of the Capital Markets Day, I mean, really building on strong partnerships, choosing the right application and verticals with the maturity level that we are into now when it comes to these type of automation solutions, but also, of course, in electrification, that is a more mature business. And then obviously to have the customer base that we are fortunate to have that you can work with and to develop it together because this will be a continuous development, But we already see great potentials. But I'm very pleased also, and I was maybe one of those pressing a little bit and hit on that because my firm belief is that we need to stick, so to speak, the feet and the body into the cold water and work on it.
So we see the revenue streams both for customers and for the Volvo Group to come and to be better to develop the risk and reward and all the good opportunities that is coming with it. Now we will continue actually with the Taeke expo. So let's get started just to unveil a little bit what you will look at here. As you can understand, this is the definition of beauty. And what we will do now is actually that all of you will go down here, and we will gather here in the center.
We will divide you into 4 groups. You have the chance to see both what we are doing in the performance piece of developing the service businesses by utilizing the connectivity and data. You will see electrification part of it, autonomous part of it, but also when it comes to the future development of the combustion engine developments and the well known technologies and all the developments we have in that area. Anything more to add, Keester?
It sounds really good. And you have actually a letter on your name tag. So you are already divided into groups. So please just Very smart.
So follow the rules only. Yes, exactly. Welcome down.
So
okay, welcome back. And hopefully, you have had also a good opportunity to interact with our experts and senior expertise regarding both services and the new technologies and how that will imply into the business models. I had a number of questions regarding how we will implement this now and scale it. And that is obviously one of the key areas that we are working a lot with now because this, as we discussed a little bit with Gustaf from Skanska and also when it comes to the Brno case, this is a project game, We need to continue now to build and strengthen capabilities of organization, focusing on doing the DDs for every type of application, every customer case and then having operational teams to implement it. And that will be, so to speak, a new business vertical that we are building.
Another important part of this just to have in mind is that this is not a unit count anymore. The difference when you take, for example, the Brno case when it comes to revenues per unit is completely different than a normal type of application as we have today. And it is not in the magnitude of 2x. It's something more. Obviously, also when it comes to building long term and midterm resilience, that is an important part.
One area one of the business areas that is leading this development obviously because they are representing their head representation of the industrial verticals where this change is happening is Volvo Construction Equipment. We are also building together with this now the opportunity in the group to actually join forces and provide a full offering for our customers because with electrification and autonomous, our customers are looking through the full flow in their different parts, may it be waste management, may it be a construction site, a quarry, a port, a terminal or a mine. So without further ado, the first time on the Capital Markets Day, the President of Volvo Construction Equipment outlining the here and now but also the future of Volvo Construction Equipment as a business area within the Volvo Group. And we start with a small movie explaining the story.
At Volvo Construction Equipment, we are driven by the idea that through imagination, hard work and technological innovation, we will lead the way towards developing a world that is cleaner, smarter and more connected. With the global construction industry as our arena, we've been turning this belief into reality since 18/32. We are part of Volvo Group. Our network stretches across the globe, representing Volvo in markets worldwide. As a partner, we provide the equipment and services to maximize our customers' business and make it run
smoothly.
Our core values quality, safety and environmental care always come first when creating solutions for a better tomorrow. We are We believe in a sustainable future. And with the global construction industry as our arena, we work together with our customers to turn this belief into reality for people everywhere. This is our purpose. We live and breathe it every day because this is what it takes to build the world we want to live in.
It's fantastic, isn't it? I must start to say that Volvo for me is the culture, it's the spirit, it is how we work together, it's the relations, It's the relations in the company. And it's the relations with our customers, dealers, suppliers and other partners. And it's about what we can do together today, but also what we can do together in the future. So my name is Nelke Jandver, and I'm the President of Volvo CE.
And I'm happy to have the opportunity to talk to you about a big and important part of Volvo Group, the construction equipment business. Some of you probably participated a couple of years ago in the Capital Markets Day in Eskilstuna. And I will try to show you how the journey have developed since then and also how it will develop going forward. One way only one way of measuring a company and the performance of the company is through the financial numbers. We have had a very good development of the numbers both when it comes to the net sales and profitability the last years.
We have been moving from like SEK 50 ish billion turnover to SEK 85,000,000. And we'll be moving from, let's say, 4% margin up to SEK 13,000,000,000,000,000 and actually Q1 this year we had above 15%. I think it's a good strong consistent improvement And we have a lot of fundamentals in place when it comes to cost structure, way of working, footprint, organization, etcetera. We also have a more balanced both earnings and profitability if we look into how we define the world in our regions, which of course is good when we have the swings in the markets. But also actually we have more balanced both net sales and profitability when it comes to the big, big product group.
So I think this is good for the profitability, but also we will talk about the cycle going forward. Before we look into the future, let's take a quick look back in the different periods that we have had in Olvossee, starting with some kind of consolidation in the industry and a lot of acquisitions. And here I would like to mention the very successful acquisition of the Samsung Excavator business in 'ninety eight. So actually this last autumn, we had a fantastic 20 years anniversary in Changwon in South Korea. The next phase was growth in the emerging markets.
And here is also when we started the joint venture in China, STLG, been up and running now for 12 years. We'll come back to that later as well. Then we came in into a period a little bit tougher, tougher market and we call it some kind of transformation internally in the company to improve performance or the base for the performance. And now we are into the next step. And I will show and share some key areas in our future growth.
So with the base in the way we think and work in the Volvo Group, we have developed our 7 strategic priorities within Volvo CE. They are framed by the people and culture and the purpose. And the reason for that is simple. Because in an organization where everyone, I mean everyone, feel that they grow and develop every day. They feel that they are part of something bigger.
They feel that they are seen, trusted and can contribute and also feel that they are responsible not only for the work they are doing, they are also responsible for the development of the work they are doing. In such an organization, the improvement is not 10%. It's not 20%. It is 100%. It's not based on some research.
It's based on my own experience. Then we also have an element of product, and we will dig into excavators today. We have a market element, and we will look into China. We have the important dealer and distribution with a focus on North America. We will look into that today as well.
Profitability is, of course, performance, but also performance over the cycle. And last but not least, the technology. And then, of course, it's the speed and the balance between the well known technologies and the future technologies. Let's start with the products. Some of you tried excavators outside this morning.
And the market development within the construction equipment, how we see it, how we measure it, the excavator part of that is actually now more than 50%. All other products are a little bit less than 50%. Excavators are 50% about 50%. So of course, it's very important. And we have had a good journey in the excavator segment.
But obviously, the potential is and the untapped potential is big. We are working hard with awareness, the products, of course, the services and the parts. If we take a look into the products, we have a very good strong basic lineup and we also have had some good strong recent launches. We have a fantastic machine. It's called it's a 75 tonne high reach machine.
So it's extremely competitive and good demolition machine. And demolition is not a super big segment when it comes to numbers, but it's a super big segment when it comes to price of the machines and profitability and you need to have good machines. And we have developed this for many, many years now. We also have the hybrid. So we have a hydraulic hybrid.
It's not easy to say. Hydraulic hybrid technology, which is not the same as you might have seen in the business or some other competitors doing. So we are using the movement of the boom and charge hydraulic system. We are testing that in Germany for the moment. And for those of you who tested excavators outside realize it's not so easy.
So we also now launched that Bauma Active Control, which is a semi autonomous system. So you can actually either you have a file into the machine or you do it on the screen. So you program the machine for the shape and then you just control the speed. And if you tried, I mean, you were happy if you dig the 1 bucket out there, but imagine that you're doing the shape and you see the productivity in doing the shape automatic instead of manual. So this is good for the productivity for unexperienced driver, but it's also very good for the productivity for experienced and good drivers.
Last but not least, we have the 20 tonne EC200. This is a really big really good machine. I have extremely big hopes for this. It's a good machine in the biggest excavator segment. It's the most competitive segment, but it's also the biggest one.
It's a really attractive offer. And of course, you realize that this machine is also extremely good fit and easy to sell for our network and our dealers. A quick look at China. We have had a good journey the last decade in China. We have a fantastic joint venture.
We have 2 strong brands. We have production plants. We have a technology center. We have a very good distribution network on both sides and we have had a fantastic volume development. So this is the base.
And a couple of weeks ago, we also launched or we told that we will now take the next step because China is super important for us. We are extremely strong today together. We're extremely strong on the wheel loader side on the SDLG brand, as you know. And now we have decided also to be even stronger going forward on the excavator side. So the market change in China is that the wheel loader game is over.
I mean, we have a strong position and that is more or less set. And also the machine types are going into more and more excavators also in China, of course, because of the way you can use an excavator. So what we're doing now is that we are bringing the strengths together from both sides. So we take the strengths we have in the Chinese setup with the strengths we have within Volvo when it comes to technology and brand. So we will do one product line, one brand above 15 tonne as from end of next year when the China IV legislation come into play.
And this is extremely important for us. Long term, we need to be there. And it's high competition for the moment. And of course, we are a global company, a global brand. But with this also, we want to feel both inside and from outside that we are a good domestic player as well.
So hopefully, next time I can come back and tell you about successful we have been within that. On the distribution side, as I said, the dealer network is extremely important. It's the primary customer interface. It's the interface for the customer experience. We have a good network.
We have on the Volvo side, 235 dealers around the world with 1500 points, 95% privately owned. And I would like to say a few words about the efforts we are doing in North America. It's important. We feel that we must improve. We are doing a lot of things with all our dealers when it comes to product training, sales training, repair and maintenance support, parts sales training, sales management training, you name it.
But we also have a lot of good and tough discussions with the dealers and putting high demands both on the performance and on the investments. And we have seen in many cases that gives good results. But in some cases, it also ends with the termination of the contract and the change in the ownership and in the dealership. And here you can see some results of when a new owner come into territory with a new spirit, new energy, new approach, new way of working. So I think we are moving in the important North America markets.
I think we have a short film now actually.
And Volvo has a good reputation throughout Alaska. You see a lot of that equipment operating. So to me, Volvo was an easy choice.
I can say something about CMI. I think those guys give us a great service. I think Volvo can be very proud to have them as a distributor out here. I think they do a great lot of work to promote Volvo and keep us happy.
They're a great asset to equipment are running, our customers are happy here at the mine site and ores coming out at the end and there's a gold bar at the end.
So obviously, the dealers and our service capabilities is super important. One part of the profitability and the resilience is our services. And I must say that we have done our services more tangible. We have productified the services. And with the base of our connected machines and our uptime centers, we are also able to make specific solutions for specific customers, different demands and with that also increase both the part sales and the service contracts.
And in this whole equation, I think there are some key elements. We've seen it earlier today as well. It's the service contract. It's the parts penetration. It's the uptime, how working uptime and it's the population.
And if we look at the development for Volvo CE, we can see on the service agreement that we have increased the numbers a lot, which is good, of course. But it's not only the numbers because it's also very important what kind of type of contract or agreements you have and also the length or the duration of the contract. I think we are improving in all these three areas. This is good. When it comes to the part penetration, we have improved with 30 5% since 2015.
When it comes to the uptime, we are monitoring more and more machines through our uptime centers. We have now uptime centers in North America, Latin America, Europe, of course. We have in India, China and also the APAC area. And when it comes to population, it might have been a little bit flat because of the history, of course. But now we see a quite good increase here, and 2019 is the estimate, of course, here.
And with the last year's number of machine success sold, I see a pretty good development of the population going forward as well. On the technology side, I think the construction equipment business can and will be a big part of the transformation here. I mean it's a kind of a new era. But on the other hand, we have been innovative company for more than 180 years. So we are quite confident that we will be super innovative also in this area.
I mean, we are talking about again the automation, the electromobility, the connected machines and the digital solutions. And of course, then the energy efficiency, the safety, the emissions and the consequence of that, of course, the higher profitability or performance for our customers. And I mean, I'm so happy that Gustaf and Peri presented the electric side. I mean, it's super, super nice. We were there, and it's you cannot I mean, you can see the result, but also you can touch the feeling of people that actually were there and saw what we or you we were doing together with Skanska.
I mean, just think about it, 3,500 liter diesel going down to 64. Of course, that is good. And what we showed with the electric side is also that we used all these different technologies plus the partnership or the corporation. I think that's an extremely good example. Now actually I would like to share another example with you that is on Jan's and Martin's dot slide, yellow or maybe the boss even would claim it's red.
And that's about our compact equipment range. It's about our compact wheel orders and it's about our compact excavators. We have good machines, but we have low volumes, low market share, low profitability. It's an important growing and big segment. So the question, of course, is what should we do?
Should we exit? Should we try again with the new range of commercial machines? Or should we do something else, something more radical? Exit is not an option. Try again with the same solution.
Believe that we will have a new result, I'm not sure. So in January, we sent out a press release that we will now on our smaller machines go fully electric. And at the same time, we will also stop the diesel engine development of this range. I can promise you, it was not an easy decision to take. And it was I don't know if it was fun discussions, but it was a little bit different discussions I had with my colleagues and others.
And you can imagine, okay, this seems to be a very good idea, Melk. What's the market size? It's 0. So 100% of 0 will still be 0. So the volumes will be extremely unclear.
Who are the customers? We don't know. And the cost from machines, it's a little bit unclear. So of course, it was not super easy business case. But fortunately, we are confident that this is the right thing to do.
It's the right timing and the change is coming. And of course, it will come in this segment. It also opens up open ups for new customers, both for us but also, of course, for our customers because now obviously you can go indoor, you can go agri, you can go food, you can even go into these indoor mushroom plants that I didn't even know existed before we started to look into this. And I guess there will be a lot more of these customer segments. So in April, at Bauma, we launched the first two machines, the 2.5 tonne wheel loader and the 2.5 tonne excavator.
And I can tell you that the interest was extremely high. And one interesting thing was when you talk to the customer because the customers came immediately and say, I buy that 1 5 minutes after the launch. I said, okay, so why do you buy it? Why do you want it? And then it's super clear, and that was all over the day.
It was like because I believe in this and I want to be a part of the change. So it's also the of course the branding of our customers' companies. So that was super, super great and good reception. So I should say that now right now, we are taking the leadership in this space, And this space is still free, is still open. We believe in a sustainable future.
We believe in sustainable development for our employees. We believe in a sustainable development for our customers. We believe in a sustainable future for our shareholders, our owners. And we believe in a sustainable future for the planet. So we try to improve for all stakeholders in each and every decision we take.
So I promise you, large scale is fantastic to be an engineer. And I can promise you, it's fantastic to work with Jell O machines. It's even more fantastic to work with Jell O machines and be a part of shaping the future for our next generations. That's the reason why we always say we build the world we want to live in. Thank you.
Thank you, Badri.
So by that, we are soon coming to the end of the presentations. Last week, I met actually with a business partner to us that quoted exactly the spot where the Volvo Group, where we are sitting right now. He said actually that the world has never moved quicker than today, but yet the world will never move as slow as it does now. And we hope that you actually have got that feeling when we are presenting this. And the reason is simple.
That is that transportation, logistics, infrastructure will continue to grow. That is a fact. But it must be growing in a considerably more sustainable way. And the guys that are there with practical, pragmatic solutions will win tomorrow. They will win because we need to shape this planet when it comes to CO2 execution, when it comes to noise, when it comes to safety, when it comes to particulate matters, NOx, etcetera.
But we will also drive, so to speak, the opportunities that transportation is bringing when it comes to urbanization, when it comes to growing demands from populations, e commerce, etcetera. PerForm is all about actually building the future, funding the future while still making Volvo a very attractive and interesting case for all stakeholders, for our customers, for our colleagues in the group and, of course, for all our investors that believes Volvo as a good case for shaping the future. Driving that through excelling on the basics. We have been showing the last couple of years a good trajectory when it comes to continuous improvement, being close to the customers, driving the decentralization, decision making, speed, agility, yet a lot of interesting headroom when it comes to the service business, when it comes to actually penetrate some of the industrial verticals even further with existing and ever developing product and service offering that we have. We are doing that also by continuously building business resilience with flexibility measures, with different type of offerings when it comes to further deepening our service business.
And we have shown a number of very concrete examples on that. Not just the least through the connectivity piece, 1,000,000 connected units, and we are just getting started. The interesting part of this world when you talk about digitalization and connectivity is that still people are talking much about collection of data. The guys that are cracking the code on analytics and action will actually win. And hopefully, you have seen a number of interesting pieces of that.
The transformation part is obvious to all of you. I mean, I think the use cases has been talking for themselves by accelerating that both when it comes to technology, but even more important, constructing the business model together with our partners, the partners upstream, horizontal and the most important with our customers, and in many cases, their customers will be decisive for the years to come now. And we are, of course, determined to manage both, And we are building a strong position also financially to do that. And looking forward to continue to work with every one of you, but also all investors around the globe. So that is concluding the presentations today.
We hope that you have found that valuable. And by that, we open up for Q and A. And I will actually ask also our Deputy CEO, Jan Gerhnder, to come up on stage. And obviously, as I said, we have our strong lineup of dear colleagues here. It's all about people.
So feel free to ask and utilize the moment to ask whatever questions you like to ask. Thank you. Should I yes, please.
It's Daniela Costa from Goldman Sachs. I actually have 3 questions, if possible. First question regarding what you talked about the margin resilience and that there was further still to go there. How shall we think about what is the limit on where we can optimize this business? What would be peak to trough given the cyclicality intrinsically in this business?
That's my first question. And then a subsegment to that question. On the breakouts, we talked a lot about the flexibility on the cost structure around the truck side. And I was curious on the construction equipment side if the type of flexibility or the possibilities to flexibilize the cost structure are similar. And then one final question regarding the capital allocation.
Jan mentioned when he was talking through when we have the possibility for extraordinary remuneration through shareholders, we'll do it. And I was wondering how you classify what's the conditions to have the possibility.
Thank you very much. Where shall we start? Shall we start with maybe then the first question with the margins? Obviously, I think Janitubay was very clear on that. What we say is, obviously, given where we are in the cycle, we are still we still have work to be done in all business areas actually to build that resilience.
And there are 2 pieces of it. 1st and foremost, I mean, the underlying continuous improvement of the quality of the business, the earnings. And the second piece is obviously to reduce, so to speak, the high volatility also in earnings that we have had depending on the different parts of the cycle where we have been into. And I think also one example out of that that was shown today was, for example, the North American piece where we had a pretty big trough in 2016, 2017 where we could clearly see. We didn't reveal the exact number, but it was a considerable improvement when it comes to the operating margin of that business.
So I think you should think about it both in terms of, I mean, what is the midpoint over the cycle, obviously, it should be over 10%. But also thinking about that, I mean, the spread is also something through flexibility and service business that we're working on. I don't know, Melkje, maybe if you would like to mention a little bit on the flexibility in the construction equipment business.
I think first of all, I think we have a much better position to start from when it comes to the profitability level. We have a much better cost structure. And you have seen that also in the leverage that we have had with the volumes. And that combined with what I showed on the parts penetration, the potential still there and also on the service contracts and the population, I think that will be good guidance of the resilience or the flexibility that we have. And of course, also we have a lot of measures to do when and if it goes down.
I think it's fair to say also that the same kind of examples that Jan mentioned before, and I think we work with the same kind of principles and methods in the whole group. It's not only about trucks or VC, it goes also for Volvo Buses and Penta. It's the same kind of preparations that we do when it comes to that to bring down the volatility. So it's absolutely not only for trucks.
And on the last piece, and I think we can complement each other there, but I mean I think we've shown one example this spring actually when we feel that there is, so to speak, room for an extra dividend, so to speak, we will act on that. I mean we always say that when we want to be a little bit between clear and a little bit, so to speak, unclear. We say, I mean, we say we don't want to become a bank because we think you guys are better off doing your part of business. But having said that, given cyclicality, given opportunity to maneuver from a position of strength in different parts of the cycle, not at least in a down cycle. There, the very interesting opportunities will arise.
We will not have big need of further consolidation when it comes to volume. We have the scale necessary, but there will always be interesting birds flying by. And we think it's always interesting to be able to maneuver from a position of strength. To what Jan said, Uteberg said about that, it's extremely important for our financial business Financial Services business to have a strong and solid rating. The financial services business will be increasingly more important when we are building the solutions for the transformation and the trust building, and we will utilize that transaction system also and that business relations system even more and then to have, so to speak, a very strong foundation.
So I think we have been clear. I mean, obviously, when we are in the cycle where we are now, when we should have a net cashier or position, it should not be good for anyone here in the room, right? But having said that, I think the underlying strength that we are building will give opportunities, as we were clear about saying, both of building and transforming this industry, but also give a good shareholder return. And if I am doing my mathematics right, I think we have been a good piece to pick when it comes to total shareholders over the last 4, 5 years.
Can you hear
me? Is it Claus from Citi?
It's Claus from Citi. How are you? So three questions from me as well. I'll take them 1 at a time, if I could. So first, a question on CapEx and R and D.
I think Jan, sitting down, he alluded to some potential creep going forward. Obviously, there is a lot of new technologies out there. But could you give us some steer on where we can go to? Obviously, we're coming from a situation where we had CapEx to depreciation back in the days that were 30% above. And obviously, we're not going back to that level.
But could we get some steer on where we can go to in terms of CapEx and R and D, and especially in the light of heavy duty if you see more fleets going green?
Kjell, I
started to talk about this already 1.5, 2 years ago that we I mean, we will start to see a little bit of a creep upwards, especially when it comes to the R and D. And I think you're perfectly correct. When you look upon all the things that we want to do, we need to do for our customers going forward, We cannot skip the obviously, the combustion engine. We have a lot of things. You will continue to see a step upwards in R and D.
It will be a gradual shift that we are doing. A little bit as a consequence of that also because when you invest in products and solutions going forward, you will actually have a little bit of a drag also on CapEx as more of a function of that than that we have outdated factors or anything like that. So you will see that coming as well. Will not give any indication where it will end up or anything like that, but a little bit of a continued creep upwards, that's what you will see.
But I think having said that, it's a very good investment also because with the lineup we have now in the structure of, so to speak, the company, I feel also that we have a good conversation going on, so to speak, between the business areas and the new created also business areas and then our industrial technology backbone on where do we put our best, how do we do it. You will see partnerships coming up, etcetera. But if anything, you can say with the €400,000,000,000 plus top line now, if anything, I should say that we are having, so to speak, from an average perspective maybe on R and D a little bit on the low side. I mean, you should think about that in order to cope with these opportunities also. I mean to be south of 5% on R and D investment is might be a little bit on the low side in order to capture the opportunities.
But then I think even more important is, I mean, these type of examples that we have shown now, and that is for all of us to think about, what will be in the future R and D, what will be in the future SG and A, what will be production costs, etcetera. And that's the reason why I told you also that, I mean, when we are putting these solutions into place, it will not be the same type of balance sheet and P and L that you have seen historically because revenue streams will come differently and not at least over time and how you look upon it. But again, perform to fund this, we are not backing off from, so to speak, what we have promised when it comes to financial targets, but we will invest them correctly. And if anything, maybe more so in these type of initiatives, when I say bird flying by, maybe on the add on technology pieces and partnerships.
And that was my second question, birds flying by. So thinking about M and A, obviously, there has been no M and A for good reasons for a long time. You're talking about some verticals still being interested from a new technology perspective. And obviously, mining is at the center of that, and you bought parts of Terex a few years back. Would mining be an interesting area to add on more to the portfolio?
If you could comment a little bit on M and A.
1st and foremost, I think what is what we have done that I feel is the starting point of any type of conversation around M and A, and I think to your point also for good reasons, is that really to understand in detail where all we what is our current potential organically, where are possible, so to speak, add ons both when it comes to geographical coverage, What part of the value chain could be interesting, both when it comes to, I mean, add on technology wise? Could it be, so to speak, add on from a product line wise or being closer to the customer? But my reading on mining when I talk to a lot of the customers is that 1st and foremost, we have an untapped potential by combining but M and A ing ourselves when it comes to the key account structure of mining because we have not utilized the full force of going to the customers in that vertical because that is a little bit the backdrop of our way of being organized with the business areas. It has had a lot of advantages, but now we are also creating subsets of that. So we are creating strong key account structures in order to utilize what we already have.
But my personal belief is that this is an area that could be interesting for certain bolt ons, yes.
It's Olof with ABG. First, a couple of questions on the services business. We talked a lot about that today. But if I say that it's been around 20%, 25% of sales historically, depending on over the cycle, so to speak, Where do you think that can go going forward given or if you do this well? So that's the first one.
The second one, could you elaborate on the margins in this business? It's always exciting and would be fantastic to get a little something on that. And then lastly, on the cycle management. It's widely expected that the U. S.
Market will come down next year. Could you tell us a little bit about your tangible plans on how to manage this potential downturn? That would be very interesting to you.
I think on the service side, I think there's always this kind of anybody wants to kind of increase the sales of services as a percent of total sales. And then you get into should you have targets or not. And then you come into debate where are you in the cycle. Are you low in the cycle, it will be high? Or where we are right now, it will be a little bit lower.
I think what Jan showed before actually, and I think maybe you also, Martin, is more to focus on the absolute level of sales that we are doing. I mean the increase that we see instead of kind of setting a target for this percentage. And I mean, we have now for, I think, quite some quarters in a row, we managed to grow the service sales with actually somewhere between 5% 10%. And any type of business that we are in, that's quite a good growth actually. So rather focus on that, think about also what Janneet mentioned before when it comes to the absorption, rather to say where will it be in terms of percentages.
I think you will always come back and say, yes, you said 30%, and now we you are at 35% yes, we are down with the unit sales. And then vice versa, we will have a a constant debate about that. So rather focus on the absolute sales level and how that is growing. That's what that was also the reason why we started to disclose that every quarter as well. It was a little bit also to say that, that is important.
It's the absolute number that's important and how that is growing.
Maybe I couldn't agree more. I mean maybe I'll just add on it is also that what we see now, the importance of creating, so to speak, if you take from a pure financial standpoint, better understanding of the full potential of the different applications when it comes to treating, so to speak, a truck or a construction machinery as its own P and L and see where is the full potential. I mean the one to one relation with the services that we have for that application and see what is our success rate, what is our potential both when it comes to the first owner and what we see also as a big potential is the second and third owner. Because one of the good parts, for example, with the mix improvement that we have seen in construction segment, for example, for trucks is that the average age of the first owner is between 6 7 years, while we have long haulage heavy duty of 3 to 4 years, specifically in the more developed markets. And with a pretty big drop that we have there to really be granular enough to follow and hunt this, And I normally say that if I had the chance to carve out certain verticals in our parts business, I would be and do a small IPO.
I would be doing that any day of the week. So we need to have organizations treating this as the business that they do every day, see the full potential and working, so to speak, with the yield when comes to the penetration rates and when it comes to the pricing points and bundle it into service and repair contracts, driving that through, I mean, a full captive offering that we get through these contracts over the 1st owner and then also giving the same type of offerings for 2nd and third owners. So to Jan's point, it is about really driving more through the full potential of Obit and to set, I mean, with because the last 3, 4 years, we have been decreasing service share of the top line, but that is thanks to the fact that equipment has been growing even quicker in here. But we know also in a downturn, it will decrease much lower. When it comes to margins, we will reiterate the very granular answer by saying it's higher than equipment actually.
And the last one, yes, it was yes, North America. 1st and foremost, I mean, when we look through North America and activity levels through our connected units, We have a very, very detailed and good conversations with our dealer groups. One example of that, we had the Volvo Trucks Dealer Council over from North America last week. We were sitting a long day talking about the different dynamics, etcetera. Yes, it will come some sort of correction.
Let's see when that is happening. I think a lot of people are factoring in now because order books has been shrinking. The order intake has been lower. But still, this is a necessary correction of doing so we get the right balance. I mean, when you don't have visibility because the order board is 8 to 9 months, it's not good for anyone.
We have been, as we have communicated, restrictive on putting in retail orders for 'twenty. We are putting in that obviously for the customers that need to have that visibility. But when it comes to retail order board, it doesn't serve anyone. The good news is that we have a good flexibility in the structure. That was what we discussed and Jan showed in North America, we were down 40%, and we still had solid black.
Ever since, we have continued to improve that. So we are well prepared. But more importantly now is to have the right balance. We have a better balance between supply and the demand. And I think that was healthy after a couple of or quite a number of quarters with very stressed situations.
Khamsin, Johannes Meikhen. Two questions from me. Coming back to the group. A lot of the strategy story has been to create synergies on the drivetrain and between all the business areas. And it seems like we're moving into more complex engine setup.
We might have distribution trucks on battery and hybrids on long haul and maybe construction on battery. How do you see that affecting your aftermarket business and also synergies going forward that you already have today that you might lose out on and eventually, I guess, the profitability? That's my first question.
I don't know, Lars, if you would like to start to comment on that when it comes to the modularity piece, etcetera.
Thank you for the question. I think I touched upon it in the presentation already. We see a lot of possibilities. I think that we need to understand that the group went through a tough period of acquisitions and then get the programs together coming from very many different platforms. In the area of new technologies, we have the possibility of doing it right from the very beginning, starting sort of from a white piece of paper.
And by that, we can, as David and team showed down here, we can design electrical motors, batteries, etcetera, in order to get the maximum synergies out of it for the new technologies. That's how we are thinking.
And I mean, then you can say where will you have less scale then, I mean, on the combustion you're saying. I think the good news is that it will not happen to us in that case. So it's always a discussion about the relative competitiveness you have. When you're doing acquisitions, etcetera, it is easy to have a good story about all the synergies. And when the company leaders and the investment bankers have left the room and there are some empty gases of champagne there, there is 10, 15 years of hard work to get the act together.
And I'm very happy to see that we have got this act together now primarily on the heavy duty side when it comes to powertrain. There's still headroom for improvement when it comes to medium duty where we are now addressing that actually on the 5% and 8%, primarily on the 8% to start with. And that will still give because now we have multiples of scale when it comes to, so to speak, the number counts that you need to have. So I mean we have room for a decrease and still have a superior scale to a lot of other players. I think even that can create also interesting opportunities actually for being that can be beneficial as also provider of that type of equipment going forward, but while at the same time then building up.
And then we can do it from the start, as Lars said. We have been rather disciplined actually in the base platform, the modularity and the performance steps when it comes to electromobility and autonomous pieces. And that's the reason why we gathered that through what we call the GTX. That is purchasing technology and operations together. So we are building a very strong modular platform where, so to speak, our business areas can pull from.
But that requires discipline to do that. But it should still be then agile to apply, and I think we showed that with all the launches that we have done.
Can I do my last question then on I think last year was very much a year of production disturbances from the sub suppliers? What we hear now, it seems like that situation is better. Could you talk a little bit about what you see in terms of productivity potential for the group this year, given that it seems like the markets are more stabilizing around 300,000 in Europe and U. S?
I don't know. Bjorn, would you like to start to comment that on the leverage and things like that?
Well, is it on yet? Okay. Well, I talked about it in relation to what we called Excel on the basics. We have, of course, have a lot of extra cost to be able to ramp up the system to the level we have had. And when we get some kind of stability, we can take out some of the extra emergency freights and shifts, etcetera, which is, of course, when we are now having a situation where we are going down slightly here in Europe and European production, is less of a problem.
Okay, we are losing on the absorption side, but we are gaining on the extra cost side, so to say. But of course, there is a limit to this as well when it starts to more hurt. But as I said, it's good that we have the time in the with the order book we have to be able to adjust the cost base in an ordered way. And when I say cost base, it's not only it's actually more on our SG and A and on the R and D side that we're able to adjust our ambitions and priorities to a new lower situation. So don't think only about production when we talk about things we can do to improve the leverage in case of downturns.
I think it's fair to say we have had 2 years of a lot of hard work. I mean, Andrea, with the suppliers, not been an easy period. And Jan also, of course, Jan Olsson in production. And I can tell you that a lot of focus is actually to serve customers, to get the machines out to the customer in time, hopefully with a good delivery reliability. But the machine is absolutely not optimal when you are reaching these kind of high levels of production.
So in a way that we never know what we but a little bit of a more normal pace in our machine get for the supplies to get in good order, in good shape. And also for ourselves actually, we talk about some of our factories that have been running 20 fourseven, actually about 100% technically installed capacity in some of the factories. Sure. So we need a little
bit of For the operation, the bumblebee, I mean, they don't know how to fly, but they are flying.
Yes. So we need to breathe a little bit. And so from that point of view, I'm not if you have a little bit of a slower for the time and we're adjusting in Europe right now a little bit, doesn't necessarily mean that you will see a big effect on any kind of margins going forward.
And I mean the leverage factor that we did see in quarter 1 was encouraging also. I mean, of course, for all of you guys, but then for our stakeholders. But I have to say because we had a very positive leverage there and very important for our own people because they have been fighting extremely hard and dedicated around the clock and also our suppliers and to see that's coming through finally because the underlying, so to speak, productivity has been there and improved, etcetera. But it has been a little bit coming out through then these disturbances, these cost of stop and go situation. So when we talked about it, for example, in North America after the match changeover with Wieker Lundberg and his team, I mean, when we can run, we have a fantastic situation, but we cannot run that frequently as we like.
And when you need to catch up every weekend pretty harsh and then almost stop again maybe Tuesday morning again, that is from the motivational part very tough. But I have to say that what we saw in Porto 1 now and has been very good for the organization as well and eventually also coming through in figures.
One thing which I might add, which was I was a little joking with my fellows in executive board around the scenario planning for a downturn. Interesting to see is, of course, that when you do these kind of exercises, you suddenly start to ask yourself, well, why don't we do this already now? Why do we have to wait for a downturn until we do it? So we will get some productivity and efficiency also from actually doing these exercises. So it's a good trade off.
It's Guillermo Oppenia from UBS. Just a couple of questions. The first one is a little bit mid term, so apologies for that in advance. But obviously, in the past, the industry and yourselves were subject to emission standard changes, well defined changes with deadlines that were very clear, technology risks, obviously, but well defined deadlines in the end, which basically created pre buy and post buy effects. Now we're talking about a step change, a transformation technology, which is all very optimistic, and I would embrace that optimism.
But at the same time, there's a technology risk. And it's a little bit less well defined in the sense that we don't know when batteries are going to be efficient. We don't know when autonomous is going to be fully autonomous and on what kind of legislation, so to say. Is that something that in the midterm can create customer hesitance when it comes to basically notwithstanding that we are at that part of the cycle and also notwithstanding that we have 5 to 10 gs useful life for trucks. Could we see some kind of delay and hesitation when it comes to spending in new trucks, heavy duty especially?
Thank you.
No, no, I think this is
a very interesting question that we obviously, we have been discussing also what will be the effects of demand when things are starting to move in some of the new technology areas. I think probably we will see that from time to time. I think the good news though is that if you look at the construct and how we are, so to speak, where we are today as a group. We and that's the reason why we showed that also one of the reasons why we showed that. We have a good geographical spread that will emerge in different paces.
We have also good segment mix, probably more so than maybe you thought about when it comes to the different industrial verticals. And I think that is maybe the best protection to it because both the geographical mix and the segment and application mix because we'll actually do that. This will come in 2 different steps because you will not see the timing for a long haulage as you will see in a quarry or in a city when it comes to these different technologies and business models. But at the same time, one of the key enablers for us is actually to be able to scale these more project selling solutions in a good way when demand is coming. And we had a leadership summit a couple of weeks ago.
We discussed that just to mentally start to prepare ourselves. I mean, when Gustaf is saying, okay, there are 1,000 quarries only in Sweden, probably some of those quarries are of the size where you can just be back in one of these units and you can just take gravel into one piece and then you tip it on the other side. But there are enough numbers. And when you start to think mentally how do you scale this and the abilities, that is the key thing that we are working a lot with actually. But I think we are from the transformation I think actually the emission levels actually have created bigger hiccups because they have come coordinated.
They come in the biggest areas. They have been visible for a long time and created a lot of volatility in demand actually.
I think it might even be good actually because here, hopefully, when you don't I mean, with this kind of volatility with pre buys and everything, Here, it will be very much driven from our customers actually. It will be their total cost of ownership, reduction of CO2. So it will be more kind of business driven rather than it's driven from regulation. So I think that will only be good for this development that as we have shown, different segments will be earlier to adopt than others like in electromobility and medium duty trucks or light duty trucks and so on before it goes into heavy duty. So I think it's only positive actually.
Thank you. And if I can, just one more on technology, I guess. When I think about your service business, especially when it comes to parts, I guess, heavy duty versus the RVV that you saw just today, the only thing that I can see is lower moving parts, lower number of moving parts. So I guess, the mistake could be to associate lower moving parts to lower revenue from services. But I guess, I want to understand what would be the dynamic when it comes to aftermarket in an RVV versus heavy duty truck, for example.
I mean, if you take everything like for like, and we are obviously looking into this very much. And I think a good piece of that is the experience we have also from the bus business. And I mean we have been out there now for quite some years. Our big customers like Keyhole is that we heard today, for example, they are extremely professional in measuring because they are in a very tense situation when it comes to their long contracts. They have often longer contracts when it comes to, so to speak, how long they operate the fleet, often with the 10 year visibility.
So we have a lot of good data about this. And like for like, it is what you say. It is actually less complex machine as a totality. But at the same time, you're adding other type of pieces. You're engaging more in-depth in the system solutions and working on that.
And that's the one also of the reason why I mentioned that with the cases that we see now, it is a different way you're looking at the P and L per unit when it comes to where do you engage, how do you engage. And if you just take the traditional portion, workshop hour lower, But one still have to remember that the combustion piece is one part of a rather complex machine, so to speak. So it's a lot about also braking, steering, transmissions and things like that, that will be needed. But the business definition is looking different, that's for sure. And that's the reason why the service journey also from that angle is so important.
Mats, Lise, Kepler Cheuvreux. Just a question there. I mean you have talked about a lot about these megatrends this afternoon. And I guess my question is more related to Synodys in relation to a smaller car producer. And is there any sort of do you recollect any synergies there that you or are there synergies in sort of integrating a car and truck producer?
Do you think there are opportunities in sort of such a corporation?
I mean, let's put it like this. There are areas with a coal producer or there are areas with a construction. I mean, I remember at one point in time, I showed 3 pieces of equipment, I mean, a stone crusher, truck and a car and said, I mean, like Brasse Blands and Moel was saying, 1 shall be moved away here. Who is it? And that was, in that case, the core from a business model perspective because, I mean, we are pure B2B in that perspective.
Then when you look through the technology pieces, obviously, there are a number of things. I mean, if you take the cooperation that we signal today, I mean the weeds and bread with NVIDIA, obviously, they have, to my knowledge, maybe announced to 1 core producers. Part of that will be utilized in that ecosystem, so to speak. But a lot of things are also vastly different when it comes to, I mean, only physical things like where do you need to have, for example, when it comes to tournaments development, your perception systems, how does that work together with the vehicle dynamics, orbit, etcetera. So yes, there are synergies.
I don't think they are decisive to keep things together. I think there are other ways of doing it. And the reason why we feel that the way that we are constituted now is working is that there are more similarities when it comes to the businesses that we are operating into now that are purely B2B driven and thereby also when it comes to durability requirements, life length requirements, wear and tear requirements, safety requirements are more similar, so to speak. But as I said already a little bit in the presentation, scale is something that you should work a lot with to define where do you have the necessity of scale, how do you go after that and how do you still keep the flexibility and the operational freedom, so to speak, in a smart way. I don't know if you would like to No.
I fully I think the decisive difference is basically business to business compared to business to consumer and how we can grow our activities in these different areas, different business model. I think we have much more similarities, commonalities in the group than what we will have with the car companies saying, now we need to come with a new car model that time of the year, fully electric. I'm a little bit difficult to see how that is. But on some base things, there are definitely
What we hope for is obviously that we continue to drive more on an industry platform basis, both I mean everything that is mobility, for example, the build out of the charging and infrastructure, the ITS system so we can apply this in broader scale, etcetera, because it's one part of what we do with our partners, but it's also a societal piece obviously. And there, I think the 2 industries, if I put like that, can support each other, and that is important. Yes. Yes.
Thank you. It's Harald Hendriks from Morgan Stanley. Just to go back to the emission standards, which with the car industry is really having a big problem with now for 2021. When we were talking to the car companies back in 2015, 2016, 2017, it was like, yes, we'll invest more money, but we can meet the standards. And suddenly 3 years later, we've got there and now they're having to spend a huge amount of money specifically on content really for the next 18 months to get to these targets.
How do you feel, how aggressive are these 25 and 30 targets that the European Union is setting for the truck manufacturers? How have you already got around to a roadmap to getting yourselves down there? Is it really electric mix or is it actual for the content and how does that change the cost of the combustion engine? And then with that, a big concern again in the automotive side is the profitability of the electric B2B that you may be able to price it better. But can you talk
about that a little
bit more, please? Yes. I think the B2B that you may be able to price it better. But can you
talk about that
a little bit
more, please? Yes. If we start with, I mean, the first regarding the 20 25 legislations and then you have a similar road map also in United States and Japan, etcetera. The answer on that is, yes, it will be a mix of different solutions, and that's the reason why we are pronouncing so much the modularity of it. When we look through, so to speak, our roadmaps, it is Lars was into it.
He had to leave then for the press conference here with NVIDIA. But it is a mix between, so to speak, working continuously with the well known technologies. It is not a walk in the park, if I put it like that. We have constructed a road map where we have, so to speak, a number of different opportunities, and that is incorporated, so to speak, in our R and D road map. Then it is also an opportunity and a positive opportunity, I think, also to drive the customer mix and have a good conversation on a more of a TCU based case because what Johan Schilster mentioned also from Kyolis was really that, I mean, if you take, for example, the public procurement process, primarily in Europe, it has been too much based on the upfront price rather than, so to speak, what is the life cycle impact of investments.
And our view is that, that conversation must be pursued for the urban applications to a completely different extent, waste collection, distribution. And we see that already happening through also that cities will pay so much penalties themselves for air quality. So they need really to do something. So I think the good news is really tough demands, but the good news is that it is in line with the journey that we have to do anyhow, so to speak. So I think that is the difference also to the it's a much more obvious opportunity to have that conversation with the customers, if I put it like that, than if you're a private user of a car.
Where are we now? Sorry. It's
Graham Phillips from Jefferies. I mean, two questions. If we just extend a little bit further on those two targets, can you tell us what your CO2 average fleet figure is today, so we can think about this 25% and the 30% reduction. And when you talk about R and D costs going up, I guess you're talking in what euro terms, absolute terms, percentage of sales, Because clearly, there will be that will be a fixed cost that if there is a downturn, you're not going to be able to change that at all. I
mean on the R and D if I start with your last comment, Graham. And I mean, 1st and foremost, I think, yes, a big part of R and D you should consider, so to speak, as fixed because we need to invest both for a competitive position, but also to really cope with the upcoming challenges or the legalizations that we have. But having said that, there is still also a part where we actually can adjust when it comes to certain application and segments if we are really coming into a severe, so to speak, point in the cycle. So R and D from that perspective is still also possible to operate, and we are keeping also flexibility in terms of the mix between what we have as permanent staff and also flexible, so to speak, engineering resources. But still, I agree on that.
That is an important piece. Then again, what we are it will continue to increase. We think that it is important, not at least from a competitive position, to do so. We think that gradually when we look through our cost mix that investing in R and D is a good investment. It's important to do so.
I still think that we can manage that in a good way given the fact that we have been spending quite considerable amount of money during the last 10, 15 years of more the integration piece between the different brands business areas that has also taken a pretty big share of our R and D spending, so to speak. So you should still think about it as manageable in a very positive way, if I put it like that. So that is not something that is keeping us awake at night when it comes to reaching and exceeding our financial targets, if I take one example.
So do we have an idea of what your average CO2 fleet figure is today that has to fall by 15% and
Yes, we have that idea, yes. We'll get that from you hopefully later. No, no, but I think Lars said it pretty clear. Again, it is a tough endeavor. I mean, Europe and also North America, Japan and the other markets that are going for these type of legislations.
But I mean, when we look through our road map, the position we are standing on, the different options we have, we have a clear view on that.
Perhaps I could ask another question. So when you look at the business model going forward, some of the most successful companies are asset light. So clearly, the business model is changing. You're talking about more services, perhaps less spare parts coming with electric vehicles. But does the fixed investment with an electric vehicle become a lot less than can you buy in more components than having to make a big chunk of metal with a big ICE engine?
Does that change? Or do you still want to have a lot of that in house technology?
You like to start?
I think it's a little bit too early exactly to say what it is. I think obviously, I think in the beginning I mean, the depth of engagement, we will always the width of engagement is something that I think we gradually have to grow into. I mean, it's not obvious if you take one example that I mean, take battery cells as one example. Today, no plans to do that. And I would guess 5, 10 years from now, probably not want to do that.
When it comes to the packing of the batteries into the truck, there might be reasons for that we should invest into that because we need to have it closer to the production lines. There are logistic reasons there also when it comes to how many packs we should put into the modular system and so on. So I think that will probably move a little bit going forward, and I don't think we should give any exact answers to that. But in the beginning, you will probably buy more things than you will actually develop yourselves.
And I think one good opportunity that we have is that we are well spread geographically when it comes to our value chains. And what we feel is that we can continue to develop from, so to speak, the positions where we are sitting today. And depending then on the decision of the depth of engagement we will have for certain components of technologies will, for me, mainly be driven by the ability to actually take down, so to speak, the need of longer pipelines logistically and to be able to tailor made because, as you heard earlier today, fun enough, for example, electromobility will be even more tailor made to every application in order to have the right balance between packs or energy storages, etcetera. So from that reason, I think we have a good industrial footprint to utilize, do it smartly, maybe take some decisions to take out some things so we can be a little bit more asset light. But I don't foresee that we need to expand in new footprints, but maybe convert some of our current abilities in a smart way while continuing, as you said, to work in the ecosystem.
And it's, of course, dependent also where we see that where there is a competence or knowledge that we should have, that brings value. I mean it's not the assets per se, it's also what kind of returns these assets can give us as well. So I mean, being asset light yes, for being asset light, there might be some competencies and so on that we have that we have
And we have good returns. Yes, give
a good return actually. So Yes. Do you have a question, Christo?
Are you done now? Okay. There will be time also for conversations, obviously, during the dinner also. So we conclude by then and hope that you have had an interesting day and a little bit better informed about the future also in our industry. So thank you very much for coming.