The world is changing. Here and now, we are fighting a global pandemic, but the megatrends impacting humanity, like urbanization, new technologies and the strive for a sustainable climate, they will still shape our future, a future that we at the Volvo Group will be part of creating, living up to our mission, driving prosperity through transport solutions. And today, we would like to share with you how to achieve this. So welcome to the Volvo Group Capital Markets Day 2020. It will be a slightly different event reflecting performance, but the majority of the time will be spent on our transformation into new business models and new technologies.
But let's start by looking back. We have, during the last 5 years, set goals and we have made promises to the market and our employees look at this.
What we are now focusing on is really putting the next phase for the Group. Customer focus is something that we will hear a lot about today and what does that mean in reality. Simplicity, I was into that. We are pursuing a decentralization with full P and L responsibility. Continuous improvement, that's the main driver for customer satisfaction, but and as a consequence, also profitability improvements and organic growth.
And mainly then as we see it when it comes to the untapped potential on the service side, for example. Quality, quality, quality, quality, quality, quality, quality. Yeah, because customers, they leave and die with their brand.
Quality, quality, quality, quality, quality, quality. It feels like a century ago.
Yes, it does. In a way, it does, Kina. But maybe the first commenting that most welcome from all our side also and from my side to this Capital Market Day. Yes, in a way, it feels like a decade or 2 ago. But at the same time it feels like yesterday.
I think we have been leaving those prioritized areas for quite some years now and we have seen good achievements. So yes, it's interesting to see this film.
We stated a number of key objectives. But going back, what was it that we really promised?
First, I think we promised to deliver on our promises. And that has been one of the most important factors, obviously, that we are actually achieving results step by step because we have a great organization and a great team. But if we are to highlight a number of areas where we have really stepped up and made very good progress, it's the customer focus side, how we are living the customer in the organization, of course, in our commercial organization, but also throughout the value chain. I mean sourcing, production, technology and everyone is focusing on how do we actually accelerate that experience for the customer. That is seen in the customer satisfaction and how we are building relations.
Continuous improvement, product quality. We had a good starting point, but we have had progress. That means that today we have the best product quality ever, also in the area of fuel efficiency. We see that in the area of volume flexibility in our production also, but also in our service system and across the organization that we are following the cycles in a very good way. And then organic growth, the service piece.
We have delivered on the promises to increase that share by both penetration of number of service contracts, but also what is even more important, the depth of engagement, how is those service contracts constituted both on financial services and on repair and maintenance. So a number of things achieved by our people and our team.
Yes, quite a few, in fact. If we sort of go beyond the promises and we look at more on the big picture, what are your reflections, Martin?
I mean often we talk about outcomes and what we want to achieve in terms of financial figures and in terms of productivity or customer satisfaction. But at the end of the day, this is all about people and culture. And I mean, we have always had a very strong Volvo Group culture, obviously, but we have really stepped up when it comes to the performance part of our culture. And I'm convinced, and when I listen to our colleagues that the centralized organization taking the owner responsibility, a profit and loss responsibility, accountability, but also empowerment, being really close to the customer's simplicity and speed, not waiting for the decisions. And obviously also that we are utilizing the regional value chains in a very good way.
So people and culture is true achievement for all of us.
And Jan, you and I, we have been part of this group for many years, and I totally agree to what you're saying. It is a different and more forward leaning culture today. What are your reflections?
No, I think Bartner has said a lot of the things that have made this improvement. But I think a little bit to summarize it, I think what Martin talked about first is really, I think, excelling on the basics. We talked about that very much. How is it really to go from the customer in terms of sales, service, all the way through production, purchasing into R and D. If we excel on each of these parts, we will we said, we will become world class.
And it's not only that each part should work well together. It's also that the whole shape, the way we work cross functionally is important. I think that is a great difference compared to a couple of years ago. The other thing is obviously ways of working, how we have created another organization, how we have worked with decentralization, ownership in the organization, values and so on, this performance culture. I think these are the 2 things that I think is a really big difference compared to 5 years ago.
Jan, give us your view.
No. Coming back to what Jan said around the Excel on the basics and the consistency of doing that, to have the focus to go to job every day and actually do what you have to do in a good way and improve all the time. I call that to be disgustingly disciplined on the focus and the execution, which I think is very impressive by the Volvo organization.
And in a way, I mean, to summarize that, I mean, the unfortunate and very sad and difficult situation we are into now in the midst of this global pandemic, it's also in a way the ultimate test of how your organization is working. And if you start by looking at the performance in quarter 3, where all our business areas actually produced black numbers during a very, very difficult situation is for me a proof point of that this decentralized and performance culture is working well. But most important, how our leaders and colleagues have been stepping forward and really making the right priorities in very difficult times. I mean, 1st and foremost, health and safety for colleagues, business partners, customers secondly, the focus same time executing on costs and cash protection in order to really preserve the maneuverability. That is really the proof point of a well functioning and high performing company.
I'm so proud of what all our colleagues have been doing here.
I think we all share that. Jan, increasing our profitability, I mean, that was, of course, one of our key objectives. Can you describe how our profitability journey has developed over time?
Well, of course, Kiena, and you know it, I mean, the financials is only a consequence of what we are doing and how we are doing it, and we have been talking about that. But of course, the journey, the stepwise improvement we have been doing now profitability wise and also on the operational side is very impressive and we have moved up our profitability level. And that is very important when we come into more of tough times. We are in a business that is very volume dependent. The underlying demand is critical for the financial performance.
To have that level coming into tougher times is crucial, but to have a strong, well performing and rather substantial service operation that is decisive for the resilience and for the financial maneuverability. And I think, as we have said, that we have been proving that the last quarters, both asset related earnings and cash flow. And as we can see here, I mean, we were back from a net cash position where we ended the year here in September after 3 quarters of COVID 19 crisis management. But if we take a little longer perspective and take the SEK 48,000,000 last month, including then 2020, we have been generating SEK 100,000,000,000 of cash flow in industrial operation. We have dividended out SEK 35,000,000,000 to shareholders, and we have also then increased our cash with SEK 65,000,000,000 during that time period.
Extremely proud figures, and we should all be proud as a Volvo organization of that achievement because it's also very important for future because that is the foundation that we will be able to deliver on our financial targets. And we are, as it is right now, acting from a position of strength.
Yes. And it could be worth commenting on that note also that we have had a view that we should have, of course, a balance between good returns to our shareholders, while at the same time investing for the future. And in the beginning of the year, as we remember, the Board had also a proposal when it comes to the dividends for 2020 related to 2019. And that was obviously both the underlying growth in the ordinary dividend, but also an extra dividend on top of that. Then the pandemic came and it was, I mean, 0 visibility during the Q2, where are we heading.
And the board took a very responsible stance saying we are postponing now the returns to preserve the maneuverability in the company, and that was also accepted by the AGM. But with this generation of SEK 100,000,000,000 and then a dividend level of SEK 35,000,000,000, of course, I mean, now the board starts to work for next year and coming up with a proposal in the beginning of next year for the AGM. So that I think is important. We had a proposal on the table, responsible decision here during a high crisis to preserve strong financial position that has served us really, really well here.
I think that is a message that many of our viewers are truly appreciating to hear. I know that you have another beautiful slide up your sleeve, Jan.
I have. Well, when you are actually looking at this and comparing with your peers, be that on the heavy vehicle side or on the construction equipment side, You can really see the journey we have been the impressive journey we have been doing in both heavy vehicles and in construction equipment. And it's not often that you can actually see this happening in so short time frame in this industry. And of course, recognized by many, among others, the credit institutes and the rating institutes, we have been upgraded in just a few years from BBB flat and on the S and P scale up to single A minus. And we can also see that we have been sort of moving up one division as relate to profitability, both in heavy vehicles and commercial equipment.
And we are now fighting for the first position. And if we take a look on construction equipment, we already are there, and we are then to defend our pool position as regard profitability.
So we've talked about the what, Jan. Let's develop on the how. How did we do this?
I think everything starts by measuring what we do. And I think that was something that we did more and more, how is profitability on certain segments, certain variants, products, markets. So we are aware on where we make money, where we don't make money. And with that knowledge, I think everybody recognize that if there is something that is loss making, what shall we do about it? So it's just starts with measuring.
And then obviously, we have, I think now, one of my favorite slides. I think it was introduced already in the Capital Markets Day in London. And I can tell you, it is a slide about methodology and it's not about what is on the red dots, the green dots and the yellow dots. But I think it is really about that. And I think we've been working consistently with this methodology in the organization.
We can see a few examples on this. We have actually left some product areas, if you take backhaul loaders for Volvo CE and the medium duty trucks in Japan. Furthermore, we have also since I think we have been clearer on the truck side, Volvo Global brand and the other brands being more regional ones. We have also left some unprofitable markets mainly for these regional brands. We have also looked into what is maybe not totally core in Volvo and divested them.
I think the 2 best examples of that is probably wireless car, which is a new home And what I hear is developing very well, which is obviously the best thing that can happen, but also the outsourcing of our infrastructure IT operations to HCL. But it's not only about pruning the portfolio and doing that. It's also about what can we invest in. And I think we have a few examples of that as well. Quite recently, we have the fuel cell joint venture with Daimler, an interesting thing that we are moving into right now.
And furthermore, we also have our JVs in Asia that we are also putting more emphasis on.
And not the least also, I suppose, on that is a strategic alliance of a big importance. Absolutely. So when it comes
to the more kind of business development areas, Isuzu is definitely 1. We also have the Volvo autonomous solutions that you will hear more about before. So yes, it is pruning portfolio, but also what we put more emphasis on.
Martin?
No, I mean just to add a little bit what Jan talked about here. Of course, this is also an important part of the performance culture. You have the operational part that we have discussed with continuous improvement, customer focus, organic growth, excelling at the basics, building up. But also to have good order in your portfolio is part of that. And it is to measure, it is transparency and it is about expectations because it's more fun to have that feeling that you own your business and you have the maneuverability to move forward.
And what that has brought us to, and I remember that also as you say, Jan, that it was a lot of discussion what are the red and the yellow and the green dots, etcetera. But the yellow dots, I think, is a good example. They could either be long lasting, a little bit average performing units with no growth. Okay, what should we do about it? Or it could be new units that are just at the start of their journey.
The important thing is that there we have clarity, high frequency follow-up and see that it's developing according to plan. That is bringing performance into the culture. And that portfolio has brought us also to a level now where we actually have a balanced portfolio. We talked about quarter 3, everyone is performing. Everyone can do better, obviously, but performing good.
We have the global scale where it matters. But we don't have scale where it don't matter because that is only bringing complexity. And that is the same with the market presence. So it has served us well in addition to the operational performance.
And we can reveal that it is exactly the same slide that we showed in London some years ago. So there's no need to sit down and try
to But
things have happened a
here. Jan, a final slide that we would like to show our audience is the one on our financial ambitions. Do we dare to say that we have ticked the boxes now?
I think we can dare say that we have ticked some of these boxes, yes. I think the starting point here was obvious that we were not satisfied with our financial performance in the company. It was actually not where it should be for such a world class company that Volvo is actually. So we had too low profitability compared to peers and so on. And I would say as disturbing was obviously that we had too high volatility in our earnings as well, especially when markets were down, we fell much deeper than what competition did.
And then also, obviously, maybe a little bit stricter allocation of our capital as well. So I think when we look upon it right now, with the things that Martin mentioned before, continuous improvement, how we can excel on the basics. I think that has and with also organic growth, that has lifted our profitability, as you showed before, Jan. I think also now we are into a pretty difficult year, obviously, with a pretty severe downturn, especially in the Q2, but also in the Q3, much lower revenues. And I think we are about to show now also that we have much less volatility in our earnings compared to before.
And I think we talked about the capital allocation before. So I think I dare to say that we are there to tick these three boxes. But at the same time, that doesn't mean that we stand still. There is still room for improvement. I think this when we talk about continuous improvement, you never stand still.
There are always things that you can improve. So even if we are proud about what we achieved, we will continue on that journey as well. But then after I think it was 1 or 2 years, we added on the 4th circle as well. We probably should have had from the beginning. But Martin, a few words on that.
No, but I think the 4th circle, maybe we added that also because we really wanted to emphasize on the excel of the basics and do things because everything about the future is based on credibility and what you do here and now. One of my old mentors always said that about your career, he said, I mean, Martin or whoever, you're not better than your old than your last job. And that is the same for us here. I think this is showing a good balance of what you as investors should expect from us. What you should think about when you think about Volvo here and now, but also moving forward, This is about performance from a position of strength, while at the same time transforming our industry moving forward.
So we are proud, but we are not satisfied. We will continue. Those are our promises from tomorrow as well.
I think that was a very good conclusion, proud but not satisfied. Thank you all. Jan, we will see you a little later on. But now it's time to dive straight into our transformation, the transformation of our industry and of the Volvo Group, shaping the future of transportation. Take a look at this.
The world is changing. In 2030, we will be 8,000,000,000 people. 5,000,000,000 of us living in cities, digital and connected. Producing around 80% of the world's GDP. Driving the need for transportation.
There will be infrastructure demands, water, schools, hospitals, airports, an $8,000,000,000 investment needed by 2,040. Not to mention more than $900,000,000,000 in roads annually. And infrastructure is in our DNA. E commerce has become the largest retail channel in the world. Increasing the demand for uptime, high quality and reliability, a promise of same day delivery.
It's a huge opportunity for growth. Soon 80,000,000,000 devices will be connected via the internet revolutionizing transportation and logistics. At the Volvo Group, we are shaping the future of transportation with solutions that are safer, cleaner and more productive than today's. That way we can meet the growing need for transport while staying within the boundaries of what our planet can sustain. Driving prosperity through transport and infrastructure solutions.
8,000,000,000 people, 80,000,000,000 connected devices. I mean, it's hard to grasp these numbers.
It's mind blowing obviously, but it's also important for all of us to take a step back and think what will that mean for our industry but also society at large. And what it will mean for our industry is obvious. I mean that will mean a lot of possibilities. And that's the reason why we are calling also the next decade for the golden era of logistics for many different reasons. And let me show you some of those reasons.
Some of them you're, of course, aware of, those megatrends that are driving the need of transportations. We always say that transports are related to the development of GDP globally. And one very important trend is obviously the growing global population, not at least when it comes to emerging countries. That is driving the middle class in those countries to have a better development, and that is great obviously. We also see that the rapid urbanization in all parts of the world, but primarily also in emerging countries with higher GDP growth is also very decisive factor.
And then obviously you have the new trends coming into play here. Digitalization, we see that when it comes to the new technologies, the new societal demands of transparency and in particular, the emerging and very fast growing e commerce. And that is effectively one of the trends that we see are breaking the curve of transportation, so it's not only related to the GDP development. But we also know that this increased need of transport in ton kilometers or in passenger kilometers must be done in a considerably more sustainable way. And that's the reason why the decarbonization, the sustainability story and the journey forward is so important.
And all these trends and some more obviously, we have a number of other trends coming into play here, have been the backdrop of our discussion, how do we update, how do we reinforce our strategic framework. So Jan, what has been the starting point for us in that work?
I think the starting point for us is really that our strategy has served us well. And in the core of this, that tells everything about the future about the culture in Volvo is the pyramid. And the pyramid actually is nothing new either. It's something that we launched already in 2016. And as I said, it tells everything about our culture.
We talk about prosperity. And I think prosperity is a pretty wide word, but it is also forming the base for our sustainability work. And we will come back to that quite frequently in this event. Furthermore, to be a world leader in transport and infrastructure solutions, it's absolutely of the utmost important to us. When we talk about our stakeholders, and here obviously we have different stakeholders, it is about our customers, employees and obviously our shareholders.
We make promises there as well to all of these stakeholders. We come further down in the base further down is not negative, it's actually the base of the whole thing, the platform, the platform. Then we come to our values and also how we behave as an organization, our code of conduct. So the values, I think that leads us into the leadership and we want to have in this group as well. And Martin?
Absolutely.
And I think that is a very important backdrop when we are talking about leadership because we need to have also clear direction together. And when we have been talking about the performance culture in this group, it has been serving us well so far, but it will also continue to serve us well moving forward because that will mean further quicker interaction with our customers, with our sourcing partners, with the ecosystem. And thereby, we need to continue to pursue the main things here: Decentralization in terms of profit and loss responsibility, as we've been discussing, empowerment. The regional value chains is a key strength of the Volvo Group that we actually are pulling from the business areas where we have strength from a global scale. It could be technology, logistics, it could be volumes in different components.
But still, we are letting also the business areas act freely on what is bringing them success. And that is given then simplicity and speed and continuous improvement. So it is all about people, culture and leadership, and we have a strong base fitted for the
future. Absolutely. I think in hindsight, it's always easy to explain what has happened in a company. I think it's important to reflect a little bit on it where we come from. So if we start here and go back 2 decades, to the beginning of this century.
We were in a situation where we were acquiring quite a lot of companies, and that has created a fantastic base for this group actually with the possibilities to have economies of scale, you can say geographic reach and a lot of interesting products and also customer base as well. Having done that, obviously, when you acquire a lot of companies, you get into complexity. You work a lot with integration, how can you combine platforms and that kind of work. And that obviously meant that we were struggling a little bit here exactly with the profitability. As we said before, we were not on the level that we wanted to be.
It was absolutely necessary to create the right cost base and a foundation for going forward. Since you can say around 2016, we continued the journey with improved performance based on organic growth, but also working with what we've said before, become more efficient along the value chain and created a solid platform for further steps to take. And that is also we started to talk about it already 1 year ago, Martin, it was really about perform and transform. And I think where we are today,
I love the brand out there. The whole system is
started talking about it 1 year ago, it's really about now to step up and accelerate on the transform side, but we have the platform to do that. Then when it comes to you all have seen our 7 strategic priorities, they have also served us well during the years. But where we are right now in the phase, we said it's important for us to sit down and reflect, is it necessary to do some changes or emphasize a few things? And we have actually a little bit changed and revised our strategic priorities. But I would say as important, if not more important, is to keep the foundation, continue to drive what has taken us here.
This one, you will have the possibility to read it later on, but you will see a few things here that is absolutely the same, maybe worded a little bit different. But we have obviously the service business. Yes, Martin, you like that one.
I like that a lot. So those are the customers. Absolutely. The service business
is something that we will continue to drive going forward. Obviously, the product and service portfolio need to continue to be world class. Car system, extremely important. We have on number 4, we have Asia as an important area. I can say immediately that you will spot that we have also the United States there where we see that we can improve our presence.
We are not 100% satisfied with where we are there. When it comes to what we talked about before, continuous improvement and what is extremely important is also the Volvo production system, something that has really helped us in driving the performance as well. So yes, that was just to pick a few ones that kind of shows the consistency that we are on. And Martin, what do you see as
No, no. But as you say, Jan, what I think is very important in this journey is that we have a foundation that is consistent, but still also developing those. We talked about, for example, the product and service portfolio here. And there we are talking about the same type of wording that we did before, the right product quality that we have to leverage the new and well known technologies through our modular system. But we have added a number of very important elements that will play a key role for us in our ability to transform this industry that are partnerships, digital innovation and accelerating electromobility.
Another thing that is super important that you can take a look on the balance here with the 7 strategic priorities is, of course, also the first priority here being an end to end integrator. And we will talk more about that during the Capital Markets Day. How do we integrate more into the customer's business in order to make the step change into electromobility or into autonomous solutions. And obviously, scaling up new businesses, Melk Jernberg and Nilsager will talk about that when it comes to autonomous solution as one example. So we really wanted to have the 7 strategic priorities in the deck for you so you can see the balance, where are we putting focus, where are we moving ahead here.
Because it is about having a strategic framework based on the megatrends, it is about having also a consistent journey moving forward based on what we have achieved, but also the new reinforced areas. And then obviously talking about what do we really want to achieve, driving prosperity through transport solutions. And the only long term ambitions you can have here when you're talking about prosperity is to have solutions that are 100% safe, 100% fossil free and 100% more productive. And the reason is very clear. 1st and foremost, when it comes to safety, up to even 2020, more than 1,300,000 100% fossil free, that is our promise to lead and to deliver on Paris and beyond.
And finally, 100% more productive. That is the golden equation between planet, people, profit and prosperity. Because in order to get that, we know that transportation and infrastructure is driving prosperity, but it must be done in a considerably more sustainable way. So that is really our promise. And by doing that, Kina, we have not only been formulating the way forward, but also very important to talk about what we have achieved.
And you are not only one of my favorite communications officer and also leading communication and public relations in the group, but also actually leading and coordinating the sustainability agenda in the executive board and in the group. So can you take us through where we are and also what we have done so far?
Thank you so much, Martin, for a very nice introduction. Sustainability is not new to us. This has been an ongoing journey for many years. Environmental Care has been part of our core values since the 70s. We have a firm commitment to the goals of the Paris Agreement and the strive for a fossil free future.
I would like to start by showing you two examples on how we are executing on our current CO2 reduction ambitions. And what you see on the screen right now is part of the outcome of our WWF partnership. On the left hand side, we have since 2013 been able to reduce the amount of CO2 per shipped volume in our own transport system by 18% and by 35% in our manufacturing operations. And these are high and impressive numbers that we are truly proud about.
Yes, I'm very impressed about that and also about the engagement of all our people, how we are working with it in an integrated way because it's good for the company, it's good for the climate and for society at large. But I think you're a little bit modest here because, I mean, a lot of journey started before. And here we see a picture of a beautiful footprint that we have in Ghent. Can you lead us through that journey?
Yes. As a coincidence, we happen to have this wonderful picture. And this is, as Martin said, the Ghent factory. It was the 1st factory in the world to be CO2 neutral, and that was already back in 2,007. But we are not stopping here.
With our vision and with the Paris Agreement as our guiding stars, we have sustainability deeply rooted into our strategic foundation. And as some of you might have seen, this morning, we announced that we are now committing to the science based target initiative, and that is taking a step towards becoming a net zero emission company by 2,050 at the very latest. We have had a second piece of news out this morning, and that is the fact that we're also now launching a green finance framework.
And what is very positive to see there is that we are directly qualifying as deep green in the rating here. And that is, of course, related to the fact that our type of operation, both our own operation, have a lot of great opportunities for green financing, but also the SCOOP 3, how we are interacting with our customers when it comes to the many of you. So stay tuned on that one.
It's a great opportunity. And finally, I would like to mention TCFD and also the sort of enforced implementation of the sustainability reporting framework. And why is that important? Well, it is important with transparency regarding our strategy, our goals and also the fulfillment of our objectives. It is about walking the talk.
Absolutely, it is about walking the talk. And therefore, also we have put up a clear direction moving forward now for the coming decade here. 1st and foremost, building on what Kina said, we had already between 2013 2019 then reduced our footprint by 18% on our own logistics. But we would like to take a step forward here. We are one of the biggest transport buyers also ourselves in Europe and actually in the world.
And therefore, we have said that by 2025, we will lead by example with having the most sustainable transport and in close connection with customers and partners. We are talking about 50% of our revenues should come from services and solutions. And the reason why that has such a strong link with our sustainability journey is that our solutions will be more of a solution based over the life cycle, that we have a strong partnership in order to execute on electrification and autonomous. And that will bring us to fossil free transportation, but it will also bring us to more resilience. More than 35% of our global shipments by 2,030 should be electric, both fuel cell and battery electric.
We know that, that is a bold statement, in particular if you as you understand also, that will mean considerably higher numbers when we are talking about progressive regions like Northern Europe or Europe as a total, but also main markets like China and North America. And finally, implementation of 100 solutions by 2025. And what do we mean about transport and infrastructure solutions then? Yes, that we will hear more about during the day here, but that is really when we are talking about transport or infrastructure as a service over the complete life cycle. Exciting times ahead here.
So with this as a backdrop, we are coming back to where we started with our ambitions. The long term vision can only be 1, and that is 100% safe, 100% fossil free and 100% more productive to be the leader. So let's get started now talking about the journey towards fossil free and look at the road map ahead here. Here you see the road map of how we look upon the world when it comes to what we call the tail pipe emissions, what is emitted from the different vehicles or equipment. And if we start here by 2,050, what we say is that in order to achieve and to lead Paris, we need to have a running fleet or a rolling population that is 100% fossil free at the latest globally by 2,050.
But that means also in reality for us that we need to ship 100% of our products and services as fossil free already from 2,040. And why is it so? Yes, because our products are running in different type of production systems and they are lasting for at least 10 years. So that is the logic behind that. And then of course, as you see, it will be a gradual shift into electric here.
And when we are talking about electric, that is, of course, both battery and fuel cell electric. And then, of course also on the combustion engine side, even if that will decrease. Also here we see how we are moving into fossil free when it comes to renewable fuels of biogas or even hydrogen. Often I get the question, what would happen if you do it and that is not happening on the grid or in the energy generation or in the infrastructure. Yes, we are lot working with all these partners, but we will not use that as an excuse.
We will deliver our part and we are confirmed by doing so that others will do the same. So this is really the roadmap that we believe in. Next step is to start the rolling out. And I can share with you some very exciting news here. Here you see what we call the fast paced introduction of the truck and bus side, a massive rollout that has started.
Here, for example, you see on the city buses side, hybrid experience 10 plus years ago, building into battery electric. We are in serious production when it comes to the medium duty, and that is serving important segments like distribution and waste and recycling. Now in the coming years and also urban construction, we did see, for example, the Norwegian Prime Minister inaugurating 1 of the urban construction vehicles the other week here. And now in the coming year years, we are continuing to roll out that for all relevant segments step by step: container haulage, heavy construction, regional haul and then eventually also the really heavy duty long haul that will be a combination of battery and fuel cell electric vehicles. And on the bottom, we are also reinforcing our capabilities and our offerings when it comes to energy services.
So again, clear targets, clear roadmaps and a clear rollout plan, Kina.
And I think also worth mentioning is the fact that you will need to have deep customer knowledge within each and every segment. That will be a deciding factor when it comes to who we win.
It will be.
I think, Martin, it's time for a bit of a deep dive into some of our segments. And I will now leave you and Jan because I believe that we have a colleague of ours coming in. Follow me. Now that is what I call making an entrance. And what a beautiful truck you have there, Roger.
Isn't it, Kiena?
It's fantastic. What is it you're driving?
This is an electric heavy duty Volvo truck. And this is actually the world's first, in our opinion, the heavy duty electrified construction truck
in the world.
And this truck is used by the construction company, Swiroc. They have 2 electric trucks from us in real operation today, And the feedback from Swearock is very positive.
Yes, our customer, I mean, they must love it.
Absolutely, absolutely. And there are so many benefits. It's improving their productivity and their flexibility. And the drivers, they are really appreciating the reduced noise and less vibration, and that is improving their working environment and their quality of life. And then the trucks is coming with 0 exhaust emission.
And both you and I can drive it, which says a lot about the technology. You might have seen that lately there has been a lot of news coming out of the Volvo Group on our electric offerings. And this morning, it was your turn, Volvo Trucks taking a very, very, very
Kiena. Gnei. And we have been selling medium duty electric trucks since 2019. Feedback that we are getting from customers is very positive. In North America, we already have the VNR electric into commercial operation, and the official sales start for the VNR electric will be on the 3rd December.
But the big news today is that from next year, we will start to sell the complete range of heavy duty electrified trucks, and we will start to do that in Europe. The production will start from serial production in 2022.
And I guess that will make you the market maker, Roger?
Definitely. And we are sure that we are leader in the terms of the electrification race. We see this as a big step changer with a lot of opportunities. And our ambition is to gain an even higher market share than we have today because we are so early out with our offer. We are driving the transformation, and we are actually building a new market, not replacing an old man.
Just look at our global picture of our elected lineup of new products. It's super fantastic.
I only have one little, little problem with the truck, and that is the fact that this happens to be non parking zone. Would you mind reparking? And then you can join me inside because now it's getting really, really windy. And in the meantime, I will let you watch another movie. And this is also Roger Driving, but this time, it's a new truck that you will get very, very soon.
Might not have Roger's hairy arms, but Jessica, at least some goosebumps.
Yes, absolutely. It's fantastic.
Volvo Trucks Product Management, that is your role in the company. I mean we're standing in front of another fantastic truck. And I think one of the questions that our viewer might have is how do we go to market with these amazing equipment?
They are so nice. We will, of course, have the truck. But on top of that, we will also have charging and financing and services. But we also work with logistic advising and support with implementing the system. One of the other things that is really good with this truck is that it's built on the same type of chassis as we have for the diesel trucks.
This means that we can build a very wide type of configuration to fit into the customer's operation. But we also think it's important to work with other actors to create an ecosystem for this truck to really operate in.
And what kind of ecosystems are needed?
I mean we look at the full chain to make sure that we really can decarbonize the complete system. So this means, for instance, that we work with infrastructure but also on green energy. On top of this, we also work in a different way with our customers where we have a very close collaboration. And we have a specialized team of experts, and they work very closely together with transport buyers and transport operators to really analyze their operation, to find what flows can be electrified today, but also tomorrow based on how the technology will evolve. So with this type of approach, we really build a specialized journey towards a decarbonized transport.
And Roger, he talked about happy customers, loving the products. What is your view? What do they say when they talk to you?
I mean it's quite easy to come and talk about these trucks because everyone is really longing for these type of solutions. I would like to talk a little bit about a special project that we have in California. It's the lights project, because it really encompasses all the things that I've been talking about. There we started with analyzing the operation. We identified where we should start the electrification journey.
We proposed a solution. We gathered partners to form the ecosystem, and we are right now implementing the system. This is very similar to what we will do together with Oka, the leading grocery retailer in Sweden that we have just formed a partnership with. And what we also know is that once we have formed this basic ecosystem, then we can scale and really build profitable business.
Sounds really good. Roger is coming in. Did we avoid a parking ticket, Roger?
I did. It's many nice people here.
That's good to know. Your final words, please?
We see this as a big step changer with a lot of opportunities. And our ambition is clear, we want to gain an even higher market share than we have today. We know the customers, we have the relations with the customers, and we are building the trust with our customers. And we are sure that we are leading the race in terms of electrification.
Thank you so much, Ronje. Thank you so much, Jessica. This sounds very comforting. Now we are going to move on to a segment which is really exciting to electrify, and that is Waste Management. Imagine New York City, one of the toughest operating environments in the world.
And New York, they have very high ambition when it comes to become leader in a carbon free society, and they are turning to Mack Trucks to solve it.
Mayor de Blasio has asked us to be as carbon neutral as possible. We should be 80% carbon free by 2,035. And the only way to get there is with electrification. So the Department of Sanitation is very, very proud to be the recipient of the first fully electric Mack truck, and the city of New York is very excited about it. The electrification of our refuse fleet provides us with not just 0 tailpipe emissions, but also a noise free truck, which means we could use it on any shift and not worry about disturbing the public in any way.
I would hope that other cities can learn from what we do based on the expectations of New York City because, you know what, we're at the leading edge of everything and other cities eventually are going to follow suit.
You just got to love Rocky, don't you? Now let's bring in Marty Weisberg. He's joining us from the MAK Campus in the U. S. Marty, please tell us about the potential in this segment.
Thank you, Kiena. The transformation of the Volvo Group and Mack Trucks is in partnership with our customers. We have the winning formula, the Volvo Group Global Technology Platforms, plus Mack Truck Industry Expertise, for example, in waste and recycling, plus large leading customers who are also transforming. This equals the winning formula, meeting the needs of our customers' customers. The Mack LR Electric, which you see behind me and in the picture, is Mack Truck's first entry into the electrical vehicle marketplace.
And it's how we are transforming an industry where, as you will hear, we are already a leader. We manufacture the components and the complete truck in our existing facilities in the U. S, leveraging our existing industrial assets. Department of Sanitation, who from whom you just heard, is one of the world's largest municipal sanitation operations. They have in New York over 6,000 pieces of equipment, 2,000 of which are heavy duty collection vehicles, and the vast majority of those are Mack trucks.
New York City is an example of a very loyal and large Mack customer for decades. As we see in the next slide, waste and recycling is just one of the many industries and examples where the Volvo Group both performs and transforms. The Volvo Group has products and services that cover every work step in the waste and recycling industry. Some of these work steps are shown in this picture, for example, collection or landfill work. Mack Trucks and the Volvo Group were experts in this business.
We know the business and the needs of our customers. And with construction equipment, trucks, financial services, we have this industry very well covered and supported. We cross sell very effectively in this segment. Waste and Recycling is, of course, a large and growing business globally. The North American market is also large, growing and dynamic.
Annual industry volumes in just North America are approximately 8,000 heavy duty trucks a year, over 1,000 medium duty trucks each year put into service, and close to 3,000 pieces of construction equipment each year just into the waste and recycling industry. And Mack Trucks has been a leader in this segment for generations. We have close to 40% market share in this segment. We're very well known for the safety, productivity and reliability of our products and for the fact that we keep our fleet rolling so that our customers know that they have a reliable team of Mack trucks working. This industry is at the core of our core.
So you can say Mack has been highly performing in this industry for generations. And now from this very strong foundation, the transformation accelerates with the inclusion of electric vehicles into this business. And just as the Volvo Group is transforming, so are our customers. Sustainability is the primary focus of our customers. They are taking big actions and big investments in their transformation towards green and clean in waste and recycling.
Our customers in this segment, be it public or private entities, seek to lead on sustainability. Let's now hear from another large and important Mac customer on this very topic.
We've led the way in the industry on sustainability. We're recognized for that. Basically, being good stewards of the environment, that's gonna be an ongoing job for us. What can we do that's good for people, good for the planet, and still good for profits? And we believe all those things are possible.
They're not mutually exclusive. You know, a lot of our new employees really comment coming in the door how they feel good and responsible for this work of keeping things clean, for recycling and being good stewards of the earth. Our people have been working with Mac on getting all the data collected. How much weight do we need to carry? At what distance do we need to run?
How many hours? Look at what temperatures? So we're excited to see this thing in real life. I think Mac's taken a big leap forward here with the electric truck. We're super excited to be part of it.
Republic Services is Mack Truck's largest customer. And as you just heard, they are leading on sustainability. They do this in partnership with Mack Trucks, which is part then of the winning formula. As we see in this slide, it's really all about how we do this together. That is the winning formula.
Again, the Volvo Group Global Technology Platforms, Mack market leadership position in segments like waste and recycling, our customers driving their transformation of clean and green coming together to meet the demands of our customers' customers and we do this in a good way. Our electric vehicle commercialization process is well underway with many existing customers. And as you have heard today from 2 very important and large customers, it's about more than just the truck. It's the entire ecosystem that ensures profitable operations and good service to their customers as well. And the Volvo Group has this strong ecosystem in place.
Some of the elements of this ecosystem you see in this picture, it's more than just the truck, it's the complete business model, including as example, route planning and uptime. This ecosystem allows us to lead the transformation. The transformation is here and now. Real trucks in real applications running with real customers. We have the formula and we are winning.
People, planet, profits. Back to you, Keena.
Thank you so much, Marty. Always full speed ahead. Now to our 3rd segment, DeepDye, which is Building and Construction. And let me introduce Melker, Head of Volvo Construction Equipment and Nils, Volvo Autonomous Solutions. Starting with you, Melker, there are a lot of exciting things going on within your business area.
Yes, Kina. There are a lot of fun and exciting things going on within Volvo Construction Equipment. I think this is cool and also a very good example of upsides we see with electric machines. CO2 and emissions, of course, but here maybe even more important with the noise. And that will open up for many, many opportunities for us going forward, talking about agriculture, indoor, working in cities during night, etcetera.
Last year, we were the 1st to commit to an electric future for our compact machines and we stopped the diesel engine development for this range. I think this is a very smart way to start because compact is not our strongest area. I would say it's a yellow dot on Jan's favorite dot slide. And we should compare this with the total Volvo CE business where we have shown a consistent improvement both in sales and profitability even during this year. Since the announcement, we have seen a fast development of the product, extensive customer testing with a lot of good feedback, and we have also prepared our own production as well as the whole supply chain.
Within a couple of weeks, we will deliver the first machines to customers. Real deliveries, real customers, real customer order production, no prototypes. We started our electromobility journey in Europe, and we have now launched in 12 countries. And just a couple of weeks ago, we got our first order also in North America. Next is China.
And in the end of this month, we will unveil 2 electric excavators at the Bauma China event. We start with the smaller machines, first because that is where the demand will start and obviously it's also good for our business. But it's also more easy from a technology perspective. So I think this is a very good way into the electromobility world, both for us, our dealers and our customers. We are learning so much, and I think we have a strong and good plan moving into big machines, taking, of course, batteries and fuel cells, but also for us important hydraulics and recuperation into consideration.
I would like to add one thing, and that is adding connectivity into the equation gives a lot of opportunities. I think Volvo Group, we have a unique position here with our strong portfolio, our capabilities of cross selling and taking a bigger part of the ecosystem. I would like to show you one example now what can happen if in a smart way connect an excavator with a number of trucks. And this example comes from Westlanken here in Gothenburg. I think it's obvious what kind of value we create in the flow here.
Taking away waste, improve the productivity and reduce the environmental impact. Only in this project, the efficient loadout will take away 8,000 transport through Gothenburg City, 8,000 less transport through the city. So I think it's obvious that connectivity, it's a clear win win win, win for the customers, win for Volvo and also win for society. So Niels, I think we have a good and clear road map and journey for electromobility and connectivity. So do we find a good win also for automation here?
Yes. Melke, I concur. Autonomous solution based on electrification and based on connectivity, they do create new value for our customers. We increase the safety on the worksite. We have higher productivity, we have low to no emission and we drastically reduce the noise level.
I think what we should do, Melker, is we should have a look a closer look at our Tara solution where the vehicle which you see here forms part of a total transport system. What an exciting solution. And with the Tara solution, we are making a market and we are making that market today. We unlock value for our customers by providing flexibility and precision. This solution, which you've seen, can run 24 hours a day, 7 days a week.
And if demand goes down, production and production cost follow the demand curve. This flexibility turns into efficiency and that turns into customer success. Now another key objective for our customers is safety. And safety is also in the DNA of the Volvo Group. And with the Tara solution, we are in a position to demonstrate a very strong safety concept on the customer side.
We are able to take out the human being from dangerous applications, we are able to remove the customer from a hazardous environment. Now there's a third element which I want to talk about, and this relates to what Melker said at the beginning. It happens when you combine electrification and autonomous technology. If you put those two elements together, you unlock a further very important value for our customer, not only for the customer, for the society. I speak about sustainability.
Here, we make a true difference. We're in a very strong position to reduce significantly the CO2 footprint with the Tara solution on the customer side. We're closing at the moment a long year contract with 1 of our key accounts. And in that quarry, through the Toro solution, we are able to reduce the CO2 footprint by 85%, which is, of course, remarkable.
I think we have seen so many fantastic results with this so far, not at least on the CO2 side. I think it's fantastic. But we're also talking about new business models. So what kind of business models are we going to use in this?
Yes. I think, Melker, this is a very relevant question because this beautiful machine which you see here is actually not for sale. We're a solution provider and our product is transport as a service. So we are generating long term contracts with our customers where the machine, together with the autonomous driving system and a site control system, they form a total offer, which is then supported by Volvo Uptime Services, by site specific infrastructure and by a state of the art payment solution coming from Volvo Financial Services. And then, depending on the customer's choice, the customer can decide to operate the solution on their own or Volvo Autonomous Solutions comes into play and we operate on behalf of the customer.
Now in this constellation, we actually go deeper into the value chain for the Volvo Group and we are unlocking further value from the side. Now the approach you see here, transport as a service, is common for all the segments we target at Volvo Autonomous Solutions. And let's have a look at the next slide where I illustrate a little bit the markets or the segments we're focusing on. Now to begin with, the market availability of autonomous solutions is different segment by segment. This is driven by the complexity of the technology, but this is also driven by regulations, but also by society buy in.
Now we have chosen to start in the confined segment because here we can demonstrate a very strong safety concept and we can introduce customers, but also society itself to this new technology and we do this in a very pragmatic but in a safe way. In this segment, the first one here, core in aggregates, this is where we come with our taro solution. And again, we are making the market here, we are in this market and we have started to scale here. We have on hand a very sizable business pipeline as we speak with SEK1.5 billion. And of course, we know the addressable market is a multiple of that.
But also in this segment, the partnership between Melker and myself comes visible because Melker, you're actually the one who provides me with the machine.
First of all, I think it's absolutely the right segment to start in. I think the potential is big here from the beginning. I'm also happy to see all the cooperation that we have in the group to be able to supply these great to see. Coming back to what Martin mentioned earlier about the group's commitment that we have to our stakeholders about 100% safe, 100% fossil free and 100% more productive. I think Tara is a great example because Tara is not a product.
Tara is a great example of the platform and the system that helps us to achieve all of this.
Now I fully agree with your view here, but also with Martin's comments, absolutely. But I also think it's actually good to see the way we're working together here as one Volvo because that also helps us to perform on another level. But let's not forget focus here on that slide. I want also to talk about the other 2 segments. And the second segment I want to talk about, here we target the 1st mile.
This is about autonomous solution for ports and logistics centers. And also here we are active. We are implementing first pilot applications with our customers. This is the segment, well, also the third one, where we receive strong interest from customers all over the world ready to partner up with Volvo. The 3rd segment here, it's on highway trucking in the U.
S. It's also called hub to hub, high potential, large opportunity, bit further out from a timeline point of view and with certain dependencies, but strong focus from Volvo Autonomous Solutions also on that segment that we're able to leverage that segment when the time is there. But in summary, Melco's approach, my approach is the same and it is clear. We have a strong basis. We are in business today when it comes to utilizing new technologies.
We are creating new value for our customers, but also for the Volvo Group. Kina?
Thank you so much, guys. Crystal clear. I really enjoy your collaboration, I must say that. So we have looked at 3 segments, On Road, Waste Management and Building and Construction. One of the questions you might have is, okay, how and when will all this happen?
Stay tuned. So 3 segment deep dives. Maarten, your reflection.
1st and foremost, I mean, I have to admit, of course, that we have rehosted before. But every time I listen to my business leaders or our business leaders, I become really excited about how motivated we are to make this happen. But how will we make it happen? I think that is the most important key, Nain. And if you look at this slide that is demonstrating our way up to 1st and foremost to the more than 35% by 2,030 and beyond, this is, of course, a continuous journey when it comes to the total market that you see here on the black line.
But what is more important, obviously, is that the transformation and shift will happen segment by segment, market by market and region by region. And why is it so? Yes, because different segments and markets are better fitted to do the transformation. So you will see here, of course, this is illustrative slide, but you will see, for example, distribution coming in, waste and recycling that we heard, certain areas of construction. But another very important point here, Kina, is when it will happen, when it's a good fit in a market and in a segment, the shift will happen rather quick.
And that is how the black line gradually and eventually will build up here. So what we have heard here now is how our business areas are prepared. They have the rollout of different products. They are ready. They will sell solutions.
But one question is, of course, are our technology leaders and our industrial leaders ready to take on this challenge?
Let's bring in those guys, Martin. They are coming here. There we are. So what we have learned is that once it has started, it will in fact happen very fast. And one successful success factor that will be to have a robust transformation plan in place that builds on strong products and solutions and industrial backbone and of course, superb technology.
Now Lars, our CTO, would you mind shed some light on where we stand from a technology perspective when it comes to our transformation?
Absolutely. You've heard it today, our commitment to the Paris Agreement. You've heard it, our commitment to decarbonize transport 2,050. That means 2,050, we must have a rolling fleet that is completely fossil free, 2,050. Our products have a life length of approximately 10 years, and that means that everything that we are delivering after 2,040 will be part of that rolling fleet 2,050.
So for us, it means 100% fossil free from 2,040. This is a journey, and the starting point of that journey was, of course, combustion engines. Combustion engines running on fossil diesel with a touch of biofuel. So biofuels then, what about biofuels going towards 2,040, 2050? What role can biofuels play when decarbonizing transport?
Can we rely on biofuels? The answer must be no, unfortunately. There will be biofuels definitely, but we are convinced that the biofuels will be directed towards other industries, other sectors with greater need than ours. Talk about aviation, talking about maritime applications. So there will simply not be enough biofuel available to decarbonize road transport and construction equipment.
So the absolute majority of the vehicles around 2,040 will be electric. We are convinced that we talk about fuel cell electric vehicles and we talk about battery electric vehicles. We don't know exactly the mix, the share in between these two technologies, but we are convinced that both technologies will play a major and important role. There will be high volumes coming from both technologies. A very high share of electric vehicles here 2,040.
That means all of a sudden that the target that you heard Martin talking about earlier, 35% electric vehicles around 2,030, is all of a sudden turning into something completely different than just an ambitious target. It is to be honest where we need to be 2,030 on this journey. It is, of course, important to underline that all these electric vehicles, if they are truly to be fossil free and to decarbonize transport, they must run on green electricity and they need to run on hydrogen that is produced in a sustainable way. In this area, there is still a lot to do when it comes to investments in production and infrastructure, still more to do from a societal perspective, but we are convinced this will happen. With the majority of the vehicles 2,040 being electric, we anyhow foresee that there will be applications where we will need combustion engines for a long, long, long period of time.
And those combustion engines, they will, of course, run on biofuel, that small amount of biofuel that will be dedicated to our industry. We are talking about, for example, HVO, talking about biogas, and we are also talking about hydrogen. But in that context, hydrogen in combustion engines, an area that we are seriously looking into right now with a lot of potential. The combustion engine, as such, still has a lot of potential. And the combustion engine will be very important for us for a long period of time.
With 30 5% electric vehicles 2,030, well then, to be honest, simple mathematics tells us that 2 thirds of the vehicles by then will be driven by combustion engines. Combustion engine and those vehicles will remain a cash cow for the Volvo Group, enabling the necessary R and D investments and safeguarding a strong financial performance. We know from press tests, we know from customer testimonials that this machine, our turbo compound engine, is leading when it comes to fuel economy, meaning leading already today when it comes to CO2 emissions. On the way towards decarbonized transport, there will be legislative milestones when it comes to CO2 across the globe, in Europe 2025 and 2030, for example. We will continue to invest in combustion engines and into aftertreatment systems in order to meet those legislative milestones and to stay competitive.
There is a lot of potential still when it comes to raising efficiency out of these machines. But the big, really big transformational shift is definitely electrification. This is our modular electric driveline, electric motor, gearbox, prop shaft connected to an axle. We use this very driveline for trucks, for buses, for construction equipment and for pent applications. It is a very good example of our modular product thinking.
We call it common architecture shared technology, in short, cost. Same interfaces, same components for buses, trucks, construction equipment, This is how we create synergies in R and D, in production and in our service business. But the modular thinking doesn't stop there. For the lightest applications, we use 1 electrical motor for the somewhat heavier applications, 2 of the electrical motors and for the heaviest ones, we're going to use 3 of the identical electrical motors. That gives us the possibility to create volumes already now in the early phases of electrification.
Today, we use this driveline in our battery electric vehicles, but this driveline will also form the base for our fuel cell electric vehicles. In our industry, the possibility to offer a wide combination of variants is key in order to deliver tailor made solutions to our customers. This is important independently on what kind of driveline the customer wants. Take axles, applications that demands 2 axles or 3 axles, 4 axles or even 5 axles. Take cabs, for example, a car transporter, they just need a low roof so that they can get the car on top of the roof of that cab.
A construction vehicle needs a short day cab and the long haul vehicle needs a big spacious cab with a high roof. The list of available options in combination with each other is in principle unlimited. Now this well proven variety of options can easily be made available also with electrified drivelines. I dare to say that this broad, well proven product offering is one of our main advantages if you compare us with some of the new players that try to enter into our industry. The development of batteries is definitely key.
This is our cost battery. We use exactly this battery in buses, in trucks, in construction equipment. We use it in Europe. We use it in North America. Battery development is super fascinating.
We have just started production of vehicles with the 2nd generation of this battery. It is exactly the same pack, the same box, identical interfaces, identical dimensions, but inside. 2nd generation compared to 1st generation, plus 35% energy at the lower cost per kilowatt hour. And my engineers, they are now in final development stages for the 3rd generation, keeping the box, identical interfaces. 3rd generation compared to the second one, another plus 40% energy at even lower cost per kilowatt hour.
The pace in battery development is not slowing down. The performance raise is not slowing down. So in such a vibrant, fast moving area, you should team up with the best ones, and we are extremely happy with our partnership with Samsung in the area of batteries. Battery electric vehicles is one pathway towards electrification, 1. For long haul vehicles and for heavy on- and off road applications, we are firm believers of that fuel cells will build the technology to use.
That will be the solution. Since fuel cell technology is rather new, I would like to share with you an animation showing how it works.
Fuel cell electric vehicles, where the A fuel cell uses hydrogen and oxygen in the air to produce electricity and water. The fuel cell consists of a membrane coated with a catalyst. When the hydrogen molecules hit the catalyst, they are split into hydrogen ions and electrons. The membrane lets hydrogen ions pass through, but not the electrons, which instead flow through an electric circuit where the electric current is generated. At the cathode side, the hydrogen ions, electrons and the oxygen in the air combine to produce water.
In order to produce enough electricity to be able to propel a vehicle, a complete fuel cell system consists of several 100 of membranes stacked together. The fuel cell system is dimensioned for normal use, but whenever extra power is needed, it's provided by a battery on the vehicle. And when the fuel cells produce more power than the truck currently needs, the excess energy is used to the battery. The battery will also be charged by brake energy from the vehicle. A control unit balances the dynamics between fuel cells and battery to optimize the use of energy.
Through this process, we can provide the same operational range and load capacity as a vehicle with a diesel engine, but with 0 emissions.
I know that I'm somewhat biased, but that's cool for real. I'm really excited when it comes to our joint venture together with Daimler when it comes to fuel cells. The intention with this joint venture is to develop, produce and commercialize fuel cell systems for heavy duty applications. By doing this, we will share the cost for the development, and together, we will also create the necessary volumes in order to be able to produce fuel cells because production of fuel cells is definitely a game where scale matters in order to reach the right product cost level. It is right now somewhat of a hype around fuel cells and the hydrogen economy.
And it's very important for you to understand that our tough applications means that there is today no off the shelf ready fuel cell product. Our tough demands when it comes to continuous power, when it comes to life length is something completely different compared to Pascors. In this joint venture together with Daimler now, we're going to use the combined experience from Daimler and the Volvo Group in order to develop fuel cell systems meeting the tough requirements from our applications. But the joint venture is more than just combining experiences. I see the joint venture also as a statement to society.
Think about it, 2 of the biggest players now, both committing to fuel cells, committing to hydrogen. It's a signal. It's a direction, meaning that others now dare to step in and invest into production of hydrogen and infrastructure. This joint venture will operate on its own, having agility and speed. We plan to have commercial solutions on the roads somewhere between 2025 and 2030.
But watch out, we will be out there on the roads long before that with different kinds of trials and pilots. But the fuel cell systems that we develop in this joint venture will just be one part of a fuel cell vehicle. There is much more technology to be developed that will be developed in the Volvo Group, meaning that on a vehicle level, we will and we will stay fierce competitors with Daimler and the other guys. And I can assure you that the ambition towards my engineers is clear, we're going to be winners also when it comes to fuel cell electric vehicles. So electrification is happening here and now, today and onwards.
We are in serial production in Europe. We will be in serial production in U. S. Next year. And in the years to come, we have a massive rollout plan.
For me as CTO of the Volvo Group, it's extremely satisfying to see how much synergies we are creating across the group, across the different products when it comes to battery electric vehicles and when it comes to fuel cell electric vehicles. So Kina, you asked if we are prepared for this transformation. And well, I think the answer is a massive rollout of products in the years to come.
Yes. So the answer is yes, with capital letters and exclamation marks, a few. Lars, since I got to know you and that is quite a few years ago now, I've heard you say many times, now it's the time to be an engineer. But now I feel that it's really the time to be an engineer.
Yes. I think that you're right. I mean it's obvious for everyone that a lot of the solutions that we will need now will be technology and engineering driven. So yes, this is the era of engineering.
Thank you so much. Thank you, Lars. So as we said, to be able to win this game, we also need a strong industrial backbone and you need to be able to scale. Now I am joined by Jens Holtinger, a new face to some perhaps. You are the new Head of our Global Track Manufacturing Organization, and you will speak about the industrial system as a true asset.
But before I sort of kick you off, a common question that we normally get, Jens, is to what extent do we need to invest in new production facilities and new lines to meet this transformation?
To be honest, I think that is a bit of a misconception. And I'm an industrial guy, so I'll give you a straightforward answer. No,
no, not in new plants. Okay. Big and big over.
It's a
big no, exactly.
Okay. Kick it off.
Thank you. Let me talk a little bit how we will do this. And before I start explaining, I think I will talk what are the drivers for flexibility in the industrial system. You saw Martin's slide earlier where we talked about segment, starting out segment by segment. Next step will be an S curve by segment.
And on top of that, we will have the region by region and the geographical spread. So of course, that will demand extreme flexibility from an industrial system. So how to solve that? Of course, we need to leverage on what we have. So looking at this, you see a fishbone, it's classical.
We have worked with it for years. So that's not new as a concept. But what is new is that when we work together and we create this modular electrical product, We can utilize this by also creating a modular industrial setup. So you see these sub flows where we actually prepare our different electrical components, and then we simply mix an electrical truck next to electrical truck, and we will have them and what we call this system is mixed model assembly. And then you will actually create a seamless possibility to just ramp up and mix the different modules.
So this is a PowerPoint. This is a strategy, but it's happening right now as we speak. We already started this spring. This spring we started and we are doing this exactly what we're doing. So looking at Blenville, our factory in France, where we have already started to produce our medium trucks.
And you see here, we follow a truck going through the factory, and we are preparing them component by component, exchanging that for where we use a diesel component and actually putting in fulfilling and setting up our mixed model assembly. So we are doing it as we speak. I sometimes also get the question, how much do we need to invest? Is it expensive to transform this? And just to give you a little bit of idea on that.
If we have, let's say, we have a final assembly plant. It is capital level. Let's say we have 100 of index to what its value is. When we add, you say, some of these sub flows, we add some safety features. We are working with high voltage, very important.
We are talking about maybe adding 5% to 10% on investments. But that is the capital value. I think also important to talk about the human capital that we have. So going into our plant that we have here in Gothenburg, our pilot plant, where we are now preparing, we are as we speak again talking about preparing our heavy duty range. The FH and FM, we are preparing it for high volume and with step by step preparing it for mixed model assembly.
And here we see, we have our product development together with purchasing, together with our industrial engineering. They step by step, module by module, they're preparing this for a very good setup. But I think also going further into this with competence, it's not only about setting up mixed model assembly. I think in very many of our final assembly plants, I would say 95% of the competence that we have today, we will reuse going into the electrical era. The challenges are very much the same, so we will reuse the competence.
And I would like also to mention our powertrain system. We are today producing engines, gearboxes, but then take an example of shopping or hubde, big factors here in Sweden. What is their real competence? Yes, they're good at costing, they're good at heat treatment, machining, high precision automated assembly. True assets going forward when we go into the new era and we can look at other components.
So we have talked about the segment, taking off the S curve, now talk about geography. What we see here is a global map. Starting in Europe 2020, we are preparing very quickly. We will move out by 2022. We see that we are expanding even further.
And by 2025, we will and we have the capability to have a global reach and the possibility to produce electrical vehicles in a global footprint. So to conclude, we will reuse, we will not write off Antina. We will use the same platform and the same plants.
Jens, so what you're basically saying is that from an industrial perspective, your perspective, entering into electrification is it sounds as if it's not harder than a common product launch?
We have a solid organization. We have fantastic people. We will do that.
Very comforting. Thank you so much. It's time to move on again. So, dear viewers, we have been talking about applications, new technology, new business model, solution selling, all pieces in a puzzle. Now we would like to show you how these pieces fit together and creates that puzzle that will make us, the Volvo Group, our customers and the society as a whole winners in this transformation because it is when all elements come together that is when we create a true win for all.
Martin?
Thank you, Kina. And obviously, this journey will be about following this opportunity and not only following when it comes to the shift from a customer point of view, but be part of their journey and take the lead. And in order to take the lead, it's not about following the black line here. It is really to lead the acceleration that will happen segment by segment, market by market and region by region. And in order to do so, I will take you on a small journey of how we think this will work.
The next step is to really look into what we have been talking about application, excellence and different industry verticals. And if we look at that development, how it looks like, here you have an example of a number of industry verticals. We are talking about distribution. We are talking about mining, long haul and construction. And as you can see, we are not only talking about the application and the industry vertical, but we are also talking about different type of geographies and countries.
And why is that important? 1st and foremost, because when you talk about, for example, distribution, you have a certain cost pie consisting of the cost of drivers, the cost of fuel, for the vehicle depreciation, for financing, for insurance and for repair and maintenance. And then you have a different constitution when it comes to mining in Indonesia or when it comes to long haul in Europe. And why is it so? Yeah, 1st and foremost, because the application in itself drives a different behavior when it comes to uptime, when it comes to uses of mileage and other factors.
But also, of course, the different geographies gives also specifics like salary levels, energy prices, specific legislations and other specific factors. So here it is a game about really making the tailor made specification for every customer for their application. So if we take it one step further and talk a little bit about one segment that will really accelerate here and now, and that is grocery retail or food retail in Europe and in the Nordics. 1st and foremost, because those companies have a very powerful sustainability agenda themselves. They want really to show how they can drive this sustainability to the next level.
But they also have a very close interaction with us as consumers and customers. When we are coming to the retail shop, we are already today able to make a number of deliberate choices and we see how that is accelerating. We are picking the ecological milk. We are looking for packaging that is more sustainable, moving away from plastics. We are interacting with grocery retail companies about how to minimize the waste of food to do that in a smart way.
But there are even more to be done here. And therefore, when you look at this opportunity, here you see the typical cost chart of a retail company and in the Nordics in this case. Here you see the total cost of this company. And the small piece you see here, approximately 6% is the transport cost. Okay.
On this side, you see the total CO2 emitted from this company. And as you can see here, approximately 30% of the CO2 is emitted from transport. So it's a really interesting equation here. 6% of the cost, 30% of the CO2. So if you take that one step further, knowing that here and now with our solutions, talking about the total cost of operation for a battery electric distribution solution, it is today approximately 10% to 15% higher over the life cycle.
But what does that mean in reality? It means that 6% transport cost, 30% CO2. And if you take them the ability to go for 10% or 50% higher TCO, what you will get is a total cost increase of 6% in transport cost multiplied by the 15% cost increase, so 0.15% given 1%. So bottom line here, we are talking about a cost increase in total of 1% and reducing at the same time the CO2 with 100 percent for transport and for 30% for the global scope of this company. It is just a fantastic equation.
And to make it even more tangible, think about us as consumers then coming back to this situation and say, okay, I'm standing in front of this milk shelf and can make a decision. Should I go for a milk transported in the normal way, costing €1 per liter? Or should I go for a milk transported in a 100% fossil freeway paying €1.1 And I think it is a rather simple choice. And that is the logic why this shift will happen here and now, and it will go fast. So if we take this to the next step and expanding transport cost, what are the dynamics moving from diesel to electric?
Yes, we need to come back to the total cost of the food retailer. We see here the small piece of transport cost, 6%. And what we do now is to expand that. We expand that how the constitution looks for diesel, and we expand that how the constitution looks for battery electric to have a view on the dynamics that is happening here. And the dynamics is the following.
Diesel is constituting of 1 piece here that is similar regardless if it's diesel powered or a battery electric that is related to driver administration and others. But the right side is where the dynamics is coming in. Here you have today 4 distinctive parts. You have the vehicle depreciation, including the body build. You have repair and maintenance over the life cycle and you have finance and insurance and finally, energy cost.
And for the diesel power truck, it is diesel. Everything here is cost per kilometer and of course ballpark figure since everything is very specific for each customer. When you are then moving into battery electric, one very important thing is happening. You are pushing in a new piece here, and that is what Lars talked about, the battery system. That is the energy system containing then the batteries and the surrounding control systems and cooling, a rather big piece of the cost chart here.
But the very positive abatement obviously is that you're pushing down the need or the cost of energy per kilometer. And the reason for that decrease is twofolded. Number 1, that the efficiency out from an electric motor is considerably higher, well above 90%, whereas for a combustion engine, even the best one that Lars is doing is around 50%. And number 2, because you have also a positive arbitrage when it comes to the energy prices as such between electricity and diesel and in this case in the Nordic countries. But that will happen more and more when we are moving into massive renewable investments across the globe.
So this is really the dynamics that is happening. If we then take it to the next level and talk, why could that be a competitive solution and how will that play out? Yes, then we are coming to these 4 pieces here and talk about them. And the outcome is the most important, of course, providing this as an equipment as a service over the life cycle. And what are the outcomes that a customer expects in order to move from diesel into battery electric.
It's a big and bold move. Of course, they expect, and rightly so, visibility on cost per kilometer, to have the same safety standard, to have the application excellence for productivity, to have the fossil free execution, to have uptime because here we are talking about solutions that requires an uptime of 98%. And of course, they require that also moving forward. And in totality, they would like to have peace of mind. And that comes together when these four areas are actually combined.
It is about vehicle. It is about repair and maintenance, financing, insurance and battery systems. And in order to explain that, I have to go one step deeper. Look at this. I start with the vehicle.
What is happening here? Yeah, number 1, what are the prerequisites for excelling as a customer? That is to have a tailor made specification for that specific use wherever you are in the world. And to get there, you need to have application knowledge and customer contacts and relations. That is a starting point.
And in addition, you need to pull from a modular product system to combine the different elements from the application knowledge to make that tailor made solution. Lars talked about it, but as Jan said, that is not enough. You need also to be able to scale because when the shift is happening, it will go quick. And not only it will go quick, but you can also combine the force of the scale, volumes and thereby cost execution that we are sitting on. This is what we do.
The second piece is about repair and maintenance. Even a distribution truck will stand one day or 2 in muddy situations in north of Sweden or in Midwest in the U. S. Or early morning and hot morning in southern France with fresh food and something has happened. Then they rely on the uptime services that you have a dense network of trained, motivated technicians and part people uptime services through connected solutions and not a daytime operation, but 20 fourseven, including Christmas Eve.
This is what we do. And then financing insurance. It is even more important now when we talk about equipment as a service. We have the infrastructure, customer knowledge, relation and trust, but also the different structures how to finance this as a solution and to work really close with the customer here. Very, very competent teams on a global scale.
This is what we do. And finally, the battery system, 10 plus years of experience when it comes to how to define the battery for each application in terms of durability, in terms of range, in terms of weight, in terms of route optimization, but even more to have an established partnership that we can build the modular platform on, like with Samsung SDI. And in addition to that, of course, also the circular flow of the battery in order to cost optimize per kilometer. And what is required then, obviously, after the first life that we can utilize the battery packs for a second life of, for example, stationary power customers. So if you go back one, I just would like to conclude here, and that is also what we do.
So in combination here, we have 4 very important parts. But I will come back where I started. The customer expects equipment as a services with 6 very important outcomes. And it is not about delivering on 75% of all these promises. In order to get to these 6 promises, you need to excel and to deliver of all of them.
That is how you create a partnership, a competitive solution and how you make the shift from diesel into battery electric. The good news is that this is also a win situation for Volvo. By expanding this into these different services, we will see on the next slide how that is playing out also for Volvo when it comes to revenues and top line. What is happening is that our top line over the life cycle per installed unit is increasing, and it is increasing considerably because the equipment as a service is what the customers are expecting and requiring. And the revenue increase is in the magnitude of at least 50%.
This is a true step change. So to summarize, this is a journey that is super exciting, and we are talking about the opportunity of a century. It is a story about growth, and it's a story about resilience. Growth because we will do a step change when it comes to market share. We are ready, we are ready to scale, and we are ready to meet the S curves.
It is a step change because the revenues per vehicle during the life cycle will increase with 50% for electric vehicles and with more than 5 times when it comes to autonomous solutions. It is a story of growth because at least and I say at least 35% of our vehicles will be electric by 2,030. And it is a store of growth because the underlying need of transportation will continue to increase, but it must be done so in a considerably more sustainable way. But it's also a story about resilience. Equipment as a service and transport as a service will create our journey up to more than 50% of the revenues coming out on services by 2,030.
And also what is important that it gives an even closer relation with the customers when it comes to penetration, duration, partnership of how to continue to develop this. But of course, the most important about this story is the journey towards a fossil free society. And for Volvo, shaping the future of transportation and shaping the world that we want to live in. Kina?
Thank you, Martin. This is such an eye opener. I get emotional as well as like
No, but it's so exciting.
Yes, it is.
And I feel that also that energy from the whole organization basically. So this is a story that we really want to share with everyone.
Can you give me your one line summary on all this? Because it's a massive piece to sort of take in.
No, I think the one line summary really is shaping the future of transportation and also the opportunity of the century for all of us, for planet, for people and for also opportunities for driving prosperity. That is what I see. So it's super exciting times.
Yes, I can really see that you are enjoying this transformation. It's an opportunity. It's not a threat.
No, absolutely an opportunity.
Stay put. We will soon change gear. But first, we have presented you with a lot of information today, a lot of slides, a lot of facts. And everything is available on volvogroup dotcom if you would like to sort of dig a little bit deeper. Now it is time to make room for all of you So we are going to do this the following way.
We have several listeners already. There we are. Let's take it from the beginning. So we are going to do this the following way. We have several listeners that have already queued up, ready with their questions on our business, And we're going to take them 1 by 1.
And the first one is actually Hampus Engelau from Handelsbanken. Please go ahead, Hampus.
Thank you very much. Hampus Engelau, Handelsbanken. Two questions for me. When we have this type of periodic shifts in the industry, where you're changing towards more electrification, etcetera, We have also new entrants coming into the market. And we have seen initiatives both on fuel cells as well as in battery electric, talking of Tesla and Nikola.
These guys have started by taking a battery and designing the product around that. How much do you feel that, that could be a competitive advantage towards your guys, taking an existing product and putting a battery in that? That's my first question.
Would you like to start, Lars? Or
Absolutely. I was intrigued during my presentation as well. Regarding the batteries, we have decided to team up with Samsung SDI as our partners. They are, according to us, absolutely world player, one of the best absolutely best players when it comes to batteries in the world. That means that we get access to the latest and the greatest technologies.
And our strong asset that we bring to this is, of course, that we have our well proven product offering that we then now start to electrify. And that means that compared to some of the new entrants that start with a rather small and narrow specification, we can easily go and electrify a very wide product offering in a very short period of time.
Thank you, Lars. Hampus, please move on.
Yes. And then moving on to the next question. At least in my world, if you go fully battery electric, you remove 30%, 40% of the moving parts in the vehicle. And maybe learning something from the car industry that typically has resulted in a less service and spare parts business. But you're ambitious here to target to increase revenues by 50%.
You maybe talk a little bit about other solution services that you may be including in that? Or are you seeing are you looking at this in a different way than I am?
No. 1st and foremost, I mean, Hampus, not to being too technical, it depends really how you count, I mean, the moving parts here because, of course, in a combustion engine, you have a lot of moving parts. But when we look at the different type of services, repairs, constituting of a repair and maintenance contract over the life cycle, as we talked about just recently, then it is less than 50 percent that is related to the engine in itself because there are so many other elements also part of the repair and maintenance. So that is the first point obviously. Then when I said the increase up to 50%, that is, of course, because it's equipment as a service.
So it's about duration, the depth of engagement. And as you know, for example, that our today contract penetration is not at 100%. But here, we clearly see that the customers would like to take that step, maybe not to 100%, but considerably higher. So it will be a penetration game, it will be a depth of engagement, it will be duration. And it's not just to say 30% 40% less because of moving parts.
It is not that simple because this is production equipment with a duration over 7, 8 years and with an uptime requirement of 98%, and that requires a lot of other elements. So we are confident in those figures. And we have also experienced those in our early executions, and the customers would like to have it. So this is our story.
Thank you so much Hampus. Let's move on to our next caller, which is Klas Beilin City. Of course, Klas, please go ahead. Do we have Klas on the line?
Yes.
Please go ahead, Klas.
Shah. Thank you. Hi, Martin, Jan and Jan. It's Klas from Citi. So thanks for a very informative session.
So first on R and D. Electric and fuel sell 35% of new sales by 2,030 and then a big ramp to 2,040 to be able to have a fossil free fleet by 2,050. How should we think about R and D here, Martin? The split here between the ICE conventional portfolio and new powertrain peers, do you have signal that total R and D can stay flat until 2025, but with a mix shifting to new powertrain and then we see a fall in ice. So if you could comment a little bit on the trajectory there?
Yes. Thank you, Claus. 1st and foremost, what we can say obviously is that, as you said, we will have a shift in the portfolio of R and D because as Thor said, of course, we will continue to invest in certain other platforms when it comes to combustion. But at the same time there, we are also pruning and streamlining and getting even better in our cost methodology. We have done a good journey when it comes to really combining forces among all our business areas and have built up now when it comes to the cost that we can also release funds.
And then obviously we're shifting into the new technologies of electrification, both battery electric and fuel cell electric. But to Lars' point also, the powertrain as such for electric will be similar both fuel cell and battery. And thereby, we can reuse that for different type of applications. So I think you should think about it that we are well prepared. And on top of that, of course, the fuel cell development as such, it is an advantage for the stack development that we are sharing that with Daimler, both for the development of the stack, but also for scaling and thereby getting that into the market rather quickly.
Because the S curve here is really about getting the volumes going step by step, and that is also good for R and D. And then we can combine and I think we have showed that we are following pretty well the R and D. And you will not see the similar pattern as you have seen on the PES car side because our R and D portfolio is constituted. But when we feel that we will be a little bit more forward leaning and we can still fulfill our ambitions and promises that we have done on the financial targets, we will also do that. So we are flexible in our P and L, following the financial targets and also accelerating in innovation.
That's good to hear. My second one is on equipment as a service, 50% of sales by 2,030 and coming back to Sampo's question. What is the likely margin impact? Because obviously, traditional service, spare parts and so forth, you could see a hit as you're moving away. But your vehicle margin can obviously increase to compensate for that.
And I don't think the truck industry in general has been that good at pricing the vehicles before. So are we talking about that offsetting the service margin, Hite?
What you can say, 1st and foremost, what we see on our service margin execution, generally speaking, it's a little bit higher than the vehicles. But more importantly, of course, that is bringing 2 very important elements for us that we can optimize. That is the duration stability of services, resilience for the company as such when it comes to absorption. Then you should obviously think about equipment as a service and transport as a service as two parts of the journey up to 50% because we still have and we have a considerable service business already. And some of that will also, of course, remain and continue to develop as we have done the last couple of years.
So it will continue to be a mix. But generally speaking, service business, higher margins, better resilience and better customer contacts over time and thereby also better retention. So exciting journey.
Thank you.
Thank you so much, Klas. We are moving on to our 3rd caller, and that is Daniela Costa from Goldman Sachs. Please go ahead. Do we have Daniela on the line?
Hi, good afternoon. Sorry, having some issues here with the connection. I think there's a little bit of a lag, and apologies if my question has been answered. I think it actually relates somewhat to the prior question. But first, I think you mentioned in before and also in the interviews in the morning, vehicle life cycle will increase by 40% to 50% in terms of like the revenue opportunity.
Can sort of like you elaborate a little bit about the financial impacts that this will have and how quickly will those show through? And I think my second question was somewhat related to the prior one, but I didn't listen to everything because of the gap, I think, which is over 50% of service by 2,030. That should be very ROIC or ROACE accretive. Can you you said you want to do more from here. Do you have a ROACE ambition, long term target that you can give us some color of?
Thank you.
No. 1st and foremost, obviously, what we have said that during this growth opportunity, we will continue to deliver on our financial targets. I mean, this is not a compromise. I mean, performance transforming comes together. So that is the first part.
Then when it comes to services as such, as I just said, it would be a constitution. We have already today a rather big and growing service business when it comes to service contracts, when it comes to connected solutions, of course, our financial services. But we will add on then equipment as a service as a very important piece of puzzle. And the reason for that is also that this is what a majority a majority of our customers would like to see in order to make the step change from combustion technology into electrification, both battery and fuel cell electric. And one very important factor of that is also our customers' ambition to gradually moving on from having in house services.
That was much more common 20, 30 years ago, and then that's gradually going down. And now when you are taking this step into high voltage competence, a lot of certificates and other type of requirements, you will further expand that peace of mind sort of story. So obviously then, with our strong Volvo Financial Services backbone, we will have all the abilities to fund that, both through our own portfolio, but also in syndication, the green funding and other things that we have talked about. And I know that a lot of investors are super interesting in that, not at least when the contract length is expanded, so you have a good visibility over time here.
And I think, Martin, it's important also what you were into the contract length because where we are good is normally the 1st owner as we
see it. We see 3 to 4 years, right?
Yes, the service contracts. And now we will get longer relationship in the service side with our customers as we see it.
Good. Daniela, any other questions? Or should we move on?
No, thank you very much.
Thank you for calling in. And our next caller is Erik Golrang from SEB. Please go ahead, Erik.
Thank you. I have three questions. The first one is on the equation of getting a decent margin also when you include batteries on trucks. Is the whole approach towards sort of end to end solutions and trucking as a service really key in sort of perhaps hiding the battery cost a bit in there to get a margin on there as well? And then the second question is you said that e commerce is breaking the demand curve here for truck demand relative underlying GDP.
Do you have any sort of numbers to put on that? And then the third question, and I think you partially talked about this previously, but is there no sort of reason or incentive at all to perhaps invest in a proprietary charging network to sort of further accelerate what you say is a market leading position there? Thank you.
Should I take it or?
I can take it further.
I can start with the first one on the batteries here. I think the good news in our business, Jirik, is that it's not necessarily positive to hide anything because we have professional customers. So that's the reason why I had also the session about how this will play out for the customers at the end of the day. And they are already today counting in their books, either the customer or the customers' customers, how this is playing out as cost per kilometer. And therefore, we are very clear that if you should move into electric, there are certain consequences of that.
You are shifting one of your cost piles and decreasing that, that is energy cost, towards the battery. But the game for us is obviously to provide those 4 elements as a competitive offering for the customer as regards cost per kilometers, uptime, as regards to safety, productivity, fossil free, obviously, and this peace of mind. And then we will say this is the cost per kilometre that will be higher, but you will have a good abatement when it comes to the energy prices. And then the shift will happen. And of course, CO2, CO2 free operations will not come for free that we did show here.
And the interest of that is super high, super high.
Anyone who would like to fill in?
No, I can take the question about charging infrastructure. I think when we talk about everything that is around electromobility, new kind of consulting services, how we optimize the whole vehicle in when it is out there running. There's a lot of things that will happen, including, of course, the charging infrastructure and all that kind of stuff. I think we will probably gradually look into what we need to do, what we want to do, but also, of course, what is giving us good returns on the money that we do. I think it's a little bit too early days to say exactly what it will be.
We are touching some of these areas already today when it comes to our venture capital arm as well. So I wouldn't say yes to your question. I wouldn't say no either. Think it depends a little bit on it. And as I said, if we can do good business out
of that, we will absolutely do that. But I think to Jan's point, what is important to understand is that, of course, we have extensive ecosystem of that already today since we have been operating for the bus side, but also now on the medium duty side. So partnerships, partnership is the new leadership. And it's not only about the shortening infrastructure as such, it's also about permits, it's about the grid capacity. We have learned a lot here over the last year.
So either in house but also with partners, the more important is that the solution comes together totally. When it comes to e commerce, yes and no, Erik. I don't feel ready to give, I mean, a more exact figure on that. But what we have seen, and not at least now also, partially explained that we have had, as we said also at the trading update in relation to quarter 3, a rather good demand, of course, the catch up, the underlying demand, but also e commerce that, of course, have accelerated during this unfortunate situation with the pandemic. But we already did see that before.
We are doing some research. I will not say that I'm ready to just pick a number and say the normal underlying growth of 3%, 4% often related to GDP has now gone up to something else. But we see indications of how that is happening, but and we are convinced that it is happening. But I will not just pick a number because that is not fair.
We can leave that as a cliffhanger for later. Thank you so much, Erich, for joining us today. Our next caller is Tom Narayan from RBC. Please go ahead and share your questions with us, Tom.
Yes. Thank you. Tom Narayan, RBC. Thanks for taking the questions. I really have two questions on field cells.
The first one is, we hear an issue that is a bottleneck for making field cells that it will likely require costly platinum. As we understand it, platinum can be recouped from recycling scrap catalytic converters and ICE cars as one possible solution. What are your thoughts on this apparent key issue facing widespread commercialization of fuel cell vehicles? And the second one is, you sell fuel cells produced with your JV with Daimler to, will you sell them to other OEMs? Or is it only just for the 2 of you?
Just curious because we know suppliers who are planning on making fuel cells as well. And typically, suppliers are better positioned as they can achieve better scale economics. But trucks, obviously, is a very consolidated market, so perhaps
this isn't as big of a
problem for you. Thank you.
Thank you, Tom. Maybe Lars, you would like to start?
I can start with KSA then that as late as this week, Monday, we signed the binding contract together with Daimler then, and we are then still formally awaiting then the or the formal clearance from competition authorities before we really get started. So before we dive too deep into the technologies, we need to get started. But definitely, Dan, we have done a very thorough due diligence together with Daimler regarding the technologies that they have been working on so far and the intention going forward, our shared intention going forward. And that includes, of course, all kind of catalytic materials that we will use. So yes, we have done a thorough due diligence.
We have a good plan, including what kind of catalytic materials we're going to use. I think I'll leave it like that for today.
Martin, would you like to fill in?
No. Maybe just to add that, I mean, of course, when we talked about the fossil free road map loss up to 2,050, then today we talked about the tailpipe emissions. But in order to be truly fossil free there, and that is also included in our journey, we are talking about also what we are bringing on board and
how we are producing that. So obviously, that is
a very good, valid, and On the second note On the second note, the whole setup is based on that we will have a joint venture fifty-fifty that is delivering fuel cell stacks out of that providing Daimler and Volvo. But we have already signed an agreement with Rolls Royce and their power generation unit of also providing DING stacks to them. So the answer to that is, of course, yes, we believe firmly with our volume capabilities that we can create the necessary scale technology and thereby making it competitive also for other takers of these stacks because it will be a vast range of utilization, not at least when it comes now with the renewable generation of energy, wind, solar, where there are, as you know, certain hours during the night, for example, when energy prices are low and you need to store that energy where hydrogen will play a very important role. So super exciting about that.
Thank you so much, Tom. Our next caller is Bjorn Ehrnaschon, and he's calling from Danske Bank. Bjorn, please go ahead.
Yes. Thank you. I have one question on another megatrend. I mean, we're talking, of course, a lot about moving into more sustainable technologies. But I mean, looking in the car industry, I would assume that the change into a smart vehicle is an even bigger and perhaps even more complex transition.
I would like you to comment on that. And as vehicles are becoming smarter and fully connected, do you have the ambition to run this, I mean, a global network for vehicles and to maintain and develop that? Is that the core basically to have an own operating system, etcetera? Is this a big focus area for you? Thank you.
Yes. Maybe to start with I mean, we can add on here. But when it comes to the whole story of connected solutions, of course, that is a key cornerstone because the whole abilities that digitalization will bring is already serving us very much today in our relations with customers, but also in our own operation. We have more than 1,300,000 connected units today where we are optimizing a lot of things and gradually moving, as you call it, to more and more smart and intelligent solutions, optimizing that through AI and others. For example, truck monitoring where we can really predict how the durability look like, the uptime, etcetera.
Then step by step, of course, we will move into the real smart solutions when we have autonomous solutions that was touch upon. And that will also be done in steps because in many cases, for example, in our applications like in mining ports, you want at the first step, you have to remove humans out from the operational spot. And then you can use that connectivity platform for operating remotely.
Platform.
And we have a business unit, Volvo Group Connected Solutions, that is running that backbone platform for all the different business areas very successfully. So building on that will be the key for the future.
All right. Okay.
Thank you. Perfect.
Thank you so much, Bjorn. Our next caller is Nikolay Kemf, and he's calling from Deutsche Bank. Nikolay, please go ahead.
Yes, Firstly, Nicolas speaking from Deutsche Bank. Thank you for taking my question. So my first one would be on cost parity. When do you expect the cost parity between the electric versus diesel truck, given that diesel truck will likely become more expensive while the electric truck will become cheaper? And the second question would be battery cells.
You have a cooperation with Samsung battery cells. Given the importance of the battery cells, what's your strategy to secure enough batteries and also the competitive price? Thank you.
Yes. If I start with the TCU parity, Nikolay, I think what is important to understand here is, of course, that the TCU or enough close TCO parity since I mean the whole story also for the customers and customers' customers in many cases, as I showed here on the distribution case, will actually be to get the CO2 also because today many customers, all customers' customers are paying also to abate the CO2, offsetting CO2 that they have. And of course, it will feel much better to do it yourself. So that has also, so to speak, a revenue impact. So already here and now, you have close enough TCO parity in quite many segments that will shift.
And that's the reason why we talk about these S curves that when that is happening, the transformation and the shift will go rather quick for that segment and that geography. And it will not be a one size fits all over time. And the winners clearly here that is often missed is that can deliver for each specification a geography when the TCU parity is clear enough or close enough and then transform quickly and get the volumes. And we are excited about that type of transformation because we think that is fitting us rather well. Then when it comes to the parameters of batteries.
Well, regarding unavailability and capacity of batteries, I think this is exactly the reason why we are talking about the partnership where you have 2 partners working extremely close together, and we are then sitting planning the future together regarding the needed capacity, the availability of batteries done. And regarding attractive prices, to Borna stand, it's the same thing there. A partnership is constituted by 2 partners that need to stay attractive. That's how we keep the partnership alive.
Very good. Thank you so much, Nikolaj. Let's move on to our next caller, and that is Himanshu Agarwal from calling in from Jefferies. Please go ahead.
Yes. Himanshu Agarwal from Jefferies. Good afternoon, everyone. Thank you for taking my questions. I have 2.
Just wanted to understand, for every fossil free vehicle that you sell, you don't sell an ICE vehicle. So with an accelerated adoption of fossil free vehicles, how should we think about the depreciation on ICE assets? And is there a risk of write downs there? And secondly, I just wanted to hear your thoughts on a long haul bev truck. I presume from the slides, I didn't see one.
What do you think of a long haul bev truck with a range of around 500 kilometers? Given the tecograph regulation, I think it could cater to a wide range of application and possibly reduce your time to market as well. Thank you.
Very quick on the last one. I'm not sure that did we get the first question? Can we repeat the first question?
Yes. So first question was around the accelerated adoption of fossil free vehicles could lead to higher depreciation on your ICE assets and possibly some write downs because of lower volume?
Okay. If we start with that one, as Jens explained also, I think we are well placed when it comes to our assets today, both when it comes to, so to speak, what is the book value of it, but more importantly, what is the value moving forward. And that's the reason why we are confident that by using the fishbone principle step by step implementing and co hosting both battery electric and other type of vehicles into the same lines, we'll solve that largely. If there are some write downs, it could be related a little bit further down the road, but it's not material at all when it comes to the component manufacturing because as we said that we have the competence needed also for other types. So it's not a material write down needed as we see it.
And the good news is that we will not have to create new factories or platforms that will take a long time to ramp up volumes. That is also a big difference from Pascors, obviously. So here, we are agile enough to shift when that is happening. And yes, to be very clear on your last question, yes, we agree when it comes to what we call regional haul or long haulage coming back during the night, for example, 500 kilometers or something that it will be well fitted for battery electric. And for even longer, it will be fuel cell electric.
So that is the reason actually why we are introducing now already next year the heavy duty applications. That was not shown here, but the vehicle standing in the room here is such a vehicle that you are after that we will introduce next year for sales.
What you could add, of course, Martin, related to the question around impairment, of course, if with these plans we have shown today, there is no risk of impairment. Otherwise, we would have done it already since we have the plans. But it's also, I think, more important for us is also to be very diligent in the investments going forward because as Lars said, I mean, 10 years from now still a big part of what we are doing is still be related to diesel. So there, we have to be careful when we are sort of allocating capital going forward.
All right, very good. Himanshu, thank you so much for joining us today. Our next caller is Joao Odea, Vertical Research Group. Please go ahead, Joe.
Hi. Good afternoon, everyone. A few questions. First, I was just hoping for a breakdown of when you talk about 35% penetration of EV, just to clarify that that's both a combination of the commercial vehicle and the construction side of things. And can you give a sense of how you think that looks in Europe versus North America versus Asia Pac?
And then second question is, when you talk about over 50% of revenues from services and solutions in 2,030 and that's in a world with 35% going to EV. When you think about 100 percent EV, what do you think about the mix of services and solutions revenues being? And then third question is just what you think of the subsidy environment today? Do you see enough out there to support the kind of adoption that you're looking at over the next 10 years?
Thank you. Who would like to begin?
Should I take it, Dor? Sure. If we start with, I mean, how it will play out, obviously, as we said, it's both from a regional perspective. And there, you correctly mentioned the regions that we think are very early out when it comes to this adoption. Europe, North America or at least part of North America like California, for example, We see China, Japan, parts of Southeast Asia, like Singapore, urban areas also in other parts of the world.
But the most important, as we said, is also the shift from segment to segment because the TCO parity and TCO parity, including, so to speak, the CO2 abatement will also play out here. So that is how we see it, and that's the reason why Jens also showed the importance of having the industrial footprint ready because very rarely people are asking themselves who can scale this. I mean, not only, so to speak, the vehicle, but the whole system and also the services. Then what was it
What will happen when the penetration goes above 35% of the metric? What will happen with the service part?
Yes. I mean this is, of course, when we looked upon this, this has included the electric vehicle penetration, but it's also constantly including the continuous penetration increase that we've had also in our ordinary service business. And also to I think it was it Helik's questions about connected solutions that we're also now penetrating more and more. So this is a continuous gain. But when we are going upwards from the 35%, that share will increase because equipment as a service is I mean equipment as a service.
And then also we have the acceleration of autonomous towards the later part of the decade.
And finally, the subsidy environment.
Yes. I think the subsidy environment partly is, I mean, supporting. We have seen a number of cases like that. I think the more importance is the consistency over time and not at least also you will see that also in urban areas, for example, that it will be restrictions on what you can actually drive into different cities that will also play out. But as we go along now, the TCO parity, including CO2, will be the main driver to gain volumes.
And as we see it also, electricity will be cheaper and cheaper given the big built out of renewables and also the hydrogen economy.
Very good. Thank you, Jo, for being with us today. That was, in fact, our last caller. So guys, it's time to wrap this up. 1st and foremost, thank you, everyone, for watching the 2020 Capital Markets Day.
Again, all the material is available and the entire broadcast on volvallgroup.com. Please stay safe and join us next time we have the opportunity. And finally, Martin, would you like to do a short conclusion?
No, I think everyone would like that to be a short conclusion. 1st and foremost, also from my side and management, a big thank you for being with us today and hope also that you have found our messages about performing from a position of strength and also transforming into this new exciting world of transportation and hope also, of course, that you will be part of our journey for the future. So looking forward to that. We are the Volvo Group.