Traton SE

Good morning, everyone, and welcome to TRATON's Q1 2025 Results Conference Call. My name is Ursula Querette, and I'm Head of Investor Relations at TRATON SE.

With me on the call today is Christian Levin, our CEO, who has dialed in from Sweden; Dr. Michael Jackstein, our CFO and CHRO is here with me in Munich.

Christian will start today's presentation with the key results and highlights of the first quarter and Michael will guide you through the financial performance and our outlook in more detail. Some of today's KPIs are already known to you as they were pre-released on the 9th of April.

As always, we will conclude the call with a Q&A session, where we welcome questions from financial analysts, investors and media representatives. To handle potential media inquiries during the Q&A session, Camilla Dewoon, our Head of Corporate Relations, is also present.

A recorded version of the call will be made available on our Investor Relations website as soon as possible after the event. You can also find our three months 2025 interim statement, which we released this morning, and the slides to this event on our IR website.

Before we start, let me remind you of the disclaimer with respect to forward-looking statements on Page 3 of our presentation. And with that, I hand it over to Christian.

Thank you very much, Ursula, and good morning, everyone, on the call also from my side. Well, most all of the numbers that you can see on this page were no surprise to you as we communicated that through an ad-hoc earlier.

In April, actually on April 9, we published our delivery figures. They declined by 10%, is mainly due to challenging market conditions in our key truck markets in both Europe and North America and it reflects normalized order book in times where we are not operating at full capacity.

Sales revenues also declined by 10%, in line with our unit sales. However, our vehicle services and bus business provided some positive effects.

Also on April 9, we pre-released our operating result as it was below analysts' consensus at that time. The decline of our adjusted return on sales to 6.1% was mainly due to volume effects.

But in addition, foreign currency headwinds and higher R&D expenses weighted on the Q1 margins. Net cash flow of the TRATON Operations was also included in this pre-release.

The decline to minus EUR111 million primarily results from the lower operating result and from higher future investments. All the effects mentioned also impacted our earnings per share for the first quarter, which came in at EUR1 per share.

The last figure to the right on the slide, is at least not known to you or was not known to you, and it is a healthy growth figure. As in Q4, we saw a continued strong order intake in Europe, actually increasing by 56%.

This growth effectively overcompensated the decline in orders in North and South America. So our total incoming orders grew by 12% to 74,300 units.

While this is promising and aligns with our outlook for a stronger performance in the second half of this year, we are, of course, monitoring the current market and geopolitical uncertainties very closely to adjust our production planning when and if necessary. Within this geopolitically turbulent quarter, we stayed focused on our business development.

In mid-March, we announced the strategic partnership between TRATON and Applied Intuition on software-defined vehicles. Like in all industrial goods, the truck industry is gradually shifting from hardware-centric products to software-driven electronic devices.

To remain at the forefront of development and reduced time to market, we decided to join forces in this strategic area. Within days of signing the partnership with Applied, a team of engineers from their US offices were on-site working with our TRATON engineers.

We're now integrating existing TRATON technology with Applied's solution stack targeting our next generation of EE and software architecture. Another crucial technology focus area is autonomous driving, where we are dedicating substantial R&D efforts.

And here, we also work in collaboration with partners. And MAN, for example, is engaged in several projects aiming at introducing fully automated city buses to public transport.

One of these projects is called BeIntelli where since the start of the year an automated MAN eBus is on the streets of Berlin's city center to collect valuable data and experience. This project involves an interdisciplinary team from science and industry with the aim of developing an intelligent transport system with automated vehicles.

End of February, Scania announced its largest order since the '80s from the Swedish defense administration. Products for the defense industry currently only represents less than 1% of the TRATON group revenue.

But we are convinced that the planned ramp-up of European defense industry will boost general transportation besides incremental demand for our defense products, which will both enhance our future revenues and margins. The present Scania order consists of 475 vehicles to be delivered between 2025 and 2027.

These vehicles can transport cargo, military units and defense systems and are designed for challenging conditions. This point, please let me note that sales for defense force are always preceded by due diligence and risk assessment in line with export regulations to ensure responsible and sustainable business.

Last but not least, TRATON Financial Services continued its successful journey to ramp up our captive offering. We had three new markets going live during Q1 this year, Mexico, France and Italy.

In Mexico, we expanded on the foundation of international financials and now also offer captive financing for MAN and Volkswagen Truck & Bus customers. This positions Mexico to become the first market where we offer financial services for all our four TRATON brands under the TRATON Financial Services umbrella once Scania is also integrated in the coming months.

And by April 1, MAN Financial Services was successfully launched in both France and Italy, expanding our footprint to two of Europe's key commercial vehicle markets. A clear proof that our integrated approach is scaling fast and delivering results is Spain.

Spain was one of the first markets to go live under the TRATON Financial Services umbrella in 2024, and it is soon celebrating its first year of operations with already over 2,000 contracts signed for MAN customers. We're also making good progress with our battery electric vehicle offering, both on the demand and on the delivery side.

The increase in order intake by 18% in Q1 was mainly driven by demand for e-trucks. Unit sales of electric trucks and buses almost doubled year-over-year.

This coincides well with the fact that two weeks ago, MAN officially launched its battery pack production in Nuremberg. In the current expansion state, 50,000 battery packs can be produced per year on this site but it is already designed and prepared to increase that up to 100,000 units per year.

And to put this number into perspective, MAN has recently delivered its first MAN eTGX from a large order placed by the French Jacky Perrenot Group. In a standard long haul application, this electric truck is equipped with six battery packs which offers a driving range of around 500 kilometers, of course, depending on usage.

At our annual results conference, I mentioned how I am constantly advocating for charging infrastructure for heavy-duty vehicles in the EU. And in my control as Chair of the ACEA Commercial Vehicle Board, I'm also working hard to influence the entire commercial vehicle ecosystem with the EU automotive dialogue.

Over the last weeks, my colleague, Alexander Vlaskamp, the CEO at MAN, and myself, had several meetings with the EU Commissioners, including Commission President, Ursula von der Leyen, and the EU Transport Commissioner, Apostolos Tzitzikostas. Besides addressing the improvement of enabling conditions, we continue to discuss an earlier review of CO2 emission reductions to ensure Europe's commercial vehicle manufacturers remain competitive.

To sum it up, we're making comprehensive efforts internally and externally to increase the demand for electric commercial vehicles. This should ultimately lead to significant trade on BEV sales aligning our purpose of transforming transportation together for a sustainable world.

So let's turn back from our future plans to the current market situation on Slide 8. I already talked about a slow start into this year with declining deliveries in both Europe and North America.

These regions are burdened by macroeconomic challenges and respective low transportation activity, although it is steadily improving in Europe. In the US, uncertainties about tariffs, economic outcomes and inflation added to the negative market sentiment.

In addition, the dealing with the EPA 2027 emission regulation remains unclear. In this environment, our customers are not willing to make larger investment decisions.

Consequently, our North American order intake dropped by 35% to 12,400 vehicles and unit sales decreased by 12% to 17,800 vehicles. On the back of this, it will be no surprise to you that we had to adjust our manufacturing capacity for Class 8 trucks and removed our second shift in our Escobedo plant in Mexico.

In contrast, our European order intake was 56% up in Q1, resulting in 38,900 orders there of 29,300 trucks. This translates into European book-to-bill ratio of 1.3.

While looking at the overall TRATON book-to-bill, it's coming in just above 1. This is, of course, a great achievement of our European sales team, and it supports our more optimistic outlook for the second half of 2025.

However, we must recognize that this brings us only back to historic average levels. Hence, this positive momentum is mainly replacement driven and can be explained by catch-up effects after having processed last year's strong order books.

In South America, we've seen a mixed picture. Despite a declining market momentum with lower order activity, especially in Brazil, Volkswagen Truck & Bus delivered an increase in unit sales while Scania saw slightly declining volumes in South America driven mainly by Brazil.

On the other hand, strong sales in Argentina had a positive offsetting effect. So how does these Q1 experiences in our brands operation reflect on our total market outlook?

Well, starting with Europe to the left on this slide, where we foresee a decreasing truck market within the range of minus 15% to minus 5% in this year. The lower end of that range aligns with European registrations in Q1 both for the trucks above six ton and trucks about 16 ton, which were down both by around 15% in a challenging economic environment.

However, with the positive truck order momentum continuing throughout the first quarter and improved transportation activity in Europe and lowered interest rates, we are more optimistic about the second half, which would justify the minus 5% on the upper end of the market range. Notably, the formation of the new government in Germany and the decision to increase investments into defense and into infrastructure also on an EU level, may create more positive momentum.

The second graph, the one in the middle, shows our North American truck market outlook. Due to further uncertainties and under the updated assumption of no sizable EPA 2027 prebuy, we now expect the North American market to be closer to the lower end of the minus 10% to 0% range.

This would mean that the Class 8 volumes would fall below the 300,000 mark to around 280,000 vehicles. In fact, according to our market intelligence, Class 8 registrations in January and February were down by minus 11%.

But we do anticipate a slight recovery in the second half of '25, whereas the medium-duty segment continues to go down. With what we saw at Volkswagen Truck & Bus and Scania in South America in the first quarter, our outlook for that region remains unchanged with a range from minus 5% to plus 5%.

And with that short run-through, I hand it over to Michael for the financials. Michael, please?

Yes. Thank you, Christian.

And of course, a warm welcome from my side as well. You just heard the market and actual Q1 registration data from Christian.

The weak market environment in Europe and North America affected three TRATON brands, MAN, Scania and International, and therefore, well explains the 10% decline in our group unit sales. In addition, the International brand was hit by the introduction of Euro 6 in 2025 in Mexico, which had led to a prebuy in the previous year.

On the other hand, much higher bus deliveries contributed positively to the International unit sales after last year's sales were affected by the delayed ramp-up of the new school bus model. While unit sales in Europe and North America together were down by 15% in Q1, sales in South America grew by 10%, which had a positive effect, especially on Volkswagen Truck & Bus.

Total TRATON group unit sales in Q1 amounted to 73,100 vehicles. Total group revenue amounted to EUR10.6 billion and was also down 10% year-on-year.

The effect of lower unit sales could be partly mitigated by a strong vehicle services business. And in addition, TRATON Financial Services contributed positively with a 17% revenue increase.

Let's now have a look at the next page at the operating result on Slide 12. With the decline in unit sales and revenues, the lower margin was expected by us.

In fact, our internal margin forecast was in line with the outcome. Therefore, in our annual results conference, I had stated that we see a weaker first half of 2025.

So, with unit sales and revenues down by 10% and weaker order book tailwinds, reduced capacity utilization and lower fixed cost absorption, our adjusted return on sales came in at 6.1% in the first quarter. This was 3.3 percentage points lower year-on-year.

Besides the negative volume effects, higher R&D costs, increased investments into the China production facility and foreign currency headwinds affected our group margin. Consequently, the adjusted return on sales of TRATON operations was similarly affected and came in at 7.3%, 3 percentage points lower year-on-year.

Only Volkswagen Truck & Bus contribute positively among our four brands. But, let's start with the performance of Scania on Slide 13.

Scania's Q1 revenue and margin not only suffered from lower sales in Europe but also in Brazil. Nevertheless, with its Super engine offering, Scania profited from higher pricing for certain trucks, and an increased vehicle services share also had a positive impact on revenue and margin.

On the negative side, as mentioned, Scania's margin was impacted by currency effects and China project costs. So Scania ended Q1 with a margin of 10.5%.

Next, MAN, our full liner brand with a strong European focus, saw reduced revenues both for trucks and buses. Bus deliveries are still delayed due to higher regulatory software requirements but normalization is anticipated in the second half of the year.

The successful realignment program helps support the margin despite the lower unit sales. MAN's margin came in at 4.6% and showed gradual improvement within the three months of Q1, which gives us confidence for the next quarters.

International delivered a margin of only 2.3%, and we have already explained the main reasons for the decline. Volkswagen Truck & Bus managed to deliver increasing revenues in Brazil and the rest of South America due to a solid truck business and improved product positioning.

They achieved 13.1% adjusted return on sales in Q1 despite some negative currency effects. TRATON Financial Services saw a 17% revenue increase in Q1 due to a larger portfolio volume.

As the ramp-up of the financial services network comes with higher costs, the TFS return on equity decreased to 9.1%. Other reasons for the margin decline were higher funding and risk costs, which came with a larger portfolio.

Let's move on to the next slide, where we see that the lower operating result of TRATON Operations also affected its net cash flow and hence, our net debt situation. As you can see on Page 14, the net debt of TRATON Operations, including corporate items, increased by EUR282 million in the first quarter 2025 to end the quarter at EUR5.2 billion.

The net debt increase was partly driven by a net cash flow -- outflow from TRATON Operations of EUR111 million. This resulted from a working capital buildup and investment spend which exceeded the gross cash flow of TRATON Operations.

In addition, other net cash outflows of EUR171 million, including holding costs, led to the increased debt. With an improved operating performance which we are foreseeing in the second half of this year, the cash flow from TRATON Operations is also expected to improve which will enable us to continue our debt reduction journey.

This leads me to the last page of our presentation, which is the 2025 outlook slide. I believe with our presentation, we explained the reasons for the slow start into the year.

We did also give you some rationale why we are expecting a stronger performance in the second half of 2025. Therefore, we maintain our 2025 full year outlook and continue to expect unit sales and sales revenue for the TRATON Group to come in between minus 5% and plus 5% and group adjusted operating return on sales between 7.5% and 8.5%.

But, please note that due to ongoing and changing tariff discussions, the potential outcome of US import tariffs remains far too uncertain for us to quantify. Therefore, tariff implications are still not included in our 2025 outlook, so that it remains subject to future geopolitical developments, particularly in the US and their impact on TRATON Group's business.

With that, I would like to hand over to Ursula to kick off the Q&A session.

[Operator Instructions] Now let's take the first question, which comes from Klas Bergelind from Citi. Klas, please go ahead.

Thank you, Ursula. Hi, Christian and Michael.

Klas at Citi. First question I had was on International.

It seems like it was the operational gearing to the weaker volumes. That was the key reason for the margin drop, not much negative pricing there in the P&L at the moment.

Obviously, industry inventories are high and the North American outlook is tricky, which could see incremental price pressure bringing down the margin further. I think you said you're removing one shift there, Christian, taking down production.

But I'm curious to hear if you're planning any further mitigating cost actions to help the margin in the next couple of quarters. I'll start here.

Yeah. Maybe Michael can start with the cost.

I can start. Klas, welcome.

And first of all, let me confirm your assumption. You're fully right, the impact that we have seen here on the margin is really primarily coming from the volume drop.

So I can clearly confirm that. You mentioned the shift that we have taken out in Escobedo, Mexico, that Christian mentioned, that is right.

And yes, of course, we and the team are looking into further measures. I can say that there is a hiring freeze in place also at international taking into account the really difficult situation.

It's linked to certainly the uncertainty that we see in the North American market at this point in time, which then correlates really with challenges when we look at order intake and therefore, the team, again, has established a hiring fees. The team is looking at cost, what they can do here, taking into account the difficult situation, maybe to kick it off like this.

Okay. That's good to hear.

Then my second one is on Scania. Would it be possible to help us with the FX impact and then also the impact from the China ramp?

I'm trying to understand to what extent the impact was less than the linear 125 or bigger yes, what the impact was? Thank you very much.

Well, maybe I can also start here and then Christian, of course, if you want to fill in. Let me first say, and maybe to disappoint you here, that we don't quantify the effects here.

It's a combination when we look at the margin of Scania. As mentioned before, also here, we see some volume effects in Europe, in addition also in South America and Brazil, especially as we mentioned during our presentation.

And then there is, in addition, some FX effects coming from the stronger SEK. And in addition, as we have stated also during our annual press conference, the China ramp-up also affects the margin.

This is why we said there in the pre-close call and then also during our annual press conference that you should not expect for the full year the same margin for Scania as in the previous year, taking into account these effects coming together here. I don't know, Christian, if you would like to add something.

Yeah. I can do a few additions on your first point also with International.

So sadly, 900 people left the company in Mexico because we closed down the second shift, and of course, we are preparing for many reductions also in the rest of the organization. If this continues, it's really a wet blanket on the entire market right now, and that's a truly unsustainable situation which hopefully will not endure.

For Scania, yeah, I will also not quantify, but it's predominantly volumes, Klas. Secondly, I would say it's currency, and thirdly, it's China that is weighing on the Scania volumes.

But it was mainly not getting through the pipeline, which was somewhat disappointing in terms of volumes. So we have over average inventories still in the Scania system, which shouldn't really be the case, and I check thoroughly, it's not that there is resistance to take the vehicles.

It's still that we have some trouble with body builders, which we've had now for a couple of years since the delivery challenges we had and other -- well, let's call it, just disturbances of the flow all the way out to the end customers. But these are the big impacts on Scania results.

Thank you.

Thanks, Klas.

Okay. Then let's take the next question from Hemal Bhundia from UBS.

Thank you, Christian, Michael and Ursula for taking my question. Hemal Bhundia from UBS.

I appreciate the color provided. I was just wondering if you could give us an idea on the order momentum that you've seen so far in April and specifically for the European and North American markets?

And how was the pricing on these new orders versus what was seen in Q1? Thank you.

Hemal, Thanks. Christian.

If I start and Michael, you can fill in. So order intake, starting in Europe then has been gradually improving, I would say, for both Scania and MAN all the way up from after summer vacation, so starting August in Scania and September in MAN.

It's been holding up well all throughout the first quarter but we see an effect already. Well, quite immediate after Trump's tariffs were communicated and understood that, that would not be a quick fix, so to say.

So from mid-March, we see a bit lower activity, and I will not quantify that, but we see a bit lower activity in Europe, which has continued in April. It's not dramatic, but the upwards trend is broken.

When it comes to US, it remains depressed, we could say. So look to some of the segments like the rental segment, for instance, which is a good indicator of the short-term transport need, we see a very, very low activity.

And you need basically to go back to 2008, 2009 to see such a new activity on the rental business. We do believe that especially on the Class 8 on-road we will see a bouncing back here towards second half of the year as there is also in the US a big replacement need, but the situation in US remains, as you well understand, very, very difficult to predict.

I stop there. Michael, anything to add?

Well, maybe just confirming what we have said also during our annual press conference that we clearly see a silver lining. As Christian just mentioned, that continues still at this point in time, we would not call it a turnaround yet, especially not for, let's say, the entire TRATON GROUP taking into account the really difficult situation in the US.

You heard coming a little bit to the questions before or what we mentioned during the presentation that we expected, let's say, a slow start into the year. This is why we were quite clear, at least I believe, saying that the first half is going to be challenging and that we expect that the second half of this year is going to be better.

This is based to a good extent on some confidence for Europe, especially based on the order momentum that we have seen in Europe. And as Christian just mentioned, we have to see how this continues here.

Clearly, we are all aware that there is some uncertainty, not just in the US, but in the entire world, based on the tariff discussions. So this is something we will have a look -- close look in the upcoming weeks and months.

Sorry, just on the pricing comment on how this has fared so far.

Sorry, Christian here. No, so we don't see any major impact when it comes to pricing, which is, as I've underlined in these calls, before, we were trying to do what we can to preserve our gross margins on the vehicles.

So we are certainly not the ones engaging in any pricing combats or price wars. So good on the pricing side, tough on the volumes.

Thank you.

Okay. Then let's take the next question from Megan Young from Goldman Sachs.

Hi, good morning. It's actually Daniela here.

So I have two questions as well. I'll ask them one at a time.

First, just to kind of follow up on some of the comments you were just doing regarding sort of what gives you confidence on that sustainability of orders in Europe, which seems to be the driver of maintaining the guidance. You mentioned in the statement kind of replacement as one of the drivers.

Just looking at that one factor, can you maybe give us some color on like how you see age of fleet now versus what is normalized? And how long, macro aside, could that angle of replacement carry on to some improvement basically?

What's -- is that sort of a few quarters? Do you see that as a multiyear trend?

Just some color there.

Yeah, Daniela. Christian here.

Yeah, I think the average age is still very high, so it has increased somewhat, but we're still about 14 years in Europe where we see really old fleets, especially in Southeast of Europe and the countries like Italy, Greece are rather closer to 20 years of average fleet. So I think the replacement need carriers the market many years ahead actually to be above at least 250,000.

And now this is not coming from a very analytical approach, but just gut feeling after many years of this business. So I think that creates some kind of floor as long as there is liquidity on the market.

But on top of that, we, of course, see some at least parts of Europe where there is also an underlying transport need increase, and we can see through our fleet management data. And hopefully, that continues.

And of course, as I mentioned, the very good moves in Germany now being Europe's biggest economy and releasing now funds for both defense spendings and infrastructure. I mean that's the dream for transport.

So both of these industries really drive a lot of transport throughout the tiers of suppliers that are needed. And hopefully, at least majority of these orders also end up in the European industry.

And for construction, that's a given, but also for defense, I really hope so. So I remain optimistic.

But as we have stated, I mean it's super hard to predict, and we did see a cooling down of order activity in mid-March when the tariffs or when I think the world realized that the tariffs wouldn't go away. So super hard to judge, but we have discussed a lot and we stick to our guidance of the total market in Europe, which would then bring Europe to actually a rather good total market level.

And I can also comment and say that our market shares for Scania and MAN continues to be on a -- and particularly for Scania, on a historically high and stable level as Scania has actually been able to further increase market shares which, in a way, goes beyond our planning, but it shows that we're also doing a good job in the market.

Got it. Thank you.

And then the second question is more regarding thinking about free cash flow. We had a weak quarter.

There's obviously some seasonality. But also given all that's happening, tariffs and supply chains and everything, how should we think about sort of your need to maybe build up more inventory, especially in the US in the coming quarters and the normal this year versus what the normal seasonality would have been and a normal cash conversion would have been, if you could steer us with any direction there?

Yeah, happy to do so, Daniela. Also here, let me start maybe with a remark that also the free cash flow development was very much in line with our expectation for the first quarter.

We see an increase in the working capital, which is largely due to inventories, also as you mentioned. But I would say, overall, for the entire TRATON GROUP, quite normal.

And so I would say, very much in line with the previous year, we expect also here the second half to be significantly stronger when we look at the cash flow. So you will very likely see a similar development like in the previous year where you recall that also after the first half, the net cash flow was more or less zero and then we brought the cash into the very large extend in the second half of this year.

We expect the same development in 2025.

Thank you.

Okay. Then let's take the next question from Nicolai Kempf from Deutsche Bank.

Yes, good morning. Thank you for taking my questions.

Nicolai from Deutsche. First one, can you just remind us on your current lead times, both in Europe and US?

And second one would be actually on the improvement, you have mentioned Europe. I mean, orders have been good in Q4.

They have been good in Q1 as well. So is it fair to assume that MAN and Scania should improve already with the Q2 results?

Thank you.

Okay, I can take the lead times. So what we see now MAN has lifted its short-term work and are back to normal capacity.

Meaning that lead times are now normalized, and you order now and you will get a vehicle in the beginning of Q3. Scania with a little bit -- we're still hesitating to increase capacity.

We decided to postpone our decision that we have planned due to tariffs. And you're now in the end or rather towards the beginning of Q4 for Scania basically.

In the US, we have totally normalized the lead times, and we are in a three months waiting time for all sorts of vehicles except vocational where we have a longer lead time due to bottlenecks in our supply chain. I shift it over to you, Michael.

Yeah. Thank you, Nicolai, for the question.

And since you know that we are not guiding quarters or RoS level for the brands, I cannot give you a specific number, but I would say very much in line with what Christian mentioned and taking into account that we said the major effect for the margins that you have seen in Q1 was the volume, both for MAN and Scania, I would say the math is quite simple. Yes, there is a potential for a better margin.

And maybe let me at least give you that comment. We have seen clearly a better volume at MAN in March compared to the first two months in the year, which gives us also quite confidence that we see here a better result in Q2.

Understood. Thank you.

Okay. Then the next question comes from Erik Golrang from SEB.

Thank you. I want to ask a few questions on China.

First of all, if you can confirm the start of production there. And then perhaps talk a bit about the type of products you've been producing there, when we might see orders being impacted?

And then finally, also the cost development or the impact on the P&L in '25 and '26. Thank you.

Maybe, Christian, first with the start of production?

Yeah. So, Erik, thanks for your question.

We are actually on plan here with this project. So we'll have an inauguration of the factory in the 15th of October.

And that coincides well with production starting in the beginning of October. We're already filling the factory with orders from both China and the rest of Southeast Asia.

We are, of course, building out the modular system gradually but we start with the main models for this region or the main -- in Scania world, the main components in the modular system utilized for these models, meaning that we target somewhere between 60% and 80% of the sold volumes in the region to start with. And then, of course, there will be a ramp-up where we will have volume restrictions, especially in 2025.

So I'd say the real target is to have a smooth, good ramp up in the first half of 2026. So that's somewhere where we are industrially.

I don't know if you want to continue with the financial impact, Michael.

Yeah. Happy to do so.

So, I mean, as Christian mentioned, going into China is really a strategic investment. We have communicated before at our Capital Markets Day that the total investment there for R&D and CapEx will be roughly EUR2 billion.

We have invested roughly EUR1 billion until end of 2024. So in other words, you can expect the remaining EUR1 billion to be invested in 2025.

And since you asked about the P&L effects here, you can roughly calculate that about half of that is planned to be directly expensed.

Thank you.

Then -- Nicolai, you're done, right? Then the next question comes from Akshat Kacker.

Welcome, Akshat, to the TRATON analyst team.

Thank you so much. Akshat from JPMorgan.

Just one housekeeping question left. Could you please comment on the overall R&D expenditures and CapEx that you're expecting for 2025 given the current uncertain economic outlook, please?

Thank you.

Well, what I can say is very much in line with our guidance, what we are projecting here is a significant increase in CapEx and the slight decrease in primary R&D. I would say, to put this into context, it's a given we're in the transformation here.

So we're investing in electrification, autonomous driving and software. In addition, as we also mentioned at our Capital Markets Day, we are clearly investing into our TRATON Modular System.

And then related to the question we just answered before, we're in the ramp-up phase for our China production facility. So if you take this all together, then this explains the significant increase in CapEx, where the main drivers are the China plant and also increased investments in TMS.

The reason why we project a slight decrease in primary R&D compared to the previous year, which might be a little bit counterintuitive, put in or taken into account the context I just mentioned, it's also quite clear that we also invest, of course, into R&D. But there is one aspect in 2024, we have heavily invested in R&D regarding electrification and especially the heavy-duty bus.

So this has changed now in 2025. This is why overall, we see a slight decrease here in primary R&D to give you a little bit more transparency in live here.

Thank you for that.

Next question from Shaqeal Kirunda from Morgan Stanley.

Hi, good morning. Shaqeal from Morgan Stanley.

Christian, could you please tell us a bit more about your China investment? How much of an impact did this have on Scania in Q1?

What kind of cadence should we expect for the rest of the year? And also, is it fair to say that EUR2 billion is quite a large investment for a factory of this size?

Or are there some additional factors to consider?

Okay, Shaqeal, yeah, I think Michael covered it actually quite well in the previous. So it's around about EUR1 billion remaining of total CapEx and one-half of that will be put into the P&L of 2025.

If EUR2 billion is a lot or not a lot, it's a bit a tricky question. It's a complete industrial system we're building up.

So you need to think of this as a new Scania Latin America. So there will be -- if you take it by function, there will be everything then from R&D, procurement, logistics, production over to the commercial functions.

We are, as we have communicated, considering a second brand as we have got a license for up to 50,000 trucks, which we believe are not reasonable to fill up with the Scania volumes only. And we are, of course, building out the organization as a whole.

We think one of the most important reasons for us to be in China, of course, beyond supplying vehicles to the region with short lead times and tailor-made specifications is, to learn actually from what is happening in the Chinese industry, perhaps not so much the truck industry right now, but the pass car industry is, of course, very, very impressing to see with the speed that they are scaling new technologies, especially on battery electric and on digital. So having an R&D presence with around about 500 people to start with, I think is crucial for us to make sure that we adopt to the technologies where we meet Chinese competitors and that's, of course, predominantly in the first and foremost or will be in China.

But I do believe that at least one, perhaps two of the Chinese players will be very successful globally, and we will meet them first in Asia and then in other parts of the world. And therefore, it's super important for us to be there to really hook into the Chinese ecosystem of technology, so not just employing people, but of course, also working in partnerships with universities, with suppliers or technology partners, et cetera, et cetera.

So it's really building a complete industrial and commercial system that can take on Asia for now and for the future. And I think, yes, EUR2 billion is a lot of money.

But I think when we see what we get for that in terms of future proofing, I think that's actually a very, very good investment. And you do remember that we have looked for this for many, many years from a Scania perspective.

We've known about our shortcomings in terms of delivery times and tailor-making for Asia but we never wanted to step into the joint venture trap, if I may call it like that. And therefore we have waited and now we've got this opportunity to build this ourselves and to run it ourselves and then we jumped on the train and four years later, we are now ready to start to deliver.

So I think that will be a fantastic thing for the Scania organization. Then we should all realize that it will take time, of course, before we have this factory fully filled.

And that's the backside of getting a big license, of course. But I think we will see a fantastic contribution here over the many years to come, both in terms of volume and in terms of technology.

I stop there.

Thank you very much, Christian.

Thank you. Very helpful.

Next question comes from Pal Skirta from Bankhaus Metzler.

Yes, good morning. It's Pal Skirta from Metzler Bank.

I have one question left and the question is regarding the TRATON Modular System. There have been some media reports suggesting that there might be some -- that you might have some challenges with the modular system project.

So I was wondering if you could maybe give us an update on the progress of the project and the integration of R&D activities between Scania and MAN. And do you think that we should expect any adjustments to the rollout time line?

And if so, what potential impact could that have on product momentum and your cost structures going forward? Thank you.

Yeah. Thank you, Pal.

I guess I'll take that one, Christian here. No, you should not expect any change in the time plan.

We continue on a very broad scale to address large parts of the technology platforms starting predominantly in Europe and then moving towards the west and then down towards Latin America in the coming years. Yes, it has been cumbersome in our environment, unionized with a history of local brands, maybe not the fastest decision-making, et cetera, et cetera, to get this huge endeavor up and running.

I was super proud and we worked, everyone, Michael, myself, but the whole -- I would say, whole organization has been involved in creating one R&D organization. And looking back, you would, of course, have wanted this to go faster.

But that doesn't make us any happier. Let's look forward now and rather see that now the team has really worked together under one management in technology areas that are global and allows us to basically work around the clock, not doing parallel work anymore, but really working sequentially on what needs to be done for the group.

It's a huge step forward. And I do not worry that we cannot deliver TRATON Modular System on time and over time.

But there are, of course, more pieces to this puzzle to be taken. But yes, the plans stick, and we expect and I don't think we have talked about exact time plans, to be honest.

I think you have read the speculations you mentioned in the press, I have seen one article. It's our good old friends in [indiscernible] magazine that continue to speculate on our short and foreseeable -- yes, let's not speculate what they actually speculate about, but there is nothing behind that.

So we remain really committed and convinced that we will be able to do a much better work, working as one team in R&D than working as four parallel teams. Michael, do you want to add?

You've been instrumental in making this happen.

Well, maybe I can just fill in and say that, Christian has mentioned, the R&D organization that we have in place right now will play an incremental role. That's very clear.

And I can say that just recently, last week, I talked to several engineers, took the time here to get the first-time impression, I can say that there is really a lot of excitement and energy. So I'm also very positive.

TMS is a strategic project for us, and we will put the right focus on this project to make it successful.

Thank you.

Thank you.

Next question from Michael Aspinall from Jefferies.

Yeah. Thanks, Ursula.

And good day, Christian and Michael. Just one over starting in the US.

The US Secretary of commerce announced that they're looking into the medium and heavy-duty truck and parts market on national security grounds. Do you kind of have -- can you give us an idea of what you make of this so far?

I know it's early days.

Well, let me maybe start and say, yes, of course, we are fully aware that they are looking into this. What is crucial for us, pretty much in line with what we mentioned also during our annual press conference that we are here, let's say, as flexible as possible which we are, let's say, on a short-term basis.

The point is, as you know and as we mentioned, also during the annual press conference, that we produce our Class 8 trucks in Escobedo in Mexico. So if we'd want to shift this, this would take certainly some time and would go in line with some investments.

But you can imagine that, of course, first of all, we are looking into various options. And then secondly, which is important for us, we are in good exchange here with policymakers in Washington, and we will continue to do so.

Okay. Great.

And then one over into Europe. You mentioned that Scania market share is kind of beyond your planning.

Do you have the capacity to maintain that market share if, say, the market does grow in '26? Or would you rather lose market share, but say, be running at kind of full utilization of your industrial facilities, generating high margins?

Just interested in kind of, yeah, where you're at in terms of that.

Yes, Michael. Scania's strategy is to be the price leader and always go for profitability over volume and being in the range of 16% to 18% of Europe's market has always been our target and we -- and currently we're on 18.8% after the first three months.

That's a little bit too much. It's, of course, impossible to control this in detail as there are lots of delays or lots of lead times involved in the delivery process.

But -- so no such target. But yes, I do believe that we have the capacity with the product range and the organization that we have to maintain this range of 16% to 18%, regardless actually where the market is growing.

And allow me also to add that with the China investment, we should not, as has happened in recent years, three times already, we should not end up in a capacity-constraint situation because, as you know, probably right now, we are shipping from Europe markets all the way over to Australia, but also China itself, of course. And every market in Southeast Asia and that we're now taking out of the European production and create space for us to have a well needed capacity as Europe has had tendencies over the cycles to grow all the way up and about 350,000 units.

But of course, it also gives us some space to focus a bit more on the logical near European markets such as North Africa, Middle East and other regions where we could be a bit more aggressive and still make really good money.

Thank you.

Thank you. Next one comes from Anthony Dick from ODDO BHF.

Yes. Hi, thank you.

Just one remaining on my side. It's on MAN.

I believe you started the production of a new engine in February this year. So I was just wondering if you could discuss this a little bit, what should we expect in terms of a ramp-up for that engine in terms of penetration?

And also in terms of the financial impact of that new engine maybe comparing it to what you did with the Scania Super and the S13?

Yes, Anthony, if I start a bit with the engine and then Michael, you can take the financial impact. But yeah, so it's the third brand in the group that takes on the FPT.

It's actually not only an engine. It's engine, gearbox, after-treatment software and axles.

It's been going, as you know, very well, in Scania and in International. We, of course, aim for better fuel economy, longer maintenance intervals and also lower waste.

So this seems to be repeating now in MAN. So we have, as you said, the successful integration of the factory.

We have started slowly the first deliveries. We are planning, of course, to completely replace current D26 engine with this one and this one is called D30.

So that's what you should remember, the D30 in the MAN lineup. We have seen the first customer reactions.

We have seen the first press tests, and it seems that the improvements in fuel efficiency are coming in, in the range of minus 4% to minus 6% so we're talking publicly about around about minus 5%, which allows for a good price increase and/or better demand up to MAN, of course, to balance this in the best possible way. What is, of course, also good is that with more proprietary gearboxes and after treatment systems, we also over time, with the rolling stock, will improve our services penetration.

So very, very curious also myself to follow the ramp-up. We have the first -- the SOP was in January.

And we're just now seeing the first customers take delivery but so far, we see a really positive feedback, which is, of course, great to hear. Maybe also to comment that this engine is, of course, very much based on the so-called CBE-1, which is the engine part of the FPT project, but we are then integrating this into a chassis and under a cab and into an electrical system.

That is not the same as Scania and that is not the same as International. And therefore, back to the earlier question on the -- from Pal on the TRATON Modular System.

Therefore, it's so important that we can come over to one modular system because then we could have had this engine in MAN up and running already three years ago, and the integration costs would have been lower, and of course, scale on more components would have been achievable and lower product cost. So I'm super happy to have this now finally in MAN, but I would have been even more happy if it would have been at the Modular System where we could have made this faster and better.

Michael, anything to add?

Well, actually not that much. I mean, Anthony, you asked about the financials, and you will understand that I can't give you no concrete number here.

But of course, I can attach my comments to exactly what Christian said. To put this into context one more time, we can say that the CBE story here continues after the Scania Super Driveline and S13, now with the D30 and the key factor, of course, is the energy efficiency that Christian mentioned, with roughly 5% in the case of MAN, which, of course, gives the advantage to our customers regarding the TCO perspective, which then also, as Christian mentioned, gives us the chance for a certain pricing.

So this is the positive financial effects that we are expecting that we have seen at Scania, that we have seen at International and that we expect to see also at MAN.

Thank you very much.

Thank you. Last analyst question comes from Hampus Engellau, and then we have one question from press.

Hampus?

Thank you very much. Two questions from me.

Firstly, Christian, if you could maybe give us an update on how International are doing on penetration rates with [indiscernible] and also linked that to potential service contracts on the back of this? And then I'll continue on the International, second question is just related to market share.

I know there's a lagging on the ACT numbers, of course. But if I look at those numbers, you were at around 13.5% market share compared to 11% if I look at the January, February numbers.

That said, if I look at the order intake, you were down 30%, transaction numbers are down 18%. So could you maybe talk about how you're doing in market share in North America for International despite tough market, of course.

Okay. Hi, Hampus, I guess, I take that one, at least the first part of it.

So yes, it continues to take market share, our S13 engine, as it's called in International. So we were at around 40% when we closed the 2024 year.

Our goal for this year is that we should come up and above 50% with the S13 engine which would give us then as you're into the advantage of having full proprietary business on the services. We do aim at always selling this product with a repair and maintenance contract and as we're gradually getting financial services also in place for retail customers in the US, we will also try to make operational lease contracts with these products.

This will, of course, have an impact on our P&L in the bit longer future. We need to get the population up.

But it's very illustrative to see the less resilience we have in the International brand now that the market is turning south, and we see that our over-the-counter sales of parts is taking a hit as customers are looking for cheaper solutions. And this is not something you can trace in Scania and MAN, where we have more vehicles under contracts, where we have less sales over the counter and where the parts are proprietary parts not being under such competition.

So it's really important for our strategy going forward that we manage not only the engine and the drive line but also the service contracts connecting to it, and that looks really good. In terms of market shares, yes, it is a bit -- also I'm learning as we go here with the US.

So we were a bit unhappy last year as we ended the year not where we wanted. We had the target, as you remember from our Capital Markets Days, even the first one saying that we should grow every year 1 percentage point.

We didn't manage as we ended up with Class 8 on 13.6% even if that was an increase. But we are year-to-date now very good and outgrowing the market.

But is that logical when we look to our total order intake figures over industry? No, not really.

So I'd rather stick to the statement and say that we are back on track and we are targeting to grow the market shares again when we close this 2025 year 1%, which would then put us -- if you look to medium and heavy duty together, it will put us somewhere in the range of 14% to 16% and then I would be happy with that. But ask me again after Q2, Hampus.

Thank you very much.

Okay. Then the last question comes from Thomson Reuters from Christina Amann.

Please go ahead.

Good morning. I hope this works.

I just have one question that goes back to Northvolt. Now you're saying that the order intake and the demand for battery electric vehicles has increased by quite a bit.

How are you able to fulfill that demand? Are you still getting cells from Northvolt?

And what is the way forward? Also in regard to the EUR100 million loan that you gave Northvolt in connection to the Chapter 11 procedure in end of last year.

Yes, Christina. Christina, I guess, I take your questions then.

So starting with do we still get cells from Northvolt? Yes, we do.

So now it's the bankruptcy estate that is running the business and we are, of course, very keen to get cells, and we actually get more cells than what we are consuming currently, which is somewhat of a paradox, of course, in this difficult situation. But I guess it's really good for the bankruptcy estate to keep running and trying to sell this as a running concern instead of shopping up selling the pieces.

We're very happy with the cells and the quality of the cells and the vehicles that you saw here in our numbers being delivered to Scania customers are performing extremely well. So the feedback from our customers is absolutely positive.

What we are doing to protect ourselves against a potential interruption then of Northvolt cells is to bring in more cell suppliers. And we are -- and we have advanced these plans and what we currently see is that there will be no major disruption in our supply apart from, of course, a restart of the ramp when you bring in one or several new suppliers into the vehicle.

So we're doing, of course, what we can to also accelerate that, but it's inevitable in industrial operations that you will have a ramp-up period where you have to safeguard quality by delivering lower volumes. We are expecting that then work to start during the summer vacations where we can prepare our factory as we are anyway standing still because of vacations.

You also asked about our EUR100 million loan that we have made against a good security in the so-called Northvolt Labs in Vasteras, big industrial facility. Well, status there is that Northvolt Labs continues to operate, and we still hold this security.

And we, of course, hope for a buyer to step in and take over both Skelleftea and Labs. And in that case, we would, of course, sell back that security and get our money back with interest.

But how that goes is, of course, something between the bankruptcy estate and the potential buyers. So I cannot really comment upon that, but that you have to ask him.

I hope I covered your Northvolt questions. Did I?

Thank you very much.

Thank you.

So thank you, Christian and Michael. Thank you, participants.

With this, we are concluding our event. In the next two days, we will intensify our discussions with some of you during our roadshow in Frankfurt and London.

And on 14th of May, we will hold our Annual General Meeting. In the meantime, if you have any questions, please reach out to the Investor Relations or the Corporate Relations teams.

With that, we wish you all a nice remaining day. Goodbye.