Good morning. Welcome to the Volvo Group second quarter press conference.

Today we do as we always do, we listen to our President and CEO, Martin Lundstedt, and then follow up with Mats Backman, our CFO, and then finalize with the Q&A. With that, I leave over to you, Martin.

Thank you very much for that, Johan, also welcome from my side. Even if it was a short introduction, I have to say it's always a little bit emotional to see our fantastic products in action.

Second quarter 2026. I would like to start by saying that the group and in reality, of course, all colleagues and business partners delivered very strong and solid results in the quarter.

Adjusted operating income over SEK 14.8 billion and a margin that expanded to 11.7%, demonstrating strong earnings resilience and growth despite the many moving parameters such as continuous geopolitical turmoil, tariffs, as well as higher freight and material costs. Performance was good across business areas with high customer confidence in our products and services, reflected in a strong order intake and low cancellations throughout the quarter.

The group also launched several new business offerings, as well as portfolio moves to further improve our competitive set. I will get back to that during the course of this presentation.

Quarterly order intake developed also positively with an increase year-over-year of 33% for Group trucks, as one example. When it comes to the market forecast for the full year, we are, for trucks, continuing to revise slightly upwards Europe while reiterating the forecast for North America, given that the first half year was relatively weak when it comes to deliveries into the market in North America—a catch-up will be needed there.

Order intake has been strong, as you have seen. Another example is the rapidly growing demand for power solutions, not at least linked to data center and AI infrastructure, resulting in an impressive 21% of Volvo Penta's order book value now is related to data center built-out.

Looking ahead, we continue to focus on what we, as a group, together with our partners, can impact by staying close to our customers, thereby driving growth and resilience. We remain responsive to geopolitical developments, trade policy shifts, and the speed of transitioning to zero emission transport.

Operationally, here and now, our flexibility toolbox serves us well to execute on the strong order book, but also maintaining balance between demand and supply and keeping inventories at the right level. The ramp-up for trucks in North America is currently a key priority.

Our focus also remains regarding effective cost control. We actively pursue commercial efforts to mitigate the increases in freight and material cost.

The priority of the service business is giving good results. Services did grow with 7% organically, showing that our customers have a good utilization in their fleets.

All in all, our flexible business model creates maneuverability to leverage the current environment, to grab the opportunities, and to continue to create value for customers, for employees, and for shareholders. There is a continuous and growing structural demand in the world for efficient and effective transport infrastructure and not at least energy solutions.

The group is well positioned to move ahead and to grab these opportunities. Looking at the figures, the first quarter net sales amounted to SEK 126 billion, with an organic sales growth of 7%.

We continue to focus on earnings quality. The adjusted operating income amounted to SEK 14.8 billion, with an expanded margin to 11.7% in the quarter.

Operating cash flow amounted to SEK 5.8 billion, mainly driven by higher earnings. The industrial operation net financial position at the end of quarter one amounted to SEK 34.7 billion.

Return on capital employed reached almost 27%. Earnings per share amounted to SEK 5.1 per share.

We can conclude another strong quarter. I would like to take the opportunity also to thank all colleagues and business partners for great effort during this quarter.

Coming into group news. In the quarter, Volvo Financial Services and Eicher Motors Limited intend to form a joint venture tapping into both Volvo and Eicher-branded commercial vehicles.

The intended joint venture will provide financing, leasing, and other financial services for customers of, as I said, Volvo and Eicher-branded commercial vehicles in the Indian market. That is a great opportunity.

The closing of this deal is expected during the first half of 2027, pending approvals from authorities. It is a very important next step in a market that is expanding rapidly and where we have a strong position.

On June 10th, we held the Volvo Group's Capital Markets Day in Eskilstuna, Sweden—Built for Resilience and Growth. A well-attended day with a lot of good interaction with our investor base, but also other key stakeholders.

A lot of good interaction and feedback on that. Volvo Group and Renault Group, together with CMA CGM, has completed the strategic change for the joint venture, Flexis.

The transaction, meaning that Flexis is moving into Renault Group, was closed in June. Volvo Group also reached a settlement with the California Air Resources Board during the quarter.

When it comes to volume developments, truck deliveries increased by 6% to 55,700 vehicles, with higher volumes in Europe and South America, but with lower volumes still in North America, from a delivery standpoint, and also in Asia. Volvo Construction Equipment's Volvo-branded volume did grow 14% in the quarter, driven mainly by North America, but also, to some extent, by Europe.

When it comes to electrification progress, orders of electrical vehicles increased 39% to 5,500 units, 12 months rolling. The increase was primarily driven by Renault light commercial vehicles, but also that Volvo Trucks took more orders for their heavy-duty electric trucks year-over-year, that is also coming with the introduction of the new long-range and versatile platforms for Volvo.

Deliveries were largely flat on a -2% level. Sales development, vehicle and machine organic sales growth was 6% in the quarter.

Trucks did grow also with 6% FX adjusted, driven by sales in Europe and South America. Volvo CE had a sales growth at 14% in the quarter, driven by good sales across Europe, North, and South America.

Bus net sales were down 2%, mainly caused by somewhat softer sales in Europe. Penta net sales were down 4%, mainly caused by lower sales to the Middle East, where some of the deliveries of power generation equipment has been temporarily paused due to the conflict situation that is happening for the time being in the region, unfortunately.

We are expecting that to come back, so that is temporarily paused. Service sales development.

Organic service growth amounted to an impressive 7% in the quarter. What was very positive, it was broad-based positive development across business areas.

The 12-month rolling service sales increased to SEK 126 billion. This is also showing that what we discussed during the Capital Markets Day, that our work with the total offer for every customer is really paying off here.

Services is a very important focus area, and our efforts are paying off when it comes to not at least our service contract portfolio. We see that when we have the service contracts, also, it gives high retention with our customer base, but also high resilience and less volatility for the group.

Moving into trucks then. In May, Volvo Trucks showcased their brand-new high-performing 13-liter combustion engine platform, which will be implemented now step-by-step globally.

The platform is also, alongside with diesel fuel, ready for renewables and alternative fuels, such as biodiesel, HVO, biogas, and green hydrogen. Sales will begin during the third quarter 2026.

In June, Renault Trucks, followed also Volvo, showed their next-generation of battery electric heavy-duty, the Renault Trucks E-Tech T, which has an impressive range of up to 660 km and with maybe, in that sense, a leading payload reaching up to 27 tons. Sales started for Renault here end of June.

Mack Trucks celebrated America's 250th anniversary with a debut of a limited edition America 250 tribute truck, a custom-designed Mack Pioneer honoring the company's deep American roots and its long-standing role in helping move the country forward. When we move into the market forecast for trucks in North America, we repeat our market outlook at the 265,000 units in retail sales.

That is sales out from dealers down to customers. Orders levels have been elevated in recent months while retail sales pace or the deliveries then, is expected to gain momentum in the second half of the year.

Any EPA 2027 pre-buy is included in our current view, but it means that we need really now to get deliveries out during the last part of the year here. For Europe, the forecast for 2026 is increased by 5,000 units to 315,000, on the back of continued strong underlying demand in the market.

Brazilian market continues to hold up on the back of the Finame financing support package, and we repeat our market forecast of 80,000. Demand in India has continued to grow—supported by steady freight activity, continued investments in infrastructure, and supportive government policies and healthy replacement need—repeat our Indian market forecast of 400,000 medium and heavy-duty trucks.

The total market forecast for China had been lifted with 120,000 units up to 880,000 units on the back of extended trade-in program aimed to modernize the fleet. That is really continued to decouple the transport sector from fossil fuel dependence in China and continued to boost battery electric vehicle sales.

Book-to-bill, of course, very positive picture here. Recent order momentum across region supports a continued positive book-to-bill.

For globally, the book-to-bill was at 170% in the quarter and 106% 12-month rolling. We have gradually been ramping up and are well balanced on the industrial side to meet the customer demand.

As I said already, focus will be on a continuous ramp-up in North America during the second half of the year here. North America, in itself, then has been strong with 150% in quarter two and 133% 12-month rolling.

Europe in balance, but should be remembered that is on really good and solid levels. South America, strong given Finame programs.

On the truck market share side, in Europe to start with, Volvo and Renault Trucks continue to deliver strong market shares through May. Volvo at 19.6% and Renault at 9.3%, giving a total share of almost 29%.

On the battery electric side, more OEMs are now delivering battery electric solutions. Volvo and Renault Trucks delivered a 24% combined market share for the quarter.

To be remembered is that our recent launches of the next-generation long-range and versatile electric trucks will regain momentum both for Volvo and Renault. We proceed with our three-pronged approach with diesel, electric, and hydrogen to drive both decarbonization and to meet the demands from the customers.

In North America, we had a combined share of 17%. Mack Trucks is at 8.4% and Volvo at 8.6%.

Volvo Trucks are back on the right track and regain gradually their position, and further support from over-the-road or the sleeper segments is expected for Volvo. In Brazil, remains at good level and reached a market share of 23.2%.

In Australia, the combined Volvo and Mack market share reached 21.4%. Moving into construction equipment.

Volvo Construction Equipment had, first and foremost, the Volvo Days 2026, a big customer event that was held in Eskilstuna. Focus was on, of course, a lot of our new products and services, productivity, sustainability, and long-term customer competitiveness.

Over 8,000 guests participated over the course of four weeks, of course, including mainly customers from all over the world but also retail partners and employees, but also representative from society, at large, policymakers, investors, and suppliers. In mid-June, we held also the groundbreaking ceremony for the new excavator factory in Eskilstuna together with Sweden's Prime Minister and Deputy Prime Minister.

This SEK 700 million investment reinforces Volvo Construction Equipment competitiveness, industrial footprint, and proximity to customers in the important European market for excavators. The new factory is set for completion in 2028.

In the quarter, Volvo CE also delivered the world's first electric articulated hauler, the Volvo A30 Electric, and that is, of course, also fit for good operation, given the more confined nature. We see an increasing customer interest around this and showcased, not at least, during the Volvo Days here.

Market forecast, no drama at all. On the other side, if we start with North America, we are lifting North America with 5 percentage points.

We guided flat as midpoint previously, but now we guide +5% in relation to previous year, supported by investments in data centers, energy infrastructure, and manufacturing onshoring. Europe, we had already +5% as midpoint in relation to last year, we keep that at the same level as previous quarterly report on the back of continued infrastructure development, good machine utilization.

South America, also keeping unchanged, but, in this case, on a flat development in relation to last year. We are little bit taking down and decreasing Asia from flat to -5% as midpoint on the back of the softer markets in Turkey and Middle East and somewhat in India as well.

China, we are lifting from +5% midpoint to +10%. Here, we see growth supported by government policies to stimulate the real estate market and export industries.

When it comes to the book-to-bill, they reached a 92% in the quarter and 102% 12-month rolling. Here, it's important to mention that orders were up 8% and deliveries up 14% for the Volvo brand.

We have a good order coverage for both Europe and North America. In Asia, the lower book-to-bill is driven by somewhat decreasing markets in Turkey, Middle East, and India, as I previously mentioned.

Buses, first and foremost, Vy Flygbussarna—airport coaches operating between main cities in Sweden and the airports—placed an order of new 25 coaches, and also complete the gold service contracts to be used for, as I said, then for between the cities and the airports. We also introduced the Volvo Buses' new electric coach into operations and start on the route between Gothenburg and Landvetter Airport.

Book-to-bill was 62%, some seasonality in this from an order intake in the quarter. Volvo Buses have a balanced fill rate for the year and book-to-bill 12-month rolling at 92%.

For Volvo Penta, continued to introduce new versions of the IPS Hybrid platform, expanding its hybrid electric marine offering into the professional vessels segment with a strong customer interest, given the performance of this execution. Volvo Penta also strengthened its position in the growing data center segment and expanded its strategic collaboration with Utility Innovation Group.

Data centers, as I said, now represent 21% of Volvo Penta's total order book value. Volvo Penta's book-to-bill at good balance with 96% in quarter two and 97% 12-month rolling.

Moving into financial services, continued to profitably grow their portfolio on a currency-adjusted basis through solid new retail financing. The 12-month rolling penetration rate was sustained at 30%.

Portfolio performance continued to be good with maintained earnings resilience. Of course, we are now continuing to focus on the total offer, as again described during the Capital Markets Day, where VFS, together with our business areas, are playing a very important role, both for customer finance, but also in the growing insurance segment.

With that, Johan, I leave the word back to you.

Thank you, Martin. Thank you for the business update.

Now, returning to Mats to take us through the financial numbers for the second quarter.

Thank you, Johan. Looking into the financials, and starting off with group net sales.

Organic net sales increased by 7% comparing to last year. Vehicle sales increased by 6%, driven by trucks and construction equipment.

Service sales increased by 7%, with contribution from all business areas. Looking at organic net sales development in the different geographical regions.

European volumes increased, which led to an increased sales of 13%, driven mainly by group trucks and construction equipment. In North America, sales were slightly higher by 4%, driven by construction equipment and buses, but this was partly offset by trucks.

In South America, net sales increased by 9% versus last year, supported by all business areas. In Asia, net sales decreased by 3% in the quarter.

Overall, FX effect was negative, with about SEK 1 billion in the quarter. The adjusted operating income for the group was SEK 14.8 billion, with an adjusted operating margin of 11.7%.

In Q2, earnings were again supported by the positive development of a service business, a positive brand and market mix, and R&D net. The U.S.

tariff net cost was on the expected level of about SEK 1.2 billion, with a negative year-over-year effect of SEK 1 billion. In the second quarter, we continued to see higher freight cost and increased material cost related to inflation and the current geopolitical situation.

The year-over-year increase in selling cost is mainly due to selling cost from acquired businesses. The net R&D capitalization effect in the quarter was positive at SEK 1.3 billion, with a year-over-year effect of SEK 600 million.

FX had a positive impact of SEK 500 million in the quarter. The second quarter cash flow amounted to SEK 5.8 billion.

The positive cash flow contribution in the quarter was mainly driven by higher operating income and a lower buildup of working capital. Return on capital employed trend improved to 26.8% on a rolling 12-month basis.

Net cash in industrial operations amounted to SEK 35 billion, and the decrease versus first quarter is mainly related to the SEK 26 billion of paid-out dividends. Group Trucks organic net sales increased by 7%, and this was driven by higher volumes and positive development of our service business.

Adjusted operating income amounted to SEK 9.7 billion, with an operating margin of 11.2%. Higher volumes in Europe and South America, good development of the service business, and lower R&D net were partly offset by increased freight and material cost.

Currency had a positive impact of SEK 300 million in the quarter. Construction equipment net sales increased by 13% versus last year, and this was driven by higher volumes and positive development of the service business.

Adjusted operating income reached SEK 3.1 billion, with an operating margin of 14.4%. Positive development of our service business and brand and market mix were the main drivers behind the improved performance.

In the quarter, U.S. tariff and material costs had a negative impact on the financial performance, and currency had a positive impact of SEK 180 million in the quarter.

Looking into buses. Organic net sales were stable versus last year.

Buses delivered another strong quarter with adjusted operating income of SEK 498 million and 8.2% in operating margin. The result was supported by price realization and positive brand and product mix.

In the second quarter, material cost and U.S. tariff costs were building up and had a negative impact.

Currency had a positive impact of SEK 18 million in the quarter. Penta organic net sales were on the same level as last year.

Adjusted operating income amounted to SEK 908 million, with an operating margin of 16.7%. Price realization and strong development for the service business were offset by lower volumes, higher R&D, and U.S.

tariff costs. Currency had a negative impact of SEK 37 million in the quarter.

Looking into financial services. The credit portfolio increased to SEK 274 billion, with a rolling 12-month return on equity of 10%.

Portfolio performance continued to be good, with delinquencies and write-offs under control. The adjusted operating income amounted to SEK 1 billion, supported by good portfolio growth, but partly offset by an increase in credit provisions.

Currency had a positive impact of SEK 26 million compared to the same quarter last year. Finally, looking into the forward-looking guidances and starting off with the FX.

We expect a positive currency impact of approximately SEK 500 million year-over-year in the third quarter. The underlying net impact from tariffs in the third quarter is estimated to SEK 1.1 billion, but expected to be fully offset by IEEPA refunds, giving a total net tariff effect of around zero in the third quarter.

We expect an R&D net capitalization effect of SEK 3.5 billion for the full year 2026, with a year-over-year negative effect of about SEK 500 million. Finally, we reiterate the guidance from last quarter for a tax rate of 24% for the full year 2026.

With that, I'm leaving for Martin to summarize.

Thank you very much for that, Mats. Really good walkthrough when it comes to the financials.

I will do the summary very brief. Obviously, first and foremost, again, would like to thank all colleagues and business partners for very strong quarter and great work performed here.

We see that also when it comes to the top-line development, organic development of 7% up to SEK 126 billion. Especially, would like to mention the service development, also organically growing with 7%.

Of course, we continue to support the business here, but also the order intake, not at least when it comes to Group Trucks. Moving forward here, it is full focus of executing on the order book that we have.

Also, to make sure that we are having a good level of adaptability when it comes to the commercial conditions moving forward in order to mitigate the freight and material cost for the company, as we have been doing in this quarter. That is the summary, I think, Johan, and let's get started with the Q&A.

Thank you, Martin. We move into the Q&A session, and we have a number of banks on the line.

We will start with Shaqeal from Morgan Stanley. Please go ahead, Shaqeal.

Good morning. Shaqeal from Morgan Stanley.

Martin, there still seems to be quite a gap between North America orders and deliveries. Obviously, we started to see freight activity pick up somewhat, but it's not quite booming.

The latest EPA proposal seems to indicate that the incremental cost of compliance is also relatively low. What's your sense of customer sentiment from there?

Is there any concern with those later deliveries, or are you quite confident in the sustainability of the upturn?

Thank you, Shaqeal, for that question. That is one of the key topics now moving forward for us.

There is an underlying support for this figure, knowing that we have been into a freight recession, not at least when it comes to the long haul, for quite some time. That is also reflected in the age of the fleet, et cetera.

We should also remember, between the order intake and the actual deliveries of what we are calling retail sales out from our dealers, there is, so to speak, a process to get this out. Since the year started relatively weak, as you remember, we had stop days in quarter one, and also we were not fully in balance up to mid-May.

The second half of the year now is, of course, a delivery semester for us and for the industry in order also to reach. From time to time, we get the question, why don't you change the 265,000 guidance?

We should remember that during the first six months, it has been considerably lower than 50% of the 265,000. That implies an uptick here.

Of course, there is still now discussions ongoing, how will exactly the EPA 2027, so to speak, transition look like? Again, I think the underlying fundamental is important.

It is important then to manage, so to speak, in a good way, quarter one next year. At the end of the day, that is normal business for us.

What we have in the order book and the order coverage we feel is solid both for Mack and for Volvo.

Very good. We continue in London with UBS, and we turn to Hemal.

Please go ahead, Hemal.

Hi. Good morning, Martin, Mats, and Johan.

Hemal Bhundia from UBS. Just in terms of the higher cost from freight and raw materials, is this across the group or are there certain regions or divisions where you're seeing these greater cost headwinds?

Is pricing the only option you have, or can you pull on other levers, such as negotiating with suppliers?

No, I would say it's across all the business areas. It's more a general inflation.

As we said in the report, what we're doing is we are gradually increasing prices. We see a gradual price realization coming there.

That we are on top of it, so to speak, but it's definitely cost inflation out there. It is.

It's more general, I would say, than specific. If you're looking specifically, like Martin said now, in the quarter, more pronounced what we saw at Volvo Penta with the delays on deliveries and thereby lower volume.

That's a concrete difference, if you're comparing the different business areas, but, otherwise, more of a general cost inflation, I would say.

I think that's very important to reiterate what Mats is saying. It's not reflected to Volvo, or not even to our industry.

It's more the general, so to speak, pattern, given that you have had disturbances, et cetera. Having said that, I think you have seen that, during a number of years now, different type of events like that.

We have also been showing that we are really good in working with the compensation, both when it comes to operational efficiency, when it comes to working with the supply base, as you alluded to, but also when it comes to the commercial conditions, obviously. That will continue that work.

Good. We continue with Goldman Sachs and Daniela Costa.

Please go ahead, Daniela.

Hi. Good morning.

Thank you for taking the question. I wanted to ask on your truck guidance upgrade.

Can you elaborate a little bit on what you see underlying, because we have been seeing the European markets okay for awhile while macro headwinds continue, and exactly where we are on that replacement cycle? Do you think this can continue into the coming year, or is there anything a bit more structural that is driving this?

Thank you, Daniela, for that question. We have continued to see, in the different European regions, continuous good activity, both when it comes to deliveries, low levels of cancellations, and good order activity.

Also, when it comes to the utilization of the fleet. Now, it's not a dramatic, so to speak, revision.

It's +5,000. Still, it shows that it's holding up well.

I also would like to say that, even though we are talking about solid levels—310,000, 315,000—that we are now guiding for, are of course good levels, but they are not extraordinarily good levels also because, if you look at four or five years back in time also, we have been considerably higher. If you think about replacements, we are not concerned that we are replacing too quick in relation to the rolling fleet.

When it comes to the structural opportunities that are ahead of us, I think they are a little bit yet to be seen. Somewhat, we have seen that when it comes to e-commerce, et cetera, not only in Europe.

I think when it comes to defense, energy infrastructure, and other type of more structural opportunities moving ahead, they are yet to be seen. There is an underlying demand that we think is solid here.

Good. We continue with Citibank and Klas Bergelind.

Please go ahead, Klas.

Thank you, Johan. Hi, Martin and Mats.

Klas at Citi. I just want to ask on tariffs, Mats.

First on Section 232 and the offsets here, obviously IEEPA will impact positively in the third quarter, but what are you hearing on the Section 232 offsets? On my calculations, the MSRP offsets in trucks can almost offset your annual tariff bill in trucks, which could come on top of the IEEPA.

Do you think this can come through this side of the year or more next year? Thank you.

Without kind of guessing, but taking one step back and looking at the total picture, because it's a lot of different moving parts right now when it comes to tariffs. What we said for the second quarter was that we guided for SEK 1.2 billion, and that's what we saw as well in the quarter.

We talked—when we reported the first quarter and gave the guidance for the second quarter—a little bit about the extended scope when it comes to the Section 232 for construction equipment, including excavators and wheel loaders as well on top of the previous kind of ones included in Section 232. That had now changed during the quarter.

Now, they are back on the original scope again. If you're looking at the guidance we are giving for the third quarter, we are slightly lower on the total net impact of SEK 1.1 billion as an underlying.

Then on top of that, we have the IEEPA refunds that will be a wash for the full net impact for tariffs. Saying zero for the third quarter, including the IEEPA refunds.

We have an underlying run rate when it comes to the tariffs in the third quarter of SEK 1.1 billion. You are right, when it comes to the Section 232 credits, we have nothing included from that in the quarter.

We are not kind of guessing either. If you're looking at the third quarter guidance, it's nothing included, and let's see if it will happen in fourth quarter or not.

What we need is guidance for how to file those kind of claims and so forth. That's not there yet then.

We are kind of prudent when it comes to making accruals on that side. It's not included anywhere.

It's difficult to guess if that will impact the fourth quarter or not, but that's where we are.

I can just add to that also that Mats and the team and our entire team in North America, we are working very closely with the related authorities on this. Exactly when it will happen, I think let's see.

The process is ongoing in any way.

We will be there when it happens.

We will be there when it happens.

Thank you. We turn to Bernstein and Harry Martin.

Please go ahead, Harry.

Hi. Good morning, everyone.

I wanted to ask about the production ramp in North America in the second half of the year. Clearly, a significant ramp-up to close to peak run rates.

It looks like, on the data we have, industry deliveries or production disappointed a little bit in June. Have you seen any supplier delays or any other issues ramping capacity in the nearer term?

Is there any risk to the outlook for the second half of the year? A final sort of related thought or question, will you use the new plant in Mexico to ease any of these constraints and put some volume into the U.S.

market this year as well?

Thank you, Harry, for, of course, a very important relevant question now. So far, the ramp-up is going according to plan, but you are right, it has been a rather long period, not only for us as OEMs, but also for our supply base, with rather low figures.

Of course, now, the whole value chain needs to come together in order to really do this ramp-up. So far so good, but as we will continue to ramp up, because that is what will happen now during the later part of the last semester here, of course, this will be one of the key focus areas, as I alluded to in the presentation.

Full focus on that, obviously. When it comes to Mexico as such, I think where we are right now, we can cope with the two main facilities that we have in Virginia and in Pennsylvania, for Volvo and Mack, respectively.

As we go along, and the market will continue, not only for North America, but also for other markets here, Mexico will continue to. We have started, so to speak, the test production there, with very good results as well.

We are planning to gradually, softly ramp up during the later part of this year. That is going according to plan.

That will not be the limiting factor when it comes to final assembly, as we judge it now for the remainder of this year. It's rather, to your point, that we are keeping the whole system together.

So far so good, but there is a lot of work to be done now to make that happen.

Thank you for that answer. We are turning to Bank of America next and Alexander Jones.

Please go ahead, Alexander.

Great. Thanks.

Good morning. Just on EPA 2027, the proposed final rules came out last week and included an option of not complying and paying a penalty instead.

Does that change your plan at all on how you think about the engines for your U.S. trucks into 2027, and how you expect others to react too?

Have you seen any impact on customer sentiment or order trends as a result? Thank you.

Thank you, Alexander. I think that is obviously a question that is a little bit early out from a customer perspective, since it is still in the making.

As you said, the final, so to speak, proposal is out there. If I start from a Volvo standpoint, we will make sure that we are offering what the customers want to buy.

That means that with this opportunity of providing both the current, still really high-performing technology, both when it comes to emissions and fuel efficiency, we will continue to be there with this proposal, as well, of course, as the continuous certification of the next level. It is up to the customers to judge whether you want to have that—you can say offset, you can call it penalty, but I should almost call it as a trading parameter—since that will be paid to the government, as we see in the proposal.

I think the most important is that we will keep the optionality for our customers to choose the solution that they prefer with a framework that has been decided by EPA here. There we have, of course, a strong structure with our regional value chain in place, primarily in the United States than for North America.

Good. Thank you.

We are continuing with Jose Asumendi from JPMorgan. Please go ahead, Jose.

Thank you very much. Good morning.

Martin, just a question on the U.S. and your truck market.

Do you think there may be any signals of a pre-buy effect in the U.S. in the light of maybe potentially trucks becoming more expensive in the U.S.

in the second half of the year in comparison to the first half? Second, Mats, on order backlog on Penta, can you give us a bit more color on the data center.

That proportion of the order backlog is very interesting. It is growing very quickly.

Can you give us a bit more sense of how quickly data center, in terms of orders, is growing within Penta? By region, geographically, where are you seeing the biggest orders coming from?

I guess this business, this division within Penta will be margin accretive, right?

Absolutely. If we start with the first question that was on the truck market, I should say that I think already, when we look at the order book now, when the order coverage is rather full for us, given that they are the weak start and to get to the 265,000 total market and our market share ambitions, I think we are where we are basically.

As we said, the EPA 2027 possible pre-buy. Now, as was also discussed in the previous question, there are sort of a new framework that possibly partly can ease also a little bit that type of mitigation activity, but that is yet to be seen.

Underlying, I think it is important also to remember that it has been a rather long period now of a freight recession, and there is a need of starting to replace. I think it is a very important step also for the customers to be able to choose also from technologies that is well-known for them, even if that will then come with a higher cost as from next year.

Again, underlying, there is a strong momentum here. If I may maybe start a little bit with Volvo Penta as well, to your point, very strong growth when it comes to the order book, 21% now for Volvo Penta.

That is in light of the fact that the other segments in Penta is also strong. What we see is really that with the rapid built-out and also for both the data center operators, but also the final customers, understanding how they can utilize our type of solutions that we are working with key partners, mainly now in United States, gives also for the backup power solutions, a very efficient way of ramping up, both when it comes to the CapEx, but also when it comes to the lead times and capacity.

Also, when it comes to resilience, because you're utilizing our big bores, but that are, of course, small bores in relation to some other alternatives. For backup, that is a perfect solution.

I think we have really understood how to work within these ecosystems with key partners. Currently, it's mainly related to North America and United States, but this will eventually play out in all regions in the world, given the importance.

There, of course, the Volvo Penta reach and network, through the Volvo system, will play a very important role. We remain very bullish about our own role in this growing segment.

I think you summarized it well. It's a good profitability, on top of that.

Brilliant. We're turning to Nordea and Agnieszka.

Please go ahead, Agnieszka.

Thank you, and good morning, Martin, Mats, and Johan. I have a question on the kind of profitability that you're seeing right now improving in the quarter by 70 basis points year-over-year, and even more so for trucks.

Could you please talk about what you're seeing to H2? Can you keep that kind of improvement trajectory running, given stronger volumes, benefits from FX and tariffs, and so forth?

Or will the higher input costs kind of offset that benefit?

Maybe to kind of summarize the information we have in the report, and especially coming to the kind of the sequential development looking, coming from second quarter into the third quarter. I would—on the positive side from a sequential point of view—highlight three areas.

First of all, that we have a balanced production system now, and we are ramping as well, because in the second quarter, we still have parts of the quarter with an under-absorption than in North America, but now we are kind of balanced into the third quarter. Secondly, as we clearly stated, the IEEPA recovery or refunds, that is also having an impact on the third quarter.

Also, that we have a gradual price realization now going forward. Three items on the positive side when it comes to the sequential development.

Looking at more of the, if you can call it, challenges into the third quarter. First of all, we always have a seasonality into the third quarter, and I think that is important to remember.

Because we have lower volumes in Europe due to the vacation or the holiday period in Europe, and it is a normal seasonality also this year, to remember that. Secondly, as we clearly guided, if you are looking at the R&D capitalization, we have had the bulk of that in the first half of the year.

If you add first quarter and second quarter together, we have had a year-over-year positive impact of about SEK 1.4 billion for the first half. We are guiding for a full year negative SEK 500 million when it comes to the R&D capitalization effect.

That will also turn a little bit as a headwind in the second half of the year. Finally, as you said, we have the cost inflation, but we are working actively with pricing and the price realization in order to mitigate that.

You can always see kind of timing effects in that as we have an order book as well. We are kind of mitigating that effect.

That's in a nutshell, looking at the sequential development into the third quarter and also into the fourth quarter.

I think on top of it, Mats, we are very positive and focused also on the service business.

Absolutely.

Always, sequentially, but I still think that the +7% underlying that we have now is, of course, giving good support for us.

Also, if you're looking at the fundamentals, it's a good utilization, both on the truck side and the machine side, so that is continuing to drive the service business. You're right, Martin.

Good. Returning to Danske Bank and Björn Enarson.

Please go ahead, Björn.

Thank you. Talking a little bit about the same topic here, but on the production ramp.

Can you give us some color on where you are in terms of production planning for upcoming quarters for trucks and perhaps also CE?

Thank you, Björn. As we said, we have been already on solid and rather high levels in the European production system, obviously.

Even if we have also been doing certain adjustments there with the continuous underlying strong, so to speak, demand. The other big topic for us, and somewhat also in South America, given also that we have seen that with the financing program, et cetera, and a good balance in these two systems, and they are, so to speak, also very solid in doing this type of flexibility moves.

A very high focus is, of course, on the ramp-up in North America. If you do the math, and you have also the figures, obviously, what is the retail deliveries up to June?

If you're thinking about the 265,000 market in total, that requires a rather big effort now of ramping up in the United States for us. That is what we are working on, obviously, and doing that in a number of steps, both for Mack and for Volvo.

When it comes to construction equipment, generally speaking, even if we had the positive development there also on the order intake, we have, so to speak, the right balance and good capacity to cope with that. I think it was +8% when we look at the overall figure, so to speak.

Sequentially, we have that opportunity. We are in good balance there.

Very good. Thank you for that.

With all these good questions, we'll let Hampus Engellau wrap up this second quarter Q&A with his questions. We turn to you, Hampus.

Thank you very much. Two questions from me, and I guess they're linked.

Firstly, with the EPA 2027 truck and engine out from you guys, can you maybe tell us something more on pricing here versus customer feedback on performance? How they are feedbacking on this?

I'm a bit puzzled on production here. To sell the 2026 truck in next year, it needs to have an engine produced by December 2020.

How are you balancing it? Are you building more engine inventory in the autumn to bridge this, given that you have a higher customer demand for 2026 models?

Or are 2027 models, from my previous questions, sufficient to be competitive at current levels? If you could maybe talk us through this a bit to understand here.

Thank you.

Thank you, Hampus. I think also that is, of course, related down to the recent developments that has been announced by EPA, that it looks like now that they will allow, so to speak, this bridge solution for the coming two to three years, by utilizing, so to speak, the existing technology, but that will come with an add-on fee.

Ultimately, that will be a customer choice, obviously, because both the technologies, and we sit on both of the technologies, are high-performing. It comes with the pros and cons, depending on what type applications you have.

As we see it as an early judgment now, it's very important that we will continue to have, so to speak, the offerings of the current platform that is really performing for us also with the latest introductions that we have done, both on the 30-liter but also on the 11-liter platform. You are right.

At one point in time, you need, so to speak, to absorb the new system, regardless if you're talking about the new technology, that was the EPA 2027 type of execution, or continue with the existing technology with the offset cost that has been announced. We are, of course, looking into what exactly that means.

Regardless of that, at one point in time, you need to mitigate into the new, and that will go for the whole industry and for all customers. It will, of course, be planning around how to do this now between quarter four and quarter one.

I think with our regional value chain that we are having in the United States for North America, we can be very close in working with this fine-tuning. Let's see exactly how it will play out now, because it has been a very recent development, as you're aware of.

We are onto the subject. More importantly, that we have the portfolio both for the current and also for what is about to come.

That is what we will work on moving forward here.

Thank you for that, and thank you for all the good questions. All the materials is posting on our website.

With that, we thank you for today, and we see you next time. Have a nice summer.

Thank you very much.

Thank you.

Good to see you guys.