Volvo Car AB (publ.) (VOLCARB) Earnings Call Transcript & Summary

Hi, and welcome to Volvo Cars and this presentation of our year-end report 2021. We will start out with a short presentation and then follow up with a Q&A session. [Operator Instructions] And by that, I would like to present -- leave the presentation to Hakan, our CEO.

Thank you, Anna, and welcome all of you to this presentation. And I would like to start with really a short summary of what happened in the last year. And then Bjorn and Per will give you more insight into the year. But a summary of the year-end, including the quarter 4 is, of course, a year to be proud of, something I easily would like to say and I think all of us in the company would underline that. It was a year with an all-time high revenue, SEK 282 million market share. On the global car market now, we are above 1% of all cars sold were Volvos globally. And that was, I think, 10 years ago, 0.6%. So it's a considerable improvement of our position. And profitability is 7.2%. It's the best ever in the company. When it comes to electrification, we have a very bold commitment to be fully electric 2030. I think we are on line on reaching that. The second all-electric car was launched as C40. It's also the first Volvo that only exists as all-electric car, that's C40. The very first one is still available as a hybrid and a conventional car. So we are on our way to introduce all-electric cars. Now the next step is really stepping up the production capacity. But before we have all-electric cars, we have the chargeable cars, the plug-in cars, which was really our bridge for our consumers into electrification. And there, we are growing the numbers. And last year, we were around 37%. And also very important to make our electrification credible is the carve-out of our conventional engine development and production. That is now in the Aurobay company. It's not a part of Volvo Cars anymore. And very important recently, what has happened is we have created a joint ventures with Northvolt both for the next generation batteries and also for producing those batteries very closely integrated with Volvo Cars. And that's why we are [indiscernible] to do that here close to our headquarters in Gothenburg and our main factory in Gothenburg. Very important also, I think, is the idea... [Audio Gap] very supporting and stable main owner, which is Geely Holding, a private company from China. Polestar will during -- is preparing for a listing in New York in parallel. And maybe we have some experience for them, could help them. But the plan is to do that during the first half year. Last but not least, what is also an important thing for making '21 a year to be proud of is that we really lived our values as family car. We need to be attractive also for future generations. And I'm very proud that we have [indiscernible] leave system for all employees globally, the Volvo family bond. I think that's a manifestation of our values, as you [Audio Gap] Going in a similar way, you could say that will happen more or less as with the plug-ins, but maybe 2 years later. And that was our original plan. So the volumes we see on [indiscernible] are only related to production capacity where we will really take a step now in Belgium midyear increasing that. Online sales, also important for our transformation, now close to 10% on the market where we are capable of really doing that. And that's cared by Volvo subscriptions, and it's [indiscernible] Cars 10%. And now the next step will be to really transform the whole market. And then, of course, the business-to-business is really important in -- especially in Europe, where around 70% of all cars are so-called company, Lovell cars or fleet sales. So we need also online tool for that. And that's where the U.K. is going to be the pilot market. And they have initiated that online sales possibility now. The RIDE Pilot, the next level of coming to all autonomous drive is together then with the Luminar LiDAR, the Zenseact software and the new generation of Volvo Cars with central compute will be able to crowdsource traffic data and really develop the -- lean back and relax RIDE Pilot for the future Volvo premium cars. And that was released in -- or shown in Las Vegas on the beginning of the year. Sustainability, where we have a very pragmatic approach, not only long-term vision. But midterm, we should reduce the footprint from a Volvo car built with 40%. And then so far, we have reduced with 9.5%, and that's really according to plan. So transformation on track, in line with our midterm's ambition. That's a bit a summary of what happened last year and the summary of what will happen. So with that, Bjorn, help us understand what happened.

All right. Good morning and a quick overview then on the underlying financial numbers first for the full year, then for quarter 4, and then at the last little bit, how we see current trading and the path forward. So starting with 2021, the full year, as Hakan already mentioned, we managed to drive a small growth in retail deliveries despite severe supplies and shortages primarily in H2. We increased revenue despite this limited growth in retail sales and even lower growth in wholesale, primarily by a strong mix and price increases, I come back to that, which resulted in a full year, we will deliver a result of SEK 20.3 billion or 7.2% EBIT margin. That's the bottom line for Volvo Cars. Worth understanding also for Volvo Cars is that we have the Volvo Cars operation, and then we have some significant shareholdings in different companies. We have Zenseact and Ecarx -- Zenseact and Haleytek, which we are owning a high percentage in. So they are consolidated. Then we have a number of companies that we classify, they're JVs & Associate, Polestar, Lincoln Co., Volvofinans Bank, among those. And they are reported as JVs & Associate. So just as an underlying, if you want to see the Volvo Cars, excluding the JVs & Associate, for the full year, the numbers are quite similar. We have had a 7.5% EBIT margin for Volvo Cars, excluding the JVs & Associates. Cash flow for the full year was minus SEK 5 billion. That has a lot to do with -- and I come back to that more of the investments that we made during the year as laid out in our prospectus in terms of all the transactions that we've done recently. The underlying [Audio Gap] strong, and I come back to that. In quarter 4, it was very strong in quarter 4 as it should [Audio Gap] aiming to grow. We should grow for those 1.2 million cars by mid-decade and then we need growth. We need a growth of the pace that we have in the past. And now during COVID, and the semi-productive shortages, we clearly have been restrained. But the ambition is to come back to growth as soon as we can. And in terms of the recharge sales, Hakan already mentioned that we were in quarter [Audio Gap] cars were chargeable. Of course, [Audio Gap] strategy. First step of our electrification strategy was sell is used to electrification and have that as a starting point. And now we've shifted the focus to fully electric cars. And if you look back in history and you go back to the beginning of 2019, you can see 6% of our global volumes were chargeable cars. And now we are at 34%. So that took 2 to 3 years. And this is exactly the journey we need now to repeat on fully electric cars where we are at some 6% right now, and we need to be at the number around those 34% in 2 to 3 years in order to get to about 50% by 2025 and be fully electric, at the latest, by the end of this decade, which is our ambition, and we are delivering according to plan. [Audio Gap] in order to continue to deliver on our CO2 footprint reduction, where our target is to be down with 40% per car for the full life cycle by mid-decade by 2025. And as Hakan mentioned, we are now at 9.5 percentage point reduction versus the starting point when we have this target. If we then go into the revenue bridge for the full year, some ups and downs, but the big up has been pricing and the mix of us during the year. So that's the biggest up and down on the revenue line. And if we instead go to the EBIT line, a lot of us announced where volume has been more or less flat. So the major contributing factor to the strong EBIT for the full year has been a strong mix and a strong price realization for new cars. And on top of that, we have also strong residual values and, therefore, good price realization on used car. So those are the big positives. On the negatives, clearly, we have had raw material headwind. We have had increasing freight cost. And also with the production disturbances, you have had an increase, call it, inefficiency cost in production and so forth that has hurted us during the year. The share of affiliates from a full year perspective has a bit of a drag, but quite limited. And that has to do with one-timers in quarter 1 with -- we have a Zenuity dividend. And you could also say that Zenuity used to be a JV & Associate in the past. Then when we dissolved Zenuity and created Zenseact, Zenseact is consolidated, but Zenuity wasn't. Some positive from that. And if we actually have a look at that, how that [Audio Gap] So despite the supply chain challenges, we managed to deliver a strong result. If you then zoom in on quarter 4, then you have a quarter where the demand has continued to be very, very strong. But we are then constrained by the supply chain situation. And the overall EBIT [Audio Gap] remember that the underlying operative performance of Volvo Cars has been very stable, so 7.5%, the same as in quarter 3. And also the underlying performance of our JVs & Associates has also not materially changed from quarter 3 to quarter 4. It's a quite big factor that has to do with the accounting treatment of deferred tax assets for Polestar that has had a onetime effect in quarter 4 that explains a big part of this. The operating cash flow in quarter 4 was strong as it should when production is coming back. Electrification, Hakan talked about, accelerating. And on the transaction side, we have closed the acquisition of the Taizhou plant. That is now fully owned and operated by Volvo Cars, which is important because that's a factory that produces our export events and also the Polestar 2. So it's a plant that high degree is already electrified, and we need that for our future growth. Then looking into this factor that I talked about how JVs & Associate have affected Volvo during the year. And maybe if you look at the graph on the bottom-right corner there, I think you see it's most clearly that the light green line is the Volvo Cars, excluding JVs & Associate, that despite this very volatile year has had a very [Audio Gap] performance. Then you have had an effect from JVs & Associates in quarter 1, which was the post of private replacement and from dividend from the closure of Zenuity that played in. And then now in quarter 4, you have had a more negative effect [Audio Gap] assets is one of the key explanations there. The underlying performance in quarter -- the effect on quarter 2 and quarter 3, I think, is a more representative underlying contribution to the group. Then yes, and with that the financials, just to sum them up, negative sales volumes in quarter 1. In quarter 4, we had negative revenue. EBIT, as Hakan already said, 4.6% or SEK 3.7 billion for the quarter. Cash flow, SEK 11 billion. And if you look at the operating cash flow, it was really strong. I think it was, take it from my head, I think it was SEK 29 billion positive versus the SEK 22 billion positive in quarter 4 last year. So the operating cash flow was really strong. And then we then acquired the Taizhou plant. So from an investment point of view, that reduces the cash flow. The revenue bridge for quarter 4, here in the quarter, we then had a negative effect from volume that was partly offset with pricing and mix on the revenue side. However, and this is something that we see as a sign of strength that for the quarter we were able to completely offset both the lower volume and the kind of cost pressure from freight, from raw material and some inefficiencies that has to do with a kind of more volatile supply chain with a strong pricing and mix in the quarter. And as I already mentioned, a negative contribution from JV & Associates. Then also, I think just to highlight a few points further down the P&L worth mentioning. If you look at the tax rate, both for the full year and for the quarter, they look rather high. And I don't think you need to update an estimates based on this part of that has to do with negative effects from the JVs & Associates, if you look at the underlying, which we're obviously paying tax for. So they're normal rate if you exclude that factor. And then in the quarter, there was also some time phasing effects. So nothing too strange with those percentage of tax numbers. And also worth mentioning the liquidity for the year. Starting on the left-hand side of the picture, the working capital had a very positive change in quarter 4 as it should. So that the money came back as it should as the production goes up, which also gives us a year if you look from a liquidity point of view, quite interesting picture where we end the year exactly where we started more or less. The only difference is that we've paid off our revolving credit facility, to some degree. But in this year, you clearly have had a positive operative cash flow. And then we've done a number of investments in line with what we laid out in the prospectus related to acquiring the Chinese JV, the Taizhou plant and so forth. And some of the key investments happened during the year, it's worth repeating. So we did an extra equity injection in Polestar to kind of mitigate dilution in quarter 3. That was like SEK 2 billion. We have then acquired the Taizhou plant. That's an effect of 10.7 [Audio Gap] In Taizhou, there, as I said, they're also delivering to Polestar so [Audio Gap] accounts receivable towards Polestar. And Polestar paid back a fair share of that in quarter 4. That's the plus SEK 3.6 billion. And then there were a number financing transaction. Ecarx invested into Zenseact, invested into Haleytek. They put money into those assets, which we are consolidating. And then you have had the dividend related to our acquisition of the Chinese JV. And then the final line that it's relating to the set of transactions we're doing now to spin-off our [ ICE ] assets, which eventually as all these transactions are done, will lead to Volvo holding a 30% ownership in Aurobay. So that's an explanation of some of the key transactions that happened during the year, and all of them are kind of fully in line with what we laid out in the prospectus. And if you have further questions on this and also how do we play out in the next year, we can take that because it's quite detailed. But I think it's well represented in the interim report. So please have a look there. Then right here, right now then, what are we seeing? January is behind us. And in January, you [Audio Gap] the production was continuing to gradually improve, as we've seen in the last few months. But it's a gradual improvement that goes quite slowly. So our retail deliveries is clearly held back by the production. And on top of that, given that our inventories are at really rock-bottom record levels. As we now build record low levels and as we now build up production, you get a bit of a time lag effect where you basically get more cars in transit. They are onboard on their way to customers. So therefore, we are even more held back on [ related ] deliveries than maybe on production short term. So we see quarter 1 where this will hopefully gradually improve, but really slowly. And yes, continued strong sales of rechargeable cars in January. Nothing major change there. So then what's then the outlook? And how do we should say outlook? What are the ups and downs we're seeing for the year to come or this year? first of all, stating the obvious, uncertainty is still very, very high. That's where it's hard to have a precise point estimate on exactly where we will end up here. But I'll try to explain the underlying factors and the logic as we see it. So the supply chain situation will definitely remain a restraining factor, definitely for H1. H2, it's too early to say. We don't know. So we see a gradual, but slow improvement is what we expect to come there. We still see extremely strong customer demand for Volvo Cars in general and also for our electrified products through [ IGV ]. So we're also saying that the fully electric cars, the sales of them will more than double this year. So we were, I think, 4.5% for the full year in '21. That will more than double. So we're going to be more than 10% for the full year. And also, that will be a gradual thing as we invest in the ramp-up of the capacity and that will be fully in place after summer. So that will also be gradual throughout the year, but end the year for the full year with more than 10%. So that's kind of on the more top line and volume. Hopefully, if the supply chain eases, we see the strong demand, we have a record order book, that should be able to give us some growth. Then when it comes to the profit side of things, [Audio Gap] cost pressures on price on some raw materials. So there is a price inflation coming in. And what we have done is taking pricing actions. We always do that, of course, with new model years. But this year, we have done more ambitious price increases than normally given the situation where the whole industry. Short-term supply, you see this price pressure. And we have dimensionalized the price increases so that they [Audio Gap] Clearly, the increase of fully electric cars is really define the dynamics of the industry and define also some of the economics of the industry. And in order for you to better be able to judge what is happening, what's up and down, we will, during this year, we just started quarter 1, give you full transparency on the BEV versus non-BEV volumes, the margins, gross margins. And on top of that, the -- which area of investments that goes into the BEV part of things versus the non-BEV part of things. That sums up what we have to say from a presentation point of view, and let's go into the Q&A. I hand it back to you, Anna.

Yes. Thank you. Yes, now we open up for questions. And we have a hard stop at 11:30. [Operator Instructions] [Audio Gap]

Gross margin bottom line?

I think we had -- I mean, Bjorn repeated it also. Now there, of course, a lot of factors influencing that, a big uncertainty on the volume. But I mean, I think if you ask us still has some kind of conclusion, it was that we still have an ambition to grow and see how this works out with the semiconductors. And when it comes to profit levels, I don't think we see any big changes in how that will come in. I mean that is what you mean because your factors there are going in both directions, pricing positive, cost negative. I think we should be wrong to indicate any big changes here looking going forward on really the bottom line.

I think what we can say, I mean, as Hakan said, we are forecasting or hoping for growth. That's kind of -- and we see easening. So with that easening, given the relatively easy year to beat when it comes to the group the volume, we're clearly planning for growth. But the degree of growth, clearly, will depend on the supply chain situations. And when it comes to profitability, as I said, we see cost increases, raw material, freight and so forth, so that we are continuing to work the pricing and mix lever to mitigate that. And with the outlook we have right now, we don't have a crystal ball exactly, how the cost develops and the price changes by, but we are dimensionalizing them to secure that we can offset the cost with that price and mix.

A second quick one as well. I would really like to understand the FX impact, which boosted EBIT by a bit more than SEK 1 billion year-over-year in Q4. So what I can read in the report, I interpret that much of this was a revaluation effect of some operating assets is the case. Or is it sort of a true underlying FX effect from translation and flow?

This is Per Ansgar. It's a combination. It's underlying flows. It is obviously a hedge impact. And it's also revaluation of normal receivable payables. It's a combination. And what we see is that the last couple of months, also going into this year, the effect has been quite stable for us.

So can we extrapolate this? Is this sort of the underlying momentum you had going into 2022 as well?

Yes, I would say so.

Your next question comes from the line of Daniel Roska from Bernstein.

I'll start with number one. You outlined, of course, your mid-decade ambition. But could you give us some color on the capacity, especially the battery capacity available to you in '22 and '23? So kind of what's the maximum number you think you can turn out in terms of PUDs. And how much of that is contracted and what's kind of the price mechanism built into those battery contracts?

I could say easily, we have the capacity to ramp up 4 cars. And so far, we have sold old cars that we could have built. The second half year, we will ramp that up in Belgium. So I don't have the exact numbers right now, but it's really giving us more than 10% share totally of those cars coming from.

I can add. So the capacity for the [indiscernible] beyond 150,000 annual capacity after the summer. So that's the capacity we have for those cars. And then as we talked about, there will be a successful to the XC90 fully electric, that will come online as soon we will show it to the end of the year. And then you have a smaller fully electric SUV, this is the next one in line. And so for the cars that we talk about the first 2 cars, clearly, we have sourced the capacity for that. And also for the kind of programs that I talked about, we are sourcing the -- we have source capacity on the battery side.

I want to come to, I mean, the batteries are, of course, secured for the vehicle production that we have secured. And first step is coming from our partners, LG and CATL basically. And then on our next-generation cars, mid-decade will come from the joint venture we are now establishing for Europe cars being built really in Torslanda. And then we need a similar joint venture or partnership for Asia, which we will return to. But I mean, battery capacity is part of our capacity build up. I think that's the important thing. We don't hope to just be able to buy the batteries on the spot market when we have built a car. Long-term commitments are needed.

Great. And maybe a second one, if I could, on a little bit longer-term flexibility between ICE and BEV. [Audio Gap] decades goals again, it's kind of your current ICE production plus the same amount of BEV production on top of that to reach the 1.2 million units. Are you able to flex within that kind of more BEVs or potentially as we're all wrong as where the market is going, fewer BEVs? So what's kind of the level of flexibility built into that production plan between kind of the BEV and the classical [indiscernible].

No, we have flexibility. When it comes to cars launched, I mean, that's long lead times. So I mean the cars are now coming, Bjorn indicated, the first 2. And then there will be [indiscernible] this new generation for Europe. But of course, the capacity and the sales volumes of those could differ. So our base case is around half, half BEVs. But it could be more BEVs we indicate as well from a capacity point of view. It's more how the consumer prefer electric or plug-ins. And the same is valid for the old cars, the S90s, XC90s, XC60s, they will remain in production. They will most probably be updated as they look all modern, but basically keeping the technology we have. And then it's up to the consumer how fast will they go over to full electrification. And there, you have between mid-decade and our commitment 2030. So I would summarize as we have a very realistic flexibility built in there to really be ready to respond to consumers.

Great. Maybe a short follow-up on that. Would it be fair to assume that, that's kind of a 12- to 18-month lead time if you want to go back to the bodyshop and change kind of the number of units of 1 or the other? You do have flexibility, but you do need to decide at some point kind of what the split will be? And is that fair to say it's kind of for 12, 18 months lead time to that?

Yes, probably. I mean the old cars are built in production line that exists. And of course, you don't need to tear them down. I mean you could very well as prolong that. New cars will almost in all cases be coming in new locations. Good example is XC90 built in Torslanda.Conventional and electric, it will be built in [indiscernible] .Of course, you have a great degree of flexibility there. And I mean, it's still [Audio Gap] the car lines.

So it's less -- the flexibility, it's less on our side. It's more on the component supply where, of course, we need to secure appropriate amount of capacity there. Of course, we need to be a bit flexible in how we source that.

And that's probably the lead time to indicate and the question is probably relevant. I mean cannot get more or less batteries just within 3 months notice. It's normally at 12 months or so. The longer you need to commit to that recent conductors or create components.

[indiscernible] By the end of the decade, we may be back because we have not enough batteries, but not yet.

Your next question comes from the line of Henning Cosman from HSBC.

[Audio Gap] first, if I may. Just when you spoke about stable profitability, can we just be a bit clearer if you mean that including or excluding JVs? Because, of course, in the Polestar guidance, what that implies for you is a sort of SEK 1.6 billion year-over-year uplift, which would imply that otherwise, the core business would go down. So maybe you can just clarify that what that means when you speak about stable? And maybe also if you prepare to say it on the call why you wouldn't sort of give it as a range or some kind of guidance along with your volume growth indication? I think another thing that I understood what Hakan said on the press call earlier was with respect to the 3% or 3.5% price/mix that you had in 2021 EBIT as compared to revenue, and that might be a good indication for 2022 as well. If you could just confirm that, if you actually want us to sort of model with that. And maybe finally, Mercedes-Benz cars just reported preliminary figures with 15% EBIT margin for the fourth quarter. Any details, I'm not really sure quite how clean that is. But in any case, it's about twice the level of what you have just shown. So maybe you could just help us a little bit with attributing the gap to the benchmark that is Mercedes-Benz, where you currently see that and your opportunities for closing that in the near to the future?

Maybe a clarification. I think be careful and not interpreting us too detailed here. I mean stable profit, what I tried to say is if you conclude all of the discussions here with raw material and price, I think the conclusion is we see no big deviations in the money earning capacity of the company. And I mean I cannot take into it EBIT or EBITDA or whatever. It's a general statement. There is no big indication of that will change. When it comes to price, if you want the conclusion there, look at '21. We had SEK 10 billion EBIT coming in from mix and price. If you just divide that with turnover, you come to well over 3%. And that price increase has happened over the year and will, of course, roll into the new year. That's what I would try to say. And I think you should be careful in doing them a very precise outlook or whatever for any line in the [Audio Gap] because we have so much uncertainty. But I think still, you expect us to have some kind of conclusion what we see. [Audio Gap] We have so much uncertainty. But I think still, [Audio Gap] you want to conclusion there, look at '21, we had SEK 10 billion EBIT coming in from mix and price. If you just divide that with turnover, you come to well over 3%. And that price increase has happened over the year and will, of course, roll into the new year. That's what I would try to say. And I think you should be careful in doing them a very precise outlook or whatever for any line in the profit and loss statement for 2022 because we have so much uncertainty. But I think some kind of contribution what we see is happening in the world.

And on pricing, a couple of things I think is important to remember. So last year, you had mix and price. And I think mix effect, if you take year-over-year, '22 versus '21, that will be less because that was bigger last year than we were now. On prior -- more real pricing and discount, but will still have significant going into this year. The other one, I think you're well aware of. I repeat it anyway. When you take price actions, especially in Europe, when you have kind of record order books and then kind of you have [Audio Gap] lag on when those pricing effects -- pricing changes take effect last year, but also the pricing we're taking now. So that's why this is -- yes, I understand [Audio Gap] as you think get exactly how have aimed to make sure that the pricing cases we take that they will offset the [Audio Gap]

I'm talking about the prices there. I have a question from Alexandre Raverdy from Kepler who wants to us to quantify the raw material headwinds in freight and how that will affect in 2022.

Yes. I will not go into a point estimate for that aspect. I mean there are lots of ups and downs on costs. And I'll go back to what I said. We see those happening, and we're taking pricing that we're aiming...

And in Q4, can you quantify it for that period it?

No.

Okay.

It was less raw material and more freight in quarter 4.

Your next question comes from Jose Asumendi from JPMorgan.

A couple of items, please. Can you talk a little bit about the CapEx R&D expectations for 2022? Especially when we think about the impact on cash, how much of a step-up are you expecting in '22 versus '21 on tangible CapEx and intangible? Second, can you speak a little bit around the launch schedule of vehicles, the smaller SUV and the larger SUV? Roughly which year or which quarter do you expect to do the ramp-up? And then I guess you cannot comment too much on the ramp-up costs of Polestar, but is there any guidance you can give us there how to forecast this into 2022? Or should we wait for additional communication from the company?

Thank you. I'll take them in the opposite order as you asked them. I'll start with Polestar. I mean Polestar now is part of the listing process, our of course listing and then showing their business plan. So you should go to their listing material, and then you can get Polestar's view on how they will develop. I shouldn't comment on that. But that is transparent from Polestar. So go to that. And then we own 48%, so then you can draw your own conclusions on how that will impact us over time. When it comes to the launch schedule, I will not give you as much detail, annualized on timing, as you might hope. But as we already said, the flagship SUV fully electric, we said we will show it during this year. We launch it during this year. And then the next car that's come is this small -- smaller SUV, fully electric, smaller than the [indiscernible] price. So that's -- we haven't given more detail on timing, and we will not do it now either. And then the last one also around the CapEx, I might say I'm wrong here, but I give the go first. What we have said is that the whole story of Volvo now as we go electric is not to massively increase the CapEx. It's to kind of do -- instead of doing combustion, we focus on electrification. So the CapEx and kind of capitalized R&D as a percentage of turnover, it clearly has its cycles, but will be in the same range as it has been over the last few years. We had it [Audio Gap] then it was high. That has been quite low now at times. So we see a gradual increase a bit in the coming years, but no massive increase and not at the level it was when it peaks some 4 years back, whatever that was.

Got it. But you still expect higher, right, into 2022 versus 2021...

This year was low. Even if you look at that over time.

Got it. And then, Hakan, you mentioned I think about an hour ago that you expect profitability to be stable or slightly improved in 2022 versus 2021. Is this at an EBIT level, on a PBT level? What kind of metric are you thinking about in terms of that small improvement or...

I was thinking of all the metrics. But I mean, we are saying there are different factors going in different directions. And some kind of conclusion how I see the situation is still, of course, with a big uncertain on the volume side. But our ambition is to continue growing during the year. And when it comes to profit earned, we seen that in '22, these negative factors. We have so far been compensating and we see we could continue doing that. So you would say no big deviation, which I interpret is a meaning of stable.

Got it. Final one for me. I appreciate that. Can you comment a bit around the momentum in the Chinese market? What are you seeing in the market? What are you -- or the backlog pricing power? Overall state of the Chinese market please?

Very, very high demand and interest from customers. And then I mean, it is also a lot about how many cars can we build really and the semiconductors again. What also is a bit different on the Chinese market, I think, is the electrification strategy where we have a very successful first step with the plug-in hybrids in the U.S. and Europe. In Asia or China, they are still on the mild hybrid. And now the challenge there will go -- will be to go directly to BEV cars. So the percentage chargeable cars is lower in than in Europe and U.S. That is really the big picture. But volume increase, really strong in China. I think Shaolin says 15 consecutive month with growth, and then that continues. And the only question mark are the semiconductors. So good momentum. Supply side is the limiting factor.

The average you see the clearly, the competitive [Audio Gap] as well. I mean the Chinese-based, pure EV players are [Audio Gap]

Than the rest of the world. Interstate [indiscernible] will be trading around 6% EBIT margin in the last 10 years. And now we can jump up to 8%. And how [Audio Gap] and also you are some surprise telling you when the margins are clearly bound by pricing in the mix. That's all my questions.

So I can take the technical questions. I mean we have 2 basic, 2 chip suppliers for our new cars. That is for autonomous drive, it's Nvidia's Orin chips that will end up in the new generation car running the ADAS software. The more infotainment will run on the Qualcomm. That was talked about in Las Vegas. Then of course, both of these chip sets will also be working together well when it comes start and functionality and back up and so on, so they're not totally separated. But basically, Qualcomm for infotainment and media for ADAS.

And on the margin, I guess, was the question is the EBIT margin of the whole industry sustainable. That was the question, right? And yes, I think 2 or 3 different thoughts. First of all, I think the whole industry has experienced that there's possibility to increase prices and get a stronger EBIT without just pushing volume. And I think that has been a good awakening for the full industry to kind of not just play a volume game, but to manage margins more carefully. And I think that -- and given that we see continued supply constraints, I think will still be there for some time. Then when we have stronger supply in the market, I don't think we should be naive. Of course, there will be volume pressure and price pressure to the higher degree than you see now that could damage the total industry profitability. But overall, I believe that the mix management and the focus on getting the margins out of the car rather than running for volume, I think that a part of that behavior will stay. And then last but not least, I mean, yes, so there is a bit of, call it, extra boost in the full industry right now. And I think for us, we're at 7.2%. Our clear goal is to be between 8% and 10% by mid-decade. So we still have work to do to make sure we cut the cost levels in our fully electric cars, right, to make sure we get further efficiencies in our supply chain and in our go-to-market model. And that's what we're working on. We are not where we want to be yet. We should be at 8% to 10%. And I guess that was a previous question that was never answered around. I haven't seen the numbers. I can't really comment to that. But I think that if you can comment on that, they will tell you to dig into the detail. But clearly, there is strong profitability in the industry right now.

Your next question comes from Agnieszka Vilela from Nordea.

I appreciate the fact that there is still much uncertainty in the supply chain, which makes predicting volumes a bit difficult. But if we would assume that IHS is right, expecting some 8% to 9% global car production increase in 2022, how would you perform against that? Do you think that you're at any disadvantage, which is why your volumes should be less than that? Or do you expect to stick to your market share or maybe even expand it?

I think -- I mean, that's the forecast you said is not coming from us. But I would say there's nothing indicating that we should lose market share during this year. I think you come to the same type of logic that our ambition is there for -- to grow and then will depend on how fast the semiconductor situation will continue improving or not. But absolutely, see no reason why Volvo should lose market share or have a more problematic supply situation than anybody else.

Great. And then my second question is on the input cost situation. Right now, we see that much of the raw material price increase was absorbed by the suppliers. Do you expect that you will need to compensate them retroactively for that? Do you hear customer suppliers that they expect you to do it?

There are 2 different factors in play. So some of the raw material is indexed already in the supply contracts, so that happens automatically. And some are not fully. And then, of course, that price pressure will come into us during the year. So that's why one of the price pressure -- cost pressures that we need to take hike for, and therefore really price increases.

Your next question comes from the line of George Galliers from Goldman Sachs.

The first question I had was just on the R&D. If I look at the fourth quarter and I look at the net effect of the R&D capitalization relative to the amortization from prior periods, it looks like the P&L benefited by about SEK 2.4 billion, which is about 3% of your revenue. Do you expect a similar tailwind through the course of in 2022? And at what point do you expect the amortization to start to catch up with the capitalized portion?

You should not look exactly at every quarter. But I think you need to look at a little bit longer period of time because it depends a little bit on R&D different phases of development and where also then buying licenses and so on, so that could come at a little bit of a longer period. But obviously, we are increasing our R&D activities a little bit right now here when we're launching the new car, so you should probably expect it now for some time to have a little bit tailwind from that one going forward. But at some point, obviously, we need to get into balance on this one.

Understood. And then my second question was just coming back to the guidance or the lack of guidance because there is just ongoing confusion about this, I detect, from investors. I mean very simply, to the question, will your operating profit pre-joint ventures be higher this year, lower? Or is the answer you just don't know at this point?

We will not give you a point estimate. We try to be as clear as we can with the underlying drivers thereof. And as I said, we believe in volume growth. We see cost headwind. And we're taking price/mix actions to fully mitigate those with ambitions, so that we can fully offset the cost increases. But more than that, we would love to say in terms of -- but we are not giving you a forecast for the profit for the full year.

Okay. Understood. And just setting the semiconductors aside, I presume you have quite good visibility on the raw materials given what you have presently acquired in forward contracts, quite good visibility on FX given what you've hedged. I presume you know your budget for PPE and R&D, G&A schedule, I should imagine it's fairly predetermined. So what is the biggest unknown as we think about 2022 other than semiconductors from your perspective?

Number one is the semiconductor, and therefore, the total absolute volume. Number two, I would say, are kind of the cost inflation that will come in different forms and freight, energy, raw material. And number 3 is to what degree the pricing actions we've taken fully by to degree we hope.

Okay. I think we have some questions from online here. And the first one is from Jim Williamson, Credit Suisse. There's been a lot being said about the high raw material prices for lithium, nickel, et cetera, for EV batteries in recent month. Have you've seen any impact on margins so far from this? And can you give some indication of what exposure do these raw material prices going forward? Are you protected by hedging, et cetera?

On the last one, the protection of hedges is quite limited as of now. We're looking into what's the right hedging strategy for the future, but quite limited as of now. That's...

Do you have anything? The second one is from Anthony Dick from ODDO. Will you consider expanding the use of mega costing to more parts of the car, like the front or underbody, complete rear underbody and structure battery pack? Will you purchase Giga Press. And will you depart yourself or will you use foundry...

Okay. What we just announced is a massive investment here in Gothenburg for part of the underbody, which will be aluminum. And I mean, that's really what is happening right now. And then long term, how that will develop, I think we just have to come back to. We have no plans beyond that right now. It is a press work owned by us in our own factories. We're not buying that.

Okay. And then I have a question from anonymous user. Service is growing is a growing market. Do you plan to launch any more services with monthly payments and revenues?

Yes. As we said before, the benefit in the car from a consumer, a lot will come from software features and software services in the future. Then what we have in our business plan is now resetting the right requisite in order a lot of those services post the decade. But we're not banging on a major profit impact of it in the short term. I think right now, the way we think about it, we develop great cars, and that's part of what consumers would expect from Volvo. The major things that we are working on is, of course, the ADAS and the kind of self-driving technology, which that we plan to sell as a kind of software service. And then there are some other things we're looking into. Could be some upgrades and so forth that we will short for. But the most amount of the features that you will get into Volvo in the coming few years, the consumers would expect that report on the package. Not a big P&L effect in the next 2 years, but the big potential strategic for the long term.

And then the question from Daniel Schwarz, Stifel. Consensus expects around 20% revenues growth and [Audio Gap] in '22. How comfortable are you with that, given the continued supply constraints in H1? [Audio Gap] A follow-up on the pricing issue. You just said prices rose fully to offset costs. Could you elaborate? Did prices rise personnel costs, i.e., are you using this as an opportunity to boost profitability of the vehicles?

In quarter 4, of course, we had -- we lost volume. And we fully compensated with mix and price. So of course, in order to be able to compensate for lost volumes, we need to increase prices and mix more than the cost. So in quarter 4, yes, that was the case. And what we're seeing for this year is that we aim picks and price the actions we're taking that they should fully offset the costs. But both the cost and price have higher uncertainty.

Okay. Thank you, and thank you all for participating and hope to see you next time on this call. Thank you. Bye.