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

Good morning, and a warm welcome to the presentation of Volvo Car's second quarter financial results coming to you from our headquarters in Gothenburg. My name is Ron. As always, I'm joined this morning by our President and Chief Executive, Jim Rowan; and our Chief Financial Officer, Johan Ekdahl. At the top of this earnings call, Jim and Johan will walk through our performance during the second quarter and thereafter, we'll throw it open for a question and answer on. I'll come back with more information on how you can participate in the Q&A round. But for now, I'll leave the floor to Jim. Jim?

Thanks, Ron. Good morning, everyone, and welcome, and thanks for joining us for our second quarter earnings call. The second quarter for 2024 has been strong with record core profitability. But before we delve into the numbers, here's what we achieved and say the quarter. We delivered very strong double-digit retail sales growth within this quarter. We increased market share and the EX30 is now amongst the top 3 best-selling EVs in Europe. Gross margins were at the highest level in 7 years, and gross margins for EVs were at the highest level ever. Our core EBIT and our core EBIT margins were also at the highest levels ever. And our cash flow improved by SEK 12 billion quarter-over-quarter. We also achieved record electrified sales and EV sales within this quarter. And in terms of the numbers, let's look at performance in some more detail. Our retail sales for the quarter were up by 15%, much stronger than many of our competitors. Our gross margins for the quarter reached 22.8%, up from 19% last quarter. Gross margins for our BEVs touched a new high of 20% versus only 3% last year. Accrued EBIT margins for the quarter increased to 8.1%, which is the highest ever, up from 6.3% reported last year. Our absolute core EBIT for the quarter increased by 28% to a record SEK 8.2 billion. And share of electrified cars reached a new high of 48% in Q2, with a share of BEVs now at 26%. And let's look at our performance for electrified cars a little bit more closely. As mentioned, the share of our electrified cars rose to 48% in Q2 from 39% in the same period last year, with EVs accounting for 26% of those sales, the highest ever share of electrified products that we've ever reported. PHEV sales were led by the XC60, which has been the best-selling plug-in electric hybrid car in Europe for the past 2 quarters. Our EV growth has been led by the EX30, which continues to be among the top 3 best-selling EVs in Europe across all brands and segments. As mentioned earlier, the gross margins per BEV reached 20%, up from only 3% the same quarter last year. And as you know, we have been reporting our gross margins on BEVs since 2022. No other heritage car company has done that. Our purpose was to create an understanding of our wider investment community and the economics of full electrification and to demonstrate that we are making the transition towards electrification profitably. But as we introduce new BEVs into the market, this information becomes more and more sensitive. So from next quarter onwards, we will not disclose the margins of our individual drivetrains, including EVs but we will continue to report on EV volumes. One of the reasons of our strong growth has been the balanced product portfolio. We have cars in many sizes and segments, the 30, 40, 60 and 90 size range, SUVs, sedans, wagons and MPVs. We have mild hybrids, plug-in electric hybrids and of course, full electric cars. Our plug-in hybrids and mild hybrids remain very strong and popular with our customers, and we will continue to invest in this lineup. And these cars form a solid bridge for our customers that are not yet ready to move to full electrification. On EVs, we have 5 full electric cars in production. And during the third quarter, we were the first customers behind the wheels of our brand-new EX90. Now the EX90 is not just an all-electric SUV. It will be one of the very few cars in the industry to be packed full of technology and core compute. And this represents a major pivoting shift in the technology and throws us into a new area of great possibility. So let me delve a little bit more into the tech, which is embedded within the new Volvo EX90. This is the image of our EX90, and it includes 10 key areas that represent our future technology style. These include cloud, design, the application layer, e-motors and inverters, batteries, bidirectional charging, silicon, sensor, connectivity and, of course, software. All of this is happening at the same time, and we are forced to understand and to harness all of these key technologies for the future. These key areas then become the enablers for us to offer unique Volvo benefits to customers. Zero emissions, world-class entertainment, car sharing, service and servicing, advanced over-the-air updates, increased active safety performance, speed and handling, stability and comfort, safety and security and home energy management. The EX90 is truly a software-defined vehicle that would just become better and better over time due to its OTA or over-the-air capabilities. Meanwhile, to make sure that we constantly improve what we do and how we do it, data capture and data analytics are the golden phrase that run through almost everything. As I said, electrification is the tip of the iceberg. The more profound change that's taken place in the industry is in these areas. And this can be summarized as software, silicon, connectivity and data. Our industry is developing rapidly. And to be successful, you will need to fully understand all of these technologies and how they work together. At Volvo Cars, we have invested heavily to make sure that we can do just that. And with that, I'll hand over to Johan.

Thank you, Jim. Good morning, everyone. Little bit more details into the financials. Strong quarter, solid retail sales growth of 15%. Revenue just about flat but with some dynamics from contract manufacturing and other factors. We'll come back to that more in detail. Very strong EBIT, SEK 8.2 billion or 8.1%, highest ever, as Jim alluded to, for the core operations, excluding JVs and associates, but also including JVs and associates, we're at 7.9% or SEK 8 billion in the quarter, which is a significant improvement from last year, but there are a few different things needs further explanation. I'll come back to that shortly. And on cash flow, we're about neutral for the quarter, and that is also on track to be neutral for the full year as previously guided. So a strong quarter from a financial perspective. And if we look more details into revenue. And if you exclude contract manufacturing, we have a 3% revenue growth, mainly driven, of course, by the increased volumes. We have a slightly negative sales mix and pricing, but that is mainly driven by product mix. You could say, the main driver for the growth is the EX30, very solid margins, but the lower-priced car, of course, has an effect on top line growth. And then we have quite a big year-over-year effect when it comes to deferred revenue, and that's related to mainly the sale of cars to rental companies and company cars with the repurchase agreement, which makes us [indiscernible] from an accounting perspective, defer revenue and take it over time. That will even out during the course of the year, but it does have a year-over-year effect affecting our revenue growth. Effects on revenue are virtually flat, and then some other positive effects also driven by used car sales, parts and accessories and other, taking us to the 3% growth, excluding contract manufacturing. And that's, of course, to bolster and lower volumes this year in contract manufacturing compared to 2023. If we look at it a bit more into EBIT then and look at the core EBIT, excluding JVs and associates, we have a positive effect from the volume growth. We have a positive effect from mix and pricing, which I think is also a good proof point on our ability to maintain price discipline, slightly negative on FX in the quarter, driven by the strengthening of the Swedish SEK. And then in Other, we have parts and accessories sales, used car sales, but also effects from lower costs, which takes us then to the SEK 8.2 billion or 8.1% in core EBIT. A very strong quarter on the back of the strong gross margin of 22.8%, but also actually on fixed cost efficiencies flowing through due to the actions we are continuously taking and then taking us to the record 8.1% core EBIT. Including JVs and associates, 7.9% or SEK 8 billion and JVs and associates combined, all JVs and associates is minus 0.2%, which is significantly improving from last year. There are a few more one-off items I would like to explain related to Polestar. As you know, they -- some weeks ago, released their preliminary year-end 2023 numbers, which was including certain impairment charges related to assets and that we have a catch-up effect in the second quarter since those effects was not known at the time when we released year-end '23 numbers. That has a negative effect, although more or less entirely offset by accounting effects, you could say, based on the fact that due to the distribution of shares and lowered interest in Polestar, we have a release of previously eliminated internal profit elimination that flows through into the P&L in this quarter, offsetting negative effects. And a third effect also being that during this quarter, the book value from an accounting perspective in Polestar has reached zero due to previously recognized operational losses. And as such, we do not recognize operational losses to Polestar as long as book value remains at zero. We, of course, have a significant value still from our holdings in Polestar, although from an accounting perspective, it's now down to zero, and that also affects these numbers in the quarter. On EV margins, 20% highest ever. We have an effect from CO2 credits, but even despite that, we are at 19%, which is by quite a margin, the highest ever, driven by both cost reductions and maintained price discipline taking us down to the 20% for the quarter. As Jim alluded to, we will, going forward, not show EV margins explicitly due to competitive sensitive information based on new products rolling in. We will, of course, continue to show the EV volumes but we are having a really strong quarter from an EV margin perspective in the second quarter of '24. On liquidity, neutral free cash flow for the quarter. We maintained a very solid balance sheet and a solid liquidity level and we are -- we still guide on neutral free cash flow for the full year, and that's mainly driven by lowering inventory during the second half of the year when production and sales volumes should balance out. Still at a high inventory level in the second quarter due to ramping up EX30 in more markets, et cetera, but we are tracking according to our plan for a free -- for a neutral free cash flow for the full year '24. And if you look a little bit ahead on capital allocation and investments, we are in '24 and '25 as was previously also communicated at very high levels on investments. We are investing in new technology, in the manufacturing footprint, new platforms, new cars, but that will also then. When we come into '26 and onwards, we will be able to harvest from those investments, taking down investment levels in absolutes even more so relative to revenue, and then we should have a strong free cash flow generation from '26 and onwards. So if we summarize the financials in the second quarter, highest ever core EBIT, SEK 8.2 billion and 8.1% EBIT margin. Strong gross margins of 22.8% driven by cost reductions and maintained price discipline. Gross margins on full electric cars on a record 20%. Neutral free cash flow for the quarter, tracking towards neutral free cash flow for the full year. We have a strong balance sheet and strong liquidity levels. And during the quarter, in May, the lowered shareholding in Polestar reflected in group EBIT with 18% ownership remaining. And also going forward now since from an accounting perspective, book value is down to zero, but we no longer recognize operational losses from Polestar going forward. And if we look a little bit further ahead then, we're coming out from a very strong quarter. We have a very good starting point going into the second half of the year. However, there are uncertainties. There are challenges, macroeconomic remaining challenges and tariffs imposed both by EU and the U.S. that will have an impact in the coming quarters. Although we have a strong balanced lineup of premium cars, we have EVs, PHEVs and MHEVs that will make us be able to navigate the different pace of electrification and the differences in customer demands in different parts of the world. The first customer deliveries of the EX90 will happen now during the third quarter. Next year, as previously communicated, we will localize production of the EX30 into Ghent in Europe. And we will, of course, remain focused on cost and capital allocation and continue to prioritize value over volume in order to navigate the challenges ahead. For the full year sales volumes, our ambition is still to reach the 15% previously guided, although considering the challenges we have and the clear prioritization of value over volume. Our guidance is now for the full year retail sales growth of between 12% to 15%. And we will have a neutral free cash flow in '24 and '25. And '24 now, we will generate stronger positive cash flows in the second half of the year, balancing production and sales volumes in order to take us to the neutral free cash flow also for the second half of this year. And then in September, on the 5th of September in Gothenburg, we will host the Capital Markets Day, but we will have focus and be more granular presentations of our future products, technology, global footprint, commercial and brand strategy and of course, also how that links to the financials. And you can sign up at our Investor Relations page on the web. So with that, I'll -- we'll go into the Q&A. So thank you.

Well, thank you very much for that Johan. We are all set now to start the Q&A session. You can participate in the Q&A around in two ways. Either you can send in your questions via the chat. [Operator Instructions] in which case, I will read out the questions for Jim and Johan or you can simply use the phone lines. [Operator Instructions] So with that, let's get this started. But let me take the first question, guys. I mean, it clearly looks like a really good set of numbers we have reported today. But Jim, if you were to sort of pick the 3 main highlights, the 3 main takeaways from your perspective that these numbers demonstrate.

I think we've got to start with the core fundamentals of the business. So we're pretty happy that we -- in a pretty turbulent environment could grow the business by 15% and so that's a good starting point for us. But the fact that we can do that with gross margins at 22.8%, which allows us obviously to deliver a record EBIT of 8.1%. And then also free up or improve our cash flow position by SEK 12 billion quarter-over-quarter. When you look at those core fundamentals of the business, that's a positive, obviously. And as turbulent out there, you've got to make sure we're positioned in the right products in the right market at the right price at the right time. And we remain relevant and can take market share. And that's probably the last part. The fact that we're taking market share from our competitors is something which we're obviously happy about as well. That leads me on to the second part, which is we know the SPA2, our latest platform, jam-through of new technologies and as well as obviously that core compute architecture that we've been working on for a while. That's really, we are one of the very few people in the market that has crossed that bridge and crossed that Rubicon to real core compute software-defined vehicle. And that's an important stepping stone for us. So the first customers will be behind the wheel of the EX90 in the next couple of weeks, and that takes us into a new trajectory, which is SPA2, SPA3 and beyond. And we can really build on that new platform architecture, both in terms of technology and also cost efficiencies. But the headwind, obviously, is around the tariffs. So there will be -- it's a short-term issue for us, but it is an issue in the short term. And so we're going to start to see the impact of that in the second half of this year until we can get the EX30 up and running and into full production in our facility in Belgium in the early part of next year. So that's the takeaway. Really good core fundamentals, great to have a new platform in the market. And then we're dealing with the trade tariffs that are going to be a short-term issue for us in the second half of this year.

Right. Another question that comes in is that -- maybe I'll take this that's come in online. How would you summarize the second half of 2024 from a financial perspective? Maybe Johan, if you want to take that?

Yes. I think as Jim alluded to, we're coming out of a very strong quarter in the second quarter. We are at a very good position on the core fundamentals of the business. The underlying operational profitability has been very good. But there are, of course, challenges ahead. Tariffs being one. EX30 coming from China into Europe and into the U.S.. There are still an uncertain macroeconomic environment. If you put it like that, that is, of course, creating continuous uncertainty, although we have a 15% growth in the first half. So we are at a good point to see healthy demand, and we have still a strong order book. But of course, that is also a layer of uncertainty. We also have, as we have previously discussed, we have some factors affecting us more sequentially like amortization of the new cars coming into production, et cetera. So it will not be a linear journey onwards. But -- so I think there are some challenges in the second half of the year, maybe the tariffs being the biggest one, but coming from a strong starting point.

And I think that was why we wanted to guide, so we've guided that we expected to grow the business 15% in terms of units of growth or retail sales as we had done last year. And then we wanted just to have some more clarity on that with the new tariffs and some of the headwinds that we see in the second half of this year, we've now given a range of between 12% and 15%. We wanted to put a floor on that for the investment community so they could understand how confident we are. Obviously still to grow our business because we see a lot of our competitors really struggling with any growth at all. So we still feel confident we can grow the business at a minimum of 12% but we're still chasing obviously the upside of that, which is 15%. So that gives us a range and hopefully it helps with the investment community just to give a floor on growth.

Good. Let's take the first caller of this morning. And the caller is Harry Martin from Bernstein. Harry, if you can hear us?

Yes. I'll ask three, if I may. So the first one, just on the 12% to 15% retail sales guidance for the full year. In the first half of the year, we've had wholesale revenues lagging the growth in the retail revenues and then we've had revenue growth below that, the impact of the rental car mix and the deferred revenue contribution. So do you expect the growth rates between that 12% to 15% retail guidance and the sort of the actual automotive revenue in the business to get a lot closer in the second half of the year? That's the first question. The second one, just on raw materials. Any comments that you have on the visibility you have on costs in the second half? How much would be the sort of the raw material cost base is already purchased or agreed? It'd be good to get an understanding there. And then the final one, you kind of outlined the importance of software and the investments that you've made. I mean we've seen a number of headlines in the last few weeks about some software issues on the EX30. And also, I believe the EX90 has been launched without some of the features that it was expected to be launched within the U.S. So how do you feel about the kind of the position on that journey and whether there is still a long -- still further to go on investments in software?

I can start with the first two maybe. And if we start on the volumes and revenue side, I mean, as you know, we have been firmly guiding on the neutral free cash flow for the full year, which me that if you like production and retail deliveries and wholesale will sort of balance out during the course of the second half of the year. And partially the deferred revenue that is affecting the second quarter will even out also during the year -- in some -- in many cases, it's more seasonal sales in shorter-term contracts. There will be an effect maybe affecting the full year slightly and also the fact that we -- I mean a lot of the growth is driven by the EX30, which is very healthy margins that we have seen, but it's a lower-priced car, which means that it affects the year-over-year, let's say, one-to-one relation between volume growth and revenue as well. So my answer is like this, that we will see a more balancing of the relation between growth and revenue for the full year, but maybe not 1:1. And then on the raw material cost question, I'd say that we -- I mean, the material cost positive impact in the second quarter is by far not only raw materials, we actually see effects also, our continuous work on the material costs in general. And we are now at quite low levels on raw materials. We're also working with hedging. So we are far more resilient than we were, let's say, before the spike of the raw material cost a couple of years ago. So I would say that the material cost upside we have in the second quarter will continue into the second half of the year, although maybe that there is not that much further upside, but we will still remain on very healthy material cost levels.

Yes. Johan was talking on the software side. So if we take the EX30. So we had some teething issues with the EX30 very early on in the launch of that product. Those issues were sorted very quickly. Maybe some of that news is just trickling out, but that seems to be aged news now and those problems are being solved. And that really talks to the strength of that car. So after about 3 or 4 months in the market, that's now the third best sale on EV car in the whole Europe. So it seems to be that that's landed well with the customer base. On the EX90, the whole point of a software-defined vehicle that has over-the-air capabilities to continually upgrade that software is the fact that we can do that. So we'll release the EX90. It will have a fantastic set of features from the start. But obviously, we can add more features, unlock more benefits, unlock more features as we give over-the-air updates and as our software teams develop new and different features for the car. So I think that customers who invest in advanced technology products like EX90 understand this fully, and they reap the benefits over time. So we don't think this is going to be an impediment to sales growth in the EX90, and we don't see any major loss of, let's say, pre-bookings or preorders as a result of updating the car, if you like, with software as it gets there -- as it gets for that [indiscernible].

Thank you. Hopefully that answers all your questions, Harry. Let's take another caller now. This comes in from George Galliers from Goldman Sachs.

The first question I had was just with respect to the EX90 launch timing. Could you give us some insight into do you roll out by market? And when do you expect this vehicle to be sort of full production volume and readily available in both Europe and North America. And related to the EX90, could you just confirm what is the capacity capability of the plant in North America? And to the extent the demand exceeds the supply, how do you prioritize EX90 versus Polestar? The second question I had pertains to the gross margins on the battery electric vehicles. Obviously, big step-up in Q2 and a very impressive gross margin for BEVs if we compare it to many of your peers. Could you just explain the drivers of that step-up in the gross margin for the BEVs? And is this a run rate if we were to ignore the tariffs that we could expect to continue over coming quarters?

Yes, let me start with EX90. So EX90 starts its production life in Charleston, in our U.S. facility. That production has already started. The cars have already been manufactured and are in the process of finding the way to customers right now. So the first customers will be behind the wheel of those cars certainly within this quarter. And then we ramp up production to full production at the back end of this year and early into next year. So that hopefully answers the question on the production channel -- the production ramp. And then, of course, we can supply products to the U.S.A. and to Europe. We'll also start production that same vehicle towards the back end of this year, early next year, in China facility as well. So that can say China and Southeast Asia. So that covers us on the EX90 production demand. We feel we have enough capacity that will satisfy the demand that we expect to see for that vehicle globally. So we don't think supply constraints will be an issue for that specific vehicle. And then on the -- sorry, what was the second part of that question?

Well, there was one question on how do you prioritize volume between Polestar and EX90?

Yes. And again, I don't think that's going to be an issue for us because we're put in sufficient capacity for that. I don't think -- we don't see that as an issue. We're incredibly excited about this car, not just because of the core compute technology, but because of the benefits that the car brings in itself in terms of the size. It's going to be one of the very few proper 7-seater electric vehicles with core compute technology and a huge range in terms of its electric range. So bullish about this car and I think we have enough capacity.

A question on BEV gross margins then, Johan?

Yes. On the BEV gross margins, as you say, very good margins in the second quarter, which we're very glad about. And there are a number of drivers. So I think it's a combination as well as the general gross margin, it's on the cost side, raw materials even further flowing through, but also in general terms, we're working with cost reductions of the car, especially on the, let's call it, previous EV lineup with the Fortis where we have done actions in order to take down the cost of the car. And that's more from a technical perspective as well and working with suppliers, et cetera. And then we've also been able to maintain a good pricing. And I think already previously in the new model year of the EX40 and EC40 with the improvements we've done on batteries and e-motors, et cetera, improving efficiency and improving range, which has been also made us able to price for that. So I think -- and being in a situation now with lower material costs and more resilient from material cost fluctuations due to more hedging, et cetera. If we -- as you say, exclude the effects of the tariffs, which will, of course, have an effect. I will see that we should continue on a healthy margin level going forward, excluding that effect.

And maybe just add to that. So on the EX30 as well, so this is a car after 3 or 4 months in the market is now the third best sale in EV in Europe. So that's great. That's shown that we have really strong demand for that car. We also guided that we'll be between 15% and 20% gross margin on that specific car. Obviously, we're at the upper end of that right now. And part of the driver on that is we're getting a nice car mix order coming through on that. So we sell that in the Core, Plus and Ultra. And obviously, if you have a nice car mix in terms of profitability, that very much helps. So people like this car. They also like the -- let's say, the upper spec of this car and all of those are working together to drive those margins.

Thank you. I will take a few written questions now. And this -- and a few comes in from Daniel Schwarz from Stifel. And maybe I'll just take one at a time. Maybe the first one to you, Johan, then. Could you provide details on the SEK 2 billion positive effect from the other line that you showed in the EBIT bridge and whether that level is sustainable in the coming quarters?

Yes. This is a year-over-year effect, of course, and it's driven to a large extent by improved material costs. And -- so I think there is still an upside year-over-year. But of course, during the course of 2023, I mean, we had elevated raw material prices, we are maybe having a bigger effect in the first half of '23 than in the second half of '23. So my answer is that I foresee that we will still be on healthy material cost levels, but the year-over-year effects will sort of decrease over time due to the fact that we have more elevated cost levels in the first half of '23.

Okay. And could you quantify the expected impact from the tariffs in the second half of '24? We've touched upon that, but a bit more on.

Yes, I will not quantify the exact effect. As you know, we don't guide on specific profitability in general. So hence, I will not guide on the exact effect of the tariffs. What I will say is that, of course, it's a balancing temporarily, we will localize EX30 also into Belgium in Ghent, as you know. But during that period, we will have an effect, we will, of course, be impacted. There is always a balancing with pricing and volumes, et cetera. But with that said, we will not be able to fully mitigate the effects. So I think that there will be an effect. But on the other hand, it's also -- we have a global sales of a number of different cars. This affects the EX30 from China into Europe. So -- but with that said, we will be effective, I will not quantify exactly.

All right. I think we can take the next caller on the line. This is Hampus from Handelsbanken, who's calling in.

Three questions from me. Firstly, on the tariffs, do you know already now if it will be retroactively from the EX30s that you have already sold and delivered to clients so far this year? Or if it only will be [indiscernible] so any specific dates going forward? And second question is on the EX90. There's still some talks in the market that you -- that clients who receive EX90 now will need to come back to you and have a change in the central compute GPU. Is that something that you could talk about or is it simply just a rumor? Last question is if you know how much you will be able to push forward in terms of pumping the price on the EX30 given the tariffs?

I can start on the tariffs. It's important. The answer to the question is no. And then to be more clear, we don't know the exact outcome of the tariffs at all because it's an ongoing dialogue also with the EU Commission, et cetera, which means that the vote among the member states will be in November. So the tariff levels are actually preliminary. So that is -- and that is an ongoing dialogue with the concerned parties. So the answer is no. We don't know the final outcome, which is important to emphasize also in general terms, not only on the retroactivity.

Yes. And then on the EX90, yes, so we're going to be upgrading the EX90 obviously, all the way through the course of this journey. If that's something which we feel and add benefit to the customer, then we will take obviously the responsibility to do that. Some of that will be software. Some of that will be hardware. And the immediate launch of that car, which we'll see in the next couple of weeks, we're going to be collecting data. We're going to be looking at the best ways and wish to get the software updates over-the-air or in some cases, it may be BEV if we take that back and do an update at the garage in which case, then obviously, those costs will be covered by Volvo Cars.

And a question on pricing of the EX30 as a result of the tariffs?

Well, we have a strong position. I mean that's what we saw after about 3 or 4 months in the market, we're seeing really good gross margins on that product, but we're also seeing fantastic demand. So -- we're looking at all of the options available to us to run our business in the most prudent way. Obviously, as you increase prices, you tend to reduce demand. So that's always an equation that we're looking towards. And then, of course, between the Core, Plus and Ultra range of that product, where is the base mix for us. And if we are going to make pricing changes or pricing alterations, where should we make those alterations in order to benefit the customer and in order to drive value for our shareholders. That's a dynamic equation that we do not just on the EX30, but we do that in every single car range that we have. And we do that in every single market. So that's why we have teams, the commercial people around the world that look to the individual dynamics of the market, the competition in that market, and then we make those decisions. That's resulting right now in us taking market share. So we've grown our business 15%. A lot of our competitors are struggling to get that growth. So I think we're just about to get that equation right. And by growing 15% and also delivering 8 points of margin, I think that talks to the point of the strength of the brand, the strength of the products, as well as how we will kind of navigate through some of the turbulence that we're seeing right now in the industry.

Great. I hope that answers your question. Let's take a few more callers before I go to the written questions again. And this is from HSBC. This is Pushkar Tendolkar calling in. Pushkar? If you hear us Pushkar? Maybe let's try to connect with Pushkar. I'll take a written question in the meanwhile. And this is from [ Jemma Perumalu ] from JPMorgan. Away from the tariffs, are you seeing any impact from the Red Sea crisis so far? And do you see any of that extending into the third quarter?

Red Sea? No. Virtually none. And that was an issue of a few months ago. We came through that pretty quickly where we had to reroute some vessels around the [indiscernible], but that's something that's -- I'm glad to see in the rearview mirror, I like to say.

Another question comes in that apart from the geopolitical tensions regarding tariffs, what are the other geopolitical or the macroeconomic challenges that are concerning Volvo Cars at the moment? For you Jim.