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

Good morning, and welcome to Volvo Cars and our headquarters here in Gothenburg. My name is Erik Kronqvist, and I'm the Head of Investor Relations here at Volvo Cars. We're here today to present the third quarter results that was released just earlier this morning. And with me, I have Hakan Samuelsson, our President and CEO; and Fredrik Hansson, our CFO. As usual, we will start with a presentation, and then we'll move into a Q&A session. [Operator Instructions] With that, I would like to hand over to Hakan.

Thank you, Erik, and good morning to all of you. If we look into the quarter and summarize it, I think it was a good quarter, solid performance on a very tough market. I mean, a tough market, you saw that on the volume side, we were down 7%. The total market, I think the premium market down around 5%. So we definitely did not have any tailwind from the market, although it turned into positive in September. Pricing is also remained very tough, of course, on a shrinking market, but we managed to offset that in one area at least and that with our bestseller XC60 has been upgraded and that helped us a bit. Tariffs has been very turbulent. Right now, it has clarified a bit. We know now that it will be 15% into U.S. and we know also it will be zero into Europe, which is 10% lower than before, which is an advantage for, for example, us selling EX90s to Europe. Altogether, we had then an EBIT margin of 7.4%, which I think is really good. What is also good is that we have achieved this with our own measures. It's not coming from outside. There were some one-offs. Fredrik will talk about that later. But mainly, this was a result of a very good work in our organization on the cost side, both material cost and indirect cost. So if we look into our turnaround program, which we started in April, it was focused on 3 areas: electrification. We believe this company will come out as a stronger company electrified. We believe we need to come closer to customers. We need to be more regionalized with empowered regions and with more accountability. The reason for that is we believe with that, we will have a better growth. That's the reason for our regionalization. And then, of course, profitability must be now the main focus, and we are executing on our SEK 18 billion cost program. And already in this quarter, really effects from that came in faster than we planned and anticipated. So look into then the electrification, which is very important. We see we need to have on the market fully electric cars. We need to be ready to be fully electric 2030, but we cannot force our customers to be that. So we have decided also that we need bridge solutions. the so-called PHEVs. But if you look on to the market fully electric car, that is in Europe, up 26% in the first 8 months. So I mean, very difficult to complain about that there is no growth of EV cars. And the total share is now in Europe also very high. So what we are doing is EX60, EX90, our flagship, we are now ramping up. The car is now finally ready for demanding customers. We have done major software upgrades. The EX30, we have successfully ramped up in Ghent. So now we are producing in volumes which our sales organization is requiring. We have a brand-new sedan, the ES90 started production as planned in August. And then looking ahead, we have next year a very exciting new product really in the bread and butter segment, the SUV segment, which is really the biggest on the market. We will have a very strong car. I will come back a bit to that. We also have launched our very first next-generation plug-in hybrid. And when I say next generation is, I mean, then it's a plug-in that is basically an electric car, but has a combustion engine as a backup. The first generation were really combustion cars with electric motors. And we have also upgraded our XC60, our absolute best-selling car so far. And that upgrade has been very well received on the market and also has helped us to improve our margins. If I look into the second area in our turnaround program, the regional approach, it is delivering. The reason for the regionalization is, as I said, to enable profitable growth by empowering the regions to take more local actions. And what we have seen in China is a new governance structure. We are running the China operation basically through a Board. I'm the Chairman of that Board and some other people, but much more empowerment locally. We also have seen a very good development so far, relatively seen. I mean all Westerners have huge problems in China with declining volumes. Our business in China is more or less flat, and that is compared with others, not that bad. Looking ahead also, we are now ramping up the XC70 production, and that is going to deliver a very healthy growth in China now in the last quarter. And the car has been received very well on the market. In Europe, we see BEV orders now picking up as we now -- also we are ready with the small car, the XC30, EX30 and the EX90 finally ready after all the delays we have seen. So that's positive. And we have also seen strong performance of some very important market, especially the U.K. had a very good quarter and a very solid market share in the U.K. In America, we also have strengthened our presence industrially. We have announced 2 new products that we will build in Charleston. And we have a new team leading Americas. I think we also have new approaches to marketing, which I think is very promising for the growth in that region. Then going over to the third box, the very important one, profitability and cost control. I leave it over to you, Fredrik, to talk about that.

Thank you, Hakan. Let me start with some of the main messages financially. So we had a strong performance in a seasonally weak quarter. And as Hakan mentioned, this is in part boosted by all-time high performances in U.K., Brazil and other markets in September. We see that our SEK 18 billion cost and cash action plan is materializing faster than planned and is contributing to the results. We also see cash flows negative and impacted by seasonality from vacation shutdowns and also continued high investments. If we look at the key financials, from a sales perspective, it was a challenging quarter for the premium market. It was down 3%. For us, we're down as much as 7%. And a big reason for this drop in sales volumes is lower EX30 deliveries compared to last year as we've awaited the full ramp-up of the local European production at lower tariffs, and that ramp-up has now happened during the third quarter. These retail sales then translate to lower wholesales and to lower revenues. And despite lower revenues, we report a strong EBIT of SEK 6.4 billion or 7.4% One adjustment has been done for the restructuring costs. So if you exclude that, we're at SEK 5.9 billion and 6.9% EBIT. Cash flow, seasonally low at SEK 4 billion, driven by a quite normal year with the summer shutdowns, I should say. But let me double-click a bit on each of these. So starting with revenue and focusing in on the core revenue, excluding contract manufacturing. That was last year, SEK 88 billion. We see volumes going down, taking revenues down another SEK 5 billion. Sales mix and pricing actually helping us and positive on revenues, and that's very much linked to the good reception of the XC60, which had a full interior facelift that came fully live into the market during Q3. We have quite sizable revenues from licenses in this quarter, which is more of a one-off, both from new sales in the quarter, but also deferred revenues from previous sales that has now been realized. FX on revenue is quite strongly negative due to a very strong SEK. And then we had quite a chunk of revenue coming in other, which is in part used cars and a good contribution from CO2 credits. So all in all, we're at minus 5% revenue in the core business. Looking at EBIT then. So last year, we were at SEK 5.8 billion or 6.2%. This year, that's taken down SEK 1.1 billion by lower volumes. We see sales mix and pricing also pushing down in part due to pricing, but also due to the higher U.S. tariffs that we didn't have last year. Depreciation and amortization is higher. And worth noting here is that last quarter or last year, Q3, we had a positive one-off adjustment in depreciation and amortization of SEK 1 billion. So if we normalize the Q3 last year, the result was more SEK 4.8 billion rather than SEK 5.8 billion. And you see that year-on-year effect here. Licenses, that sale is flowing through to profit. And then FX on a profit level is actually positive, largely due to SEK 300 million of realized profits on hedges. But I think the good thing here is that we are quite balanced on the underlying flows. So we have a weaker dollar and pound revenues coming in, but that is offset by lower costs in CNY. The other category here is quite sizable. And this is largely from lower variable and fixed costs, also showing earlier than planned results from a cost and cash action plan. And in this, we also have SEK 800 million or so from CO2 credit sales, similar to last quarter. All in all, EBIT, excluding restructuring was SEK 6.4 billion, 7.4%. And that and there I have a restructuring provision I forgot to mention. But we took a provision linked to the reduction of 3,000 people that we announced in Q1. We had a provision of SEK 1.5 billion. What we see now that we are -- where we have executed most of the program is that we're not spending as much money as we set aside. So we're releasing SEK 500 million from that. So -- if you sort of exclude some of these one-offs like restructuring and sale of licenses, which is more of a one-off character, the underlying operational result was more around SEK 5 billion. And if you want to sort of simplify, which I sometimes do, you could say that a bit less than 1/3 was one-off items of the result, 1/3 came from cost reductions in general, emphasized by the cost and cash action program and 1/3 is sort of flowing through from the business. If we look at the quarterly development then, we see a quite clear positive trend. And in this, we will continue to see effects of our cost and cash program. But that said, the short-term market is expected to be increasingly challenging. So perhaps it's unwise to extrapolate too much from the sort of near-term very drastic trend here. Cash then in Q3, it was impacted by seasonality. Our European plants are closed during summer. But that said, we exit with a strong liquidity of SEK 51 billion in cash. If we look at the details, we have SEK 13 billion in EBITDA from the underlying business. Net working capital is flat. We have a quite significant negative in other working capital. Part of this is cash, primarily payments linked to tax and VAT. But in this, we also have quite large noncash items linked to FX balance sheet revaluations, reversals of accruals linked to discounts and warranty and also the reversed redundancy provision I just mentioned. Investments at minus SEK 7 billion, but it's important to note here that this also includes transactions linked to selling the last big chunk we have of on-balance cars. that we had in Germany. And that was sold to the tune of SEK 1.7 billion. So if you look at the underlying investments, the number is more closer to SEK 9 billion. Financing, slightly down from FX and lower leases and then as stated SEK 51 billion in ending cash balance. So those were the hard financials. If we zoom out a bit and look at the cost and cash action plan. As you remember, this covers variable cost, indirect spend, CapEx and working capital. And I feel we're making great progress on all these dimensions. In Q2, we shared some updates that you see here. But looking at Q3 and Q4, we see that we are now taking further steps. So on variable cost, we are formalizing more special task force to make sure that we get synergies primarily on hardware components together with Geely. We've also done a lot of work on logistics setups. One very tangible action is that we're taking out one of the ports we use for finished vehicle flows into the U.S., which is then reducing our logistics cost in total. On indirect spend, as I said, we are reducing indirect costs faster than we expected, and we are well on the way to execute the redundancy program, removing 3,000 positions from the company. On CapEx and working capital, we are reducing our planned investments, and we're maintaining a very strict working capital discipline. And I want to, as a last point, double-click a bit on these 2 last points. So firstly, on reducing the planned investments. The peak is behind us, as we've said before, and I think you've seen this page before. But it's worth to remind ourselves that we are now finalizing the major investments in our new product architecture. Year-to-date, we have reduced investments with 25%, and we're looking into further reducing investments to set a new sort of affordable level of investments. And we have a Strategy Day on November 6, where we will also talk a bit more about the details of this and how it looks ahead. Lastly, I wanted to highlight our working capital discipline. And this page shows total inventory over time. And as you can see here, we did a real step change in inventory in Q4 already last year with a SEK 17 billion reduction within quarter 4 of last year. And since then, we've been able to maintain a significantly lower level. But that said, that also means that it's hard to repeat the reduction we did in Q3 to Q4 last year. But we are grinding and we're not done with this. But the real low-hanging fruits have happened. So that was a bit of financials. Maybe, Hakan, if you want to summarize.

Yes. I'll be glad to do that. And if you look then at the quarter and summarize that, okay, the market was more or less continued tough, nothing really new. tailwind is missing. We had a very solid market and EBIT margin and the effect -- the reason for that was coming from our own hard work with cost, which I think is very positive, which I'm very satisfied with to see also. Cash flow was not where we want to see it long term, but we must remember this is the month where we have the monthly shutdown. So it's a typical seasonality. And also, of course, that we are seeing now the last part of a very heavy investment program, as Fredrik just showed you. Very positive is that the sales is back, okay, 1 month, but still it's a new trend. So it's a new trend in sales in September. It was a new trend in profitability with the quarterly results. So it's maybe too early to say we have achieved a turnaround. It's still a very good signal we are moving now in the right direction. Looking ahead, we will expect continued challenging market, but we will also see further effects from our cost program. The SEK 18 billion was really planned to deliver in '26. Now in this quarter, really a bit faster than we anticipated. We saw effects already in this quarter. But the main part of the program is still, of course, lies into the future. When it comes to investment, I think it's very important also to state our ambition, we need to come back down to affordable CapEx levels. And that is going to happen as we have the peak behind us, as Fredrik also shown, and we need to reach here an affordable level and reach -- come back to stable cash flows. And last but not least, also next year, we will have a new beginning when we complete our all-electric lineup with the most important car of them all. We already have the 30, 40 and 90. Now we need the 60, which is the best-selling segment in the EV segment. And that, of course, will be a big step into our electrification. It's also a big step into making an electric car that is going to be affordable for consumers, also delivering much longer range. So it's a car that is more similar to a petrol car when it comes to performance than we have seen earlier. So very exciting news in January 21 to look more into this car. And before we go into questions and answer with Erik, I would just like to remind you our strategy update when we will go deeper into our way forward and tell you more about how we will put Volvo back on track and that we will do on November 6 in Stockholm. So you are really welcome to tune in. With that, I give the word to you, Erik, to lead us in the question-and-answer session.

Thank you, Hakan, and thank you, Fredrik. [Operator Instructions] Actually, we can start with a written question already. Your result was very strong, and you mentioned one-offs as one factor. How should we view that going forward?

It's a good question. We always have one-off type events flowing a bit back and forth in the quarter. I think -- for this quarter, it was a bit extraordinary. I mean we had a big restructuring provision where we see that we have not spent the money we thought we needed to spend to do the headcount reductions that we planned and that we have now executed. So that's actually -- that's not something that will come back again. We don't foresee any major layoffs going forward either. And sale of licenses, I guess, is another key thing to highlight. That is something which flows a bit from time to time, but I think the amount this month was quite large, both due to new license sales in the quarter, but also some deferred revenue now being realized in the quarter.

Thank you. And then we can move on to the first caller. I think we have Hampus Engellau from Handelsbanken.

Firstly talking a bit on the U.S. market. How do you see the end of this tax credit, USD 7,500 in September, it kind of boosted BEV sales. How do you see the backdrop on that for you guys in Q4? And then more a general question, around Europe sentiment for the premium market, if you could discuss that and also your position?

Should I start?

Yes.

So I think if we start with U.S. and the end of 45W, I mean, in all honesty, it's a bit too early to tell exactly how the market reacts. Of course, it is a negative that you take away a very large consumer subsidy for electric sales. But we see the sort of glass a bit as half full there. We have a very strong position. I mean we are market-leading in premium in PHEVs. We are not leading in BEVs, and we want to strengthen our positions there. So I think if I see the glass as half full, I see now that others are taking a step back. We have several manufacturers that are suspending production. And we see that as an opportunity to sort of regain some of the ground because I do believe that there is an underlying demand for electric vehicles from U.S. consumers. And you also have more of a level playing field to some extent as a lot of the electric sales, especially in the premium segment, is imports, meaning that everyone is exposed to the same level of tariffs more or less.

And the market is also positive to plug-in hybrids where we are very strong and that will probably continue longer. And that's also why we introduced now to build the XC60 in the Charleston's factory. So there, we really have the right car for America, I think, also in this respect. The second part, I didn't quite understand of the question.

Europe premium sentiment I took -- and I think it's a bit of a mixed bag if we look at Europe, right? So in September, we had a lot of records, including U.K., which is our most important market in Europe. So we see a strong demand for Volvo Cars. We also see that we have lost quite a lot in BEV sales. Last year, we had extremely strong EX30 sales. It was the third best-selling BEV in Europe, all categories. Tariffs then hit, and we've spent the year now to localize that into Ghent. And that ramp-up of the localization has concluded now during Q3. So that means that we are in a different position to play on BEVs in Europe. That said, it is a quickly growing market, 26% growth, as Hakan said, but it's also a challenging market from a price competition point of view. And we need to sort of navigate that. But that's one of the reasons why we see an increasingly challenging market ahead of us. And lastly, I should add actually, I mean we have the EX90 now with a major software update and also a model year update, which gives it an 800-volt system, quicker charging, new safety features. That will be a great product for Europe. And with the tariffs now being set in U.S., we have yet to be enacted, but at least statements of U.S. to EU tariffs going down from 10% to 0%, meaning that the EX90 produced in Charleston has a better cost position now for Europe, which is also positive.

Finally, good tariff news.

Yes. That's the first one, actually.

Thank you. Next caller online will be Agnieszka from Nordea.

I have 2 questions. Maybe I will ask them one by one. So starting with the tariff cost, can you specify what was it in the quarter? And also with potentially lower tariffs on exports from Europe to the U.S., do you know anything about the status of that process? And would the lower tariff cost then impact your decision to move some production to the U.S.?

Do you want to start with the last question or shall I start?

Yes.

So on tariff in the quarter, we don't disclose the details of that. But as you know, we had -- from an EBIT perspective, we paid 27.5% tariffs in July. And then from August 1, it's down to 15%. From a cash perspective, we're still waiting for that money with -- and let's see exactly when it comes. The status of the EU -- U.S. to EU process, we are trying to understand. Our best understanding is that this will be an act -- needs a vote in the EU, which is likely to happen sometime next year, maybe August. So there is still uncertainty in our understanding of exactly when and also if it will be retroactive. So we're waiting more clarity.

But the U.S. have despite that uncertainty said 15% is going to be valid from August.

Yes. And then the last question or maybe a slightly more nuanced answer to your first question on the tariff impact. So even though we don't detail it in the quarter, we before said that with the high tariffs that came, this will impact group EBIT with 1% to 2% in the full year of '25. What we see now with low tariffs in the beginning of the year, high tariffs midyear and in between tariffs in the end of the year and also us taking pricing actions, we see roughly a 1% group EBIT drop from the tariff rollercoaster, if you will, and the mitigating actions we're taking.

So then I can take the last question. Are we going to change any plans regarding localization? No, I think you should not plan too much according to tariffs. You need to have another logic behind it. And I think we need to grow in America. We need to be industrially present to a much higher degree than we are. And we have a factory and the best way of getting down the cost in the factory is to fill it. The worst thing you can do it have it half full. So we need more production, and then we will bring in the XC60 is the first step, and then there will be an all new car by the end of the decade in that factory as well. And I think that is really good for our performance in America, and it will make us also a much more local U.S. car builder in line with our regionalization. So I think it's really strategic, and it will not move with the percentages up and down.

Build where we sell.

Yes.

Thank you. And move on to 2 written questions. Number one being licenses. What is driving this item? And how sustainable is it? Number two being the price/mix contribution. Now I actually lost the question here on my iPad. I think it was a question about the cost mix. And if you could add some flavor to that.

Cost mix?

Price mix.

Price mix. Sorry. On price mix.

If we start with licenses, I mean, from time to time, we sell licenses and we help other cars OEMs develop and manufacture cars. I would see this amount we have in the quarter as unusually high amount. And that is in part because it was new sales, but it was also deferred revenue that was now recognized. So I would see it and treat it as more of as a one-off and not something that is recurring. On sales mix and pricing, if we give some nuances, I think on revenue, it's quite clear. That was a positive contributor of SEK 1 billion, and that is largely driven by the fact that the XC60, our most important volume car and a real profit driver for the company has had a really good reception with interior facelift. So all new dashboard screens, and we've seen a big pickup on that. We're growing 13% in volume in the quarter on that car. We also see a large drop in EX30 sales for the reasons I explained before. And on the revenue line, I guess, an EX30 is significantly cheaper than an XC60. So that also impacts on revenue. If you look at EBIT and sales mix and pricing, again, we see a negative effect of SEK 1.6 billion, if I remember correctly. And there, you see pricing pressure. I mean, we've had continuous pricing pressure in China for the last 12 to 18 months. And in that, you also see tariffs from the U.S. hitting in then. So let me end there maybe.

Perfect. Go on to the next caller, Nikita Papaccio from Deutsche Bank.

I would have 2. The first one, maybe short-term driven on Q4. I know you are not giving any guidance, but could we talk about EBIT key building blocks. So I understood that we see -- we will see more positive from cost savings. At the same time, you will conclude major investments. So maybe you can give us more color here? And then my second question is on the Dutch semiconductor supplier Nexperia. Do you see any impact in your supply chain? And what can we expect here?

Let me start with the first one, maybe. So you rightfully said, we don't provide guidance, and we don't provide guidance for Q4 either. But -- if you look at the building blocks, I mean, one part is that we expect to see even further effects from the cost and cash action plan. We are very firm on the execution of that. And as I mentioned before, we are to date ahead of our plans, which is very comforting. And that is maybe the other building block and the more negative uncertainty. And that is that we're seeing pricing pressure and negative dynamics. We talked a bit about it in the U.S. There's a big uncertainty now with 45W and how that will play out, especially in the near term, given that a lot of electric sales have been pushed in the third quarter. In Europe, we see the BEV growth, but also the BEV pricing competition. And in China, we see extreme strong competition in the traditional premium segment. I mean the full market is down 14% this quarter, premium, traditional. We are flat, and we are launching the XC70 as a mean to step out of the traditional Western premium segment, but there is still a lot of price pressure there. So costs we can control and that we will focus on, but there is an increasing uncertainty and pressure in the market.

And if you go into this, I think it's Nexperia, the Dutch supplier of semiconductors, which has caused now this ban to deliver to semiconductors. That is, of course, a problem we share with the whole car industry. It's something that is going to be sold on a very high level, outside our control. But we are in a good company in a way that is comforting also. I mean, other has a bigger problem. But what we can do is, of course, to be fully focused following this week by week and really learning from how we work with this during the pandemic because we had something similar than these semiconductors are supplied to our suppliers, and we need to really follow the supply chain all the way down to be able to be on top of this. So this we are doing week by week, and we are seeing no immediate problems so far, but we need to come back on that.

Thank you, Hakan. Moving on to yet another written question, and this is actually 3 questions in one. Number one being, should we expect also positive impacts from license fees, currency and other items in Q4? Number two, can you please comment which items that will drive cash flow in Q4? And number three is on tariffs. And what is the EBIT impact for the year and which mitigation actions are you taking?

Sorry, could you take the last question?

EBIT impact for tariffs and for the full year.

For the year -- very detailed for you.

The mitigation actions that we are taking.

Yes. If I start with the first question, in terms of licenses, I think I maybe answered it before. So I would see it as a nonrecurring item. So not a material thing to expect every quarter. On FX, I guess the verdict in the quarter is still out. So we've seen extremely large swings during the year. I don't have a crystal ball to see exactly what swings we might see in the quarter. What I know is that we have quite strong hedge positions on the dollar and other key currencies. And what's comforting to me as a CFO is that I see the positive effects now, yes, they're coming from hedges that are being realized. But the underlying flows, if I exclude the Turkish lira, which we control with pricing, the underlying flows are extremely well balanced. So what we lose on revenue in pound and dollar, we actually gain in lower costs coming in, in CNY. In terms of items affecting cash flow in Q4, I mean, Q4, we will continue to invest. And I mean, we are investing a lot in the EX60. We have just launched ES90 starting to roll on the roads. and we are building the Kosice plant. So this large sort of infrastructure investments, if you will, that we do for EX60 with mega casting and cell-to-body and the Kosice plant, those are investments lasting 20, 30, 40 years, 70 years, if you look at the Torslanda plant over here. They're more of a one-off character, but they also take some time to complete, right? So we will continue to have high investments, but we are now setting very clear affordability frames to see what can we spend because we need to get investments level down even further than the levels we are at today. We will talk more about this on the Strategy Day on November 6. Another part impacting cash flow is, of course, the underlying business. And there, let's see exactly how the equation plays out. We see some uncertainties, as I said. But Q4 is, from a volume perspective, typically a strong quarter, but we do see a pressure on the profitability of those volumes. And then lastly, working capital and inventory. As I showed before, we did a really big step change in inventory in Q4 last year. We've maintained that discipline, and we have an extreme discipline in terms of making sure we don't sit with too large pipelines of production inventory and new cars. But that also means that it's very challenging to take down inventory yet another SEK 17 billion. It's more of a one-off step change that happened late last year. So that gives you some of the items impacting Q4. And then the last question was EBIT impact of the tariff. I think I almost answered that, right? So full year net effect, including mitigations, it's about the 1% EBIT drag on the group full year numbers.

And the third question on tariffs.

1%, very clear answer.

Yes, perfect. Next question then, Erik Golrang from SEB.

Give some comments on -- I mean, we've seen some of the EX60's competitors presented recently from Mercedes and BMW. How do you feel about the price and specification of the EX60 compared with those?

I think what is important here in this SUV segment, that's really important for Europe and that there will be now 3 players going to launch very attractive cars into that segment, I think, is positive for all 3. It's positive for electrification. I think it will boost the interest really for having a second look also for the people who have doubted a bit so far, can electric car be something for me? And we will have a very good answer into that segment. So I'm very confident with the performance of the EX60. It will be a new beginning in the EV business. So it will not be the new class. It will be the newest class.

Moving on to a written question. How much of the cash action plan is now in effect and how much is expected in Q4 and for the rest of 2026?

We don't -- we're not done yet. And I mean, we set out an ambition to reach on indirect spend more than SEK 5 billion, more than SEK 3 billion on variable cost, '24 versus '26. And also on investments and other investments in CapEx, working capital, another SEK 10 billion. We're -- we don't -- we come closely into guiding if we start to disclose exactly where we are. We will talk a bit more about this on the Strategy Day, but we're not done. We expect more to come. And we are also continuously seeing what else can we find? What are the next steps of this. Not expecting to do a big next redundancy, but we need to come in a position where we work with what we have and grind based on that so that we see the fruits of our new investments coming to life in terms of top line before we dare to put the break pedal off the cost and investment structure.

And moving on to yet another written question. The layoffs, what's the status of the layoffs? And could you give some clarity on -- are we done for now or?

The 3,000 package we announced will materialize has really been -- most of those people have left the company. Maybe some hundreds are still going to leave in the months to come. But I mean, 3,000 people have left the company. That is totally clear. 2,000 of those are employees, 1,000 were temporary people, so-called consultants. And this is something we don't want to repeat every third year. So -- but that requires another type of discipline, which you said, Fredrik. So I mean, to avoid this, we will work much more with the headcount targets combined with other type of financial targets, investment targets, and we need to think according to a new mindset and that is prioritizing within affordable frames. And then that is also true for headcount. So I mean, we have to be very restrictive just replacing somebody who leaves the company, but really use that to reorganize and find somebody internally first priority and that we will have a yearly reduction of headcount also coming in a very good way instead of laying off people. So that is something we will need to do to really have a leaner and a better performance organization going ahead and avoiding coming into the same situation again with layoffs.

Thank you, Hakan. Next caller being Philippe from Jefferies.

I hope you can hear me. My question was, we've seen on the bridge, there was a SEK 1.2 billion increase in income from licensing. And I was on a different call at the same time. So if you can clarify what that was, if that is new. And the second one is more longer term and thinking about based on the work we've done, we concluded that the Volvo Cars is fairly advanced in terms of software development, particularly on this software-defined vehicles. And I'm just wondering to what extent there is an opportunity for Volvo Cars to do something similar to what we saw between Rivian and Volkswagen where Volkswagen has now leverage the competence of Rivian. And it seems to me that Volvo Cars is in a position to do similar arrangements and help other carmakers against them, of course. And as a subsidiary question to that is to what extent is the software-defined competence that you have your own and how much of it might have a significant amount of Chinese content, which might impair your ability to work with other carmakers?

Maybe I'll start with the second one. First of all, when it comes to software, we need to be very clear and divide that between East and West. So I mean the software we will use in cars in Europe and U.S. will be very different and compared with software in China, totally separated. Some critical components need also to be separated. And to really be leaders in that, we need to do it ourselves. I mean, so here, there is limited synergies with Geely, but a very important components to really be a software-defined car is to have the computing platform to have that. So I mean, we need to come into a system with a central compute instead of having 100 local boxes with software we buy from suppliers. I mean that is not the structure for a software-defined car. So we have now taken this really painful step, you could say. I mean it has not been easy, but now we have taken it, and we will, in the future, have central compute on all our cars being released from now on basically. So that is what we need to do, and we need to do this ourselves. And I think the first priority is to get this done and then to deliver this to Volvo customers. That's priority #1. And for the time being, we have no ideas or thoughts about selling software to others or cooperating in any way. But of course, that's always an opportunity and might be interested one day, but it's not on the radar right now.

Yes. And then the first question on the licenses. We don't go into the details of it, but it is basically licenses and work carried out in the third quarter, but also a big chunk of deferred license revenue, which is now realized. So see it as more of a one-off, which is not recurring in the quarter.

Thank you. And that seems to be the last question for today. So thank you, Hakan. Thank you, Fredrik, and thanks to all of you for joining us today during this presentation. As always, if you would have any further questions today or later on, please just reach out to us within the Investor Relations team here at Volvo Cars. But for now, we say thank you, and have a good day.

Thank you.

Thank you.