GROUP Interim report THIRD quarter and first nine months 2017 VOLVO CAR ABGROUP (PUBL.) (556810–8988) INTERIM REPORT THIRD QUARTER AND FIRST NINE MONTHS 2017,2017 GOTHENBURG OCTOBER 26TH 2017

THIRD QUARTER FIRST NINE MONTHS

• Retail sales increased by 10.6 per cent to • Retail sales increased by 9.0 per cent to 413,472 135,831 (122,766) units (379,329) units • Net revenue increased by 18.4 per cent to • Net revenue increased by 18.9 per cent to MSEK MSEK 48,880 (41,273) 149,250 (125,519) • Operating income (EBIT) increased by 77.5 per • Operating income (EBIT) increased by 36.4 per cent to MSEK 3,669 (2,067) cent to MSEK 10,445 (7,659) • Net income increased by 89.4 per cent to • Net income increased by 42.1 per cent to MSEK MSEK 2,513 (1,327) 7, 26 2 (5 ,111) • Cash flow from operating and investing • Cash flow from operating and investing activities activities at MSEK -4,357 (921) at MSEK -7,503 (-2,254) • Electrification strategy announced • Full SUV line up launched • Further investments in US operations • Upgraded credit rating announced • Volvo recognised on the 2017 list of the • Launch of the new XC40 and of Care by Volvo World’s Most Ethical Company® by the Ethisphere Institute

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First nine First nine Q3 Q3 months months Full year Key figures 2017 2016 2017 2016 2016

Net revenue, MSEK 48,880 41,273 149,250 125,519 180,902 Research and development expenses, MSEK -2,612 -2,767 -8,214 –7,892 –10,174 Operating income (EBIT), MSEK 3,669 2,067 10,445 7,659 11, 014 Net income, MSEK 2,513 1,327 7,262 5 ,111 7,460 EBITDA, MSEK 6,588 4,767 19,312 15,506 21,541 Cash flow from operating and investing activities, MSEK -4,357 921 -7,503 –2,254 6,515 Gross margin, % 24.4 21.9 23.2 22.6 21.4 EBIT margin, % 7.5 5.0 7.0 6.1 6.1 EBITDA margin, % 13.5 11. 5 12.9 12.4 11. 9 Net Cash (Net debt if positive) -8,253 -5,722 -8,253 -5,722 -18,873

First nine First nine Q3 Q3 months months Full year Retail sales (units) 2017 2016 2017 2016 2016

Europe 64,027 60,832 219,840 207,058 290,925 China 30,427 22,699 82,341 63,387 90,930 US 22,861 21,878 56,963 58,532 82,726 Other 18,516 17,357 54,328 50,352 69,751 Retail sales total 135,831 122,766 413,472 379,329 534,332

Wholesales1) 128,841 118,797 416,915 376,843 536,211 Production 134,540 114,76 6 441,625 381,968 533,156

1) Wholesales refers to new car sales to dealers and other customers including own units and rentals.

All amounts are in MSEK unless otherwise stated. Amounts in brackets refer to the same period for the preceding year, unless otherwise stated. All performance measures are further described on page 20.

This report contains statements concerning, among other things, Volvo Car Group’s financial condition and results of operations that are forward-looking in nature. Such statements are not historical facts but, rather, represent Volvo Car Group’s future expectations. Volvo Car Group believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions, however, forward-looking statements involve inherent risks and uncertainties, and a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement. Such important factors include, but may not be limited to: Volvo Car Group’s market position, growth in the , and the effects of competition and other economic, business, competitive and/or regulatory factors affecting the business of Volvo Car Group, its associated companies and joint ventures, and the automotive indus- try in general. Forward-looking statements speak only as of the date they were made and, other than as required by applicable law, Volvo Car Group undertakes no obligation to update any of them in light of new information or future events.

3 OF 22 VOLVO CAR GROUP INTERIM REPORT THIRD QUARTER AND FIRST NINE MONTHS 2017 ceo COMMENT

Volvo Cars has delivered another quarter of sales growth and increased net revenue, building on the good progress in the first half of the year. The growth in net revenue was driven by the pos- itive sales development in all markets and an improved sales mix as a result of increased sales of the new S and V90 as well as the XC60. As a result, the operating profit and the EBIT margin also improved, demonstrating progress in line with our goals of main- taining sustainable profit levels and being a truly global company with an attractive model line-up in all regions. We see strong demand for our products even in regions where markets are softening. In China, we have seen a strong growth in sales and our local manufacturing footprint supports our local expansion. The US has been showing signs of recovery since the beginning of the year, when our sales was impacted by delivery constraints. European sales showed good growth with the XC60 continuing to be our best-selling model. The start of production and roll out of the new XC60 has been successful and from December we will stop producing the XC60 Classic. Our global manufacturing structure gives us the flexibility to gradually shift production from one location to another depend- ing on demand. Consistent with this we have decided to increase our investment in the Charleston manufacturing plant that is now under construction in the US. The plant will produce the new S60 as well as the next generation XC90. It will serve both the US and the international markets in a similar way as has been success- fully implemented in Daqing, China, for the S90. In September we entered into a new segment on the SUV mar- ket by launching our new small XC40 SUV. It will be produced in Gent, Belgium, and in Luqiao, China. With the XC40 alongside the XC60 and XC90 we are, for the first time, covering the whole SUV segment making Volvo one of the most SUV focused companies in the industry. The SUV market remains one of the fastest grow- ing in the industry. ment about our new brand in Polestar, with a state-of-the-art With the launch of the XC40 we also introduced a new model manufacturing facility in Chengdu, China, reinforces that we are of car ownership with the Care by Volvo subscription service. Care committed to deliver on this strategy. by Volvo redefines the traditional model of car ownership and For the full year 2017, I anticipate continuous growth in line with introduces a transparent monthly subscription which will include the previous nine months along with more exciting news about digital concierge services and e-commerce ordering. our cars and service products. The results so far demonstrate that I am also very proud that we have been recognised by the we are heading in the right direction. United Nations for our ground-breaking electrification strategy, unveiled in July, stating that all models launched from 2019 will have hybrid or fully electric propulsion. We think this is the right future for and this recognition confirms that we are Håkan Samuelsson leading the way on this important journey. Our recent announce- CEO

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The Volvo Car Group

Volvo Car AB (publ.), with its registered office in Gothenburg, is Volvo Car AB (publ.) holds shares in its subsidiary Volvo Car majority owned (99 per cent) by Sweden Holdings AB, Corporation and provides the Group with certain financing solu- owned by Shanghai Geely Zhaoyuan International Investment Co., tions. Volvo Car AB (publ.) indirectly, through Volvo Car Corpora- Ltd., registered in Shanghai, China, owned by Zhejiang Geely tion and its subsidiaries, operates in the automotive industry with Holding Group Ltd., registered in Hangzhou, China. business relating to the design, development, manufacturing, mar- keting and sales of cars and thereto related services. Volvo Car Group and its global operations are referred to as “Volvo Cars”.

Sales development

Volvo Cars’ global retail sales increased by 9.0 per cent to 413,472 overall market in Sweden of 3.1 per cent, Germany 2.2 per cent, (379,329) units and wholesale increased by 10.6 per cent to and Italy 9.0 per cent. The exception was the United Kingdom, 416,915 (376,843) units during the first nine months of 2017. The which recorded a decline in sales of 3.9 per cent year-on-year. XC60 Classic together with the new XC60 were the best-selling Volvo Cars reported a retail sales increase of 6.2 per cent to models, followed by the V40/V40 Cross Country. Strong demand 219,840 (207,058) units in the first nine months of 2017. Sales for the 90 series contributed to Volvo Cars’ sales growth. was supported by stronger demand for the 90 series, as well as Volvo Cars’ third quarter retail sales increased by 10.6 per cent the XC60. to 135,831 (122,766) units. The sales growth was supported by In the third quarter, Volvo Cars increased its retail sales by 5.3 strong momentum in China. Wholesale increased by 8.5 per cent per cent to 64,027 (60,832) units. With a 19 per cent increase, to 128,841 (118,797) units. Continued strong demand for the 90 Sweden (15,381 units) was the fastest growing market in Europe, series and the launch of the new XC60 were driving factors in the followed by Germany, with 7.5 per cent sales increase (9,124 company’s sales growth. units). By overall sales – the UK was second strongest despite declining with the overall UK market. Europe Total sales of passenger cars (EU+EFTA) increased by 3.6 per China cent in the first nine months. The improvement was reflected in The Chinese passenger car market grew by 2.4 per cent in the Volvo Cars’ major European markets, with a sales increase in the first nine months. Sales in the SUV segment increased by 16.1

First nine First nine Q3 Q3 months months Retail sales (units) 2017 2016 Change % 2017 2016 Change %

Europe 64,027 60,832 5.3 219,840 207,058 6.2 China 30,427 22,699 34.0 82,341 63,387 29.9 US 22,861 21,878 4.5 56,963 58,532 -2.7 Other 18,516 17,357 6.7 54,328 50,352 7.9 Retail sales total 135,831 122,766 10.6 413,472 379,329 9.0

Wholesales 128,841 118,797 8.5 416,915 376,843 10.6 Production 134,540 114,76 6 17.2 441,625 381,968 15.6

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per cent in the same period. The market saw a rebound in demand in June. This positive development continued in the third quarter, with a gradual monthly improvement. RETAIL SALES BY MARKET RETAIL SALES BY CARLINE Volvo Cars’ sales increased by 29.9 per cent for the nine month FIRST NINE MONTHS FIRST NINE MONTHS period, to 82,341 (63,387) units. This growth was driven by the the S90 and growing demand for the XC90 and XC60, which remains the most popular model in the region. During the third quarter, our sales in China increased by 34.0 per cent to 30,427 (22,699) units.

US During the first nine months, sales in the overall US market for light vehicles declined by 1.7 per cent. August sales figures in particular were negatively affected by hurricanes. However, Sep- tember sales figures helped to mitigate this decline due to uoe S replacement demand in the hardest affected areas. The underly- na ing demand for crossovers and SUVs remained strong and contin- S ued to grow. e Volvo Cars’ retail sales declined by 2.7 per cent in the first nine months. However, sales in the US is recovering since the begin- ning of the year, when it was impacted by delivery constraints. In the third quarter, retail sales in the US increased by 4.5 per cent to 22,861 (21,878) units. The XC90 continued to be the best-selling model, followed by the XC60.

Other Volvo Cars’ retail sales increased by 7.9 per cent to 54,328 (50,352) in the first nine months of 2017, supported by demand for the S90 and V90, as well as stronger demand for the XC60. In the third quarter, retail sales increased by 6.7 per cent. In Japan, Volvo Cars registered a retail sales increase of 11.3 per cent during the first nine months. In Russia and Korea sales improved by 20.3 and 32.6 per cent, respectively. In Russia, the sales growth was supported by a stronger overall demand in the market and increased sales of the 90 series. In Korea, a stronger overall demand, the introduction of the 90 series and a strength- ened dealer network contributed to the growth. Canada increased by 4.3 per cent. In the third quarter, Volvo Cars’ recorded a retail sales increase of 12.9 percent in Japan, 7.1 and per cent in Russia. Sales in Korea improved by 20.0 per cent which was driven by the same factors as for the first nine months. Retail sales in Canada improved by 7.6 per cent.

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First nine First nine Top 10 Q3 Q3 months months Retail sales by market (units) 2017 2016 2017 2016

China 30,427 22,699 82,341 63,387 US 22,861 21,878 56,963 58,532 Sweden 15,381 12,926 54,105 49,381 UK 12,035 12, 311 36,516 34,881 Germany 9,124 8,489 28,821 27,610 Japan 4,040 3,578 11,73 4 10,545 Italy 3,774 3,550 13,040 13,016 Belgium 3,771 3,957 13,918 14,542 France 2,982 2,818 11, 4 8 3 10,894 Spain 2,969 2,912 10,361 9,710

First nine First nine Q3 Q3 months months Retail sales by model (units) 2017 2016 2017 2016

XC60/XC60 Classic 49,491 38,120 139,441 111, 937 V40/V40 Cross Country 20,562 23,120 6 9 ,116 71,790 XC90 20,410 22,436 60,596 66,347 S60/S60L/S60 Cross Country 13,157 15,927 39,328 43,748 S90/S90L 11, 5 87 2,407 28,933 2,594 V90/V90 Cross Country 11,13 9 1,278 37,789 1,278 V60/V60 Cross Country 9,455 12,692 37,940 41,785 Other (discontinued models) 30 6,786 329 39,850 Total 135,831 122,766 413,472 379,329

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Significant events

THIRD QUARTER 2017

Electrification strategy announced Volvo Cars and Geely agree on the formation of LYNK & CO Volvo Cars announced that every Volvo launched from 2019 will A separate LYNK & CO company, fully responsible for the LYNK have an electric motor. The portfolio will include electrified cars & CO car line, will be formed. Volvo Cars will hold 30 per cent of across the model range; fully electric, plug in hybrids and mild the shares, while Geely Auto will hold 50 per cent and Geely hybrid cars. Holding 20 per cent of the shares in the new company.

Other events

Products & Technology Consumer Experiences Launch of the new XC40 Care by Volvo By launching the new XC40, the SUV line up is complete. Produc- Alongside the launch of the new Volvo XC40, a new model of car tion starts in the Ghent plant in Belgium in November and the access was introduced. ‘Care by Volvo’ is a subscription based XC40 is the first model on the new modular vehicle architecture service; a national, ready-negotiated monthly fee, combined with (CMA). a new car delivered every 24 months.

Further investments in the US operations Investments in new digital technology The next generation XC90 large premium SUVs will be built in the The acquisition of the technology platform Luxe and transfer of new manufacturing plant in Charleston, South Carolina from key members of its staff, is aiming at accelerate Volvo Cars’ ability 2021. This takes Volvo Cars’ total investment in its US manufac- to offer digital customer experiences; pick-up and drop-off ser- turing operations to over USD 1.1 billion and will raise the total of vices will add a new level of convenience for Volvo owners. new jobs created at the Charleston site to nearly 4,000. Summary first six months 2017 Volvo Cars and Geely form technology sharing JV • Launch and start of production of the new XC60 Volvo Cars and Geely Holding has completed the formation of a • New shared mobility business announced to be set up new joint venture to coordinate procurement and commonality for • Polestar became separate global high performance car brand shared existing and future technology. The new joint venture, GV • First fully to be built in China Automobile Technology (Ningbo) Co. Ltd, will be 50/50 owned by • Zenuity, the joint venture with Autoliv with the purpose to Volvo Cars and Geely Holding. develop next generation self-driving car technologies, became operational Acquisition of Amtek Components Sweden AB • Upgraded credit rating to BB+ with a stable outlook Volvo Cars acquired 100 per cent of the shares in Amtek Compo- • New appointments to the Executive Management Team; nents Sweden AB, renamed to Automotive Components Floby - Martina Buchhauser Senior Vice President Procurement AB. The acquired company consists of the Floby plant that sup- - David Ibison Senior Vice President Corporate plies vehicle components to Volvo Cars as well as other external Communications customers. - Xiaolin Yuan Senior Vice President Asia Pacific

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Financial summary

THIRD QUARTER 2017 – INCOME AND RESULT The comparative figures refer to the consolidated income statement of the third quarter 2016 if not otherwise stated.

During the third quarter, Volvo Cars generated net revenue of expenses. For details regarding research and development MSEK 48,880 (41,273)1) 2), an increase of 18.4 per cent. The expenses, see table below. increase was a result of a positive sales volume development, Other operating income and expense, net, decreased to MSEK where wholesale increased by 8.5 per cent to 128,841 (118,797) -199 (306) 1) 2), mainly related to negative translation exchange units, along with an improved sales mix, generated by XC60, S90 effects on operating assets and liabilities. and V90 sales. The increase was also an effect of sold licenses, Operating income (EBIT) increased to MSEK 3,669 (2,067). partly offset by a negative currency effect. The improvement was largely a result of the positive gross income Cost of sales increased by MSEK 4,722 to MSEK –36,963 development related to increased volumes, positive sales mix and (–32,241) 1) 3) . The increase was attributable to the higher sales sold licenses. The improvement was partly offset by increased volume and the improved sales mix as well as continuous produc- research and development, selling and administrative expenses tion ramp-up. Gross income increased to MSEK 11,917 (9,032). together with a negative foreign exchange effect of MSEK 930, Gross margin increased to 24.4 (21.9) per cent. resulting in an EBIT margin of 7.5 (5.0) per cent. Volvo Cars is continuously investing in new technologies and Net financial items amounted to MSEK –44 (-297), mainly new car models while meeting the increase in demand by ramping related to decreased interest expenses and other financial up production. The growth translates into increased research and expenses as well as increased interest income on cash and short development, selling and administrative expenses to MSEK term investments. The income tax increase is related to increased -8,086 (-7,353)3). The increase also reflects a larger workforce, profit and withholding tax. higher marketing and event expenses along with increased IT Net income amounted to MSEK 2,513 (1,327).

Q3 Q3 Income Statement (MSEK) 2017 2016

Net revenue 48,880 41,273 Gross income 11, 917 9,032 Operating income 3,669 2,067 Income before tax 3,625 1,770 Net income 2,513 1,327

Q3 Q3 Research and development (MSEK) 2017 2016

Research and development spending -2,998 -3,109 Capitalised development costs 1,391 1,404 Amortisation and depreciation of Research and development4 -1,004 -1,062 Research and development expenses -2,612 -2,767

1) Prior year net revenue and cost of sales have been restated to hedged currency rates. Total effect amounts to MSEK 201 (178) for net revenue and MSEK -35 (101) for cost of sales. 2) Sold licenses have been reclassified from Other Operating Income to Net Revenue. The comparative period has been restated. Total effect amounts to MSEK 2,660 (11). 3) During 2017 costs have been reclassified from cost of sales to research and development. The comparative period has been restated. Total effect amounts to MSEK 197 (188). 4) Includes amortisation of capitalised development cost and a portion of depreciation of other intangible assets.

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FIRST NINE MONTHS 2017 – INCOME AND RESULT The comparative figures refer to the consolidated income statement of the first nine months 2016 if not otherwise stated.

Drivers behind the income and result for the first nine months are higher marketing and event expenses along with increased IT similar to those in the third quarter. expenses. For details regarding research and development Volvo Cars generated net revenue of MSEK 149,250 (125,519)1) expenses, see table below. 2), an increase of 18.9 per cent. The increase was a result of a Other operating income and expense, net, decreased to MSEK positive sales volume development, where wholesale increased 193 (344) 1) 2), mainly related to negative translation exchange by 10.6 per cent to 416,915 (376,843) units, along with an effects on operating assets and liabilities. improved sales mix, generated by XC60, S90 and V90 sales. The Operating income (EBIT) increased to MSEK 10,445 (7,659). increase was also an effect of sold licenses, acquired business The improvement was largely a result of the positive gross income (First Rent A Car Group) and positive currency effects. development related to increased volumes, positive sales mix and Cost of sales increased by MSEK 17,532 to MSEK –114,678 sold licenses. The improvement was partly offset by increased (–97,146) 1) 3) . The increase was attributable to the higher sales research and development, selling and administrative expenses volume and the improved sales mix as well as move of production together with a negative foreign exchange effect of MSEK 1,480, of the S90 series to Daqing and general production ramp-up. resulting in an EBIT margin of 7.0 (6.1) per cent. Gross income increased to MSEK 34,572 (28,373). Gross margin Net financial items amounted to MSEK –617 (–973), mainly increased to 23.2 (22.6) per cent. related to decreased interest expenses and other financial Volvo Cars is continuously investing in new technologies and expenses as well as increased interest income on cash and short new car models while meeting the increase in demand by ramping term investments. The income tax increase is related to increased up production. The growth translates into increased research and profit and withholding tax. development, selling and administrative expenses to MSEK Net income amounted to MSEK 7,262 (5,111). -24,421 (-21,316) 3). The increase also reflects a larger workforce,

First nine First nine months months Income Statement (MSEK) 2017 2016

Net revenue 149,250 125,519 Gross income 34,572 28,373 Operating income 10,445 7,659 Income before tax 9,828 6,686 Net income 7,262 5 ,111

First nine First nine months months Research and development (MSEK) 2017 2016

Research and development spending -10,526 -9,127 Capitalised development costs 5,472 4,237 Amortisation and depreciation of Research and development4 -3,160 -3,002 Research and development expenses -8,214 -7,892

1) Prior year net revenue and cost of sales have been restated to hedged currency rates. Total effect amounts to MSEK –493 (732) for net revenue and MSEK 173 (148) for cost of sales. 2) Sold licenses have been reclassified from Other Operating Income to Net Revenue. The comparative period has been restated. Total effect amounts to MSEK 3,971 (55). 3) During 2017 costs have been reclassified from cost of sales to research and development. The comparative period has been restated. Total effect amounts to MSEK 623 (556). 4) Includes amortisation of capitalised development cost and a portion of depreciation of other intangible assets.

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NET FINANCIAL POSITION AND LIQUIDITY The presented figures refer to the consolidated figures for the first nine months 2017 if not otherwise stated. The comparative figures for the cash flow items refer to the consolidated cash flow statement for the first nine months 2016 if not otherwise stated. The com- parative figures for the balance sheet items refer to the consolidated balance sheets of December 31, 2016 if not otherwise stated.

CASH FLOW EQUITY Cash flow from operating and investing activities amounted to Total equity increased by MSEK 7,618 to MSEK 50,928 (43,310), MSEK –7,503 (–2,254). resulting in an equity ratio of 29.0 (26.8) per cent. The change is Cash flow from operating activities amounted to MSEK 9,960 attributable to the positive net income of MSEK 7,262 and posi- (11,535). Operating income stood at MSEK 10,445 (7,659), tive effects in other comprehensive income. The latter is related adjusting for depreciation and amortisation, an additional MSEK to change in cash flow hedge reserve of MSEK 3,776, offset by a 8,867 (7,847) was contributed, although this was partly offset by negative translation foreign exchange effect, including hedges of a change in working capital of MSEK –6,659 (–1,762). The MSEK -869 and remeasurement of post-employment benefits of change in working capital is due to production related seasonal- MSEK -344. Dividend of MSEK -2,188 has been paid to the ity, product mix and ramp-up of production in Daqing, affecting shareholders, whereof MSEK 65 was distributed to the holders of both inventories and accounts payable. The change in accounts preference shares. receivables is explained by increasing sales and sold licenses. Cash flow from investing activities amounted to MSEK –17,463 (–13,789). Investments in tangible assets amounted to MSEK –11,888 (–7,802), following the ongoing construction of the US plant and special tool investments related to new car models, such as the new XC60 and XC40. Investments in intangible assets amounted to MSEK –5,680 (–4,347) as a result of continuous investments in new and upcom- ing car models and new technology. Cash flow from financing activities amounted to MSEK -2,026 (-397). This is primarily attributable to dividends paid of MSEK –2,188 (–), repayment of liabilities to credit institutions of MSEK –2,241 (–4,195) partly offset by matured marketable securities of net MSEK 1,356 (–1,446) and withdrawal of credit facilities MSEK 1,179 (479). Cash and cash equivalents including marketable securities decreased to MSEK 31,231 (43,373). Net cash decreased to MSEK -8,253 (-18,873). Including the undrawn revolving credit facility of MEUR 1,300, liquidity is at MSEK 43,749 (49,678).

First nine First nine months months Cash flow Statement (MSEK) 2017 2016

Cash flow from operating activities 9,960 11, 5 3 5 Cash flow from investing activities -17,463 –13,789 Cash flow from operating and investing activities -7,503 –2,254 Cash flow from financing activities -2,026 –397 Cash flow for the period -9,529 –2,651

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SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD Volvo Cars and Geely invest in Polestar Volvo Cars and Geely Holding announced they will make a joint OUTLOOK 2017 investment of RMB 5 billion (SEK 6.1 billion) to establish a Pole- Revenue growth star manufacturing facility in Chengdu, China. The investment will Globally, we expect the premium segment to con- support the initial phase of Polestar’s electrified product, brand tinue to develop positively. While continuing the and industrial development. industrial transformation and renewal of our prod- uct portfolio, Volvo Cars expects further growth of RISKS AND UNCERTAINTY FACTORS revenue supported by sales growth in 2017. Risks are a natural element in all business activities. In order to achieve Volvo Cars’ short and long-term objectives, enterprise risk Operating income management is part of the daily activities at Volvo Cars. For a We expect to maintain strong profit levels based on more in-depth analysis of risks, see the Volvo Car Group Annual a richer model mix, following the introduction of the Report 2016 page 76. 90 and 60 series, partly offset by increased expenses for sales and R&D. PRODUCTION Volvo Cars produced 134,540 (114,766) units in the third quarter Investments of 2017, an increase of 17.2 per cent. In the first nine months, In 2017, we will continue to invest in our global production amounted to 441,625 (381,968) units, an increase of manufacturing footprint, the renewal of our product 15.6 per cent. portfolio and new technologies. Capital expendi- ture is therefore predicted to increase slightly. EMPLOYEES During the third quarter of 2017, Volvo Car Group employed on average approx. 36,000 (30,000) full-time employees. Further- more, the Group employed on average approx. 4,000 (3,700) consultants. The increased number of employees and consultants mainly relates to higher production volumes, the ramp up in China, the construction of the Charleston manufacturing plant in the US, as well as the continuous development of future car models.

PARENT COMPANY The parent company conducts no operations and has no employ- ees. The income statements and balance sheets for the parent company are presented on page 18.

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CONSOLIDATED INCOME STATEMENTS

First nine First nine Q3 Q3 months months Full year MSEK 2017 2016 2017 2016 2016

Net revenue 48,880 41,273 149,250 125,519 180,902 Cost of sales -36,963 –32,241 -114 , 678 –97,146 –142,220 Gross income 11,917 9,032 34,572 28,373 38,682

Research and development expenses -2,612 –2,767 -8,214 –7,892 –10,174 Selling expenses -3,583 –3,046 -10 , 511 –8,761 –11, 9 92 Administrative expenses -1,891 –1,540 -5,696 –4,663 –6,471 Other operating income 648 630 2,107 1,363 2,412 Other operating expenses -847 –324 -1,914 -1,019 –1,861 Share of income in joint ventures and associates 37 82 101 258 418 Operating income 3,669 2,067 10,445 7,659 11,014

Financial income 74 29 273 153 218 Financial expenses -118 –326 -890 –1,126 –1,711 Income before tax 3,625 1,770 9,828 6,686 9,521

Income tax -1,112 –443 -2,566 –1,575 –2,061 Net income 2,513 1,327 7,262 5,111 7,460

Net income attributable to Owners of the parent company 1,836 1,021 5,645 4,124 5,944 Non-controlling interests 677 306 1,617 987 1,516 2,513 1,327 7,262 5,111 7,460

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CONSOLIDATED COMPREHENSIVE INCOME

First nine First nine Q3 Q3 months months Full year MSEK 2017 2016 2017 2016 2016

Net income for the period 2,513 1,327 7,262 5,111 7,460 Other comprehensive income, net of income tax Items that will not be reclassified subsequently to income statement: Remeasurements of provisions for post-employment benefits -58 –1,319 -344 –2,148 –1,157 Items that may be reclassified subsequently to income statement: Translation difference on foreign operations -257 279 -844 539 514 Translation difference of hedge instruments of net investments in foreign operations 3 –66 -25 –149 –124 Change in cash flow hedge 884 –794 3,776 –1,255 –3,074 Other comprehensive income, net of income tax 572 –1,900 2,563 –3,013 –3,841 Total comprehensive income for the period 3,085 –573 9,825 2,098 3,619

Total comprehensive income attributable to Owners of the parent company 2,464 –916 8,461 1,109 2,070 Non-controlling interests 621 343 1,364 989 1,549 3,085 –573 9,825 2,098 3,619

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CONSOLIDATED BALANCE SHEETS

Sept 30, Dec 31, MSEK 2017 2016

ASSETS Non-current assets Intangible assets 28,129 25,368 Property, plant and equipment 51,099 45,468 Assets held under operating leases 2,512 2,483 Receivables on parent company 54 54 Investments in joint ventures and associates 2,509 2,498 Other long-term securities holdings 79 79 Deferred tax assets 4,525 4 ,112 Other non-current assets 3,516 2,013 Total non-current assets 92,423 82,075

Current assets Inventories 31,302 21,198 Accounts receivable 12,897 8,717 Current tax assets 703 293 Other current assets 6,782 5,757 Marketable securities 3,341 4,738 Cash and cash equivalents 27,890 38,635 Total current assets 82,915 79,338 TOTAL ASSETS 175,338 161,413

EQUITY & LIABILITIES Equity Equity attributable to owners of the parent company 46,414 39,536 Non-controlling interests 4,514 3,774 Total equity 50,928 43,310

Non-current liabilities Provisions for post-employment benefits 6,401 6,348 Deferred tax liabilities 2,670 1,209 Other non-current provisions 6,994 6,995 Liabilities to credit institutions 12,108 13,910 Bonds 7,736 7,699 Other non-current liabilities 3,190 5,818 Total non-current liabilities 39,099 41,979

Current liabilities Current provisions 17,574 15,371 Liabilities to credit institutions 3,044 2,813 Advance payments from customers 542 652 Accounts payable 34,755 30,508 Current tax liabilities 1,436 626 Other current liabilities 27,960 26,154 Total current liabilities 85,311 76,124 TOTAL EQUITY & LIABILITIES 175,338 161,413

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CONDENSED CHANGES IN CONSOLIDATED EQUITY

Sept 30, Dec 31, MSEK 2017 2016

Opening balance 43,310 34,635 Net income for the period 7,262 7,460 Other comprehensive income, net of income tax 2,563 –3,841 Total comprehensive income 9,825 3,619 Aqusition of non-controlling interests − 140 Issue of preference shares -19 4,916 Dividend to shareholders -2,188 − Transactions with owners -2,207 5,056 Closing balance 50,928 43,310

Attributable to Owners of the parent company 46,414 39,536 Non-controlling interests 4,514 3,774 Closing balance 50,928 43,310

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CONSOLIDATED STATEMENTS OF CASH FLOWS

First nine First nine Q3 Q3 months months Full year MSEK 2017 2016 2017 2016 2016

OPERATING ACTIVITIES Operating income 3,669 2,067 10,445 7,659 11, 014 Depreciation and amortisation of non-current assets 2,919 2,700 8,867 7,847 10,527 Interest and similar items received 72 30 223 154 218 Interest and similar items paid -49 –22 -545 – 511 –953 Other financial items -6 11 -252 –110 –418 Income tax paid -978 –519 -2,453 –1,403 –1,705 Adjustments for other items not affecting cash flow 121 –173 334 –339 522 5,748 4,094 16,619 13,297 19,205

Movements in working capital Change in inventories -2,679 513 -10,029 –2,337 –231 Change in accounts receivable -1,642 2,634 -3,778 888 730 Change in accounts payable -1,667 –896 4,734 281 4,023 Change in items relating to repurchase commitments -119 –8 463 –108 –342 Change in provisions 742 831 1,954 1,500 3,497 Change in other working capital assets/liabilities -288 –246 -3 –1,986 –21 Cash flow from movements in working capital -5,653 2,828 -6,659 –1,762 7,656 Cash flow from operating activities 95 6,922 9,960 11,535 26,861

INVESTING ACTIVITIES Investments in shares and participations, net -68 –1,819 68 –1,640 –1,462 Dividend received from joint ventures and associates 37 — 37 5 187 Investments in intangible assets -1,529 -1,409 -5,680 -4,347 –6,394 Investments in property, plant and equipment -2,892 -2,772 -11,888 -7,802 –12,669 Other — –1 — –5 –8 Cash flow from investing activities -4,452 –6,001 -17,463 –13,789 –20,346 Cash flow from operating and investing activities -4,357 921 -7,503 –2,254 6,515

FINANCING ACTIVITIES Proceeds from credit institutions 419 163 1,179 479 1,696 Proceeds from bond issuance — –22 — 4,597 7,579 Proceeds from issuance of preference shares, net — — -32 — 4,979 Repayment of liabilities to credit institutions -386 –210 -2,241 –4,195 –7,634 Dividend paid to shareholders — — -2,188 — − Investments in marketable securities, net -883 –661 1,356 –1,446 –1,189 Other -253 111 -100 168 361 Cash flow from financing activities -1,103 –619 -2,026 –397 5,792 Cash flow for the period -5,460 302 -9,529 –2,651 12,307

Cash and cash equivalents at beginning of period 33,816 22,900 38,635 25,623 25,623 Exchange difference on cash and cash equivalents -466 396 -1,216 626 705 Cash and cash equivalents at end of period 27,890 23,598 27,890 23,598 38,635

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CONDENSED PARENT COMPANY INCOME STATEMENTS

First nine First nine Q3 Q3 months months Full year MSEK 2017 2016 2017 2016 2016

Administrative expenses -4 –7 -14 –9 –10

Income from participation in subsidiary1) − − 1,565 − − Operating income -4 –7 1,551 –9 –10

Financial income 56 41 173 60 107 Financial expenses -95 –41 -285 –74 –414 Income before tax -43 –7 1,439 –23 –317

Income tax 9 2 30 2 71 Net income -34 –5 1,469 –21 –246

1) Received dividend from subisidary of MSEK 1,565, passed through to the shareholders.

Other comprehensive income and net income are consistent since there are no items in other comprehensive income.

CONDENSED PARENT COMPANY BALANCE SHEETS

Sept 30, Dec 31, MSEK 2017 2016

ASSETS Non-current assets 20,176 20,100 Current assets 4,995 5,021 TOTAL ASSETS 25,171 25,121

EQUITY & LIABILITIES Equity Restricted equity 51 51 Non-restricted equity 7,499 7,614 Total equity 7,550 7,665

Non-current liabilities 17,478 17,338 Current liabilities 143 118 TOTAL EQUITY & LIABILITIES 25,171 25,121

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GENERAL DEFINITIONS

Volvo Car Group and Volvo Cars Europe Volvo Car AB (publ.), Volvo Car Corporation and all its subsidiaries. Europe is defined as EU28+EFTA.

Joint venture companies Joint ventures refer to companies in which Volvo Car Group, through contractual cooperation together with one or more parties, has a joint control over the operational and financial management.

DEFINITIONS OF PERFORMANCE MEASURES

Performance measures disclosed in the interim report are those that are deemed to give a relevant view of Volvo Car Group’s financial performance for a reader of the interim report. For a reconciliation of performance measures, refer to page 23.

Gross margin EBITDA margin Gross margin is Gross income as a percentage of net revenue and EBITDA margin is EBITDA in percentage of net revenue. represents the percent of total net revenue that Volvo Cars retains after incurring the direct costs associated with producing the Equity ratio goods and services sold. Total equity divided by total assets, is a measurement of Volvo Car Group’s long-term solvency and financial leverage. EBIT EBIT represents earnings before interest and taxes. EBIT is syn- Net cash/net debt onymous with operating income which measures the profit Volvo Net cash/net debt is an indicator of Volvo Car Group’s ability to Car Group generates from its operations. meet its financial obligations. It is represented by liabilities to credit institutions, bonds and other interest-bearing non-­current EBIT margin liabilities, less cash and cash equivalents and marketable securi- EBIT margin is EBIT as a percentage of net revenue and meas- ties. If negative, the performance measure is referred to as net ures Volvo Car Group’s operating efficiency. cash and if positive the performance measure is referred to as net debt. EBITDA EBITDA represents earnings before interest, taxes, depreciations Liquidity and amortisation, and is another measurement of the operating Liquidity consist of cash and cash equivalents, undrawn credit performance. It measures the profit Volvo Car Group generate facilities and marketable securities. from its operations without effect from previous periods capitali- sation levels.

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RECONCILIATION TABLES OF PERFORMANCE MEASURES

First nine First nine Q3 Q3 months months Full year Gross Margin 2017 2016 2017 2016 2016

Gross income in % of net revenue 24.4 21.9 23.2 22.6 21.4

First nine First nine Q3 Q3 months months Full year EBIT Margin 2017 2016 2017 2016 2016

Operating income (EBIT) in % of net revenue 7.5 5.0 7.0 6.1 6.1

First nine First nine Q3 Q3 months months Full year EBITDA/EBITDA Margin 2017 2016 2017 2016 2016

Operating income 3,669 2,067 10,445 7,659 11, 014 Depreciation and amortisation of non-current assets 2,919 2,700 8,867 7,847 10,527 EBITDA 6,588 4,767 19,312 15,506 21,541 EBITDA in % of net revenue 13.5 11.5 12.9 12.4 11.9

Sept 30, Full year EQUITY RATIO 2017 2016

Total equity 50,928 43,310 Total assets 175,338 161,413 Equity in % total assets 29.0 26.8

Sept 30, Full year NET DEBT/NET CASH (MSEK) 2017 2016

Liabilities to credit institutions (non-current) 12,108 13,910 Bonds1 7,742 7,693 Other interest-bearing non-current liabilities2 84 84 Liabilities to credit institutions (current) 3,044 2,813 Marketable securities -3,341 –4,738 Cash and cash equivalents -27,890 –38,635 Net cash (Net debt if positive) -8,253 –18,873

1) The bond loans are presented above at amortised cost. The MEUR 500 bond is recognised in the balance sheet with a fair value adjustment and the fair value component amounted to MSEK –6 (6). 2) Included in Other non-current liabilities in the Balance sheet.

Sept 30, Full year LIQUIDITY 2017 2016

Cash and cash equivalents 27,890 38,635 Marketable securities 3,341 4,738 Undrawn credit facilities 12,518 6,305 Liquidity 43,749 49,678

20 OF 22 VOLVO CAR GROUP INTERIM REPORT THIRD QUARTER AND FIRST NINE MONTHS 2017

The President and Chief Executive Officer certifies that the interim report gives a fair view of the performance of the business, position and income statements of Volvo Car AB (publ.) and Volvo Car Group, and describes the principal risks and uncertainties to which the Volvo Car Group is exposed.

Gothenburg, October 26, 2017

Håkan Samuelsson President and Chief Executive Officer

This report has not been subject to review by Volvo Car AB’s auditors.

The Volvo Car Group interim report on the fourth quarter 2017 will be published on February 8th, 2018.

CONTACT

Nils Mösko Vice President, Head of Investor Relations Volvo Car Group Headquarters +46-(0)31–59 21 09 405 31 Gothenburg [email protected] www.volvocars.com

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