VOLVO CAR GROUP ANNUAL REPORT 2020 Freedom to move in a personal, sustainable and safe way TABLE OF CONTENTS OVERVIEW 4 2020 Highlights 6 CEO Comment 8 Our Strenghts 10 The Volvo Car Group 12 Our Strategic Affiliates THE WORLD AROUND US 16 Consumer Trends 18 Technology Shift OUR STRATEGIC FRAMEWORK 22 Our Purpose 24 Strategic Framework HOW WE CREATE VALUE 28 Our Stakeholders 30 Our People and Culture 32 Product Creation 38 Industrial Operations 42 Commercial Operations MANAGEMENT REPORT 47 Board of Directors Report 52 Enterprise Risk Management 55 Corporate Governance Report FINANCIAL STATEMENTS 60 Contents Financial Report 61 Consolidated Financial Statements 67 Notes to the Consolidated Financial Statements 110 Parent Company Financial Statements 112 Notes to the Parent Company Financial Statements 118 Auditor’s Report 120 Board of Directors 122 Executive Management Team Freedom to move SUSTAINABILITY INFORMATION 124 Sustainability Management and Governance 129 Performance 2020 PERSONAL SUSTAINABLE SAFE 139 Sustainability Scorecard 144 GRI Index Cars used to be the symbol for personal freedom. Owning a car meant that you had the We commit to developing We commit to the highest We commit to pioneering 146 TCFD Index means to be independently mobile – that you owned not just a vehicle, but choice as and building the most per- standard of sustainability the safest, most intelligent 147 Auditor's Limited Assurance Report on sonal solutions in mobility: in mobility to protect technology solutions in Sustainability well. Nothing of that has changed, but the world we live in has. The earth, our cities and to make life less compli- the world we share. We mobility and everyday life 148 Green Financing Report our everyday lives are under increased pressure. In such an age, a car can feel more like cated and to protect your are authentic, responsible to protect what is impor- freedom to spend time and change-makers. Our com- tant to people. 149 Auditor’s Limited Assurance Report on Green Financing an obstacle. At Volvo Cars we have made it our mission to take back the feeling of free- energy on the things that mitment to responsible dom and let the car be the enabler of a richer life. We will do so by offering mobility, matter most. Our products business conduct and our OUR HERITAGE regardless of what that looks like or who wants to use it. We want to democratise and services are personal- ethical values run through ised, familiar and luxurious. everything we do. 150 Looking Back Helps Us Look Forward mobility by giving all our fans Freedom to move in a personal, sustainable and safe way. ANNUAL REPORT 2020 | VOLVO CAR GROUP 3 2020 Highlights 2020 was a unique year in many aspects. While the first half was challenging due to the pandemic, we saw a substantial recovery in the second half. The decisive actions we took to mitigate the impact of the pandemic on our business were effective. They allowed us to quickly resume operations and recover. We reported the strongest second half year in the company’s history and ended 2020 on a strong note, both operationally as well as financially. Accelerated commercial Strong employee transformation engagement We intensified our focus on a seamless interaction According to the most recent Employee Survey, between our online and offline business as we create a our employees rewarded us with a 75 per cent engage- modern, personalised customer experience together with ment score which is above global benchmark. The survey our retail partners. We increased our ongoing investments showed they were especially happy with their closest in online business and rolled out our subscription service colleagues, the freedom to be themselves at work and Care by Volvo in more markets. their contribution to the company’s overall success. 150% XC40 EUR 500 M INCREASE IN SALES OF LAUNCH OF THE FULLY ELECTRIC SUCCESSFUL ISSUANCE RECHARGE CAR MODELS XC40 RECHARGE OF THE FIRST GREEN BOND Investments in designing, Delivering on our sustainability ambitions developing and producing electric We continued to deliver on our ambitious climate plan, now motors in-house approved by the Science Based Targets Initiative, through reducing our value chain carbon emissions by 3 per cent. We also exceeded the EU CO emissions target. The integration We opened a new e-motor lab in Shanghai for the 2 REVENUE AND EBIT RETAILRETAIL SALES SALES CO EMISSIONS development and testing of electric car components. of circular economic processes into our operations increased, 2 EU FLEET AVERAGE VOLVO CARS We will also assemble e-motors at our powertrain plant in with a strengthened focus on resource efficiency, recycled Skövde, Sweden and plan to establish a complete materials and remanufacturing. We made good progress towards ethical and responsible BNSEK MSEK UNITS CO g/km in-house e-motor production by mid-decade. 2 business leadership, including through protecting our people +8.2% –6.2% 300' YoY 10' 700' 200 during the pandemic and issuing our first ever green bond. –4.1% –40.5% YoY YoY YoY 240' 8' 600' 150 500' 180' +4.9% 6' YoY +7.4% YoY –14.1% 400' 120' YoY 4' 100 –20.8% 300' YoY 60' 2' Our first fully electric car Continued good results within 200' –117.9% 50 0 YoY 0 delivered to customers health and safety 100' With our plants in Ghent, Belgium and Luqiao, China Work with health and safety continued to be successful, –60' –2' 0 0 H1 H2 FY H1 H2 FY H1 H2 FY 16 17 18 19 20 being prepared for start of production of the XC40 including mitigating the impact of the global pandemic. Recharge in October, our first fully electric car reached its For example, the number of injuries with sick leave (measured Revenue EBIT Europe China NEDC WLTP European customers shortly thereafter. as Lost Time Case Rate) decreased by 23.0 per cent to 0.10 US Other for employees and 0.20 for supervised contractors. 4 VOLVO CAR GROUP | ANNUAL REPORT 2020 ANNUAL REPORT 2020 | VOLVO CAR GROUP 5 CEO comment CEO comment CEO Comment 2020 has undoubtedly been a year of challenges. The Covid-19 Our sales performance in the second half of the year was the design, development and assembly of electric motors in Shanghai pandemic has had a significant impact on people, societies and best in the company’s history. We achieved a year-on-year sales and Skövde. businesses globally. Volvo Cars experienced the most significant increase of 7.4 per cent for the period, which translated into an Our ongoing transformation towards becoming a fully electric effects during the first half of the year, while the second delivered equally record-setting financial performance in the second half. car company is an example of how sustainability is now a fully a strong recovery, both in terms of retail sales and financial A fundamental factor was the fast-growing demand for the incorporated part of our business. It is as important and as crucial performance. Recharge line-up cars. The share of Recharge models more than to our company as safety and our commitment to conduct busi- In the first half, all our manufacturing plants were shut down for doubled, and in Europe it reached over 30 per cent of total sales. ness in a responsible manner remains strong – and so does our a brief period, while showroom traffic dropped. We acted deci- That positions us as one of the leading brands, in the fast-growing engagement in the UN Global Compact. sively to limit the impact of the pandemic on our plants, offices electric segment. In the near term, we aim to constantly reduce our carbon foot- and retailers as much as possible. We were responsible and pre- Our strong product range also allowed Volvo Cars and our sister print across our operations and bring down our CO2 emissions per pared to quickly resume operations in a safe way, safeguarding company Polestar to overachieve on our joint EU CO2 emissions car by 40 per cent by 2025. We are also making good progress in people’s health and their jobs. In several markets, we launched a target. This proves our electrification strategy is the right one both areas such as the use of sustainable materials in our cars and our Stay Home Store online concept, allowing customers to order a for our business and for society. plans for electric car battery recycling. new Volvo from the safety of their own home. Our team in China in In coming years, we will build on these achievements. The fully particular used social media in their sales process, helping the electric XC40 Recharge is the first of a family of fully electric mod- excellent performance in the region. els. Also, we recently launched the C40 BEV, which is the next We also adjusted our cost structure where possible and made model to be produced on the same platform as the XC40 and “Sales of our sure we are well-structured for the future from a resource and Polestar 2 – another proof point of synergies created through the competence perspective. collaboration with our strategic affiliates. Recharge models more Our successful approach allowed us to quickly resume opera- Our direction is clear. In the long term, we are leaving the inter- tions and embark on a strong recovery in the second half of the nal combustion engine behind. To support our electrification strat- than doubled.” year. China led the way, followed by the US, and in both markets egy, we are heavily investing in expanding our electric car produc- – our largest – we managed to report sales growth for the full year.