Volvo Car Group Freedom to move in a personal, sustainable and safe way Green Financing Framework Presentation Disclaimer
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Volvo Car Group: Green Financing Framework Presentation 2 1 2 3 4 5 Introduction to Sustainability It’s time to Green Business Volvo Cars is key change Financing update Framework
Volvo Car Group: Green Financing Framework Presentation 3 Volvo Cars in brief 2019 Well positioned to take advantage of industry change
VOLVO CARS Fast growing premium OEM
705,000 SEK 274BN SEK 14BN SEK 69BN 42,000 Cars sold Revenue EBIT Liquidity Employees STRATEGIC AFFILIATES
+57% +118% >8x SEK 12BN +93% (50%) since 2011 since 2011 more than 2011 Free Cash Flow since 2011
Moody’s S&P (30%) Ba1 BB+
Volvo Car Group: Green Financing Framework Presentation 4 Flexible, global production footprint supports continued growth
Global sales development
80000 US 15% of Europe sales 48% of China 60000 sales 22% of sales 2019 40000 2020 Production Other 14% of R&D 20000 sales Assembly / CKD
0 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Covid-19 effect on production: Volvo Cars 2020 sales development: • Chinese manufacturing closed after Chinese New Year for four to five weeks • China back to 2019 levels in mid April • Sweden and Belgium rapidly resumed production already in third week of April • US back at the beginning of June • US plant resumed production end of July • Europe back since the beginning of July • Market share gains in all regions
Volvo Car Group: Green Financing Framework Presentation 5 Freedom to move - personal, sustainable and safe
PERSONAL SUSTAINABLE SAFE
CONNECTIVITY MAKING CARS SAFER KEY ENABLER – SINCE 1927 FOR FUTURE MOBILITY ELECTRIFICATION THE FUTURE IS NOW AUTONOMOUS DRIVING SHARED MOBILITY SAFETY IS KEY NEW CONSUMER SEGMENTS
Volvo Car Group: Green Financing Framework Presentation 6 1 2 3 4 5 Introduction to Sustainability It’s time to Green Business Volvo Cars is key change Financing update Framework
Volvo Car Group: Green Financing Framework Presentation 7 Sustainability is as important to Volvo Cars as safety It’s in our DNA
1959 Three-point 1976 World’s first 3-way catalytic Safety Belt converter LambdaSond. Removes 90% of noxious exhaust emissions 1972 Rearward-facing Child Safety Seat 1996 Environmental requirements on suppliers 1991 Side Impact Protection System 2011 & 2012 Launched fully electric vehicle C30 and Plug-In hybrid V60. 2015 & 2017 XC90 and Downsize to 4-3 cylinders in all XC60 received Best in models Class safety awards1 2019 An electric motor for all new 2020 Speed limit of models and all models in PHEV 180km/h introduced versions. First full range BEV launched
1 Best overall performer in the Euro NCAP Volvo Car Group: Green Financing Framework Presentation 8 Sustainability is key to our future success
Why? Our ambitions 1 2 3 Climate change Meet growing Meet – we must act regulatory consumer Climate neutral Circular business Leader in ethical & demands expectations company by 2040 by 2040 responsible business 4 5 2025 ambition: 2025 ambition: Attract employees Increase 2025 ambition: 40% reduction of Cost savings of SEK 1bn and responsible profitability Take the lead in setting a overall CO emissions and 2.5m ton annual business partners 2 new global people per car emissions reduction standard for the industry
Volvo Car Group: Green Financing Framework Presentation 9 We aim to be a climate neutral company by 2040
Ton CO₂e 2025 ambition: Per car 40 -50% reduction in 2018 35 2025 50% tailpipe emission 30
reduction in 25 % -25% 25 operational emissions 20 36 ton 15 reduction in supply 10 25% chain emissions 18 ton 17 ton -25% 13 ton 5
3 ton 2 ton would lead to a 40% 0 Tailpipe emissions Raw materials Total operations reduction of overall CO2 and suppliers incl. Logistics emissions per car Average CO₂e emissions per vehicle over its lifetime 2018-2025
Volvo Car Group: Green Financing Framework Presentation 10 We aim to be a circular business by 2040
• Developing sustainable business models Circular Design 2025 ambition: • Recycled/bio-based materials Recycled and bio- 25% based plastics Component Value Material Value Retention retention • Maximise resource efficiency 40% Recycled aluminium
• Remanufacture and reuse existing 25% Recycled steel parts
Usage Waste We are aiming for annual models Elimination • End of life and eliminating waste savings of SEK 1 Billion and a Currently, 94% of global production waste recycled 2.5M ton reduction in carbon emissions by 2025
Volvo Car Group: Green Financing Framework Presentation 11 We aim to be a recognised leader in ethical and responsible business
Industry role model for Put sustainability on a par Sustainability criteria in Tackle corruption global people standards, with quality and cost in debt funding, investments and unethical equality and labour rights procurement and financial products business practices
Volvo Car Group: Green Financing Framework Presentation 12 Collaboration is key
Volvo Cars believes in the importance of engaging with other like-minded companies and organisations to drive our own sustainability performance and industry change
We are an active Member of: We work with:
Volvo Car Group: Green Financing Framework Presentation 13 1 2 3 4 5 Introduction to Sustainability It’s time to Green Business Volvo Cars is key change Financing update Framework
Volvo Car Group: Green Financing Framework Presentation 14 Transitioning into a pure EV group Investments in new technology and car models support our sustainable transformation
Next generation platforms and electrification: Fully flexible platforms Strategic ownership in Carve out of traditional in-house design and prepared for electrification improved energy efficiency across all models Polestar spearheading combustion engine EV technology operations One 3-4 cylinder Modern aerodynamic powertrain family with All models in HEV optimised car designs and improved fuel economy version light weight materials First BEV
100%
0% 2014 2019 2025 Conventional technology Electrification – Including BEV and HEV technology
Indicative car project investment split, which is a material part of our total capex and R&D of 32 bn, FY 2019 Volvo Car Group: Green Financing Framework Presentation 15 Accelerating the shift, electrifying model line up toward 2025 EV target
Volvo Cars fleet Strong PHEV Leader in premium sales momentum Most ambitious EV target in the industry: CO2e decrease plug-in sales in H1 50% BEV and 50% HEV Sales by 2025 +80% -16% 157 38 132 14% Targeting 20% PHEV sales in 2020 21
6% g/km
1 of EV%
PHEV units PHEV brand sales brand One new fully electric car launch every year Fleet EU 2010 2019 H1 2019 H1 2020 Volvo Peer average2
Polestar 2 XC40 Recharge (Q4-20) “BEV only” (2021) XC90 BEV (2022) and more... 470km >400km, 408hp 300 kW (408hp) Sold out for 2020
1 In coming years, Volvo Cars aim to launch one new BEV every year Volvo Car Group: Green Financing Framework Presentation 16 2 Data source: IHS, Peers: Audi, BMW, Mercedes Constant focus on reducing global operational emissions Climate neutral manufacturing operations by 2025
Skövde, Sweden • Climate neutral manufacturing Charleston, USA since January 2018 • Opened in 2018 • Uses electricity from • On site solar energy as renewable sources one power source • Heating generated by waste incineration, biomass and recycled bio-fuels
Ghent, Belgium Chengdu, China • Saving 15,000 ton of CO2 per year since 2018 with solar power • Volvo Cars’ largest plant in China • Reduced carbon emissions by • Powered by 100% renewable electricity 40% in 2016 by introducing new heating system • CO2 emissions reduced by over 11,000 ton per year with renewable electricity
We continue to improve our operational footprint by sourcing renewable energy, improving energy efficiency and adapting our logistics network Since 2008 all European 45% reduction in CO2 emissions 8% drop in logistical 83% climate-neutral Trucks-to-trains swap cuts plants have been powered per manufactured car in Europe emissions per vehicle from electricity used in 2020 emissions since 2020 by renewable electricity and Asia since 2015 2018 – 2019
Volvo Car Group: Green Financing Framework Presentation 17 Responsible supply chain and sustainable battery management as we accelerate our EV journey
Action Within the Supply Chain Responsible Battery Strategy
CO2 commitments secured from our battery suppliers and blockchain technology used • Ambition to achieve 100 per cent throughout our cobalt supply chain renewable energy at all tier 1 suppliers by 2025 1st life ends Reuse in car 2nd Life Recycling • Increasing use of recycled materials
• Creating closed loops of material flows Reuse batteries in Utilise batteries in Recover battery • Reducing emissions from car after non-aggressive energy materials to enable materials manufacturing storage applications new batteries to be outside of vehicle produced • Third party verified supplier emission data, already achieved for 110 key suppliers ✓ Battery assembly line at Ghent manufacturing plant in Belgium ✓ Planned construction of a battery assembly in US plant. expected to start fall 2020
Volvo Car Group: Green Financing Framework Presentation 18 Sustainability at Volvo Cars is centrally governed and coordinated
Board of Directors (BoD) Executive Management Team (EMT) People and Sustainability Commercial & Product Creation Board Corporate Board Committee Operations Board
Cluster Global Sustainability Global Sustainability Green Financing Management Team (GST) Committee Committee Teams
Strategic initiatives
Other sustainability issues
Volvo Car Group: Green Financing Framework Presentation 19 1 2 3 4 5 Introduction to Sustainability It’s time to Green Business Volvo Cars is key change Financing update Framework
Volvo Car Group: Green Financing Framework Presentation 20 Introduction to the Green Financing Framework
• The Green Financing Framework aligns our sustainability strategy with financing opportunities that lead to a positive impact on environment and society
• The Green Financing Framework is aligned with both the ICMA Green Bond Principles (GBP) and the LMA Green Loan Principles (GLP)
• Cicero have provided a Second Party Opinion with a Dark Green shading
Project Use of Management evaluation and Reporting proceeds of proceeds selection
Volvo Car Group: Green Financing Framework Presentation 21 Use of proceeds: Strategic projects in Clean Transportation
R&D: Zero emission vehicles New electric powertrain and platform technology
Manufacturing: Increased BEV production capacity and battery assembly
Investments into polestar to Expected allocation of proceeds spearhead electrification
R&D Manufacturing Polestar
Volvo Car Group: Green Financing Framework Presentation 22 Other elements from Green Financing Framework
Green Financing Committee (GFC) responsible for the Eligible Green Projects from selection till reporting Process for project evaluation Identification Selection Tracking Transparency and selection potential Green Projects evaluated by GFC business and finance review and reporting
✓ Proceeds will be allocated to ✓ Projects will be tracked and ✓ Unallocated proceeds will be Management of the Eligible Green Projects adjusted on a semi-annual earmarked and invested, as proceeds portfolio with a three-year basis via the portfolio per company policy look-back period approach
Volvo Cars will publish a Green Financing Instrument report annually focusing on transparency and impact
✓ Allocation Reporting, annually ✓ Impact Reporting, where feasible Reporting • The allocation of the net proceeds • The relevant environmental impact • The proportion used for financing vs. refinancing metrics and methodology will be • Unallocated proceeds invested in cash and/or cash equivalents disclosed
Volvo Car Group: Green Financing Framework Presentation 23 Second Party Opinion by CICERO Shades of Green
SHADES OF GREEN
Green Financing Framework has received Dark Green shading by CICERO Shades of Green
GOVERNANCE PROCEDURES
CICERO Shades of Green finds the governance procedures in Volvo Cars’ framework to be Excellent
GREEN BOND and GREEN LOAN PRINCIPLES
Based on this review, CICERO Shades of Green confirms that this Framework is in alignment with the principles
Volvo Car Group: Green Financing Framework Presentation 24 1 2 3 4 5 Introduction to Sustainability It’s time to Green Business Volvo Cars is key change Financing update Framework
Volvo Car Group: Green Financing Framework Presentation 25 2020 H1 business update – market share gains despite Covid-19 impact
• Market share gains in all regions despite Covid-19 impact, positive y-o-y global sales growth since July • Liquidity remained strong and cost efficiencies intensified, which partly offset reductions in revenue and EBIT from volume decline • Accelerated transformation as PHEV sales double, Polestar 2 reaches markets and XC40 production begins in H2
Retail sales Revenue EBIT / margin Cash flow (K UNITS) (MSEK) (MSEK/%) from operating and investing activities (MSEK) -118% -364% -21% -14% 5,519 341 130,095 111,759 270 -2,759 4.2%
-0.9% -989 -12,803 2019 2020 2019 2020 2019 2020 2019 2020 H1 H1 H1 H1 H1 H1 H1 H1
Volvo Car Group: Green Financing Framework Presentation 26 Strong historical performance paves the way for continuous growth
Retail sales Revenue
+4.4% +9.1% -9.9% -6.6% 705 274 642 635 SUV 253 256 535 572 209 181 359 445 Estate 254 273 424 Sedan 170 198 185 161 116 69 Other 42 101 98 99 95 2016 2017 2018 2019 2020 June LTM 2016 2017 2018 2019 2020 June LTM
EBITDA Operating cash flow
29.9 32 30 26.2 27.4 15EBITDA 23.4 27 25 27 21.5 margin, % 22 12.5% 10 10.8% 10.9% 12.1% 9.1% EBITDA 10 5
0 0 2016 2017 2018 2019 2020 June LTM 2016 2017 2018 2019 2020 June LTM
Volvo Car Group: Green Financing Framework Presentation 27 Building the future through focused and controlled investments
Annual capital expenditure (bn SEK) Annual research and development expenses (bn SEK)
11.4 11.5 25.7 10.9 10.2 10.2 12.3% 9.5 20.9 21.0 19.3 8.7 20.1 10.8% 13.9 7.3 6.2 9.2 9.2 8.7% 8.3% 5.9% 5.7% 7.7% 7.9% 4.7 4.3% 4.2% 4.5% 17.0 3.6% 13.1 13.6 11.8 9.2 10.9
2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 June June LTM LTM
% of Revenue Intangible investments Tangible investments % of Revenue R&D expenses
Volvo Car Group: Green Financing Framework Presentation 28 Robust liquidity position with significant positive net cash
2020 maturity profile and split (MSEK) 68,100
24,300
Net cash 500 11,800 32%
32,000 68% 43,300 7,600 7,400 6,650 5,850 2,400 450 4,400 650 2,450 6,200 1,800 5,200 450 5,200 3,000 2,000 200 Liquidity 2020 2021 2022 2023 2024 2025 2026 June 30 2020 Undrawn credit facilities Marketable securities Cash & cash equivalents Loans Bonds Loans Bonds • Strengthened liquidity with SEK 14.7bn credit facilities (of which SEK 13.2 bn incremental) • Cash flow positive by the end of the second quarter
All figures are rounded Volvo Car Group: Green Financing Framework Presentation 29 Outlook H2 2020
Ambition to return to sales volume, profit and cash flow similar to H2 2019 levels.
Committed to continue investments in new technologies and products.
Volvo Car Group: Green Financing Framework Presentation 30 Fastest growing premium auto mobility group with leading ambitions
Leading ambitions Financial strength Climate action, Circular economy, Ethical & responsible business SEK68bn of liquidity supporting a prudent financial policy
Superior growth Fast-transforming Track record of outperformance set to continue Well positioned to take advantage of industry change
Value creation Truly global Market share gains and premium profitability Balanced global commercial and industrial footprint and leveraging synergies through collaboration with strategic affiliates and Geely group
Volvo Car Group: Green Financing Framework Presentation 31 volvocars.investors.com [email protected] Appendix 1: Green Financing Framework
Volvo Car Group: Green Financing Framework Presentation 33 Use of Proceeds
An amount at least equivalent to the net proceeds from the issuance of the Green Financing Instrument, will be used to finance or refinance, in whole or in part, new or existing, projects, assets or activities that meet the Eligibility Criteria defined below:
Eligible Categories EU Environmental Description (ICMA GBP/ LMA GLP) Objectives Investments and expenditures (incl. acquisition costs, research & development and licensing cost) for the design, development and manufacturing of Zero Emission Vehicles that is Battery Electric Vehicles (BEV):
• Research & Development dedicated to Zero Emission Vehicles, (including powertrains) Climate Change Clean Transportation and technology which include testing, development of facilities, tooling and manufacturing of Zero Emission Vehicles Mitigation • Manufacturing Facilities, including new facilities and upgrading or modifying of current manufacturing facilities to produce Zero Emission Vehicles or related components such as EV Batteries and powertrains, as well as remanufacturing and/or recycling of batteries
For avoidance of doubt, we have not included any costs, investments and expenditures related to Hybrid Electric Vehicles (HEV) and Plug-In Hybrid Vehicles (PHEV).
Volvo Car Group: Green Financing Framework Presentation 34 Process for Project Evaluation and Selection
A cross-departmental Green Financing Committee (the “GFC”) has been established as an important structure within its overall governance framework. The GFC will be responsible for:
• Reviewing and validating the portfolio of Eligible Green Projects • Monitoring the Eligible Green Projects pool during the life of the instruments • Preparing and recommending changes or updates to the Green Financing Framework • Reviewing and approving of the Green Financing Instruments report • Monitor on-going evolution related to the sustainable financing bond market
The process for the evaluation and selection of Eligible Green Projects will be as follows:
Identification Selection Tracking Transparency by the relevant business submitted Eligible on each Eligible Green the GFC will review functions and the Global Green Projects for Project by Business the register of Sustainability Team potential validation with the Control Team and Eligible Green Eligible Green Projects Eligibility Criteria maintain a register by Projects on semi- Treasury Team annual basis
Volvo Car Group: Green Financing Framework Presentation 35 Management of proceeds Efficient tracking of the proceeds
• The net proceeds from Green Financing Instruments will be deposited in Volvo Cars general account and an amount equivalent to the net proceeds will be earmarked for allocation to the Eligible Green Projects portfolio, in accordance with Volvo Cars Green Financing Framework
• The Eligible Green Projects consist of recent and new projects with expenditures incurred within a three-year look-back period before their inclusion in portfolio
• All relevant information regarding the issuance and projects (re)financed will be monitored and documented. The balance of the tracked proceeds will be periodically adjusted on a semi-annual basis. In case of divestments or if an Eligible Green Project no longer meets the Eligibility Criteria, the proceeds will be reallocated to other Eligible Green Projects
• The payment of principal and interest on the Green Financing Instruments will be made from Volvo Cars’ general funds and will not be linked to the performance of any Eligible Green Projects
• Until the full allocation of the Green Financing Instrument proceeds to Eligible Green Projects, the balance of unallocated net proceeds will be earmarked and invested in cash and/or cash equivalent and/or other liquid marketable instruments, as per Volvo Cars’ cash management policy
Volvo Car Group: Green Financing Framework Presentation 36 Reporting & Verification Focused on Transparency & Impact
Volvo Cars is committed to transparent reporting and will publish a Green Financing Instrument report within one year from the date of issuance of each Green Financing Instrument and annually thereafter until full allocation of the proceeds.
Allocation Reporting, disclose on an annual basis
▪ The aggregated amount of allocation of the net proceeds to the Eligible Green Projects at category level ▪ The proportion of net proceeds used for financing versus refinancing ▪ The balance of any unallocated proceeds invested in cash and/or cash equivalents
Impact Reporting, disclose where feasible, the relevant environmental impact metrics and measurement methodology for quantitative indicators. Below are examples of impact indicators that may be reported:
Eligible Category Potential Quantitative Performance Indicators
▪ Absolute CO2 tailpipe emissions avoided ▪ Percentage reduction in CO tailpipe emissions per vehicle Clean Transportation 2 ▪ Number of BEV cars sold ▪ Percentage of BEV cars in the overall fleet mix
Volvo Car Group: Green Financing Framework Presentation 37 Appendix 2:
Volvo Car Group: Green Financing Framework Presentation 38 The Volvo Car Group – a set-up for the future
VOLVO CARS STRATEGIC AFFILIATES
Fast growing premium OEM
(50%) (30%)
New youthful brand Spearheading going global to electrification with address 65 M DIRECT CONSUMER BUSINESSES pure progressive mass market performance cars
Direct online Care by Volvo sales ADAS / AD full software stack My car always My car sometimes Stay Home Store developer1 Designers Choice
Strategic affiliates – Non-consolidated Volvo Cars – Consolidated 1 In April 2020, it was announced that Volvo Cars and Veoneer would split the JV and Volvo Cars would continue to Volvo Car Group: Green Financing Framework Presentation develop AD / ADAS software under a separate wholly owned entity 39 Strong portfolio and a leader in premium plug-in
2020 H1 sales by market, carline and powertrain
+80% 38 S90 S60 21 PHEV sales (k units)
14% 14% 6% XC60 V60 H1 2019 H1 2020 17% CAGR 69% +4.7% V90 705 642 635 Europe 572 504 535 XC40 China XC US V XC90 Other S 2015 2016 2017 2018 2019 LTM
Volvo Car Group: Green Financing Framework Presentation 40 Commitment to energy efficiency in all aspects of product development
...2019 2020...
Fully flexible platforms One powertrain family – improved fuel Next generation platforms and electrification Aerodynamic top hats and prepared for electrification economy of up to 35%, same lines in-house design & improved energy efficiency light weight materials across series and assets production for economies of scale
Scalable Product Architecture (SPA) Diesel 4 cyl Mild Last generation 90 series diesel engines hybrid
60 series SPA 2 – Designed for Modern aerodynamic Polestar 1 Electrification optimized car designs Petrol Plug-in 3-4 cyl Compact Modular hybrid Architecture (CMA)
40 series
PHEV Fully Lynk & Co Twin Engine electric Lightweight and MEP2-4 sustainable materials Polestar 2
Volvo Car Group: Green Financing Framework Presentation 41 First carmaker to introduce Blockchain for global traceability
Supply chain Volvo Cars has been the first carmaker to implement global traceability of cobalt used in its batteries by applying blockchain technology.
Blockchain technology, which establishes a transparent and reliable shared data network, significantly boosts transparency of the raw material supply chain as the information about the material’s origin cannot be changed undetected.
This ensures that customers can drive “We have always been committed to an ethical supply chain for our raw electrified Volvo vehicles knowing the materials. With blockchain technology we can take the next step towards material for the batteries has been sourced ensuring full traceability of our supply chain and minimising any related responsibly. risks, in close collaboration with our suppliers.”
Martina Buchhauser, Head of procurement at Volvo Cars
Volvo Car Group: Green Financing Framework Presentation 42