Volvo Car : Quarterly Earnings

For Life.

To give people freedom to move in a personal,

sustainable and safe way

VOLVO CAR GROUP

ANNUAL AND SUSTAINABILITY REPORT 2023

18 35

10

76

147

198

OVERVIEW

3 Purpose

• This is Volvo Cars
  7 2023 in brief

10 CEO letter

1. MARKET
2. Trends
3. Industry shifts

1. Sales and market development

1. STRATEGY
2. Our Blueprint
3. Values and culture
4. Our Code of Conduct
5. Missions 23  People 25  Product 27  Technology 29  Customer 31  Digital

1. Collaborations
2. Corporate portfolio

1. SUSTAINABILIT Y
2. Our sustainability ambitions
3. Climate Action

39 Circular Economy

1. Responsible Business

1. Value chain

1. DIRECTORS' REPORT

1. RISK
2. Enterprise Risk Management

1. GOVERNANCE
2. Corporate Governance Report

1. Board of Directors

1. Executive Management Team

1. Group Management Team
2. Auditor's Report on the corporate governance statement

1. FINANCIALS
2. Contents Financial Report
3. Consolidated Financial Statements

85 Notes to the Consolidated Financial Statements

136 Parent Company Financial Statements

138 Notes to the Parent Company Financial Statements

142 Proposed distribution of non-restricted equity

144 Auditor's Report

1. SUSTAINABILIT Y REPORT
2. Contents Sustainability report
3. Materiality analysis
4. Climate Action

1. Circular economy

1. Responsible business

1. Stakeholder engagement

1. Compliance and Ethics

1. EU Taxonomy Report

1. Green Financing Report

1. About the report

1. Auditor's Limited Assurance Report on Sustainability
2. Auditor's Limited Assurance Report on Green Financing

198 THE SHARE

1. Our heritage

1. Definitions

We continue to make steady progress on our transformation objectives."

Volvo Car Group's formal Annual Report is presented on pages 44-58,76-131 and 136-143, and has been audited by the Group's auditors.

JIM ROWAN

PRESIDENT AND CHIEF EXECUTIVE OFFICER

The Sustainability Report can be found integrated in this report on pages 35-43 and 147-195. The auditors have performed a limited assurance engagement of the Sustainability­Report.

For Life.

To give people freedom to move in

• personal, sustainable and safe way.

PERSONAL - FO R L IFE

Life is precious. So is living. That is why Volvo Cars helps people come to life and live life freely. We celebrate individuality and the freedom to be you. We want to make life easier and to help you save time and stress. To enable joy and peace of mind. Volvo Cars comes from Sweden after all, a place that believes quality of life is as important as being alive itself.

SUSTAINABLE - FO R L IFE

We do not only protect people in and around our cars. We also work hard to protect the planet we live on. We aim to be pioneers in protecting people and the planet by working towards net zero, embracing the circular economy and improving people's lives.

SAFE - FO R L IFE

In 1927 our founder stated "Cars are driven by people. The guiding principle behind everything we make at Volvo, therefore, is and must remain, safety". This principle made our brand synonymous with safety and is today as relevant as ever before. We will continue to aim to pioneer the safest, most intelligent technology solutions in mobility and everyday life to protect what is important to people, their lives and the lives they are living.

OVERVIEW	2
OUR PURPOSE	3
THIS IS VOLVO CARS	4
	2023 IN BRIEF	7
	CEO LETTER	10
MARKET	13
STRATEGY	18
SUSTAINABILITY	35
DIRECTORS' REPORT	44
RISK	51
GOVERNANCE	59
FINANCIALS	76
SUSTAINABILITY REPORT	147
THE SHARE	198
OUR HERITAGE	200

3 VOLVO CAR GROUP ANNUAL AND SUSTAINABILIT Y REPORT 2023

THIS IS VOLVO CARS

Geared for premium growth with a balanced portfolio

All models are available as plug-in hybrids or fully electric. Since 2020 all new models have been fully electric. During 2023, we revealed two new cars, the EX30, revealed in June and EM90 revealed in November.

	PLUG-IN AND MILD -HYBRIDS		FULLY ELEC TRIC
XC 9 0	S9 0	E X4 0	EM 9 0

XC 6 0

V9 0

EC 4 0

E X9 0

XC 4 0

S60

E X3 0

V6 0

OVERVIEW	2
OUR PURPOSE	3
THIS IS VOLVO CARS	4
	2023 IN BRIEF	7
	CEO LETTER	10
MARKET	13
STRATEGY	18
SUSTAINABILITY	35
DIRECTORS' REPORT	44
RISK	51
GOVERNANCE	59
FINANCIALS	76
SUSTAINABILITY REPORT	147
THE SHARE	198
OUR HERITAGE	200

4 VOLVO CAR GROUP ANNUAL AND SUSTAINABILIT Y REPORT 2023

THIS IS VOLVO CARS

AMERICA

~ 3,000 employees

USA

• Mahwah, NJ

- US/Canada HQ

• Charleston, SC

- Car Production

Brazil

• São Paulo

- LATAM and Global

Importers HQ

EUROPE

~ 29,000 employees

Sweden

• Gothenburg

- Global HQ

• • R&D
  • Design Centre
  • Car Production
• Stockholm - Tech Hub
• Lund - Tech Hub
• Olofström
• • Body Components
• Skövde - E-motors
• Floby
• • Body components

Belgium

• Ghent - Car Production Poland
• Krakow - Tech Hub

ASIA

~ 11,000 employees

China

• Shanghai
• • Greater China HQ
  • Regional R&D and Design Centre
• Chengdu - Car Production
• Daqing - Car Production
• Taizhou - Car Production

Singapore

• Tech Hub and APEC HQ

India

• Bangalore - Tech Hub and contract assembly
  Malaysia
• Kuala Lumpur - owned assembly factory

OVERVIEW	2
OUR PURPOSE	3
THIS IS VOLVO CARS	4
	2023 IN BRIEF	7
	CEO LETTER	10
MARKET	13
STRATEGY	18
SUSTAINABILITY	35
DIRECTORS' REPORT	44
RISK	51
GOVERNANCE	59
FINANCIALS	76
SUSTAINABILITY REPORT	147
THE SHARE	198
OUR HERITAGE	200

Global reach with a localised network

Volvo Cars serves customers in over 100 countries. Founded in 1927 in Gothenburg, Sweden, Volvo Cars has expanded production across three continents. Being close to our customers reduces operational risk, as well as our environmental footprint, and allows us to form long-term relationships on an individual basis.

~⁜709,000

RETAIL SALES

16%

FULLY ELECTRIC

22%

PHEV

+⁜100

SALES IN COUNTRIES

~⁜2,200

RETAIL LOCATIONS

~⁜43,000

EMPLOYEES

RETAIL SALES PER MARKET

Europe 42%

China 24%

US 18%

Other 16%

5 VOLVO CAR GROUP ANNUAL AND SUSTAINABILIT Y REPORT 2023

SALES IN OVER

100 NATIONAL MARKETS

1927

FOUNDED IN GOTHENBURG, SWEDEN

This is Volvo Cars

Born in Sweden and now 97 years into our story, we remain proudly rooted in our Swedish heritage. We may now be truly global and leading a profound transformation of our company- but those roots remain as strong and relevant as ever.

It is from those roots that the Volvo Cars brand became synonymous with safety. The safety work has meant helping those to protect the people inside our cars to all road users. And further now that where safety once meant inventing the three-point seatbelt

100 and sharing it with the world: today it also means protecting the planet. In this way, having helped to save a million lives we are committed to saving a million more.

We now share our expertise and our voice, advocating for positive change beyond our company interests. That means that the Volvo Cars' voice far exceeds our market share, and we live by our values - which attracts both customers and new competence to us. We aim not to follow guidelines set by others - we strive to set the bar; whether that is emissions targets, or the all-gender inclusive parental leave all colleagues around the globe, in all plants and offices, enjoy from the Family Bond.

OUR AMBITIONS

The legacy of Swedish design and craft informs our desire to create elegant, uncomplicated solutions to real-world needs. We are responsive to change and understand that as well as saving lives, we make life less complicated for our people, customers and part- ners. That spans from how a customer buys or ­subscribes to a car to how the car is designed, and how it feels to the driver and passengers. By building more direct consumer relations we are ensuring that our organisation remains as versatile and aware of changing demand as it always has been.

THAT IS WHY OUR PURPOSE IS FOR LIFE

• TO GIVE PEOPLE THE FREEDOM TO MOVE IN A PERSONAL, SUSTAINABLE AND SAFE WAY

CL ARIFIED AMBITIONS

As we approach the middle of this decade, we want to be more precise with our ambitions and have decided to clarify these. We stand firm on our strategy around electrification and technological leadership, one of the most ambitious in the indus- try. Yet by clarifying our ambitions that were set out during our IPO with sharpened metrics,

it improves transparency and allows us to better

follow­ up on our progress.

We remain firm on our ambition to report an EBIT margin above 8 per cent for 2026, and now do so based on expected revenues between SEK 550- 600 billion. By the end of 2026, this calculates to a revenue CAGR of 11-15% from 2023 to 2026.

OVERVIEW	2
OUR PURPOSE	3
THIS IS VOLVO CARS	4
	2023 IN BRIEF	7
	CEO LETTER	10
MARKET	13
STRATEGY	18
SUSTAINABILITY	35
DIRECTORS' REPORT	44
RISK	51
GOVERNANCE	59
FINANCIALS	76
SUSTAINABILITY REPORT	147
THE SHARE	198
OUR HERITAGE	200

2025		2025	2026	2026
50%	40%	550-600	ABOVE 8%1)
FULLY ELECTRIC	CO2	REDUCTION	REVENUE	EBIT
SALES		PER CAR	(SEK BN)	MARGIN

1) excl. share of income in JVs & associates

This clarified ambition further underlines that we seek to grow in terms of revenues and value rather than on volume alone, thereby focusing even more on profitable growth.

The ambitions for 50 per cent fully electric sales and CO2 reduction of 40 percent per average vehicle (compared to a 2018 baseline) we aim to meet by 2025.

6 VOLVO CAR GROUP ANNUAL AND SUSTAINABILIT Y REPORT 2023

2023 in brief

• The new fully electric Volvo EX30 was revealed in Q2 with start of production in Q3.
• The Volvo EM90 was revealed in November.
• Volvo Cars opened new Tech Hubs in Krakow, Poland and Singapore.
• Volvo Cars continued the commercial transfor- mation as shown by the transition of the UK market to a direct model. Together with our retail partners we continue with the digitalisa- tion journey and network optimisations across our markets.
• Volvo Cars accelerated the cost-efficiency
  initiative­ including a reduction of approxi- mately 600 employees, of which the main part through voluntary termination packages. In addition, approximately 400 consultants and agency personnel left the company.

• Volvo Cars declared the end of diesel at
  Climate­ Week NYC - our last diesel car will be produced in early 2024.
• Volvo Cars has been recognised for its climate action and transparency by global environ- mental non-profit CDP, securing a spot on the Climate A-list.
• Volvo Cars published updated Green
  Financing­ Framework.
• Volvo Cars raised SEK 1.5 bn through
  inaugural­ green bonds in the Swedish market­ .
• Volvo Cars and the European Investment Bank (EIB) signed credit facility agreements of EUR 250 m to develop a new all-electric vehicle platform.

EX30

The EX30, launched in June, represents one of the company's most

­significant business opportunities and will serve as a building block for our strategic transformation.

READ MORE ON PAGE 9

OVERVIEW	2
OUR PURPOSE	3
THIS IS VOLVO CARS	4
	2023 IN BRIEF	7
	CEO LETTER	10
MARKET	13
STRATEGY	18
SUSTAINABILITY	35
DIRECTORS' REPORT	44
RISK	51
GOVERNANCE	59
FINANCIALS	76
SUSTAINABILITY REPORT	147
THE SHARE	198
OUR HERITAGE	200

EM90

The new fully electric EM90 premium MPV, revealed in November, further expands Volvo Cars' portfolio. The EM90 demonstrates our strong abilities to innovate and meet specific market demands. The multi-purpose vehicle (MPV) segment has gained considerable popularity in recent years, especially in many parts of Asia. This is one of the main reasons why the EM90 was launched in China, the world's largest car market.

VOLVOCARS.COM/INTL/CARS/EM90-ELECTRIC/

Intensified climate actions

On 30 November, ahead of the COP28 climate summit, Volvo Cars announced an extension of our action plan - already one of the most ambitious in the automotive industry - by ­aiming to reduce CO2 footprint per average vehicle by 75 per cent by 2030, compared to a 2018 baseline.

READ MORE ON PAGE 9

75%

CO2 EMISSION REDUCTION PER AVERAGE CAR BY 2030

7 VOLVO CAR GROUP ANNUAL AND SUSTAINABILIT Y REPORT 2023

2023 financials in brief

KEY FIGURES FINANCIALS (SEKm)	2023	2022	20211)2)
Retail sales, units	708,716	615,121	698,693
Revenue	399,343	330,145	282,045
Research and development expenses	-12,884	-11,514	-12,714
Operating income (EBIT)	19,939	22,332	20,275
Operating income (EBIT) excl. share of
income from JVs & associates	25,567	17,889	21,226

OVERVIEW	2
	OUR PURPOSE	3
	THIS IS VOLVO CARS	4

• Retail sales increased by 15% and reached
• 1. (615.1) thousand cars, a new company record.
• Revenue increased by 21% to all-time high SEK 399.3 (330.1) bn, mainly driven by higher volume, as well as positive foreign exchange.
• Operating income (EBIT) was SEK 19.9 (22.3) bn, mainly driven by volume development, but also positive exchange rate effects. 2022 com- parative figures were positively affected by the de-SPAC listing of Polestar with net effect SEK of 5.9 bn. EBIT excluding share of income in JVs and associates was at all-time high SEK
• 1. (17.9) bn.
• EBIT margin was 5.0 (6.8)%. EBIT margin excluding share of income in JVs and associ- ates was 6.4 (5.4)%.
• Basic earnings per share was SEK 4.38 (5.23).

REVENUE AND GROSS	EBIT AND EBIT MARGIN
MARGIN (SEK BN/%)	(SEK BN/%)

• Average lifecycle CO2 emissions per vehicle were reduced by 20% compared with the 2018 level.

FORWARD LOOKING

• For 2024, Volvo Cars expects a higher year- over-year growth rate in retail sales than in 2023, provided there are no major disruptions. Supported by our newly launched cars we are expecting to considerably increase the share of fully electric cars versus 2023.
• The Board of Directors proposes that no ordinary dividend is distributed and that the retained earnings shall be carried forward. Further, a dis- tribution of a portion of Volvo Cars' shareholding in Polestar is proposed, as an extraordinary value transfer to its shareholders. For more informa- tion regarding this, see the Board of Directors' Report.

RETURN ON INVESTED	CO2-EMISSIONS
CAPITAL, ROIC (%)	PER CAR

Net income	14,066	17,003	14,177
Basic earnings per share, SEK	4.38	5.23	4.72
EBITDA	37,388	38,423	35,280
Cash flow from operating activities	42,867	33,658	29,852
Cash flow from investing activities	-51,842	-39,552	-34,737
Net cash	27,487	38,061	44,846
Gross margin, %	19.4	18.3	21.6
EBIT margin, %	5.0	6.8	7.2
EBIT margin excl. share of income from
JVs & associates, %	6.4	5.4	7.5
EBITDA margin, %	9.4	11.6	12.5
Return on invested capital, ROIC, %	12.4	16.7	18.6

1. In 2022, there was a change in the elimination of internal profit related to sale of digital
   services­ - resulting in a decrease of Cost of sales, Research and development expenses and Selling expenses against an increase in Administrative expenses. The reclassification has no impact on EBIT. The figures for 2021 have been adjusted accordingly.
2. In 2022, a prior period error was identified regarding the recognition of a government grant in China. The comparative figures have been adjusted accordingly affecting 2021.

KEY FIGURES SUSTAINABILITY	2023	2022	2021
Climate Action
Reduction of CO2 emissions per average
vehicle1,9,10) (baseline 2018), %	-20.0	-14.9	-9.5
Fully electric vehicles (BEVs) sold, %	16.0	10.9	3.7
Circular Economy
Recycled and bio-based materials of the

	2023 IN BRIEF	7
	CEO LETTER	10
MARKET	13
STRATEGY	18
SUSTAINABILITY	35
DIRECTORS' REPORT	44
RISK	51
GOVERNANCE	59
FINANCIALS	76
SUSTAINABILITY REPORT	147
THE SHARE	198
OUR HERITAGE	200

400						25	25						8	25						60						20
350						20	20						7	20
300											6						50						10
250						15	15						5	15						40						0
200						10	10						4	10
150											3
100						5	5						2	5						30						-10
50											1
0	19	20	21	22	23	0	0	19	20	21	22	23	0	0	19	20	21	22	23	0	19	20	21	22	23	-20

		Revenue, SEK bn		EBIT, SEK bn	Invested capital is calculated		CO2-emissions per car
		Gross margin, %		EBIT-margin, %	on two-year average figures.		CO2-reduction, %
				EBIT-margin excl.
				share of income in
				JV & associates, %

new vehicles24,25), %	17	-	-
Reuse and recycling rate for total waste, %	92	-	-
Circular economy initiatives (compared to
2018 baseline), SEKm	508	413	-160
Responsible Business
Employee engagement (Score and
Benchmark)	76 (+1)	76 (+1)	76 (0)
Women in Senior ­Leadership32) (%)	30.1	29.6	-
Injury rate (LTCR) employees*	0.06	0.07	0.06

• Injury rate (LTCR) is defined as the number of work and occupational accidents reported with at least one day sick leave, divided by hours worked and multiplied by 200,000.

For Sustainability definitions and reporting principles see page 192-195.

8 VOLVO CAR GROUP ANNUAL AND SUSTAINABILIT Y REPORT 2023

HIGHLIGHT S 2023

Intensified climate action

The not-so-big, big deal. The new Volvo EX30.

OVERVIEW	2
OUR PURPOSE	3
THIS IS VOLVO CARS	4
	2023 IN BRIEF	7
	CEO LETTER	10
MARKET	13
STRATEGY	18
SUSTAINABILITY	35
DIRECTORS' REPORT	44

Ahead of the COP28 climate summit in Dubai, Volvo Cars announced further sharpening of our CO2 emissions reduction ambition per car. By 2030, we aim to cut the CO2 footprint per average vehicle by 75 per cent (from a 2018 baseline). This complements our ambition to cut emissions by 40 per cent per average vehicle already by 2025.

During 2023 we have reduced the average CO2 emissions per vehicle by 20 per cent, compared to the 2018 baseline. Achieving such an ambition for 2030 of 75 per cent reduction target demands that we continue working towards our existing ambition to only sell fully electric cars by 2030, thereby

model line-up. Therefore, we have also announced that we will produce our last ever diesel-powered car in early 2024. This milestone follows our decision last year to exit the development of new combustion engines. In the end of 2022 we sold our stake in Aurobay, the joint venture company that harboured all of our remaining combustion engine assets. Instead of focusing on the technologies of the past, we have our eyes on the future.

At the same time, we need to tackle our operational emissions and emissions from materials, aiming to reduce them by 30 per cent per average vehicle each by 2030, compared to a 2018 baseline. We intend to achieve these aims by introducing low- and near-zero emission materials and increasing the use of recycled materials in key categories, as well as reaching climate neutral energy in our own operations by 2025, and reducing emissions in for example logistics, com- muting, as well as our retailer network.

The EX30, launched in June 2023, represents one of the company's most significant business opportunities and will serve as a building block for our strategic transformation. With our first small, fully-electric SUV, we are entering an important, fast-growing segment of the premium automotive market and reaching new customers.

Built on next-generation electric

architectures, with advanced battery and computing technology, as well as next-level passive and active safety fea- tures, the EX30 takes an exciting step towards achieving our ambitions for 2025-26. We expect it to become one of our bestsellers in the coming years and significantly contribute to our ­profitable growth, with gross margins in the range of 15 to 20 per cent. This small yet mighty SUV also takes us closer to reaching our sustainability objectives, designed to have the lowest carbon footprint1) of any car we have yet

"The fully electric EX30 might be our smallest ever SUV, but it is a big deal for our customers and a big deal for

us as a company."

produced. Around 25 per cent of its

aluminium­ comes from recycled sources, while approximately 17 per cent of both its steel and plastic content is recycled.

Using sustainable design principles, our designers have combined functions into single components, reducing the number of parts with no compromise in function- ality. The EX30 takes city safety to a new level, with the introduction of a door opening alert that is designed to warn its occupants of passing cyclists and other vulnerable road users.

RISK	51
GOVERNANCE	59
FINANCIALS	76
SUSTAINABILITY REPORT	147
THE SHARE	198
OUR HERITAGE	200

eliminating tailpipe emissions from our

READ MORE ON PAGES 35-43

1. The lowest carbon footprint of any Volvo car to date statement relates to globally available products over 200,000 kms of driving.

9 VOLVO CAR GROUP ANNUAL AND SUSTAINABILIT Y REPORT 2023

Best core operating performance in 97-year history, while accelerating next-generation technology development

2023 was a key milestone in our transformation journey for Volvo Cars. We delivered a record-breaking year on many levels, reporting the highest retail sales, revenues and

profits­ in our company's 97-year history. We also took several significant steps forward in our ongoing transformation, while navigating a complex external environment.

In doing so, we've built a solid foundation for 2024 and the years ahead.

OVERVIEW	2
OUR PURPOSE	3
THIS IS VOLVO CARS	4
	2023 IN BRIEF	7
	CEO LETTER	10
MARKET	13
STRATEGY	18
SUSTAINABILITY	35
DIRECTORS' REPORT	44
RISK	51
GOVERNANCE	59
FINANCIALS	76
SUSTAINABILITY REPORT	147

In line with our guidance at the beginning of the year, we delivered a solid double-digit growth in retail sales in 2023. Global sales rose by 15 per cent to a record 708,716 cars versus 2022. This performance demonstrates the strength of our premium product portfolio that offers both fully electric cars as well as an extensive range of hybrid models that will continue to help us bridge the transition into full electrification. The strength of our brand, coupled with our values around safety and sustainability, continues to resonate strongly with our customers.

We continue to move steadily towards our goals. We sold 113,419 fully electric cars (EVs) in 2023, an increase of 70 per cent versus 2022. EVs represented 16 per cent of our total global sales volume and we increased our global EV market share by 34 per cent.

It is also worth noting that our EV share in 2023 was based mainly on only two fully electric premium models (the C40 and XC40) and does not yet reflect the full potential of our new EX30 small SUV, EX90 large SUV or EM90 MPV, all of which will hit the roads in earnest

during 2024. It was, however, one of the highest fully electric car shares among all legacy premium car makers.

Especially in Europe and the US, our electrified portfolio of both fully electric and plug-in hybrid models proved to be highly popular. In Europe, electrified cars represented almost 60 per cent of our total sales, while the corresponding figure in the US was almost 30 per cent. We expect that trend to continue in 2024, as our latest sales performance demonstrates. Our strong EV and hybrid portfolio across multiple sizes and models provides us a strong bridge towards our longer-term ambitions in core computing technology that will ­provide the platform to utilise the substantial benefits that AI will enable.

Delivered record financial performance, while laying a strong foundation for the future

The new sales record in 2023 was also reflected in our revenues and profits. Revenues rose by 21 per cent to an all-time high of SEK 399.3 billion for the full year 2023, demonstrating our ability to maintain premium

THE SHARE	198
OUR HERITAGE	200

10 VOLVO CAR GROUP ANNUAL AND SUSTAINABILIT Y REPORT 2023