Volvo Car Group · Sustainability is key to our future success . We aim to be a climate neutral company by 2040 reduction in 50% tailpipe emission ... Green Financing Framework Presentation

Volvo Car Group

Green Financing Framework Presentation

Freedom to move in a personal, sustainable and safe way

Volvo Car Group: Green Financing Framework Presentation 2

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1 2 3It’s time to

change

4Green

Financing Framework

5Business update

Sustainability is key

Introduction to Volvo Cars


Volvo Cars in brief 2019 Well positioned to take advantage of industry change

705,000Cars sold

+57%

since 2011

42,000Employees

+93%since 2011

SEK 69BNLiquidity

SEK 12BNFree Cash Flow

SEK 14BN

EBIT

>8xmore than 2011

STRATEGIC AFFILIATES

(30%)

(50%)

VOLVO CARS Fast growing premium OEM

Moody’s

Ba1

S&P

BB+

SEK 274BN

Revenue

+118%since 2011


Flexible, global production footprint supports continued growth

Production

R&D

Assembly / CKD

US15% of sales

Europe48% of

salesChina

22% of sales

Other14% of sales

Covid-19 effect on production:

• Chinese manufacturing closed after Chinese New Year for four to five weeks

• Sweden and Belgium rapidly resumed production already in third week of April

• US plant resumed production end of July

Volvo Cars 2020 sales development:

• China back to 2019 levels in mid April

• US back at the beginning of June

• Europe back since the beginning of July

• Market share gains in all regions

0

20000

40000

60000

80000

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Global sales development

2019

2020


PERSONAL

CONNECTIVITYKEY ENABLER

FOR FUTURE MOBILITY

SHARED MOBILITYNEW CONSUMER SEGMENTS

SUSTAINABLE

ELECTRIFICATIONTHE FUTURE IS NOW

SAFE

MAKING CARS SAFER – SINCE 1927

AUTONOMOUS DRIVINGSAFETY IS KEY


Freedom to move - personal, sustainable and safe

1Introduction to

Volvo Cars

2Sustainability

is key

3 4 5


It’s time tochange

Green Financing

Framework

Business update

Sustainability is as important to Volvo Cars as safetyIt’s in our DNA

1959 Three-point Safety Belt

1972 Rearward-facing Child Safety Seat

1991 Side Impact Protection System

2015 & 2017 XC90 and XC60 received Best in Class safety awards1

2020 Speed limit of 180km/h introduced

1976 World’s first 3-way catalytic converter LambdaSond. Removes 90% of noxious exhaust emissions

1996 Environmental requirements on suppliers

2011 & 2012 Launched fully electric vehicle C30 and Plug-In hybrid V60. Downsize to 4-3 cylinders in all models

2019 An electric motor for all new models and all models in PHEV versions. First full range BEV launched

1 Best overall performer in the Euro NCAPVolvo Car Group: Green Financing Framework Presentation 8

Our ambitions

Climate neutralcompany by 2040

Circular businessby 2040

Leader in ethical & responsible business

2025 ambition: 40% reduction of

overall CO2 emissions per car

2025 ambition: Cost savings of SEK 1bn

and 2.5m ton annual emissions reduction

2025 ambition:Take the lead in setting a

new global people standard for the industry

Why?

Climate change– we must act

1Meet growing

regulatory demands

2Meet

consumer expectations

3

Attract employeesand responsible

business partners

4Increase

profitability

5


Sustainability is key to our future success

We aim to be a climate neutral company by 2040

reduction in tailpipe emission50%

reduction in supply chain emissions 25%

reduction in operational emissions25%

2025 ambition:Ton CO₂ePer car

36 ton

17 ton

3 ton

18 ton

13 ton

2 ton0

5

10

15

20

25

30

35

40

Tailpipe emissions Raw materials and suppliers

Total operations incl. Logistics

-50%

-25%

-25%

Average CO₂e emissions per vehicle over its lifetime

2018

2025

would lead to a 40% reduction of overall CO2

emissions per car 2018-2025


Circular Design

Material Value retention

Waste Elimination

Usage models

Component ValueRetention

Recycled and bio-based plastics25%

Recycled steel25%

Recycled aluminium40%

2025 ambition:

We are aiming for annual savings of SEK 1 Billion and a 2.5M ton reduction in carbon emissions by 2025

• Maximise resource efficiency

• Remanufacture and reuse existing parts

• Recycled/bio-based materials

• Developing sustainable business models

• End of life and eliminating wasteCurrently, 94% of global production waste recycled


We aim to be a circular business by 2040

Put sustainability on a par with quality and cost in

procurement

Tackle corruption and unethical

business practices

Sustainability criteria in debt funding, investments

and financial products

Industry role model for global people standards, equality and labour rights


We aim to be a recognised leader in ethical and responsible business

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:

2 3It’s time to

changeSustainability

is key

1Introduction to

Volvo Cars

4Green

FinancingFramework

5Businessupdate


Fully flexible platforms prepared for electrification across all models

One 3-4 cylinder powertrain family with improved fuel economy

Carve out of traditional combustion engine operations

Next generation platforms and electrification: in-house design and improved energy efficiency

Modern aerodynamic optimised car designs and light weight materials

Strategic ownership in Polestar spearheading EV technology

20252014

All models in HEV version

0%

100%

Indicative car project investment split, which is a material part of our total capex and R&D of 32 bn, FY 2019

Conventional technology Electrification – Including BEV and HEV technology

2019

First BEV

Transitioning into a pure EV groupInvestments in new technology and car models support our sustainable transformation


Volvo Cars fleet CO2e decrease

EV

% o

fb

ran

d s

ale

s

Volvo Peer average2

14%

6%

Strong PHEVsales momentumMost ambitious EV target in the industry:

50% BEV and 50% HEV Sales by 2025

Accelerating the shift, electrifying model line up toward 2025 EV target

Leader in premium plug-in sales in H1

21

38

H1 2019 H1 2020

157132

g/k

mE

U F

lee

t

2010 2019

-16%+80%

1 In coming years, Volvo Cars aim to launch one new BEV every year2 Data source: IHS, Peers: Audi, BMW, Mercedes

PH

EV

un

its


“BEV only” (2021) XC90 BEV (2022)XC40 Recharge (Q4-20)

>400km, 408hpSold out for 2020

Polestar 2

470km300 kW (408hp)

Targeting 20% PHEV sales in 2020One new fully electric car launch every year1

and more...

Constant focus on reducing global operational emissionsClimate neutral manufacturing operations by 2025

Charleston, USA

Ghent, Belgium

• Saving 15,000 ton of CO2 per year since 2018 with solar power

• Reduced carbon emissions by 40% in 2016 by introducing new heating system

Skövde, Sweden

• Climate neutral manufacturing since January 2018

• Uses electricity from renewable sources

• Heating generated by waste incineration, biomass and recycled bio-fuels

Chengdu, China

• Opened in 2018

• On site solar energy as one power source

• Volvo Cars’ largest plant in China

• Powered by 100% renewable electricity

• CO2 emissions reduced by over 11,000 ton per year with renewable electricity

83% climate-neutral electricity used in 2020

Since 2008 all European plants have been powered

by renewable electricity

45% reduction in CO2 emissions per manufactured car in Europe

and Asia since 2015

8% drop in logistical emissions per vehicle from

2018 – 2019

Trucks-to-trains swap cuts emissions since 2020

We continue to improve our operational footprint by sourcing renewable energy, improving energy efficiency and adapting our logistics network


Action Within the Supply Chain Responsible Battery Strategy

Responsible supply chain and sustainable battery management as we accelerate our EV journey

CO2 commitments secured from our battery suppliers and blockchain technology used throughout our cobalt supply chain• Ambition to achieve 100 per cent

renewable energy at all tier 1 suppliers by 2025

• Increasing use of recycled materials

• Creating closed loops of material flows

• Reducing emissions from materials

• Third party verified supplier emission data, already achieved for 110 key suppliers

Reuse in car 2nd Life Recycling

✓ Battery assembly line at Ghent manufacturing plant in Belgium✓ Planned construction of a battery assembly in US plant. expected to start fall 2020

Reuse batteries incar after

manufacturing

1st life ends

Utilise batteries in non-aggressive energy

storage applications outside of vehicle

Recover battery materials to enable new batteries to be

produced


Board of Directors (BoD)People and Sustainability

Committee

Global Sustainability Team (GST)

Cluster Management

Teams

Strategic initiatives

Other sustainability issues

Executive Management Team (EMT)

Product Creation BoardCommercial &

Operations BoardCorporate Board

Sustainability at Volvo Cars is centrally governed and coordinated

Global SustainabilityCommittee

Green FinancingCommittee


3It’s time to

change

4Green

Financing Framework

2Sustainability

is key

1Introduction to

Volvo Cars

5Business update


• 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

Introduction to the Green Financing Framework

Use ofproceeds

Project evaluation and

selection

Management of proceeds

Reporting


Investments into polestar to spearhead electrification

Manufacturing:Increased BEV production capacity and battery assembly

R&D: Zero emission vehiclesNew electric powertrain and platform technology

Use of proceeds:Strategic projects in Clean Transportation

R&D Manufacturing Polestar

Expected allocation of proceeds


Other elements from Green Financing Framework

Management ofproceeds

Reporting

Process for project evaluation

and selection

✓ Unallocated proceeds will be earmarked and invested, as per company policy

✓ Proceeds will be allocated to the Eligible Green Projects portfolio with a three-year look-back period

✓ Projects will be tracked and adjusted on a semi-annual basis via the portfolio approach

Green Financing Committee (GFC) responsible for the Eligible Green Projects from selection till reporting

Volvo Cars will publish a Green Financing Instrument report annually focusing on transparency and impact

Identificationpotential Green Projects

Selectionevaluated by GFC

Trackingbusiness and finance

Transparencyreview and reporting


✓ Allocation Reporting, annually

• The relevant environmental impact

metrics and methodology will be

disclosed

• The allocation of the net proceeds• The proportion used for financing vs. refinancing• Unallocated proceeds invested in cash and/or cash equivalents

✓ Impact Reporting, where feasible

Second Party Opinion by CICERO Shades of Green

GREEN BOND and GREEN LOAN PRINCIPLES

Based on this review, CICERO Shades of Green

confirms that this Framework is in alignment with the

principles

GOVERNANCE PROCEDURES

CICERO Shades of Green finds the governance

procedures in Volvo Cars’ framework to be Excellent

Green Financing Framework has received Dark Green

shading by CICERO Shades of Green

SHADES OF GREEN


4Green

Financing Framework

5Business update

3It’s time to

change

2Sustainability

is key

1Introduction to

Volvo Cars


• 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

2020 H1 business update – market share gains despite Covid-19 impact

Revenue(MSEK)

Retail sales (K UNITS)

EBIT / margin (MSEK/%)

341

270

2020 H1

2019H1

-21%

2020 H1

2019H1

130,095

111,759

-14%

-989

5,519

2019H1

2020 H1

-118%

Cash flow from operating and investing

activities (MSEK)

2020 H1

2019H1

-2,759

-12,803

-364%

4.2%

-0.9%


Strong historical performance paves the way for continuous growth

101 98 99

198 185 161 116170

273 359 445424254

95

572

6942

20192016 20182017 2020 June LTM

635535

642705

+4.4%

-9.9%

Estate

SUV

Sedan

Other

181209

253 274 256

20192016 20182017 2020 June LTM

+9.1%-6.6%

0

5

10

1530

10

0

12.1%

29.9

12.5%

23.4

2020 June LTM2016 2017

10.8%

2018

10.9%

2019

9.1%

21.526.2 27.4 EBITDA

margin, %

EBITDA

27 25 2732

22

20192016 2017 2020 June LTM

2018

Retail sales Revenue

Operating cash flowEBITDA


Building the future through focused and controlled investments

Annual capital expenditure (bn SEK) Annual research and development

expenses (bn SEK)

8.7%

11.8

8.3%13.9

2015

10.8%

20182016

12.3%

2017

7.7%

2019

7.9%

8.7

2020 June LTM

19.3

25.7

20.9 21.0 20.1

9.2

4.7

13.1

6.2

17.013.6

7.3 9.2

10.9

9.2

% of Revenue Tangible investmentsIntangible investments

2017 2018

10.2

2019

5.7%5.9%

2015

3.6%

2016

4.3% 4.2% 4.5%

2020June LTM

9.5

11.4

10.210.9

11.5

% of Revenue R&D expenses


Robust liquidity position with significant positive net cash

2020 maturity profile and split (MSEK)

All figures are rounded

• 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


200

7,600

24,300

2026

500

43,300

LiquidityJune 30

2020

2020 2021 2022

450

2023

4504,400

2024

650

2025

68,100

2,450

6,650

6,200

5,850

3,000

7,400

1,800 5,200

2,400

2,000

5,200

Undrawn credit facilities BondsLoansCash & cash equivalentsMarketable securities

32%

68%

BondsLoans

32,000

Net cash 11,800

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.


Fastest growing premium auto mobility group with leading ambitions

Leading ambitionsClimate action, Circular economy, Ethical & responsible business

Financial strengthSEK68bn of liquidity supporting a prudent financial policy

Truly globalBalanced global commercial and industrial footprint

Value creationMarket share gains and premium profitability

and leveraging synergies through collaboration with strategic affiliates and Geely group

Superior growthTrack record of outperformance set to continue

Fast-transformingWell positioned to take advantage of industry change


volvocars.investors.com [email protected]

Appendix 1:Green Financing Framework

33Volvo Car Group: Green Financing Framework Presentation

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

(ICMA GBP/ LMA GLP) Description

EU Environmental

Objectives

Clean TransportationClimate Change

Mitigation

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).

Investments and expenditures (incl. acquisition costs, research & development and licensingcost) for the design, development and manufacturing of Zero Emission Vehicles that is BatteryElectric Vehicles (BEV):

• Research & Development dedicated to Zero Emission Vehicles, (including powertrains)and technology which include testing, development of facilities, tooling andmanufacturing of Zero Emission Vehicles

• Manufacturing Facilities, including new facilities and upgrading or modifying of currentmanufacturing facilities to produce Zero Emission Vehicles or related components suchas EV Batteries and powertrains, as well as remanufacturing and/or recycling ofbatteries


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:

Identificationby the relevant business functions and the Global

Sustainability Team potential Eligible Green Projects

Selectionsubmitted Eligible Green Projects for validation with the Eligibility Criteria

Trackingon each Eligible Green

Project by Business Control Team and

maintain a register by Treasury Team

Transparencythe GFC will review

the register of Eligible Green

Projects on semi-annual basis


• 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


Management of proceedsEfficient tracking of the proceeds

Reporting & VerificationFocused 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

Clean Transportation

▪ Absolute CO2 tailpipe emissions avoided

▪ Percentage reduction in CO2 tailpipe emissions per vehicle

▪ Number of BEV cars sold

▪ Percentage of BEV cars in the overall fleet mix


Appendix 2:

38Volvo Car Group: Green Financing Framework Presentation

Fast growing premium OEM

New youthful brand going global toaddress 65 M mass market

(30%)

ADAS / AD full software stack

developer1

Spearheading electrification with pure progressive performance cars

(50%)

Strategic affiliates – Non-consolidatedVolvo Cars – Consolidated

VOLVO CARS STRATEGIC AFFILIATES

Care by Volvo

My car sometimesMy car always Stay Home StoreDesigners Choice

Direct online sales

The Volvo Car Group – a set-up for the future

1 In April 2020, it was announced that Volvo Cars and Veoneer would split the JV and Volvo Cars would continue to develop AD / ADAS software under a separate wholly owned entity

DIRECT CONSUMER BUSINESSES


Strong portfolio and a leader in premium plug-in

2020 H1 sales by market, carline and powertrain

LTM2015 2016 20192017 2018

504 535 572642

705635

+4.7%69%

14%

17%

PHEV sales (k units)21

38

H1 2019 H1 2020

+80%

XC60

XC40

XC90

V60

S90

S60

XC

V

S

V90

6% 14%

Europe

China

US

Other


CAGR

Commitment to energy efficiency in all aspects of product development

Next generation platforms and electrificationin-house design & improved energy efficiency

One powertrain family – improved fuel economy of up to 35%, same lines production for economies of scale

Fully flexible platforms prepared for electrification across series and assets

Polestar 1

Scalable Product Architecture (SPA)

90 series

60 series

...2019 2020...

Aerodynamic top hats and light weight materials

Modern aerodynamic optimized car designs

Lightweight and sustainable materials

Mild hybrid

Plug-in hybrid

Fully electric

SPA 2 – Designed for Electrification

MEP2-4

PHEVTwin Engine

Petrol3-4 cyl

Diesel 4 cylLast generation diesel engines

Polestar 2

Compact Modular Architecture (CMA)

40 series

Lynk & Co


Supply chainVolvo 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 electrified Volvo vehicles knowing the

material for the batteries has been sourced responsibly.

“We have always been committed to an ethical supply chain for our raw materials. With blockchain technology we can take the next step towards ensuring full traceability of our supply chain and minimising any related

risks, in close collaboration with our suppliers.”

Martina Buchhauser, Head of procurement at Volvo Cars

First carmaker to introduce Blockchain for global traceability


Documents

Volvo Car Group · Sustainability is key to our future success . We aim to be a climate neutral company by 2040 reduction in 50% tailpipe emission ... Green Financing Framework Presentation