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VOLVO CAR GROUP

INTERIM REPORT FOURTH QUARTER AND FULL YEAR 2018

VOLVO CAR GABRO(PUUPBL.) (556810?8988) INTERIM REPORT FOURTH QUARTER AND FULL YEAR 2018, GOTHENBURG FEBRUARY 6TH 2019

Fourth Quarter 2018 Full Year 2018

?Retail sales 169,700 (158,105) units ?Net revenue MSEK 73,025 (60,959) ?Operating income (EBIT) MSEK 4,505 (3,616) ?Net income MSEK 3,089 (2,963) ?Cash flow from operating and investing activities

MSEK 10,484 (3,703)

?Retail sales 642,253 (571,577) units ?Net revenue MSEK 252,653 (208,646) ?Operating income (EBIT) MSEK 14,185 (14,061) ?Net income MSEK 9,781 (10,225) ?Cash flow from operating and investing activities

MSEK 4,705 (?3,800) ?First US manufacturing plant inaugurated ?Portfolio renewal completed - S60 and V60

launched ?Volvo Car Mobility brand launched ? Polestar stand-alone group

Key figures (MSEK)

Net revenue Research and development expenses Operating income (EBIT) Net income EBITDA Cash flow from operating and investing activities Net Cash

Q4 2018

73,025 ?4,399

4,505 3,089 9,0551) 10,484 18,029

Q4 2017 Change %

60,959 ?1,973

3,616 2,963 6,847 3,703 12,513

19.8 123.0

24.6 4.3

32.2 183.1

44.1

Full year 2018

252,653 ?12,098

14,185 9,781

28,5931) 4,705

18,029

Full year 2017 Change %

208,646 ?10,187 14,061 10,225

26,159 ?3,800 12,513

21.1 18.8

0.9 ?4.3

9.3 223.8

44.1

Gross margin, % EBIT margin, % EBITDA margin, %

20.8 6.2

12.4

19.8 5.9

11.2

20.0 5.6

11.3

22.4 6.7

12.5

1) Including effects of additional amortisation related to assets sold to Polestar of MSEK 1,195.

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 27.

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VOLVO CAR GROUP INTERIM REPORT FOURTH QUARTER AND FULL YEAR 2018, GOTHENBURG FEBRUARY 6TH 2019

CEO Comment

For the first time in our history, we broke the 600k mark with 642,000 cars sold. Our award-winning SUV line up together with our strengthening brand continues to drive demand and we have gained market share across all our regions, despite geopolitical uncertainties. With the XC40, the Group has successfully entered a new and fast-growing segment. In total, revenue grew 21 per cent, another important step on our growth journey.

Operating income remained flat at SEK 14bn which, considering new tariffs and increasing price competition, especially in China, is an acceptable result. However, our margin decreased, and does not live up to our longer-term ambitions.

In Europe, one factor driving our growth was we offered all cars in line with the new WLTP emission standards without delay, which very few competing brands managed.

Investments in our global manufacturing structure, including the new US plant, have been well timed considering emerging tariff issues. In this respect, we have promoted balanced free trade, which we believe is best both for the industry and the consumer.

We continued our electrification transformation as our Twin Engine sales increased by 65 per cent, reaching an 8.5 per cent share of our total SPA car sales. Polestar, our new affiliate company, will launch its first fully electric car later this year, the Polestar 2. This will be followed by a fully electric Volvo XC40, based on the same Volvo developed technology.

Strategic partnerships are a crucial part of our strategy for autonomous drive development. Following our collaboration with Uber, we are joining forces with Baidu and have deepened our ties with NVIDIA.

Encouragingly, our free cash flow for the year remained positive even after our strategic investments in technology and increased capacity.

Looking ahead, we see a continued positive market segment in Europe and the US. In China, the demand for cars has

softened for the first time in recent history, though to a lesser extent in the premium segment.

During 2019, we plan to continue driving global growth and increase our market share, even though this will mean continued pressure on our margins. With our strong and very competitive product offering, we have a unique opportunity to scale our business and improve our brand awareness, which is key for Volvo Cars' strategic development.

H?kan Samuelsson President and CEO

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VOLVO CAR GROUP INTERIM REPORT FOURTH QUARTER AND FULL YEAR 2018, GOTHENBURG FEBRUARY 6TH 2019

Sales and Market Development Fourth Quarter

Maintaining our growth trajectory, Volvo Cars' fourth quarter global retail sales increased 7.3 per cent year-over-year to 169,700 (158,105) units, with SUVs accounting for 61.0 (45.9) per cent of total retail sales. Wholesale increased by 7.1 per cent to 180,221 (168,322) units. China continues to be Volvo Cars' largest market, followed by the US and Germany. Overall, demand for Volvo Cars' XC line-up increased in all regions. The XC60 remained Volvo Cars' bestseller and growth resumed in the fourth quarter of the year with unit sales increasing 15.1 per cent, owing to higher demand in all main markets. The overall decline in XC90 sales was mainly driven by the US due to a local contraction in the segment. As a result of shifting demand towards SUVs, we have ramped down production of the V40, which will also soon be phased out, while ramping up production of the XC40. This resulted in 27,285 (96) XC40 units being sold, equivalent to 16.1 per cent of total retail sales, a rather stable development over each quarter during the year. The decline in sales of the S90 and S60 was, to a large extent, the result of lower market demand within the sedan segment in the US, the latter also affected by the phase-out of the S60 Classic and phase-in of the new S60 which was launched during the year. Sales growth of the V60 reflects the increased demand in Europe following the introduction of the new model during the year, with the new V60 Cross Country being introduced in December.

Retail sales (units)

Europe China US Other Retail sales total

Wholesales Production

Q4 2018

84,303 34,401 24,334 26,662 169,700

180,221 176,687

Q4 2017

79,108 32,069 24,541 22,387 158,105

168,322 161,589

Change %

6.6 7.3 ?0.8 19.1 7.3

7.1 9.3

Full year 2018

318,235 130,593

98,263 95,162 642,253

656,688 669,410

Full year 2017

298,948 114,410 81,504

76,715 571,577

585,307 604,030

Change %

6.5 14.1 20.6 24.0 12.4

12.2 10.8

EUROPE

Market New car registrations in Europe declined by 8.1 per cent, as WLTP rules have resulted in testing capacity bottlenecks for the approval of new cars, which has weighed on sales. The Swedish passenger car market continued its decline, registering a decrease in registrations of 27.8 per cent. This was partly due to continued market corrections following Bonus Malus, a new taxation scheme as of July 1st on CO2 emissions and increased bonuses for plug-in vehicles, as well as extended delivery times resulting from WLTP testing constraints.

Volvo Cars Despite a contraction in the region, Volvo Cars' sales grew 6.6 per cent in the fourth quarter, reaching 84,303 (79,108) units, with SUVs accounting for 55.2 (39.2) per cent of total retail sales in Europe. Growth was mainly driven by the full introduction of the XC40 which sold 17,827 (96) units in the quarter. All main markets in the region reported growth with the exception of Sweden, where retail sales declined 30.6 per cent in line with the local market. The

markets with the highest growth were the UK and Germany, where units sold reached 12,692 (9,573) and 14,754 (11,543) respectively. In both markets, growth has been particularly driven by the introduction of the XC40, followed by the XC60 and, in Germany, the V60.

CHINA

Market The passenger car market in China declined by 17.0 per cent in the fourth quarter of the year. Slowing economic growth and intensifying trade challenges have impacted demand. Despite these challenges, the premium car market in China continued to grow, increasing by 4.4 per cent, mainly driven by strong consumer appetite for vehicles in the middle and large sedan segment.

Volvo Cars Demand for Volvo Cars' in China continues to rise, resulting in retail sales growth of 7.3 per cent year-over-year to 34,401 (32,069)

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VOLVO CAR GROUP INTERIM REPORT FOURTH QUARTER AND FULL YEAR 2018, GOTHENBURG FEBRUARY 6TH 2019

units , with SUVs accounting for 54.7 (41.1) per cent of total retail sales. Sales growth was driven by a strong demand for our SUVs, growing at 42.9 per cent to 18,817 (13,171) units sold, mainly on the back of our locally produced XC60. The V and S line-ups both decreased in sales by 26.6 and 15.7 per cent respectively, driven by lower demand for the V60, V40 and S60, in line with the market. Nonetheless, locally produced S90 sales increased by 4.7 per cent, remaining constant at 25.0 per cent of total retail sales in China.

US

Market The US vehicle sector remained largely stable at 0.3 per cent growth in the fourth quarter of the year, as a decline in passenger cars across the board was partly offset by growth in light truck sales, which is the main driver of demand in the US.

Volvo Cars In the fourth quarter of the year, retail sales declined slightly by 0.8 per cent to 24,334 (24,542) units. Nonetheless, SUV sales grew 21.7 per cent to 20,529 (16,868) units and accounted for 84.4 (68.7) per cent of total retail sales in the US. This was driven by a strong pick-up in XC60 sales which grew 46.0 per cent to 9,178 (6,286) units as well as the introduction of the XC40 which sold 3,394 units, slightly offset by a decline in XC90 sales. Sales declined 55.6 per cent for the S line-up and 28.1 per cent for the V line-up, as there was a demand shift toward SUVs and the S60 model started reaching the dealerships.

Other Volvo Cars Markets In other markets, Volvo Cars' retail sales grew by 19.1 per cent to 26,662 (22,387) with Japan, Russia, Canada and Korea remaining the biggest markets. SUV sales accounted for 66.2 (51.4) per cent of total retail sales, and growth was primarily triggered by demand for the XC40. Sales in Japan grew 21.1 per cent to 4,865 (4,017) units, mainly driven by the XC40 and the V60. The strongest growth performance was in Brazil selling 2,024 (1,090) units.

Retail Sales by Market

(k units)

200

180

160

140

120

100

80

60

40

20

0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2016

2017

2018

Europe

China

US

Other

Retail Sales by Carline

(k units)

1,000

900

800

700

600

500

400

300

200

100,

0

2015

2016

XC

V

2017 S

LTM Q4 2018

(%)

100 80 60 40 20

ISO Q4 2018

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VOLVO CAR GROUP INTERIM REPORT FOURTH QUARTER AND FULL YEAR 2018, GOTHENBURG FEBRUARY 6TH 2019

Sales and Market Development Full Year

Volvo Cars' sold 642,253 (571,577) units, an increase of 12.4 per cent year-on-year, following double digit growth across seven of our top 10 markets. SUV sales accounted for 56.0 (47.7) per cent of total retail sales. Wholesales increased by 12.2 per cent to 656,688 (585,307) units. The best-selling model for the year remains the XC60 which grew 2.4 per cent to 189,459 (184,966) units, despite a strong development in 2017 when both the XC60 Classic as well as the new XC60 were available to the market. Demand for the XC90 remained strong with retail sales growing at 7.6 per cent during the period. The successful ramping up of the Volvo XC40 continues selling 75,828 units in the year, now fully introduced in all main markets with the exception of China. Conversely, V40 sales decreased, also driven by the phase-out of the car.

EUROPE

Market The passenger car market in Europe recorded a slight decline in car registrations for the full year of 0.8 per cent. New WLTP rules created a sell-off prior to implementation during the first half of the year, resulting in testing bottlenecks post implementation during the second half of the year.

Volvo Cars Despite slowing passenger car sales in Europe, Volvo Cars' sales growth remained resilient at 6.5 per cent year-over-year to 318,235 (298,948) units. SUVs accounted for 50.0 (43.3) per cent of total retail sales and increased by 22.8 per cent to 159,014 units, driving the growth in the market and following the full introduction of the Volvo XC40 during the year. This offset contractions in the S and V line-ups. Apart from a 9.8 per cent decline in Sweden, largely a consequence of the Bonus Malus program implemented in July, all main markets reported growth mainly on the back of XC40 demand. Growth resumed in the UK with retail sales increasing 8.6 (?1.4) per cent and in Germany sales grew 11.8 (2.4) per cent.

CHINA

Market The passenger car market in China declined by 5.7 per cent during 2018, the first annual decline in auto sales in over 20 years. Despite this, the premium car market continued to grow, increasing 8.5 per cent during the period.

Volvo Cars Strong demand continued for Volvo cars in China, with retail sales growth of 14.1 per cent for the full year 2018 to 130,593 (114,410) units. SUV sales accounted for 50.0 (45.6) per cent of total retail sales. Sales growth was mainly driven by the locally produced S90 and XC60, followed by the XC90.

US

Market Total light vehicle sales in the US grew by a small 0.3 per cent in the full year 2018 as growth of 8.0 per cent in the light truck segment was offset by a 13.1 per cent decline in the passenger car segment. The light truck segment encompassed 68.2 (63.3) per cent of total light vehicle sales and increased 17.0 per cent year-over-year. Demand for premium XS SUVs is on the rise and recorded 27.3 per cent growth.

Volvo Cars Growing faster than the local market, retail sales in the US increased by 20.6 per cent in the full year to 98,263 (81,504) units. SUV sales accounted for 78.1 (65.7) per cent of total retail sales. Growth was driven by strong demand for our XC line-up, mainly the XC40 and XC60 with retail sales of 12,427 and 32,689 (22,516) units, respectively. Growth was offset to some extent by the decline in S line-up sales of 31.0 per cent.

Other Volvo Cars Markets Retail sales growth in other markets remained robust at 24.0 per cent to 95,162 (76,715) units, driven by higher demand for Volvo Cars' SUV portfolio, offset to some degree by moderate declines in the S and V line-up. SUV sales accounted for 61.4 (49.0) per cent of total retail sales. The largest markets were Japan, Russia and Canada. Sales in Japan grew 10.4 per cent to 17,389 (15,751) units driven by the XC40 and the XC60. Nonetheless, the fastest growing market was Brazil at 88.8 per cent.

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VOLVO CAR GROUP INTERIM REPORT FOURTH QUARTER AND FULL YEAR 2018, GOTHENBURG FEBRUARY 6TH 2019

Top 10 Retail sales by market (units)

China US Germany Sweden UK Italy France Belgium Japan Netherlands

Retail sales by model (units)

XC60/XC60 Classic XC40 XC90 V40/V40 Cross Country V60/V60 Cross Country S90 V90/V90 Cross Country S60/S60 Cross Country Other (discontinued models) Total

Q4 2018

34,401 24,334 14,754 14,079 12,692

5,768 5,596 5,334 4,865 3,632

Q4 2017

32,069 24,541 11,543 20,292

9,573 4,588 4,780 5,176 4,017 3,384

Change %

7.3 ?0.8 27.8 ?30.6 32.6 25.7 17.1

3.1 21.1

7.3

Full year 2018

130,593 98,263 45,134 67,128 50,065 19,340 18,825 21,201 17,389 16,312

Full year 2017

114,410 81,504 40,364 74,397 46,089 17,628 16,263 19,094 15,751 12,216

Change %

14.1 20.6 11.8 ?9.8

8.6 9.7 15.8 11.0 10.4 33.5

Q4 2018

52,412 27,285 23,853 18,086 14,725 13,308 12,409

7,622 --

169,700

Q4 2017

45,525 96

26,922 26,254 13,971 17,669 12,786 14,869

13 158,105

Change %

15.1 --

?11.4 ?31.1

5.4 ?24.7

?2.9 ?48.7

-- 7.3

Full year 2018

189,459 75,828 94,182 77,587 54,095 57,142 53,461 40,499 --

642,253

Full year 2017

184,966 96

87,518 95,370 51,911 46,602 50,575 54,197

342 571,577

Change %

2.4 -- 7.6

?18.6 4.2

22.6 5.7

?25.3 --

12.4

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VOLVO CAR GROUP INTERIM REPORT FOURTH QUARTER AND FULL YEAR 2018, GOTHENBURG FEBRUARY 6TH 2019

Events During the Year

First US manufacturing plant inaugurated The production start of the new S60 in the Charleston plant was a proof point of our strategy, "Build where we sell". The Charleston plant confirms expanded manufacturing footprint established the company as a truly global car manufacturer with plants in all three regions.

Portfolio renewal completed With the S60 and V60 launched, our portfolio renewal is completed.

Volvo Car Mobility launched Volvo Car Mobility launched M - the mobility service. The company's mobility operations will expand to include providing dependable, on-demand access to cars and services through an intuitive app.

Polestar a stand-alone group The Polestar Group consists of the parent company Polestar Automotive (Shanghai) Co., Ltd, based in China with subsidiaries currently in China, Sweden and the US. Previously, all entities in the Polestar Group were wholly owned by Volvo Cars with the exception of the Chinese manufacturing subsidiary that has been under joint ownership with Geely, although still consolidated into Volvo Car Group. During the third quarter, Volvo Cars acquired the non-controlling interest of 50 per cent related to the Chinese manufacturing entity Polestar New Energy Vehicle Ltd., previously jointly owned with Geely Group. Further, Geely Group has subscribed for 50 per cent of the equity in Polestar Automotive (Shanghai) Co., Ltd, the parent company in the Polestar Group, resulting in Polestar Group being jointly owned by Volvo Cars and Geely.

In connection with the Geely investment, a shareholders agreement was signed with Geely giving the owners joint control over the Polestar Group. As a result, it will no longer be consolidated into Volvo Car Group, a step towards Polestar becoming a stand-alone electric performance car brand. For further details about this transaction, see page 21 (Note 1) and page 25 (Note 4).

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