Volvo CEO expects record performance to continue despite trade tensions, EV push

Volvo is on track to have its fifth consecutive year of record vehicle sales in 2018, and CEO Hakan Samuelsson expects the success to continue in 2019. The Swedish automaker, however, faces some tough challenges after a trade dispute between the U.S. and China hammered its third-quarter financial results and forced it to adjust exports between its two largest sales markets. Samuelsson is also aggressively driving Volvo into the autonomous era by setting a goal that a third of the automaker’s sales come from self-driving vehicles by 2025. Samuelsson shared his thoughts in multiple interviews with Automotive News Europe.

What is your forecast for the U.S., European and Chinese markets in 2019, and how will Volvo perform?
Overall, there are no signs of a downturn. Europe and the U.S. are doing quite well. In China, however, there are signs of a weakening market after years of strong increases. If you look at our position, we are not really that dependent on the overall market. That is one of the advantages of being small. Our growth is coming from the strength of our products, which are really taking market share. Therefore we are optimistic that this year will be another record year and next year should be another year of growth.

Why was Volvo more prepared than its German premium rivals for the move to the WLTP test regime in Europe?
We were one of the few brands that could offer all of our cars according to the new regulation for two reasons. The first is that we benefited from having a smaller lineup of models, but secondly, we started adapting our models earlier. Some of our vehicles were certified one model year ahead based on the new standards. Starting early was a good investment.

Is this why Volvo increased European sales in September, for example, while Audi, BMW and Mercedes all took big hits?
Yes, they were not ready with all of their models. We were lucky that we started so early with the homologation of these cars. That being said, I think all of us in the industry underestimated the effort needed [to make the transition].

How much will the U.S-China trade dispute hit your business this year and in 2019? Are you worried about additional tariffs between Europe and the U.S.?
Let’s look at the starting point. I don’t think we had very open and balanced trade in these three regions. The U.S. had a 2.5 percent entry barrier for cars, in Europe it was 10 percent and China was at 25 percent. If you really want level, fair global trade that should be harmonized. Our position is that it should be 0 percent. I hope there will be an opening and China will lower its barrier because we are one of the first automakers to build cars in China for export to the U.S. We would really like to see fair, open trade. Let’s see what happens. I think that if China wants to have a strong global car industry it should not have to protect its domestic market. They are beyond that point. They no longer need that protection. China has a very strong car industry and it should compete at a global level.

What is Volvo doing to lessen the financial blows from the trade dispute?
We build our big sedan [the S90] in China and ship it to the U.S. That is very difficult to do now with a 27.5 percent entry tariff. Fortunately, we have opened our new U.S. plant and can build sedans locally.

Will you speed up the introduction of the XC90 at your U.S. plant?
I think we have a very tight schedule [U.S. production of the new-generation XC90 is set to start in early 2022] so the pressure is already there. The factory has helped us enormously because we can build sedans there [starting with the S60] and avoid the tariffs. The new-generation XC90 is the next car we will build in the U.S., which is the biggest market for that car. In addition, the plant has boosted the morale in our organization and the confidence at all our partners, who see that we are committed to the U.S. because we are building cars locally.

Are you already seeing benefits after opening the U.S. plant this year? Is this contributing to your double-digit rise in U.S. sales so far this year?
No, not yet. We are on track to build about 5,000 cars this year but it’s ramping up so next year we should see the full first shift of production being utilized.

Volvo reported a 50 percent decline in third-quarter operating income and your quarterly margin was 3.4 percent. You aim to have a steady margin of 8 percent. How will you get there?
This decline, which has hit our competitors as well, is largely due to the trade restriction that came in before we could mitigate it by, for example, building sedans in the U.S. Now suddenly we are paying a lot of import duties. Another challenge is that we have a lot of startup costs for the new plant in the U.S. However, we will still have strong profits and a very high volume this year.

What is happening to your diesel share in Europe?
It is going down. That is the trend.

Are your plug-in hybrids benefiting?
Yes. Plug-in hybrids account for about 15 percent of the sales of models where the technology is offered.

When will your 48-volt mild hybrids start to arrive?
That will happen in 2019.

Volvo wants half of its car sales to be full-electric vehicles by 2025. What are you doing now to secure the supply of batteries you will need to achieve that?
Today that is really a battleground because everybody is going electric and the capacity is not there. You need partnerships and you must have joint commitments and investments to really secure that partnership. We are working to do this with our partners. Our first electric car will come in 2020 and we will have batteries for it. After that things will ramp up rapidly. A huge number of batteries will be needed to achieve our 2025 goal. There will be new [battery] factories needed in Asia, Europe and the U.S.

How many suppliers will you have?
We need at least two development partners to handle everything related to the cell and the chemistry. Then we will buy these modules and build them into our cars. We will also build up our core competence in how to control the cell to get the most power out of it.

Are you expecting governments to assist in this transition to electrified vehicles?
What governments could do is initially support the transition but in the long term electric cars must be affordable and must be profitable. We have to solve that, not governments.

Volvo wants to be a major player in the robotaxi market and already has deals with Uber and Baidu. What makes that sector so attractive?
It’s really two markets. One is the business-to-business market with these very complicated, Level 5-automated robotaxis that will only be affordable to taxi operators. There will be the big players here that have the booking platform and the whole software package will be integrated. You will have Uber and Waymo and you might have Lyft and some others and you will have Baidu in China. We have said that we should not believe that we will be a taxi operator. Why should we be a taxi operator when we have never been one before? We are happy to be a very good supplier of a tailor-made car for these operators. When it comes to the direct-to-consumer business, there we will have our cars equipped with our Level 4 auto pilot. That technology, which will come out in the next decade, will make premium cars even more premium.

Volvo wants one-third of the vehicles it sells in 2025 to be self-driving. Will these all have Level 4 autonomy?
If you are going to call something auto pilot it has to be Level 4. That means it has to be capable of taking care of everything and the driver shouldn’t need to be reactivated faster than a couple of minutes. Otherwise, it’s a very dangerous system. If you cannot do that you have a pilot assist system like you have today, which requires total supervision at all times by the driver. You don’t want to have a grey zone.

Audi just named a new CEO, Mercedes is in transition while you recently extended your contract until 2022. How does this long-term deal help you do your job and how do you plan to keep Volvo’s winning streak going for another four years?
When I arrived in 2012, I heard people say that I would probably only be at Volvo for a couple of years. In fact, one of the questions at my first town hall meeting was: How long will you stay? My reply was, “I don’t know about you, but I will be here for many years.” I have served six years as CEO and I signed a two-year extension this year that takes me to 2022, therefore I have a very good chance to be one of the longest serving CEOs in this company’s history. That was good because we had so many changes before. We needed some consistency. Also, we need to build up a new-generation management team, which is something I will be trying to do in the coming years.

Volvo won its first European Car of the Year award in 2018. The company has been seeing new records each year for vehicle sales and profits. How do you keep the momentum going?
It has a lot to do with the energy within the organization. We are fortunate to be in the middle of a good phase. Things are going well. It is easier for people to be motivated and to give even more energy when you are successful. We just have to keep on moving. For example, we have been developing two cars a year. That was a capability that we had to learn and build up. That is something valuable as we move forward. Bringing out new products never goes out of fashion. Products will continue to make a difference. We have to continue to launch products that make a difference. We have to get our SPA2 architecture ready. We have work to do on electrification. You need to have a long list of exciting new cars coming. It reminds me of a good quote I saw from Albert Einstein, who said, “Life is like riding a bike. You have to maintain momentum or you will fall over.” I like that. We have to keep on moving. If we stop we will definitely lose momentum, energy and motivation.

How long will it take for Volvo’s Polestar brand to be profitable?
It will take some years. Until then, they will help us with the development of electrification. We will use the technology that they develop in our electric cars.