Volvo Cars CEO Hakan Samuelsson has set ambitious goals for the automaker. He wants half of Volvo's global sales to come from full-electric cars by 2025 and the other half should be hybrids. He also wants the company to become climate neutral by 2040 and to get there it must reduce its life cycle carbon footprint by 40 percent per car by the middle of the next decade. Samuelsson explained how Volvo aims to achieve these goals in an interview with Automotive News Europe Managing Editor Douglas A. Bolduc.
When will EVs account for 10 percent of your global sales?
We should get close to that in about two years, assuming that the market will continue to grow.
How will Volvo's margins be affected by your push to have full-electric cars account for half of your global sales by 2025?
In the short term, it will put pressure on our margins, but the electric cars will be profitable from day one. They probably will not provide the same level of per unit profit as our other models at first. That will take a bit longer. However, I definitely would not want to only have cars with combustion engines in my lineup five years from now. That would be really risky.
Are your plug-in hybrids profitable?
How crucial are plug-in hybrids to helping Volvo meet the EU's tougher CO2 emissions target that starts to take effect in 2020?
They are absolutely crucial. Years ago we concluded that we needed to sell customers what they want, which is big, heavy SUVs. You cannot do this and reduce CO2 with a conventional powertrain. You would spend billions and maybe get a 2 percent savings. You have to electrify them.
What percentage of your 2020 global sales will be plug-in hybrids?
Next year we want 20 percent of our sales to be plug-in hybrids. If people recharge them 50 percent of the time that corresponds to 10 percent of our cars essentially being full-electric cars already in 2020. It's a big step.
Volvo still sells a lot of diesels in Europe. How will you convince customers to switch?
We need to show them we have an alternative that is as good as the diesel: the mild hybrid. If you have no intention of charging then a gasoline mild hybrid should match the consumption of a diesel but without the NOx problems.
How does Volvo anticipate the XC40 Recharge being used?
We did some customer research and I was surprised to learn that on average people are out with the cars 15 times a day. This includes picking up and dropping off kids at school and sports, grocery shopping and so on. There is a lot of driving going on in suburbia. So you probably need to offer more than 400 km of range otherwise you are on the short side. That range is easier to achieve with a smaller car.
How important is it for Volvo to have battery cell production in Europe, the U.S. and China?
It is important because I think there will continue to be a big backlash against globalization. I think that is what is behind the current trade wars. We cannot expect that everything is produced in China and people in the U.S. and Europe will only work in the service industry. There need to be jobs in Europe and America for highly qualified workers such as building cars or other industrial products. I'm very glad we have a production footprint in all three regions [Europe, the U.S. and China]. The move toward electrification will help us do an even better job localizing production because we can reach a higher level of local content faster than we can with complicated combustion engines. Batteries will be localized from the start and so will electric motors.
Volvo named China's CATL and South Korea's LG Chem as its electric-car battery suppliers but a Swedish firm, Northvolt, is getting started and already has a deal with Volkswagen Group. Will Volvo also do business with Northvolt?
They are a potential supplier, but in the first step we prefer to work with suppliers that can follow us globally and not just supply us in Europe. We went with LG Chem and CATL because they will build battery factories in Europe, the U.S. and Asia-Pacific.
Is Volvo on track to sell a record 700,000 cars this year?
It's absolutely achievable this year and our ambition is to reach 800,000 next year. We are on the way because we have never had such a strong product offering.
Why is Volvo determined to change the vehicle ownership model?
We have traditionally sold cars to customers but we believe they would like to have mobility in other ways. And it shouldn't be overly complicated. They want the freedom to move. To get this in the past I had to go to the dealership with a lot of money because I bought a car in cash. Then I could get a loan. Then I could lease it. What will be very attractive in the future is paying a flat subscription rate for the product. You still get the freedom to move because this car is at your disposal. After three years if you like it you keep it for three or four more years. If you want a bigger one you change to a bigger one. If you don't want it anymore you cancel the contract. That's what you get with Care by Volvo.
Will this business ever be profitable?
There is absolutely no reason why this should not be as profitable as leasing. A capital investment of 50,000 euros is a lot more than committing 500 euros a month. This makes Care by Volvo especially attractive to younger people. Our Care by Volvo customers are 10 years younger than our typical customers. They normally have good jobs and a decent cash flow but they don't have 50,000 euros to invest in a car.
Has sustainability risen to the same level of importance as safety at Volvo?
Yes. It is really important that we treat sustainability the same way we treat safety because that's a very concrete way of expressing what we're trying to achieve. Safety is part of the mindset at Volvo. We don't need to have task forces or special projects around safety. People just know this is part of our business.
What other parallels do you see between safety and sustainability?
A combination of market forces, technology and international regulations have really driven car safety to improve in the last 50 years. Why shouldn't that also work for sustainability?
How will Volvo cover the cost of the investments needed to cut the company's carbon footprint?
One thing we will do it carve out our combustion engine business and put it together with Geely to fully focus on future powertrains. That's one way that we can afford the investments we are making to become climate neutral, by prioritizing. We have to keep the investment into r&d at around 5 percent or 6 percent of revenue.
When will Volvo's U.S. plant start producing a battery-electric vehicle?
The market for EVs in Europe and the U.S. still seems a bit sketchy. Do you have real confidence in EV sales?
Yes we do. This is part of the beauty of Volvo. We will not stop making conventional cars. We will have both in parallel. Of course, it would be a bigger bet if you would stop production of conventional cars and rely on a big uptake for EVs. On the other hand, every EV we will sell is an additional car to our overall volume. We are quite confident that EVs will contribute to our growth.
What about plug-in hybrids?
We feel the same about our plug-in hybrids, which will now be part of the Recharge line. That's is not just an alternative to a conventional car. It's something more, so, it should bring us growth. We are quite confident it will. But we have to do a better job marketing it. We have to be better at communicating what the advantages are with plugging in. And that's why we decided to give these cars their own name. The Recharge car line should account for 20 percent our global sales next year. We have the capacity for that. This will bring environmental advantages as well as economical because electricity is cheaper than fuel for that consumer. In addition, we will pay the electricity bill for one year for cars in our Recharge line. And, we need to encourage people to recharge their plug-in hybrids. I think plug-in hybrids will really help us grow. And these cars are not just offering environmental advantages. Many of them have a combined 400 horsepower. There is nothing wrong with that. And it's also all-wheel drive.
Can Volvo's electric product strategy succeed without the full participation of the U.S. market? If that leg is missing from your global product stool, will the stool still stand?
Yes, I think so. The conventional car will still be the base. But if we only had that I would be more skeptical about the growth prospects in America. I think that both the BEVs and PHEVs will help us grow. And it is not just about sales it's about building the brand. While there are no guarantees I am quite sure that by being a bit more progressive with BEVs and PHEVs will improve our brand image. This will be good for all Volvo models.
What additional space do you see in the North American market for crossovers or SUVs? Will Volvo add product on that front?
Globally SUVs were at 62 percent of our totals sales and in the U.S., it is probably more. But there might still be room for an additional SUV. Let's see. But you should also maybe anticipate that the move toward electrification will probably make people think about air resistance again. People who are interested in longer range cannot ignore that lower riding cars are better for this. Electric cars would probably be a bit lower and smaller. I wouldn't be surprised if as we move toward electric cars market forces cause a comeback for smaller sedans, especially if you don't need the size of an SUV. I think this is especially true with younger drivers.
How much U.S. production capacity does Volvo need, long term? Your new plant has only recently started production but is there still greater need to produce there?
The simple answer would be that we should produce as many cars in the U.S. as we sell in the U.S., but not necessarily exactly the same cars. We can build 150,000 cars at the Charleston factory and we if we can sell a 150,000 we would also have a really good balance of trade. Therefore, we would really contribute to the ambitions that the government has right now to import less and build more in the U.S. We sell more than a 100,000 cars in the U.S. and maybe produce a third of that in the U.S. But we will add car lines [starting next year with the third-generation XC90] so we can have it at one to one. That is how we react to all of these discussions about trade restrictions. I think that is the best way because I sense there is a good understanding in the U.S. that you don't have to sell only what you build. You want to create employment for a 150,000 cars. I think that's what the government is after and not having totally closed borders.