Volvo wants half of all global sales to be done online by 2025. Where are you now?
We are at 5 to 10 percent in the markets where we offer this. Germany is close to 10 percent and the U.S. is at about 5 percent. We also offer online sales in Holland, Sweden and Norway. On top of that, all of our full-electric cars will only be sold online. Right now, they account for 3 to 4 percent of our sales [Volvo’s goal is for 50 percent of all global sales to be full electric by 2025]. We will have a big step increase in EV capacity next year when we have a full year of sales of the C40.
One of your long-term goals at Volvo was to have an operating margin of 8 to 10 percent. In the first half, helped by better pricing, the margin was 9.4 percent. How sustainable is that level of profitability?
When it comes to this year, we will be back to pre-coronavirus levels, which is a margin of about 5 to 6 percent like we had in 2019 [when the full-year margin was 5.2 percent]. From there, we will move forward. By mid-decade it should be at 8 to 10 percent, so we need to be around 3 percentage points better.
How will you do that, especially when the shift to full-electric cars will initially add cost?
We need to offset that cost by developing cars more affordably, which includes using common architectures within the Geely Group and also by simplifying the car. This will happen because with EVs we will no longer need things such as fuel tanks and engines. The goal is that by mid-decade the cost to produce an electric car will match the cost of making a mild hybrid today. But that does not give us any profitability improvement. That is why it's crucial to find a more efficient way to distribute and sell cars. That's an area where we can really be better. This will include transparent, consistent pricing so we avoid internal competition and discounting. We also want a simpler product offering, which will allow us to better manage our stock and reduce capital costs. All of that should improve profitability.
Does listing the company help boost your profitability?
Very indirectly. When you have to explain your strategy to investors you get sharper. Those smart questions that came up during the listing process were very helpful. Also, being forced to report where you are on a quarterly basis is a bit unpleasant when you have bad results, but it is an opportunity to explain what you are going to do to be better in the future. The scrutiny is good. In addition, the listing makes the company a bit more attractive as we try to build up our expertise in, for instance, the software area. People often like working for a listed company where they have the possibility to purchase shares and be enrolled in a stock-based bonus program.
Volvo has aggressively moved into plug-in hybrids but now the transition to full electrification has accelerated, especially in Europe. If you could do it over again, would you put more emphasis on battery-electric vehicles and less on plug in hybrids?
Only if we would have known five years ago that the charging network would be sufficient as of today. That has not happened. Therefore, plug-in hybrids were a necessary intermediate step. I think long term there will be very few plug-in hybrids, but that will only happen when we have a large enough charging infrastructure. On the plus side, about 40 percent of our sales in Europe are plug-in hybrids. That's a step toward electrification. All of those customers are closer to moving into a full-electric car than if they had purchased another diesel. Therefore, we made the right decision.
Could you provide any additional insights on your upcoming flagship SUV that will replace the XC90? Perhaps you’re ready to reveal the name?
It will be born electric, so there will be none of the compromises that come when you make a combustion car an EV. That means we don't have to worry about where the engine and exhaust system will go. This car will have a flat floor and roomy interior. It will be the perfect family car in Europe and the U.S., where the current XC90 is very popular today. It will have a high seating position, good visibility and you drive around without having a guilty conscience because you will be driving electric. It will be a great product. We will be out on the market soon, and we will provide more details later, including the name.
Could you give us the first initial for the new car’s name?
No, but I can tell you that it will start with a vowel.