Volvo CEO shares keys to rapid rebound, potential gains from Geely merger

Volvo’s global sales grew for the first time this year in July and the positive trend continued last month. Volvo CEO Hakan Samuelsson credits the quick rebound on the brevity of its production shutdown in Sweden and continued strong demand for the XC40 compact SUV. He also discussed the lasting changes he foresees from the pandemic, the benefits he expects from a planned merger with Geely Automobile and why his commitment to partnerships is stronger than ever. Samuelsson shared his views with Automotive News Europe Managing Editor Douglas A. Bolduc via a video chat from Volvo’s headquarters near Gothenburg.

What is your outlook for Volvo for the rest of the year?
In July we were up 14 percent and that trend continued in August [with global sales rising 7 percent]. That means we are taking market share.

Why is Volvo outperforming the market?
Because we have good products, starting with the XC40, which has been selling really well [global sales were up 23 percent to 100,913 through August]. A compact premium SUV seems to be exactly the right car at the moment. Soon it will be offered with a full-electric powertrain, making it a very attractive alternative to the Tesla Model 3.

What other factors have contributed to Volvo’s quick rebound?
We restarted a bit earlier than many of our competitors. We only had 15 days of shutdown at our factories around Gothenburg. We used that time to refurbish the plants and to implement a lot of a health-safety measures, allowing us to quickly offer our employees a safe working environment. Another key was that we helped restart the dealerships through an increased emphasis on online sales. We did this by helping them bring in orders online [through the automaker’s Stay Home Store concept in key European markets and its Volvo Valet service in the United States]. Those orders were processed by our dealers. That has resulted in the good numbers.

Will the trend continue?
We have seen no indication that this positive trend won't continue. The big question is whether there will be a second wave that results in another big backlash, which would be outside our control. Right now, however, things appear positive.

Will your rebound be mainly driven by China and the U.S.?
China was back in the plus in April and has stayed there because it came out of lockdown first. The U.S. was positive again in June and had double-digit growth in July, as did Europe [in August Volvo reported double-digit sales gains in China and the U.S. while Europe was up 4.9 percent]. That means all three key regions are growing again. We have seen a rapid return to normal with a V-shaped recovery.

Volvo’s long-stated goal was to sell 800,000 cars globally by 2020 and to have a margin in line with your rivals. Will more time be needed?
We still have the ambition to reach global sales of 800,000 and we aim to have profitability equal to other premium manufacturers. We have probably been delayed by a year in achieving these targets.

Will Volvo see any long-term benefits from the pandemic that could make company more resilient if there is a second wave of infections?
Yes. The crisis forced us to rapidly shift toward more online marketing and sales. This move was much easier to push through because during normal times there would have be a long discussion on whether we [Volvo] should handle online sales or the retailer.

What was the key to making this work?
What's important is that the customer can see exactly what the offer is. You have to be transparent about the price. Then they can push a button, which is sort of a "buy" button. At that point the order is passed on to the dealer, who will process it in the normal way. The customer gets feedback saying, "Thank you for your order. Our retailer will contact you." This is a simple solution, but it is perceived to be completely online. We still need to improve in this area. This includes the development of even better tools and virtual showrooms.

Do you have any data showing how much the push toward online sales helped your overall volume?
No, but what I can say is that we would not have had 14 percent growth [in July’s global vehicle sales] had we not been helped by online sales because customers were locked in and showrooms were more or less empty. It's a very impressive.

What other areas of business will change because of the pandemic?
We have also learned we don't need to travel as much. We can do more things online because we have been forced to learn the skills needed to work the different virtual systems. Even I can get this this machine working [the interview was done via video chat]. I would guess that we will have a 20 percent to 30 percent reduction in travel after the pandemic without losing out on anything. We will only travel when we need to look people in the eyes. Another thing we have learned is that we don't always have to be in our offices. We can achieve the same level of productivity with a mixture of working at the office and at home. That is why I think we will have people work from home about 20 percent of the time in the future because it is very practical. As with all crises, some good things can happen. When things get tough, you tend to be a bit smarter and you do things you wouldn't have done otherwise.

Is there anything new to report on the planned merger of Volvo and Geely Automobile?
No, but we still believe this would be a very powerful and future-oriented combination.

Why?
It would make Geely Auto and Lynk & CO global brands. It also would create very attractive business opportunities for Volvo retailers outside of China, while giving Geely Auto and Lynk & CO something that all Chinese brands need if they want to expand, which is an established service network.

When do you foresee talks resuming?
We will come back to this topic during the latter part of this year.

Is Volvo in position to reach its target of having electrified models account for 20 percent of its worldwide volume this year despite the pandemic?
Yes. In the first half 14 percent of the cars we sold globally were hybrids. In Europe, it was close to a quarter of the cars we sold [24 percent, up from 9 percent in the first half of 2019]. That target definitely has not been halted by the pandemic. Customers are asking for advanced electric cars.

Has Volvo’s profitability suffered as it has transitioned away from a heavy reliance on diesels in Europe?
Revenues [from the sale of plug-in hybrids] have covered the material cost increase from moving to electrification. Long term, what would be really bad for your profitability is trying to sell those old-school cars.

What is the biggest change at Volvo since Ford Motor sold the company to Zhejiang Geely Holding a decade ago?
Back then we were a Swedish company building cars in Sweden and Belgium and exporting them around the world. That is not the definition of a really global company. To be a global company you need an international, diverse leadership team, you need a presence around the world, which we now have with our new plants in China and the U.S. and our software development operations in Mountain View, California. If you are not global, I don't think you will not be successful.

Why does Volvo need to cut 1,300 white-collar jobs in Sweden?
It's a competence shift that we need to undertake to adapt to the changes in our industry. If we say that we want to lead in electrification but we have no programs to bring in new competence, and we are not scaling down on what we no longer need then we would not be credible. That is why all combustion engine production will be moved to a new, stand-alone unit with Geely. [Additionally, Volvo recently invested 600 million crowns, about 57.9 million euros, into a battery development lab in Torslanda, Sweden].

Why didn't Zenuity, the automotive software joint venture between Volvo and Veoneer, succeed?
As time passed we found we were going in different directions. They were focusing on ADAS [advanced driver assistance systems] based on smart cameras and decentralized units.  What we now know is that to be really safe you need lidar, cameras and radars and they have to be sensor fused into a centralized vision computing system. Our SPA2 architecture was designed for this. Now that Zenuity is a stand-alone unit within Volvo it is fully concentrating on that next-generation autonomous driving and ADAS. However, all functionality will not be available on day one. It also might not initially work in all types of weather, but the system will get smarter and smarter as time goes by because of over-the-air updates.

With this be a Level 3 or Level 4 system?
What’s more important than Level 3, 4 and 5 is what you write in the car’s owner’s manual. If you want to sell something that offers unsupervised driving, it has to be safer than a normal car. This is something the new cars will be designed for when it comes to their computing platform, hardware and devices. The question is when exactly will the software be ready. That is something we will come back to later, but it's coming because I'm absolutely convinced it's a very attractive product that would make a premium car much more valuable. 

How important have partnerships been to Volvo?
They have been absolutely crucial. To be a fast mover you need to have competence in a lot of new areas. That means you have to be humble enough to admit that some things you should not try to develop in-house. And, we probably shouldn’t try to create the specs and then ask a traditional supplier to do it. An example is the Android infotainment system in the Polestar 2 [and soon to be offered in the full-electric XC40]. If you didn't believe in partnerships before, you would change your mind when you experienced the quality of the voice recognition and navigation systems from Google’s Android operating system. It is just better. That's because they specialize in this. Why not work with them if it means we will have a better navigation system and better voice control? It's just like we know that a sound system from Bowers & Wilkins is much better than Volvo Premium Sound.

Is this also true for creating autonomous cars?
When it comes to autonomous driving we have Nvidia processors; Luminar is an important partner for lidar; and now we are working with Waymo on robo-taxis. Partnership are absolutely the right way to go. If don't have the competence you shouldn't even try. We have enough to do with our core business.