Volvo CEO Jim Rowan expects the automaker's full-year global sales to rise "more than 10 percent but not quite 20 percent." If the year-on-year increase is 12 percent or higher, Volvo will exceed its record total of 705,452 sales in 2019. Rowan says the keys to this year's success have been Volvo's strong order book and having a global production network that is no longer stalled by crises such as COVID-19 lockdowns and scarce microchips. A bright spot for Volvo has been growing demand for full-electric models such as the C40 compact crossover and its first small SUV, the EX30, which Rowan expects to provide "reasonably decent volumes" for the automaker next year. The CEO discussed this as well as Volvo's plan to offer car insurance with Automotive News Europe Managing Editor Douglas A. Bolduc.
Will Volvo set a new sales record in 2023? You're slightly ahead of where you were in 2019, when the last record was reached.
That is a tough one, so I'll revert back to what we have previously said, which is that we expect strong double-digit growth from what we did last year. We are on track for that because our order book is very robust, and the cars are coming out of the factories at a faster rate than during the COVID and chip crises. All the operations are running well.
Name: Jim Rowan
Title: Volvo Cars CEO
Age: 58
Main challenge: Becoming more competitive in China's key electric vehicle segment, where Volvo's top-seller, the XC40, ranks near the bottom of the market.
What does a strong double-digit percentage mean?
It's more than 10 percent but not quite 20 percent. [Through November, Volvo's sales were up 17 percent to 632,701. If full-year sales are at least 12 percent higher than last year's total of 615,121, Volvo will exceed its all-time high of 705,452 set in 2019.]
Is 2024 the year Volvo tops 800,000 global sales for the first time?
We haven't given guidance on that so far. That will probably come not long after the new year. But next year we will have a full year of sales of the EX30, which will be additive to our base, since it's a new segment for us. Therefore, I think it will provide reasonably decent volumes for us. That should allow us to grow in 2024.
CBT News sat down with Josh Callahan, senior director of SmartAuction at Ally, to talk about used car sales in the post-pandemic economy.
What does the reported slowdown in EV demand in key markets such as the U.S. and Europe mean for Volvo's 2030 deadline to be electric-only? Also, will Volvo need to adjust its timeline to reach 1.2 million global sales and 600,000 full-electric sales by 2025?
Despite high inflation, high interest rates and high energy costs -- all things that could point toward the decline in consumer sentiment -- we are not seeing any order cancellations or any slowdown in order intake for our cars. I think that is partly because we are in the premium sector and customers there are less affected by economic headwinds than a mass-market buyer. This is also true for our electrification demand in the U.S., where the order intake for the C40 and the EX30 is strong. But don't get me wrong. I completely understand the question, and I'm bracing myself in case at some point a slowdown in demand is something we need to deal with. But that is not the case now.
Do you see other factors that are helping maintain interest in your EVs?
I think it is because people like the electric drive experience. Also, since our customers tend to be a bit more affluent and often have their own homes, they can charge there and are less concerned about the overall charging infrastructure. In addition, many of our customers have more than one car, so they add a BEV (battery-electric vehicle) to go along with a hybrid or a combustion car. Whether it be in the U.S. or globally, we are seeing demand hold up. Our BEV order intake remains strong, maybe partly because the EX30 (see photo gallery below) brings us into a new segment. So, at this point, it feels like we are on course and in reasonably good shape.
What is Volvo's position on the EU mulling some kind of trade action again the Chinese? What can China do to quell this? Build more factories in Europe?
The European Union is going to take a year to go through the investigation. Then we will see whether they will take any action. When the U.S. changed its tariffs on goods from China, which happened very quickly, increasing it from 2.5 percent to 27.5 percent, we started to look at how we could be more in-region, for-region, resulting in our increased effort to build were we sell and source where we build. That helps us now and it really helped during the pandemic because we were a lot more locally sourced. On the other question, I don't know whether Chinese car manufacturers will want to globalize just because of trade tariffs. I think they may want to globalize for other reasons, such as speed to market, CO2 costs, the cost of having cars on the water for eight weeks on your balance sheet. So, there are several things that drive them toward localized manufacturing. What we have seen is that when you have localized manufacturing the narrative become easier. We saw this with the Japanese and the Koreans. I think you will probably start to see the same thing with some of the Chinese.
Does having parallel manufacturing to avoid tariffs on cars going to or coming from China affect Volvo's financial competitiveness? Volvo recently announced it would do this with the EX30, adding production in Ghent, Belgium, in 2025 to supplement output in China.
Not really, because of what you gain. That includes speed to market, which gives you the chance to take market share. You are producing locally, so you have more immediate availability of cars. That could help you sell 1, 2, 3, even 5 percent more cars. You don't need to sell that many more cars percentage-wise before you can make up for the additional cost you need to cover. There is also a 10 percent import tariff now on cars coming from China to the European Union. So, you can avoid that if you build here. It is also expensive to ship a finished car -- much more expensive especially if you have a localized supply chain. Even if that local supply chain is a little bit more expensive, you have got some money to play with because you have eliminated the freight cost. Also, there used to be a massive difference between manufacturing costs in China and outside of China. It has become more expensive to build in China as well. So, the labor cost difference has become less. This all adds up.
Are you concerned about the wave of negative coverage around electric cars ranging from being politicized in the U.S., to being blamed for fires on freighter ships and parking garages? Is this hurting Volvo's ability to sell EVs and putting its plans to be EV-only by 2030 at risk?
You have got to tune out that static. In addition, some players have proved that electrification has allowed them to create a massive market capitalization. That proof point helps when someone asks: Can you really become an electric car company by 2030? Well, somebody else has already done it and they seem to be doing OK. So, it's not like we are the only guys skating on thin ice. The technology has been proven, it's selling in abundance and it's also driving shareholder value. Not in every case, but in quite a few cases.
What is the future for Volvo's U.S. plant in South Carolina?
We have already said we would expand Charleston when we started the EX90 there. The EX90 will start its production life in Charleston. We are still building the S60 there, and we will build the Polestar 3 in Charleston. Both the EX90 and Polestar 3 use the SPA2 platform. Where do we go next? We have some land there where we could expand, so that is on our to-do list to check out. Obviously, the Inflation Reduction Act is a factor to take into consideration if you are looking for some assistance in terms of subsidies to expand. So, we'll look at that.
Your new-generation Scalable Product Architecture, SPA2, will be used on the EX90. How will SPA2 evolve?
We are seeing SPA2 as our first move toward a core compute architecture. SPA2 will evolve into GPA [Global Product Architecture]. So, the way I look at it is that GPA is basically like a SPA3. It takes us closer to that pure core compute architecture. But it's a build-on of SPA2. Then we are going to be talking about, the next generation of that -- SPA4, SPA5 -- as further build-ons. A lot of the components, a lot the intelligence and a lot of engineering work that we do for SPA2 can be dropped into SPA3, or GPA, or whatever you want to call it.
What are the advantages?
It means we don't need to change everything. We can reuse large parts of that existing architecture, put in a higher computational chipset, put in slightly different software, upgrade it to 400- to 800-volts and so on. But the core investments that we make can be reused.
This would be more like how tech giant and Volvo supplier Nvidia does things, right?
Nvidia is a good example. They have the Drive chipset and when they add more computational power and more speed to that chipset they call it by a different name, but it's still the Drive chipset.
What is the future of the Compact Modular Architecture that is used on the XC40 and C40 and is shared with Polestar and other members of the Geely Group? Will it go away as part of the move toward SPA3, SPA4 and so on?
I can't say what the other members of the group will do, but our plan is to move toward that evolutionary architecture that we just spoke about. That way we can use a lot of the development that went into the predecessor platform, but on top of that we will increase the speed and increase the performance, resulting in cars that are differentiated without having to start from scratch.
Does that mean there will be no CMA2?
CMA is not a core computer architecture. So, we won't be using CMA for our future models.
What happens when you need to make a more substantial upgrade to this new-generation architecture?
At some point in the future, you may need to upgrade more than just the software and silicon. But the basic fundamentals of where we want to take the company is that we, as much as possible, will be on a single strand of software that is forward-and-reverse compatible. We will use the same chipsets so that we can continue to develop that software without having to rewrite on to different silicon. What will change will be the application layer.
Could you give more detail?
Things like cameras and radar systems will improve and they will get cheaper and we will use different suppliers. All of that is OK because if we write the software, we can pop out the old system and put in new APIs (application programming interfaces) because we control the APIs. That means we can go from an eight-megapixel camera to a 16-megapixel camera if we want to. That is where you are going to see the evolution of the technology. Since we control all of the software and are not relying on the Tier 1s to write that software for us, and we are not relying on these MCUs [microcontroller units] to talk to each other, that gives us freedom.
Why did Geely reduce its stake in Volvo?
Geely had 82 percent of the company and sold 4 percent. It is not a meaningful offload of the stock. We wanted to get some more free float, which is a good thing for us, the shareholders and the Geely guys as well.
Volvo last month debuted its first premium van, the full-electric EM90, which you say will be aimed at China first. What additional markets will get the car?
The next place we will take the EM90 (see photo gallery below) would probably be Southeast Asia. We see a big demand for that kind of vehicle in places such as Korea, Singapore and Thailand.
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What caused Volvo to get into that segment?
It used to be that people were buying sedans, usually with an extended wheelbase. Now the platform of choice is becoming, in some cases at least, the high ride that you get in a nice MPV [multi-purpose vehicle]. The benefit the MPV brings over the extended-wheelbase sedan is that you can use it during the weekend with family. In China an executive who moves around a lot usually has a driver. That executive can jump in the front seat on the weekend. His wife's there. The grandparents are in the middle seats and the kids are on the back. I think that flexibility is driving adoption of that body style. Therefore, the sedan market is getting sliced a little thin. We have been quite successful in sedans with the S90, but we wanted to fill in white space. And we didn't think there was enough competition in that MPV space, so we decided we could go in there and be competitive.
Are there any plans to sell the EM90 in Europe or the U.S.?
We are not making any decisions on that right now. The big question is whether we foresee a format change. We never expected the SUV change to happen as quickly as it did. So, is it going to go back to an MPV-type style in Europe and the U.S? We are doing some analysis on that, but I don't have an answer for you today.
What do you like about the EM90?
The low center of gravity with the skateboard platform means there is zero vibration, zero road noise and a smooth ride. You also get lots of torque. So, the electric format for a properly executed MPV is quite a complementary choice.
Both new launches from Volvo this year will be built on parent Geely's SEA platform. What advantages come from this?
If you can use that platform over multiple products, and all of those products are differentiated and they compete in different markets and segments, it becomes very cost-effective. Having the EX30 on SEA [Sustainable Experience Architecture] has let us enter a new segment with a very competitively priced car. It's the same with the EM90. We can share costs over some of the other companies within the group. Also, Geely has space in its factory so they can build the EM90 there. For us it's a way to stay very true to brand while still benefiting from the synergies from being part of a bigger group.
Volvo says China is its largest sales market but sales are not growing as fast as they are in Europe and the U.S. and Volvo is a non-factor in EV sales there. What is the improvement plan for China?
If you look at China's hypercompetitive EV space, right now we only have the XC40 and C40. To compete we would have to discount. We have a nice portfolio of mild hybrids and plug-in hybrids that is really popular with customers in China. In addition, we are trying to fill in some white space with products that are fully designed to be BEVs. The EX30 will help us with our BEV transition. The EM90 at the top end of the EV market brings us some premium-ness. The EX90 will do the same. So, you have the EX90, EM90 and EX30 that will all be better positioned to avoid being in China's mass market price fight. Also there have been more than 100 new companies that have come into the Chinese market in the last couple of years. That is causing a lot of turbulence. If you are an EV-only company that's solely playing in the mass market and you borrowed $2 to $3 billion a couple years ago and you are still not making money, then you are in a tough spot. That whole thing has got to play through. We have a nice lineup of products so we don't need to jump into the price fight at this point in time. We won't take market share for the sake of market share on BEVs until we get the products that make sense for us to do that.
What potential does Volvo see once you get to that point?
There are more than 1.4 billion people in China. We think there are enough people there who like the Volvo brand, who like Scandinavian design and who really care about safety and sustainability who will navigate toward us. Some of the incumbents will come out of the market. There will be consolidation. So, we will just keep going at our own pace. We have enough product and enough brand strength that we could be one of the winners as we come through this transition.
