Q: November is nearly done, and you probably have visibility on your orders for the rest of the year and early 2023. Are you on track to match 2021 full year?
A: As we said during our last earnings call, we are tracking towards having lower wholesale and retail volumes than 2021. [Volvo sold 698,693 cars globally in 2021.]
Is there a chance of getting back into the territory of 700,000 and above in 2023?
We are not giving forward guidance on those exact numbers. What we have said is that we were affected this year more by the pandemic lockdowns in China than anything else. Yes, semiconductors were an issue, but we could fill in most gaps via the spot market. There was no way to avoid the impact that came from China being locked down for the better part of 60 days. It doesn’t matter how much money you try and throw at that, you don’t get the parts.
What positive indicators do you see as we head toward 2023?
Demand is strong and our order books across the world are at record levels. That being said, we will keep a very close eye on consumer sentiment to see how that might change because of rising inflation. Right now, we don’t see any cancellations in our order books in any parts of the world that concern us. However, one market that we are watching is the U.K., which appears to be suffering from inflation a little bit more than elsewhere.
Volvo has said it will honor its sales contracts even if it has to cover higher raw materials costs. Doesn’t that come with a financial penalty?
Yes, that hurts us in the short term, but in the long term, from a brand perspective, it’s absolutely the right thing to do. We have to honor those contracts because we made them in good faith when the raw materials prices were lower. We can offset some of this with the adjusted prices we charge for our new orders, which factor in the higher materials costs. I saw that some others are trying to go back and say, “You ordered at 50,000, but due to circumstances beyond our control we need to charge you 60,000.” I don’t think that’s the right way to treat customers.
Do you expect the small crossover due next year to be the key to getting to 1.2 million sales by 2025?
It’s certainly a big part of that. It’s a really important car for us for so many different reasons. First, everybody talks about the price of EVs and how they are outside the reach of certain people. This car allows us to reach a different price demographic. They still want top safety equipment, a fantastic ride and high quality, but it will be in a smaller format, so we can take out some cost. We can also take out cost by offering it with different battery sizes so a customer can choose the range that best fits their lifestyle and their budget. Since we will offer the small SUV on a subscription basis via Care by Volvo, it will be available to a wider audience because this option allows a person to buy into the brand on a consumption basis, with a three-month minimum commitment. This will bring us a much younger demographic who will buy online. I don’t even think they will go to the dealership. They will look at an offer online, configure the car, then sign up for three months. And based on what we have seen from Care by Volvo, they will keep the subscriptions for much longer than three months because they like the flexibility.
What is the future for the XC90, and when will it be discontinued?
It will continue to be a great car for us, especially since we have added the extended-range version of the plug-in hybrid variant. That gives you the option to have more electric range while still having the added level of certainty that comes with the gasoline engine. So the XC90 will stay in the range for a while. That means it will get the attention it needs to make sure it remains a relevant part of the lineup.
Do you believe Volvo can reach price parity for full-electric and combustion cars by 2025— What factors are slowing this process, and which ones are speeding it along?
The unforeseen one was the war in Ukraine, which pushed up a lot of raw material prices. By and large, most of those prices are now back to where they were, other than lithium, which has remained doggedly high. That is pushing up the price of BEVs. I still think we are very much on track for price parity, because prices will come down pretty quickly when supply starts to meet demand again. In addition, we are starting to see some really interesting things when it comes to anode and cathode materials and battery chemistries such as the use of LFP (lithium iron phosphate) in certain cases. That’s all going to bring down the cost to price parity.
Why is this essential?
Because no industry can rely on government subsidies to be successful. It’s good that some countries leaned in to get the electrification journey started. But let’s be honest: Governments have other things to spend their money on these days, such as high energy costs, inflation and rising health care costs. Therefore, we need to get to price parity by the middle of the decade.
You said at Volvo’s Capital Market Day last month: “What will change global mobility is the companies that understand software and silicon.” Could you elaborate on why you feel this way?
Coming in as a nonautomotive person, one advantage is that you look at the industry with a different point of view. I saw that most cars were constructed with a lot of ECUs (electronic control units) that were outsourced to a lot of the Tier 1 suppliers. We had no control over the silicon or the software that was inside and others controlled a lot of the IP (intellectual property). So you’re basically beholden to them.
Having so many ECUs resulted in a bad architecture. What makes more sense is buying silicon from a company like Nvidia, which understands silicon better than Volvo or any car manufacturer does.
With the EX90, did you eliminate roughly half of the ECUs in its SPA2 platform, compared with the SPA underpinnings used on the XC90 and XC60?
That’s about right. And when we get to the next platform, we will be much closer to a pure core compute architecture, which will take out more cost and give us more control, but that means that we need to invest in some more software talent.
Are your customers saying they’re in a rush to have fully autonomous capability?
On autonomous driving, the narrative three or four years ago was that you needed to have it to be relevant in the market. That narrative is tapped out now. Everybody understands that the journey toward full AD is going through the valley of ADAS. You need to be able to understand full ADAS and continue to develop your ADAS capabilities. It will still be “hands on,” but with a lot more capability such as operating at faster speeds, offering faster lane changes and providing more accurate visibility. Eventually we’ll come out the other side of that. And certain places like California, like China and like Germany, will probably be faster than other parts of the world. But I think this will be in controlled lanes in select parts of each country. I think urban AD is still a while away.
You want half of all sales to be online by 2025. Where are you now? Where do you want to be by the end of next year, and when do you expect the breakthrough to come?
We are only in six markets (Germany, the U.K., Sweden, Norway, the Netherlands and the U.S.) because we want to test it to make sure it works properly and that we can scale up, because when we go online, the customer is going to deal with us directly as opposed to through the dealerships. So we need to make sure that all that back office stuff and the customer service capabilities and infrastructure are there.
The move to online sales is only going to accelerate because the younger demographic, anyone 25 or younger, and people who are digital natives are very comfortable with this. Once the infrastructure is ready and we have a strong digital backbone — and once we have enough supply of cars — then we can plug in more countries very quickly.
What modifications have you made or might be considering to the product roadmap shared with North American dealers earlier this year?
Nothing that we have not already released. Anders (Volvo Car USA CEO Anders Gustafsson), and the team in America, constantly updates those teams. They will have the latest information. There’s nothing really from a central perspective that we would change. We give that responsibility to Anders as the president of the Americas. I know he’s been on a road show updating the dealership network on what is coming and when it is going to come. They were heavily involved in the EX90, which we got some really great engagement from the U.S. on.
Anything new on your U.S. battery and raw material sourcing plans?
That continues to be a work in progress.