Image source: Dugou

Photographed at the Shanghai Auto Show in April 2023

What cruel reality made Volvo change its once ambitious commitment to electrification?

According to the latest news on September 5, Swedish automaker Volvo Cars abandoned its goal of selling only battery-electric vehicles (BEVs) by 2030, stating that its current target is for plug-in hybrid electric vehicles (PHEVs) and BEVs to account for at least 90% of sales by that time, with the remainder being mild hybrids that primarily rely on internal combustion engines.

Volvo is not the first automaker to downgrade its electric vehicle targets, which is related to the broader global context. After Germany, Sweden, and other countries stopped or reduced subsidies, demand for electric vehicles in Europe is cooling off. However, Volvo's slow progress and unfavorable conditions in its own transformation are also important factors.

Take China's market performance as an example, Volvo's electric vehicle sales have been disappointing. In July, Volvo sold only 1,130 new energy vehicles in China, a year-on-year decline of 3%. Among them, sales of PHEVs declined by 9% year-on-year to 832 units, while sales of BEVs increased by 18% year-on-year but were only 298 units.

These figures are likely far below Volvo's expectations and highlight its awkward position in its transformation. It is worth noting that not only are new energy vehicles unpopular, but Volvo's gasoline-powered vehicles also seem to be losing their appeal. As a result, Volvo's cumulative sales in the Chinese market declined by 5% in the first seven months of this year, with July sales falling below 10,000 units, a year-on-year decrease of 31%.

Amidst these changes, can Volvo, which once stood out for its outstanding safety and positioned itself as a leading player in the second-tier luxury market, regain its momentum and "sprint" ahead again?

1

Transformation "Brakes" ●

It is understood that Volvo Cars was the first automaker among luxury brands to announce a comprehensive electrification transformation, stating as early as 2017 that electrification would be the core of its future development and that all new models launched by Volvo from 2019 onwards would be equipped with electric motors, marking the end of the era of single internal combustion engines for Volvo Cars.

Last September, Volvo further announced that it would cease production of diesel vehicles in early 2024 and would sell only BEVs by 2030, with the ambition of becoming a climate-neutral company by 2040. As a result, Volvo Cars became the first mainstream traditional automaker to completely abandon diesel vehicles.

The determination was strong, and the start was early. However, unexpectedly, less than a year later, Volvo hesitated in its "turnaround" and adjusted its previous target of selling only BEVs by 2030, citing the need for "pragmatism and flexibility" given the changing market conditions and cooling demand.

In its updated 2030 target, Volvo expects 90% to 100% of its car sales to be BEVs or PHEVs, with the remaining 10% being mild hybrids. The company further expects that the proportion of electrified vehicle sales will reach 50%-60% by 2025.

From a seemingly unstoppable force to applying the brakes, this change is traceable. Volvo CEO Jim Rowan hinted in July that the diversity of global market conditions meant that a full transition to electrification would take more time. "We will continue to invest in plug-in hybrids and MHEV powertrains because these technologies remain popular with customers," he said.

At the recently opened Chengdu Auto Show, we also saw that Volvo's showcase focused on PHEVs, with the PHEV family of XC60 PHEV, S60 PHEV, XC90 PHEV, and S90 PHEV models on display.

On that day, Volvo also invited Charles Zhang, founder, chairman, and CEO of SOHU, to speak, who said that true innovation comes from grasping the essence. In this context, PHEV models, which offer the performance advantages of electric vehicles without range anxiety, are widely favored by consumers.

On closer examination, it is understandable that Volvo has slowed down its pure electric transformation. Currently, there are still unfavorable factors in the industry, such as the slower-than-expected rollout of charging infrastructure and the reduction or elimination of subsidies for electric vehicles in some countries. Recent proposals to impose tariffs on electric vehicles in certain markets have also brought uncertainty to sales.

Not only Volvo, but since the end of last year, several multinational automakers have publicly stated that they are slowing down their all-electric vehicle plans. For example, in July, Ford Motor Company acknowledged that its previously set European electric vehicle development targets were too aggressive and would abandon its goal of achieving full electrification of European models by 2030.

In the same month, General Motors CEO stated that due to slowing demand for electric vehicles, the company would not be able to meet its target of producing one million electric vehicles by the end of 2025, and future electric vehicle plans would be flexibly adjusted based on demand.

It appears that the downturn in the market coupled with policy "drag" has made setbacks in the electrification transformation a common industry phenomenon, and Volvo is naturally no exception.

2

Lackluster performance? ●

In addition to the broader environmental factors, Volvo's own slower-than-expected transformation pace cannot be ignored. Due to its lackluster foundation for transformation, especially in the Chinese market, many industry insiders had previously expressed concerns about whether its decision to cease diesel vehicle production in early 2024 was too aggressive.

Take this year's performance as an example, according to the latest sales data, Volvo's overall sales of new energy vehicles in the Chinese market are not large, with only 1,130 units sold in July, a year-on-year decline of 3%. Among them, 298 BEVs were sold, an increase of 18% year-on-year; while 832 PHEVs were sold, a decrease of 9% year-on-year.

From January to July this year, Volvo sold only 7,386 new energy vehicles in the Chinese market, a decline of 15% from 8,735 units in the same period last year. Based on this calculation, since the beginning of the year, Volvo has sold an average of less than 1,300 electric vehicles per month in China, which is hardly noticeable in the increasingly competitive domestic new energy vehicle market.

Therefore, adjusting the transformation target is a decision based on its own reality and necessity. Looking only at the Chinese market, even if the target is changed to "achieving a sales proportion of 50%-60% for electrified vehicles by 2025," it will be challenging to achieve, as the current proportion is only around 8%.

Car Visibility has previously analyzed that Volvo has made considerable efforts in its electrification transformation, not only by repeatedly and resolutely proclaiming its transformation goals but also by continuously increasing its investment in personnel and products.

In terms of personnel, last August, Pan Hesong, former general manager of Volvo Cars Japan, returned to China to serve as president of Volvo Cars Greater China Sales Company, fully promoting the sustainable development of Volvo in the Chinese market. In early January of this year, Yu Kexin took over as acting president of the Greater China Sales Company, with sources saying that this move was made because "Chinese people understand the Chinese market better."

Furthermore, since last year, Volvo has welcomed several new developments in pure electric models and accelerated the exploration of new business models tailored to them, becoming the first luxury brand to test the waters of direct sales. At the same time, Volvo has also continuously improved its charging infrastructure, covering home charging, public charging, dealer charging, and emergency charging scenarios.

Unfortunately, despite these efforts, Volvo's performance in China's new energy market is still below expectations. One important reason may be that the aforementioned efforts have not yet reached their harvest stage, and Volvo's currently available new energy models have been criticized for being mostly "oil-to-electric" conversions, including the XC60 RECHARGE, S90 RECHARGE, XC40 RECHARGE, etc. These models still retain a gasoline-powered flavor and are not highly recognized by domestic consumers.

Even the all-new pure electric luxury SUV, the Volvo EX30, which was officially launched in May this year, with a suggested retail price ranging from 200,800 to 255,800 yuan, is the most affordable electric vehicle under Volvo and has the best chance of boosting Volvo's new energy sales in China.

However, due to its lack of advantages in terms of configuration and price, and being questioned by netizens as a "rebadged Zeekr X," the response has been mediocre. According to Autohome data, sales of the Volvo EX30 were less than 200 units in both May and June this year.

Clearly, in China, the world's largest new energy vehicle market, Volvo's performance has fallen short of previous expectations.

3

Unstable core business ●

In fact, not only are new energy vehicle sales declining, but Volvo's gasoline-powered vehicle base in the Chinese market is also becoming increasingly unstable, with a decline rate not much smaller than that of new energy vehicles. Volvo is facing the challenge of slowing or even declining sales growth in the Chinese market.

Data shows that in July this year, Volvo's sales in China declined by 31% year-on-year to only 9,775 units, falling below the 10,000-unit mark. Cumulative sales for the first seven months were 87,900 units, a year-on-year decline of 5%. Among them, gasoline-powered vehicle sales declined by 34% year-on-year to 8,645 units in July; sales for the first seven months were 80,600 units, a year-on-year decline of 4%.

And this is already the result of Volvo's adoption of a "price for volume" strategy. Since the beginning of this year, Volvo has offered considerable discounts in the terminal market. According to the Autohome discount promotion channel, the current terminal discounts for many Volvo models exceed 100,000 yuan.

For example, in Hefei, the luxury mid-size SUV Volvo XC60 is currently offering discounts of up to 159,900 yuan, with the starting price adjusted to 262,900 yuan. In Shanghai, some dealers are offering an attractive discount of up to 126,800 yuan for the Volvo S60, bringing the starting price down to 189,000 yuan.

This has led to a decline in Volvo's resale value. According to the "August 2024 China Automobile Resale Value Research Report" jointly released by the China Automobile Dealers Association and Jingzhen Gu, Volvo's latest August resale value was 47.8%, lower than that of fellow second-tier luxury brands Lexus, Land Rover, Lincoln, and Cadillac. In January 2023, its resale value was still 53.6%.

Perhaps due to this year's sluggish growth, in mid-July this year, Volvo slightly downgraded its sales expectations for the year, from a previous forecast of at least 15% growth to a range of 12% to 15% growth. Jim Rowan said, "Due to the uncertainty surrounding tariffs and their potential impact on demand, we have adjusted our expectations, but we will still strive towards the upper end of this range."

For the Chinese market, Volvo is trying to instill confidence wherever possible. At the Chengdu Auto Show, Yuan Xiaolin, Senior Vice President of Volvo Car Group Global, President and CEO of Volvo Cars Asia Pacific, repeatedly talked about "long-termism" and "economic laws" in interviews. He believes that as long as a company adheres to long-termism and follows economic laws, it can survive cycles and thrive in the long run.

Yuan Xiaolin also mentioned that currently, the needs of automotive market users are diverse, with some preferring pure electric vehicles while others value the long range and driving quality of PHEVs. Only by meeting the needs of more people and having the ability to respond to market changes can automakers gain a larger survival space and development prospects in the competition.

As he said, facing a constantly changing environment, Volvo needs to find its balance point as soon as possible and return to an optimal position.

Author | Bai Yuan

Source | Car Visibility

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