The anatomy of a 15-20pc margin BEV

Sino-Swedish OEM Volvo Cars has begun production of its EX30 B-segment SUV, aiming for first deliveries later in the fourth quarter and ramp-up through the first quarter of next year. And it reiterates its belief that it can sell the vehicle with a 15-20pc gross margin.

“We will see the first customers behind the wheel of that car before the end of this quarter, which is immediate, pretty much, in auto terms,” says Volvo CEO Jim Rowan. “And then we will ramp that up through production in the first and second quarter of next year.”

With so many legacy automakers struggling to turn a profit on their current and impending EV offerings, and even market leader Tesla’s margins under pressure, how is Volvo able to make such promises on its new product?

The key aspect seems to be identifying the right target market and going after it with a “very competitively priced” offer. “Of course, this is going to be a volume car for us; it is in exactly the right price point,” says Rowan.

“As we seek to democratise electrification and bring that $35,000 price with 480km range, we think we get into that sweet spot of being able to attract more customers and younger demographics. And if we offer that car on subscription-based ownership as well, that allows us to attack even more of that market,” he continues.

Volvo is not offering specific sales projections on EX30 volumes as yet, other than it will be “online in Q1 in pretty decent volumes”, but it is in bullish mood. “Suffice to say, we think this will be one of our highest-selling models in terms of volumes,” says Rowan.

And at least some of this optimism is based on reception thus far. “When we announced the car and we opened the pre-orders, we set ourselves some internal targets on those pre-orders and what that should look like. And we surpassed those internal targets pretty quickly,” the Volvo chief reveals.

Europe-made

The firm is also looking to futureproof the EX30, which will initially be made in China, against possible increases in European tariffs on Chinese imports, as it announced plans to make the model in its Ghent factory in Belgium.          

The decision “reflects the strong demand for the car and supports our global strategy to produce where we sell”, Rowan contends. “It also boosts our production capacity for this car in Europe as well as for global exportation.”

But he is honest enough to admit that there is a geopolitical aspect too. “It also allows us to make sure that we can circumnavigate any of the trade tariffs or so on that might come in the future,” Rowan says. “I think that, from a strategic point of view, we are very well positioned for the supply of the EX30.”

Nor is he worried that moving production to Europe will incur cost inflation that will put pressure on the promised healthy margins. “We can confirm the margins in Ghent will be within the same 15-20pc we would expect to come from China,” he says.

Avoiding the current 10pc import duties incurred on Chinese imports into Europe will, in Rowan’s view, offset any cost increases from manufacturing or sourcing components in Europe. And there will also be a logistical advantage once Belgian production is turned on.

For as long as the EX30 is produced exclusively in China, “there will be more cars in transit”, Rowan admits, meaning Volvo will have to run with a larger inventory.