Volvo flags two long-term BEV hacks

There is plenty of bearish news about BEVs in the current Q3 results season. OEMs as diverse as US EV pure play heavyweight Tesla, through Detroit Three legacy automakers Ford and GM, to Germanys’ Mercedes have bemoaned how tough a sector it is.

But Sweden’s Volvo Cars is very much an exception to that gloomy rule. And one of the reasons why its CEO Jim Rowan is chirpier is that he is looking ahead to “three, four, five, six years into the future, [when] the world is much more towards a BEV landscape” and seeing currently overlooked advantages for those automakers best positioned to scale BEV production.

“Fully electric cars are now becoming a global phenomenon — we are starting to see that in many markets around the world,” Rowan says. “Our bold ambition to be early movers in the move towards electrification is now starting to really pay dividends for us. And I expect this to be something which accelerates in the coming months and years ahead.”  

And he identifies two trends that, in his view, “are not being talked about enough in the transition to BEV and how customers will see that value proposition three, four, five years from now”. The first is when the residual values of BEVs flip over to be higher than the residual values of ICE cars.

“That is going to be a change in dynamic that we have not seen play out yet within the market,” he predicts. He cautions that it will take a number of years but “that is what is going to allow us to then drive the higher gross margins across the range in EV — because people will trust that, if they buy an EV, the car is going to be a higher residual value three or four years after purchase than an ICE car would be”.

Component synergies

A second overlooked factor is that, as an OEM transitions more of its portfolio to BEV production, there is a greater similarity in the underlying component set than for ICE vehicles. “When you look at internal combustion, the engines are always different. There are always different components: there are hundreds, if not thousands, of parts in each one of those internal combustion engines,” says Rowan.

“When you move to a BEV car, you can standardise on motors, on inverters, on battery, on battery management software. And you can reuse that technology in different platforms and in different sized modules,” he continues.

“You really get the economy of scale and scope benefit that you just do not get on ICE cars. Even if your gross margin stays the same at 20pc or so, you can drive a higher Ebit margin because you have more efficiency and a lower underlying bill of material, which is still the single biggest part of the cost of the car.”

And the key factor is internal understanding of these possibilities. “One of the reasons why we are building our own battery factory is so that we really understand the cost of batteries, which is a real big component of the cost of BEV cars,” the Volvo chief says.

The rewards come “if you can really understand the underlying benefits of the key technology that is in the car — batteries, motors, inverters, the software that drives that electrical propulsion system, all of which we have brought in-house”. “We do our own motors, our own inverters, and we are starting to build our own batteries; that is really where the synergy starts to kick in as you develop a much bigger BEV portfolio,” Rowan concludes.