Volvo sees further BEV progress

Gothenburg-headquartered automaker Volvo Cars saw margins on its BEVs rebound from a low of 3pc in Q2 back up to 9pc in Q3. And, even in an environment where other legacy OEMs are bemoaning cut-throat competition, it is feeling ever more optimistic about its electrification journey.

“I can only go by our own order book. What we see is strong BEV demand,” says Volvo CEO Jim Rowan. “We see a strong demand for our products across all of our portfolio and we see that pretty much in every region in the world. And that has allowed us to maintain our price discipline.

“We are in the premium sector,” Rowan continues, by way of explanation as to why his firm might not be feeling the effect of competition described by one competitor as brutal quite so much. “Where we see an awful lot of the turbulence, a lot of oversupply and a lot of excess inventory is in that low-end mass market arena, and we do not operate within that arena. So, to some extent, it is measuring apples and oranges.”

BEV share decline

The share of fully electric cars in Volvo’s Q3 sales was at 13pc, compared to 7pc in the third quarter of last year, on the back of a 111pc rise in sales. And, unsurprisingly, that is what the firm wants to focus on, rather than the fact that the share of BEV sales actually fell again quarter-on-quarter, having been at 18pc in Q1 and then 16pc in Q2.

“We expected BEV volumes to fall in Q3; I think we had already signalled that,” says Rowan. A change in model year gets the blame, with model year ’23 cars pushed into the market at the end of Q2.

“That new model year was ramping up through the factories, the transportation time to get that into the dealerships and into the hands of the customer. There was going to be a natural fall,” Rowan explains. But he foresees the BEV percentage of the sales increasing again in the fourth quarter “to, I would imagine, first half of 2023 levels, maybe a little bit beyond that”.

And he is even more optimistic about 2024, as three new BEV models — the EX30 B-segment SUV, the China-focused EM90 MPV and EX90 7-seater SUV — will start contributing. “If we continue into 2024, the EX30 will be online in Q1 in pretty decent volumes, the EM90 will have launched by then, and halfway through the year we will launch the EX90, which is the next part of the equation,” says Rowan.

“All those will be in play next year. So that is when we will start to see again further increase in our BEV percentage of total sales.”

Choose wisely

And the three models have been targeted to go after different market segments, a key part of Volvo’s BEV strategy. The firm also aims to juggle BEVs with hybrid options to adapt to different levels of electrification adoption appetite across the world.

For example, its 40 range of compact SUVs started out with the XC40 HEV, meaning that, when it launched the C40 BEV, “we understood the dynamics of that specific segment”, says Rowan. The EX30 launches into a “brand new segment, I do not fear that we will cannibalise the C40 or the XC40” with it, he continues.

“The EM90, which we will announce in a few weeks’ time, takes us into a very different segment again, still within the electric sphere, but within a different segment so we do not over load,” says the Volvo chief. “Of course, we are positioning that car really in China. So not only are we positioning our EVs into different segments, we are actually positioning them into different markets around the world where we think they can be really successful.”

And, even within geographies, the BEV/hybrid model can work for different regions. “We think that the XC90 [PHEV] and the EX90 will live in harmony for quite some time,” Rowan says.

“When I look at the US, the east and west coasts are driving electrification; the interior is taking longer. So if I look at the 90 range, I expect that we will sell the EX90 more in the coastal regions of, say, California. But the XC90 will still sell as a PHEV in the interior.”

And it is a similar story even in Europe. “We see northern Europe electrifying much quicker than southern Europe so, in which case, the latter is an XC90 market,” Rowan concludes.

Marginal gains

The firm is also expecting its improved 9pc BEV margins to get better too. “We see lower raw materials materialising in the second half of the year, especially lithium, which will continue then into the fourth quarter,” says Volvo CFO Johan Ekdahl. “We also see improved pricing due to the new model year and improved range. And we also see cost efficiencies coming from, among other things, the in-house produced e-motors.”

“I expect that we will see further benefits, even on the XC40 and the C40 gross margins, as we accelerate through the rest of this year because we expect raw material prices to come down,” adds Rowan. “So we have further tailwinds even on that.”