Volvo delays electrification, facing consequences

Once the most aggressive luxury brand in electrification, Volvo is changing course.

Recently, Volvo announced the latest organizational changes, with Chief Commercial Officer and Deputy CEO Bjorn Annwall set to resign, and the company will no longer have a Deputy CEO position.

Similar to former Chief Operating Officer and Deputy CEO Javier Várela, who left in May, Bjorn Annwall was appointed as Volvo's Deputy CEO in 2022, along with Volvo CEO Lu Wenjin, to serve Volvo's electrification goals.

Bjorn Annwall's departure marks a slowdown in Volvo's electrification strategy.

In the past few years, Volvo has been focusing on the Chinese market, but its progress in electrification lags behind overseas luxury car brands in China. Promoting its own electrification progress seems to be the right move.

As part of this team, Volvo, as a brand under Geely Holding with deep roots in the Chinese market, naturally became one of the first brands to aggressively transition to electrification.

As early as 2021, they set their electrification goals: by 2025, pure electric vehicles will account for 50% of sales, with the rest being hybrid models; by 2030, only luxury pure electric vehicles will be sold; by 2040, carbon neutrality will be achieved; all pure electric vehicles will be sold online only.

To support this transformation strategy, Volvo has been taking frequent actions.

In 2022 alone, Volvo announced a partnership with Swedish battery company Northvolt to invest 30 billion Swedish Krona in building a new battery manufacturing plant; subsequently, they announced the construction of the third manufacturing plant in Europe in Kosice, Slovakia, and the renovation of the Torslanda plant in Sweden to serve the production of electrified models, such as introducing a new battery assembly plant and completely renovating the paint and final assembly workshops.

Moreover, in the years starting from 2022, Volvo has also released some pure electric models, such as the first pure electric SUV EX90; last year, they made a high-profile launch of the first pure electric MPV EM90 in China.

Despite the aggressive moves, market acceptance of these models remains limited.

Currently, not only Volvo, but also other car companies that have transitioned, except for those that initially produced new energy vehicles, still have a major share of traditional fuel vehicles. Several years later, it seems that Volvo's original goals were indeed too aggressive, and adjustments have to be made now.

On September 4th, Volvo announced a new electrification strategy. By 2025, plug-in hybrids and pure electric models will account for 50%-60% of global sales; by 2030, this proportion will increase to 90%-100%, with mild hybrid models occupying the remaining 0-10% market share.

Following that, Volvo also adjusted its operating profit margin expectations from "above 8%" to "7%-8%". This is the second time this year that Volvo has adjusted its profit margin and revenue expectations.

It can be seen that Volvo's adjustment of its electrification strategy is also one of its measures to combat the decline in operating profit margin.

From once being a supporter of electrification to now hitting the brakes, Volvo's move reflects its helplessness in the field of electrification. After all, 2025 is approaching, and sticking to the original goals would mean giving up a significant portion of the current market From a global perspective, in the first three quarters, Volvo's total sales volume was 509,158 vehicles, with sales of mild hybrid/conventional fuel vehicles reaching 315,930 vehicles, and sales of pure electric and plug-in hybrid vehicles reaching 193,228 vehicles. This means that new energy vehicles currently only account for 38%.

As 2025 approaches, Volvo obviously cannot abandon the 60% market share held by mild hybrid/conventional fuel vehicles in order to achieve its goals and only sell pure electric and hybrid models.

As an international brand, Volvo's strategies both then and now are based on current and future business needs. After all, electrification is clearly not sweeping as rapidly as imagined, but rather transitioning slowly.

After the story of electrification fails to convince, Volvo's stock price has also suffered. In the past 12 months, Volvo's stock price has fallen by approximately 40%.

The poor performance of Volvo's electrification strategy is mainly reflected in the rapidly progressing Chinese market.

Data shows that the cumulative sales volume in the first three quarters was 113,037 vehicles, a year-on-year decrease of 9%; among them, sales of new energy vehicles were 9,982 vehicles, a year-on-year decrease of 10%.

Previously, Volvo was a highly recognized second-tier luxury brand in the Chinese market, but with the failure of the electrification strategy, Volvo's advantageous position has also weakened.

In the Chinese market, the promotional logic of various brands indicates that in the era of electrification, consumers' purchasing logic is different from the era of conventional fuel vehicles.

In the era of conventional fuel vehicles, the brand has always been the primary factor for consumers when purchasing a car, with a very high proportion; however, in the new energy era, factors such as configuration and technology are more important, leading to a decrease in the importance of the brand. This is not favorable news for luxury brands with high premiums.

However, the good news is that Volvo's pure electric/hybrid models still show good growth in the European market. This also means that in the future, Volvo will need to make differentiated adjustments based on the performance in different markets, just like adjusting its electrification strategy at this time.

For global car companies, the current competitive landscape has become more complex. On one hand, the conventional fuel vehicle market is shrinking, but the transition is not being recognized; on the other hand, Chinese new energy vehicle companies are accelerating their expansion overseas, seizing markets, especially in Europe, as once again demonstrated at the current Paris Motor Show.

As the battle intensifies, each company needs to adopt more flexible strategies to respond to the changing market dynamics