Volvo Throws Down the Gauntlet to Luxury Rivals
Swedish auto maker’s CEO says demand is so high that tight supply could limit sales
Volvo Car Corp., wheezing just a few years ago, is roaring back under its new Chinese management, forecasting record sales and scrambling to meet surging U.S. demand as it challenges German domination of the global premium car market.
Since it was taken over by Zhejiang Geely Holding Group for $1.8 billion in 2010, Sweden-based Volvo has spruced up its model lineup to boost demand, which has led to sharply higher sales in the U.S. and China. Volvo has slashed costs in part by manufacturing some models in China for global export, and has embarked on a massive investment program to up its technology game to compete head-to-head with BMW AG, Daimler AG’s Mercedes-Benz, and Volkswagen AG’s Audi.
The wager is paying off. Volvo reported a 67% increase in net profit to 7.5 billion Swedish kronor ($843 million) in 2016 on revenue of 180.7 billion kronor, up 10% from the previous year. The Swedish company’s global sales grew 6% to 534,332 vehicles last year, keeping the company on track to achieving its sales target of 800,000 vehicles by 2020.
The U.S. was Volvo’s fastest-growing market last year, posting an 18% increase in sales to 82,726 vehicles, driven by the popular XC90 luxury sport-utility vehicle. The car is in such high demand that Volvo Chief Executive Hakan Samuelsson said tight supply would limit U.S. sales in the first three months of 2017.
“We need more cars,” he said in an interview. “Last year was the confirmation of the turnaround in the U.S.”
The XC90 and Volvo’s Chinese-built S90 luxury sedan are packed with technology and advanced safety features, sporting understated Scandinavian luxury that have made the cars a viable alternative to BMW, Mercedes and Audi for U.S. premium customers.
Volvo still has a long way to go to play in the big leagues in the U.S., where it is dwarfed by the sales and deep pockets of the German luxury brands.
U.S. President Donald Trump has threatened to impose a 35% border tax on auto imports, recently singling out the Germans, as he tries to cajole auto companies into manufacturing in the U.S. Mr. Samuelsson declined to comment on Mr. Trump’s warning, but noted Volvo was already building a factory near Charleston, S.C.
Volvo broke ground on the new plant, its first U.S. factory, in September 2015. The new plant will begin producing Volvo’s S60 sedans in late 2018 and will have the capacity to manufacture 100,000 cars a year. The plant is expected to create up to 4,000 direct jobs over the next few years.
Volvo has also been raising cash to level the playing field with its well-heeled rivals.
Geely says it has invested $11 billion in the company since the takeover. The two companies are collaborating on research and development, and have built a joint manufacturing platform to distribute costs and make Volvo more competitive.
The company also raised 5 billion Swedish kronor last year through the sale of new preferred stock to Swedish investors, which fueled speculation that Volvo was planning an initial public offering of stock to raise cash needed to develop electric vehicles and self-driving car technology.
Mr. Samuelsson played down the importance of an IPO, saying it remained an option.
“It’s not only [about] money,” he said. “We need partners. It’s more about know-how and brainpower than money.”
Volvo is trying to compete with BMW, Mercedes and Audi on innovation by teaming up with technology firms rather than trying to build everything itself. Volvo teamed up with ride-hailing firm Uber Technologies Inc. last year to invest a combined $300 million to develop a self-driving car.
Last month, Volvo and Autoliv Inc., an auto safety systems maker, completed an agreement to create a joint venture, called Zenuity, to develop software for self-driving vehicles.
“The next year will focus on technology,” Mr. Samuelsson said. “Our ambition is to be a leader in this field, also in the next step in safety, which is an important trademark of Volvo.”