Volvo Cars reported a notable 12% increase in operating income, reaching 22.3 billion Swedish kronor ($2.04 billion) in 2024, alongside an 8% surge in sales. The company achieved record-high revenue, with battery electric vehicle (EV) sales growing from 16% to 23%. Despite these achievements, Volvo faced a 28% profit decline in the final quarter due to a one-off impairment. Majority-owned by China's Geely Holding, Volvo is adapting to global market dynamics by relocating production from China to Belgium in response to increased tariffs on Chinese EV imports into the European Union.
The decision to shift production is part of Volvo's strategic response to evolving trade policies. CEO Jim Rowan highlighted the impact of tariffs on the company's operations, stating that tariffs on imported batteries from outside the U.S. without a free trade agreement soared from 7.5% to 25% last year.
"Last year, we saw batteries increase from 7.5% to 25% when you import them to the U.S.A, if they're originating from outside the U.S.A from a country without a free trade agreement." – Jim Rowan
Rowan emphasized the need for Volvo to evaluate production and supplier relocation to mitigate these challenges, anticipating a turbulent period ahead.
"So we're going to see more of that, and we need to wait to see how it plays out, of course, but we're preparing ourselves to see whether we need to start looking at production relocation or even supplier relocation to different parts of the world. So it's going to be turbulent." – Jim Rowan
Volvo Cars' strategy includes scrapping its plan to exclusively sell EVs by 2030 due to varying adoption rates among consumers. The company expects slower market growth and increased discounts industry-wide in 2025. Rowan predicts heightened competition from Chinese manufacturers like BYD, particularly in the entry-level EV market segment.
"The discount is focused mainly on the entry, the mass market EVs." – Jim Rowan
In response to these conditions, Volvo is exploring hybrid technology as a buffer against slowing EV transitions.
"In [20]25 I think we're going to see that turbulence increase. And the way I frame it is, I think we're going to see turbulence in terms of trade tariffs, maybe some geopolitics, and we're going to see some policy changes. I also think we're going to see the transition to EV slow down a little bit, which is okay for Volvo Cars, because we have mild hybrid technology as well as plug in hybrid technology." – Jim Rowan
The company maintains its guidance for a core earnings before interest and taxes (EBIT) margin of 7-8% by 2026. However, Rowan anticipates that hyper-competitiveness in China will intensify in 2025, potentially affecting Western brands' market share.
"Then we're going to see this big shift to technology beyond electrification, so that software, silicon, connectivity and data, that's going to become a lot more profound." – Jim Rowan
Rowan foresees that price competitiveness will extend beyond China into European and North American markets.
"So I think the hyper-competitiveness and the price and discipline starts in China. But I do think that will permeate through Europe and into North America as well, through 2025." – Jim Rowan
Volvo's strategic plans involve addressing these challenges while leveraging its diverse vehicle technology portfolio. The company aims to remain resilient amidst potential geopolitical and economic shifts.